Annual Report 2016

Bulgaria 2

FINLAN D

NO RWAY

Helsinki Oslo Stockholm Tallinn BALT IC SEA ESTO NIA SWEDEN Riga LATVIA DENMAR K Moscow NORTH SEA Co penhagen LITHUANIA RUSSIA Vilnius

Minsk RUSSIA Dublin IRELAND BELARUS UNITED KINGDOM Amsterdam Berlin POLAN D Warsaw Lo ndon NETHERLANDS G ERMA NY BELG IUM Brussels Frankfurt Kiev Prague LUXEMBOURG UKRAINE CZECH RE PUBLIC

Paris SLOVAKIA KA ZAKHSTAN Vienna Bratislava MOLDOVA SWITZERLAN D AUSTRIA Budapest Chisinau FRANCE Bern LIECHTEN - STEIN Ma ribor HUNGARY SLOVENIA ROMA NIA Zagreb CR OA TI A ARAL Belgrade SEA BOSNIA AND SERBIA Bucha rest HERZ EGOWINA Sarajevo

Pristina C UZBEKISTAN ITALY MONTEN EGRO So a BLACK SEA ASPIAN KOSOVO Co rsica Podgorica BULG ARI A Skopje GEORGIA Rome Tbilisi Tirana MACEDONIA Istanbul PORTUGAL Madrid ALBANIA ARME NIA Baku Sardinia Yerevan ASERBAIJAN SE

Lisbon GREECE Ankara A TURKMENISTA N SPAIN Athens TURKE Y Asgabat MEDITERRANEAN SEA Sicily

Tunis Algiers IRAN SYRI A IRAQ Tehran ALGERIA TUNISIA MOROCCO CYPRUS Nico sia www.rbinternational.com HEAD OFFICE AND NE TW ORK BANKS BRANCHES, REPRESENTATIVE OFFICES AN D OTHER UNITS 3

FINLAN D

NO RWAY

Helsinki Oslo Stockholm Tallinn BALT IC SEA ESTO NIA SWEDEN Riga LATVIA DENMAR K Moscow NORTH SEA Co penhagen LITHUANIA RUSSIA Vilnius

Minsk RUSSIA Dublin IRELAND BELARUS UNITED KINGDOM Amsterdam Berlin POLAN D Warsaw Lo ndon NETHERLANDS G ERMA NY BELG IUM Brussels Frankfurt Kiev Prague LUXEMBOURG UKRAINE CZECH RE PUBLIC

Lisbon GREECE Ankara A TURKMENISTA N SPAIN Athens TURKE Y Asgabat MEDITERRANEAN SEA Sicily

Tunis Algiers IRAN SYRI A IRAQ Tehran ALGERIA TUNISIA MOROCCO CYPRUS Nico sia www.rbinternational.com HEAD OFFICE AND NE TW ORK BANKS BRANCHES, REPRESENTATIVE OFFICES AN D OTHER UNITS 4

Financial Highlights

Monetary values in BGN Thousand 2016 Change 2015 2014 Income Statement Net interest income after provisioning for possible loan losses 204,177 34% 152,193 132,761 Net commission income 70,661 3% 68,475 64,195 Trading profit (loss) 16,587 14% 14,538 17,088 Administrative and other operating expenses (166,356) (5%) (174,432) (172,244) Profit / (loss) before income tax 146,691 116% 67,799 51,118 Profit / (loss) for the financial year 132,641 115% 61,615 46,553 Balance Sheet Loans and advances to banks 382,178 (51%) 780,127 392,937 Loans and advances to customers 3,789,679 7% 3,555,168 3,611,798 Deposits from banks 31,763 (37%) 48,325 51,446 Deposits from customers 4,748,602 0% 4,759,901 4,235,399 Equity 910,497 0% 910,327 909,630 Total assets 6,323,964 (2%) 6,459,550 5,981,352 Regulatory own funds Total own funds 1,114,860 (6%) 1,181,061 1,143,628 Own funds requirement / According to Local Regulations 262,045 1% 258,597 250,530 Excess cover 852,815 (8%) 922,463 893,098 Core capital ratio (TIER I) 22.98% (10%) 25.43% 25.87% Own funds ratio 34.04% (7%) 36.54% 36.52% Performance Return of equity (ROE) before tax 17.38% 117% 8.02% 5.9% Cost/income ratio 55.26% (3%) 57.15% 53.2% Return on assets (ROA) before tax 2.31% 111% 1.10% 0.8% Provisions for possible loan losses/risk-weighted assets/ According to Local Regulations 240,760 (14%) 278,960 300,833 Resources Number of staff on balance-sheet date 2,736 (1%) 2,767 2,917 Banking outlets on balance-sheet date 136 (7%) 147 154 Official Exchange Rate (BNB) 1 EUR BGN BGN BGN 1,95583 1,95583 1,95583

Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD as at 31 December 2016. 5

Contents

General Information 6 The Bank’s Management 8 Statement by the Chairman of the Supervisory Board 9 Statement by the Chairman of the Management Board 10 Vision and Mission 11 Corporate Social Responsibility 12 Raiffeisen Bank International at a Glance 13 Economic Growth 14 Activity of Raiffeisen Group in Bulgaria in 2016 18 Corporate Banking 20 Capital Market 20 Group Securities Services 21 Financial Institutions and Sovereigns 21 Retail Banking 22 Micro Busness 22 Sales and Distribution Channels 23 Operations 25 Human resources 27 Raiffeisen Leasing Bulgaria OOD 29 Raiffeisen Asset Management (Bulgaria) EAD 30 Raiffeisen Insurance Broker 32 Corporate Governance Statement 34 Notes to the Financial Statements 54 Addresses 122 6

General Information

Establishment of the Bank

Raiffeisenbank (Bulgaria) EAD is the first greenfield foreign investment in the Bulgarian banking sector made in 1994.

Main Shareholder

Raiffeisenbank (Bulgaria) EAD is indirectly a 100 per cent subsidiary of Raiffeisen Bank International AG, Vienna. With this regard in 2016 there are no acquisition or transfer of own shares.

The capital of Raiffeisenbank (Bulgaria) EAD could be increased upon the decision of the sole shareholder through the means foreseen in the Commerce act:

• Issuance of new shares;

• Increasing the face value of shares already issued, or

• Converting bonds into shares.

The Articles of association of Raiffeisenbank (Bulgaria) EAD do not provide for particular rights of the Supervisory Board and the Board of Directors, related with the capital increase or acquisition of own shares. Banking License Raiffeisenbank (Bulgaria) EAD has a full banking license for domestic and overseas banking and financial operations.

Profile

Raiffeisenbank (Bulgaria) EAD is a universal commercial bank, providing services to large corporate customers, small and medium-sized enterprises, retail clients, financial institutions and institutional clients. The Bank also performs bonds and securities trading on the local and the international money and capital markets, asset management, global security services, etc.

The Bank’s activity does not harm ecology and environment. As a credit institution, the Bank has not established research and development and innovation activities. 7

The Credit Rating of Raiffeisenbank (Bulgaria) EAD

Assigned by Fitch Ratings is as follows:

• Long Term Issuer Default Rating: BBB-

• Short Term Issuer Default Rating: F3

• Outlook: stable

Correspondent Relations

Raiffeisenbank (Bulgaria) EAD has established correspondent banking relations with over 1,100 banks world-wide and maintains accounts in major currencies with first-class foreign banks.

Branch network

As at the end of 2016 the network of Raiffeisenbank (Bulgaria) EAD totaled 136 branches.

Financial instruments and risk management policies used

The Bank’s activities mainly involve the creation, acquisition and disposition of financial instruments. As a result of this, the Bank is exposed to credit, liquidity, market and capital risk. The policies on managing those risks are disclosed in detail in Note 4 to the Bank’s annual financial statements enclosed thereto.

Events after the date of the annual financial statements

There are no subsequent events that would require either adjustments or additional disclosures in the annual financial statements. 8

The Bank’s Management

Shareholders

Raiffeisen SEE Region Holding GmbH, Austria – 100 per cent

Supervisory Board

Chairman: Helmut Breit

SB Members: Kurt Bruckner

Ferenc Berszan

Herbert Stepic

Management Board

Chairman: Oliver Roegl

Members of the Board: Tzenka Petkova

Ani Angelova

Martin Pytlik

Evelina Miltenova (until 30.06.2016)

Dobromir Dobrev 9

Statement by the Chairman of the Supervisory Board

Ladies and Gentlemen,

Financial year 2016 was marked by two main features: firstly, the market environment, which remained challenging due to the very low interest rates and the continuing regulatory and political pressure, and secondly, due to the start of the merger valuation process of RBI and RCB.

The requirements for the capitalization of the banks were considerably increased after the financial crisis in 2008, and on the other hand the international and national regulators tightened significantly their regulations and requirements.

In February 2015, we started the implementation of our transformation program, which aims at strengthening our capital base. Our target was Common Equity Tier 1 (according to the full requirements of the Regulation) (CET1) to reach at least 12 per cent, as well as to reduce the complicacy and the costs. By 31st December 2016 CET1 it reached 13.6 per cent, bringing RBI to its target well ahead of schedule.

Following the extensive valuation phase, on 5th October 2016, the Management and the Supervisory Board of RBI and RCB adopted a decision in principle for the merger of RBI and RCB. On 24th January 2017, the Extraordinary General Assembly of RBI approved the merger with RCB with a clear majority. The merger became reality after its entry in the Commercial Register in March 2017.

The advantages of the merger are based on previous achievements that include the geographical presence of attractive growing markets in CEE, the top five market positioning in 9 out of 14 Helmut Breit markets, as well as the stable business in Austria. The focus Chairman of the Supervisory Board of will continue to be the establishing and strengthening of long- Raiffeisenbank (Bulgaria) EAD term relationships with customers across all local markets. As a customer-oriented universal bank, an important role in our general focus play the solutions, meeting the needs of corporate clients, based on the access to the local market and our extensive network, as well as our comprehensive offers to the individual clients in CEE.

In 2016, the Bulgarian economy reported a second consecutive year of sustainable growth of over 3 per cent and our expectations are that this growth will continue in the coming years. This will have a positive impact on the banking sector and on welfare in general.

In these conditions Raiffeisenbank (Bulgaria) reported very good results – the profit after taxes amounted to BGN 132.6 million, which ranked it among the top 3 of the banks in Bulgaria according to this indicator. At the same time, the non- performing loans continued to decline reaching a level of 6.5 per cent - considerably below the average for the banking system in the country.

Undoubtedly, in 2016 important question for the banking market in Bulgaria were the Asset Quality Review (AQR) and the stress tests. They showed that the banking system is stable and well capitalized, and Raiffeisenbank managed to fulfill the requirements laid down by the Central Bank with a significant advance.

I would like to take this opportunity and thank the management and all employees of Raiffeisenbank (Bulgaria) EAD for their hard work and constant efforts in serving our customers, and for their contribution to the success of the whole RBI Group.

On behalf of the Supervisory Board, Helmut Breit Chairman of the Supervisory Board 10

Statement by the Chairman of the Management Board

Ladies and Gentlemen,

For Raiffeisenbank (Bulgaria) EAD 2016 was a successful year despite the continuing low interest environment, the geopolitical tensions near the Bulgarian borders and the electoral situation in the country.

By 31st December 2016, we reported profits after tax of BGN 132.6 mln, compared to BGN 61.6 mln in the previous year. This is one of the highest results in the history of Raiffeisenbank, and at the same time it ranked us third on the market in Bulgaria. The loan portfolio exceeded BGN 4 bln, which is a growth of 5 per cent compared to 2015 (31.12.2015: BGN 3.85 bln). The share of non-performing loans at the end of 2016 was 6.5 per cent, compared to 8.1 per cent by 31st December 2015.

I would like to thank all our customers and business partners because without their trust these results would not be possible.

The sustainability of our business model was confirmed by the Asset Quality Review – one of the most important events of the year for the banking sector in Bulgaria. The Asset Quality Review and the stress tests showed that the Bulgarian banking system is stable and well capitalized. After the challenges in our banking system in 2014, such an extensive review was of utmost importance for obtaining clear, objective and transparent view on the condition of the sector. The stress test results showed that the Common Equity Tier 1 (CET1) ratio of Raiffeisenbank amounts to 25.1 per cent under the baseline scenario by 2018 and would reach a rate of 22.40 per cent in 2018 in the adverse scenario. Oliver Roegl CEO, Chairman of the Management Board As part of our social responsibility policy, Raiffeisenbank held the eight editon of our charity campaign “Choose to Help”. The initiative raised BGN 215,224 in support of 22 projects in the spheres of healthcare, social activities, environmental protection, education and culture. Since its start in 2009, Choose to Help has raised more than BGN 2.4 mln in support of 211 socially important causes.

On behalf of the Management Board, I would like to thank the employees of Raiffeisenbank (Bulgaria) and the companies of Raiffeisen Group Bulgaria for their work and contribution to our development.

Oliver Roegl Chairman of the MB, Chief Executive Officer Mission (Bulgaria) EADtobeoneoftheRaiffeisenbank top-three banksinalltarget customersegments across the country. Vision Vision andMission • • • • • • • sustainable andabove-average return onequity. ofthe RBINetwork,As part we contribute tothe achievement ofthe overall Group objectives andgenerate the employer offirstchoice, andwe putspecialfocusonthe promotion ofkey andbesttalent. staff We empower ouremployees tobeentrepreneurial, toshow initiative, and we fostertheir development. We are We adhere tothe highest corporate cultureandstandarts. Prudent riskmanagement isakey pillarthroughout ourorganization andprocesses. with alloursubsidiariestothe fullestextent possible. (Bulgaria) EADisanefficientRaiffeisenbank andleanorganization. We exploitsynergies withinthe bankand We areproactive andquickindelivering top-qualityproducts. We seeklong-termcustomerrelationships andareafriendly, forourcustomers. flexibleandconstructive partner 11

Independent Raiffeisen Group Raiffeisen Bank Addresses auditors` report Segment reports in Bulgaria Economic growth International Vision, mission and CSR 12

Corporate Social Responsibility Vision, mission and CSR For eight consecutive years, Raiffeisenbank (Bulgaria) has carried out its charity initiative “Choose to Help”. In 2016, the Bank continued to be one of the most socially engaged companies in Bulgaria and for one more time supported socially significant projects in the spheres of healthcare, social services, environmental protection, culture and education. The causes were supported by the Bank’s employees, as well as by the general public.

CHOOSE TO HELP 2016 – Donation Support and Voluntary Work

The eight edition of the initiative “Choose to Help” supported sustainable projects on national and local level with emphasis

Raiffeisen BankRaiffeisen on each sphere: healthcare – prevention and health services; social sphere – support of children at risk and lone elderly International people in extremely grave social situation; education, culture, sports – preservation of the cultural and historic heritage; integration of different communities; improvement and construction of infrastructure for access to cultural and historic heritage; environmental protection – improvement and construction of infrastructure for access to natural sites of national importance; conservation of protected and endangered animal and plant species. The media partners of the initiative made the causes known among the public and many of them received broad external support.

In 2016, 1,651 employees of Raiffeisenbank took part with their own donations. The gathered amount, including the donation of the Bank that added up to BGN 100 to each employee’s donation, amounted to BGN 215,224. The biggest Economic growth amount was raised by the project of the administration of the President – “Bulgarian Christmas” (BGN 29,440), which was supported by 277 employees, followed by the project of the Center for Protection of Rights in Healthcare – “Breast Cancer is Treatable” (BGN 26,988) and the project of Listen Up Foundation – “Deaf Children Can Do Anything, but Hear” (BGN 18,974). Among the beneficiaries are Caritas – Sofia Association and the Bulgarian Red Cross – Dobrich, which in partnership with H. Stepic – Charity for CEE Foundation implement the projects “Education for an Equal Start” and “Support for the Day Care Center – Dobrich” – supported by Raiffeisenbank (Bulgaria) every year. The employees of the Bank also took part in several voluntary initiatives – clothes, toys, shoes and books were gathered for the children from day care centers under the project “Education for an Equal Start – Sofia, Banya, Kuklen and Malko Tarnovo”. For a second consecutive year, the employees of the Bank read Christmas fairy tales with the children from the Day Care Center in Sofia and made the holiday an unforgettable experience for them all. The Devil’s Eco Path – one of the most attractive tourist routes in the Rhodope Raiffeisen GroupRaiffeisen Mountains was cleaned up. We also helped the nuns in the Samokov Monastery with the work in the monastery gardens and in Bulgaria visited the children from SOS Children’s Villages – Tryavna.

A proof of the public importance and recognition of “Choose to Help” 2016 is The Most Generous Donor Award awarded to Raiffeisenbank (Bulgaria) on the 11th edition of The Biggest Corporate Donor Awards of the Bulgarian Donor’s Forum, as well as the Award for most significant support SOS Children’s Villages over the years.

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Independent Raiffeisen Group Raiffeisen Bank Addresses auditors` report Segment reports in Bulgaria Economic growth International Vision, mission and CSR

The unemployment rate followed a descending trend in 2016, settling at 6.7 per cent at the end of the year (annual average (annual average year end of the the at 6.7 per cent at trend in 2016, settling a descending followed rate unemployment The rate employment the 2015. Nevertheless, end of year the at rate unemployment the 1.2pp below This was of 7.6 per cent). corresponded of slumping unemployment fact positive The to 49.2 per cent. of 0.5pp amounting a downturn also marked BGN 68 to BGN 950. by rose year the during wage monthly average the On this background, real GDP growth. to the sector (BGN private (BGN 979) compared to the public sector remained higher in the wage monthly average the Although public sector increase in the while the BGN 72 YoY, by a faster pace up at stepped latter in the wage average 941), the of BGN 56 YoY. was Labour market Economic growth Economic side, demand On the YoY). 2015 figure (3.6 per cent the 0.2pp below a pace YoY, 3.4 per cent In 2016, real GDP grew by External demand demand. external and feeble domestic a result of strong once again in 2016 was growth economic the products export for the of Bulgarian markets international conjunction in the favorable and the euro weak the by driven was of the combined with a record-breaking growth upswing in export was of goods substantial in 2016, the Thus, and services. part of a substantial prices of oil, which represents low the this backdrop, for tourism services Against demand in Bulgaria. more export net contributed As a consequence, total import. of the expansion slower led to a relatively import, Bulgarian the consumption, household primarily demand, domestic hand, other the On year. the during growth GDP to the significantly investment stagnant the However, to increasing wages. and loans in addition on deposits rates interest low by stimulated was foreign direct investment shrinking public and sluggish the In particular, demand. domestic retained economy in the activity compared level to a lower investments period for EU funds absorption drove new program initial phase of the along with the restrained to the contributor another yet country in H2 2016 was in the political uncertainty elections-related to 2015. The economy. in the investments of businesses for private sentiment year in the an upturn of 2.9 per cent in 2016 after 2.7 per cent industry increased output by the production, to In regard production expanded which industry, manufacturing the about primarily by brought in 2016 was recorded upturn The before. while the YoY, 2.6 per cent mining industry also raised output by The year. previous to the compared 5.0 per cent by construction shrank by year, entire the For YoY. of 2.0 per cent a drop recorded and gas heat of electricity, production a in 2016 resulted from decline The observed. was of 2.4 per cent a growth in comparison to 2015, when 10.1 per cent in both civil and buildings construction. contraction in 2016 The Bulgarian economy economy Bulgarian The

Raiffeisen Bank Raiffeisen Group Independent Vision, mission and CSR International Economic growth in Bulgaria Segment reports auditors` report Addresses the GDPin2016. recorded the mostsubstantial contraction of BGN 3.0 bln,whichcompliedwith the sluggish dynamics of investment within the expendituresside, socialexpensesregisteredthe mostsignificant riseofBGN558.9mlnYoY, whilecapital expenses to 2015.The revenues from grants (mainlythrough EUprograms) recorded, however, adecline ofBGN739.1mln.On The totalvalue oftaxrevenues amounted toBGN26.9blnin2016,whichpresented anincreaseofBGN2.0 blncompared (1.6 percent ofGDP) was recorded in2016against adeficit ofBGN2.5blnat the endofthe previous year. 32.5 blnorBGN2.2below their level inthe year before. Asaresultofthisdynamics, asurplusofnearlyBGN1.5bln to 2015.Meanwhile, the totalspending, includingthe installment made by Bulgaria tothe EUbudget, went down toBGN Thegross budgetaccumulated revenues reaching2016, in bln 40.0 BGN ofcloseto levela bln higher1.7 BGN compared Fiscal sector furnishings andequipment held, however, inflation onitsnearlyflat level. and beverages, alcohol andtobacco, restaurants andhotels. The lower pricesofcommunications, clothingandfootwear, cent (-0.4percent for2015)was registered. Contributors tothisslight inflation were the higher pricesoffoodproducts more to0.8percent (0.1percent for2015),whileonaDecember-to-December basissamemodest inflation of0.1per After 2014and2015,2016was yet again marked by deflation. In2016,the average annualdeflation increasedallthe Inflation registered positive balancesofEUR1.1blnand3.1bln,respectively. by income, the secondary whichamounted toBGN1.6bln.Duringthe year, boththe capital account andthe financialaccount -1.8 bln,butcompensated by incometotaledBGN-1.3bln,beingoffset the balanceofEUR3.4bln.The positive primary services accumulated at the endof2015(EUR172.4mln).Intermsitscomponents, the trade balancewas expectedlynegative at EUR In 2016,the current account remainedon positive territory, comprisingatotalofEUR1.8bln,substantiallyabove the total Balance ofpayments mid-term debt program forEUR8blnadopted by the Parliament in2015. in March2016.The EUR2.0blnrepresented the secondtransaction after the issuanceofEUR3.1blnin2015withinthe The increaseinsovereign indebtedness was due tothe issuedgovernment debt ofEUR2.0blninthe international markets of BGN2.1blncomparedtothe previous year. Nevertheless, the publicdebt remainedamongthe lowest levels inthe EU. At the endof2016,the publicdebt reached BGN26.9blnwhichstoodfor29.4percent ofGDP, markinganincrease Public Debt

Independent Raiffeisen Group Raiffeisen Bank Addresses auditors` report Segment reports in Bulgaria Economic growth International Vision, mission and CSR ) p 4.6% 3.9% .5 bp 5.3% 17.7% 0.5 bp 0.2) bp 1.6) bp 0.7) bp Change (58.8)% 944.2) b 2016/2015

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3 9 1.2 2.7) ( 42.8 16.5 2014 1.3% 0.1% 0 0.9%) (1.4%) ( 11.4% 5,937.3 3306.2% 1.4 2.9) ( 42.0 14.4 2013 0.9% 0.9% 1.3% (1.6%) ( 12.9% ,784.3 258.3% ( 5

Selected macroeconomic indicators Real GDP growth (%) Nominal GDP (EUR bn) Unemployment rate (annual average, %) GDP per capita (EUR) Inflation (annual average, %) Inflation (end-of-year, %) Current account (% of GDP) Foreign direct investment (net, EUR bn) Trade balance (EUR bn) FX reserves (EUR bn) FDI/Current account balance (%) Bank, Raiffeisen RESEARCH Source: National Statistical Institute, Bulgarian National Overview (AQR) Quality Review Asset the confirmed by results, overall sound banking sector showed Bulgarian During 2016, the and stress tests AQR the from which apart Plan on reforms of BNB, part 18-month of the It was past year. carried out in the stability of the to the which contributed Regulator, reforms of the and of strict regulations implementation the also included lending policy while at banks’ cautious despite increasing credit activity slightly Bank system recorded The banking sector. mainly from growth, deposit sustainable The subdued. loans was share of non-performing loans’ in gross same time the the sector. liquidity of the and high capitalization good to the contributed residents, making an effort banking sector efficiency to carry to enhance the in an banks continued out daily activities, Bulgarian and external political uncertainty. and internal volatility market margins, interest of decreasing environment of foreign banks) with the to 27 (22 licensed banks and 5 branches total number of banks decreased As of end 2016 the local In end-2016 the EFG. Bulgaria Eurobank Branch by of Alpha Bank Bulgarian acquisition for the deal of the finalization sector’s of the in end-2015. More than 96 per cent compared to 23.6 per cent 23.5 per cent, credit institutions’ share was foreign financial institutions, by owned system was of the while 76.5 per cent entities, private by controlled were total assets banking groups. mainly European as of end thus households, from funds attracted of the sustainable growth the given grew, banking systems’ total assets The (2015: BGN 87.5 billion). year-on-year 5.2 per cent by BGN 92.1 billion, increasing reached assets balance sheet 2016 the Bulgarian Banking Sector in 2016 Bulgarian In 2016, the net foreign direct investment in the country registered a considerable decline of EUR 1.0 bln YoY to only EUR EUR to only 1.0 bln YoY of EUR decline country registered a considerable in the foreign direct investment net In 2016, the EUR 135.6 mln, followed of direct investment with net Luxembourg for 2016 was investor A leading year-end. the 0.7 bln at foreign direct investment of the slowdown UK with EUR 118.1 mln. The with EUR 128.1mln, and the Netherlands the by of actual postponement continuing as the region, as well uncertain in the the situation political by caused in 2016 was flow electoral political The sector. energy and the education, systems, and administrative judicial including the structural reforms, EU, membership in the direct taxes, low despite side, investors’ foreign on the H2 also resulted in uncertainty during situation BGN. euro to the pegged as the as well ratings, sovereign stable finical sector and Foreign direct investments Foreign

Raiffeisen Bank Raiffeisen Group Independent Vision, mission and CSR International Economic growth in Bulgaria Segment reports auditors` report Addresses to beintroduced inthe beginningof2018. AQR. Another point whichwould requirecommitment isthe preparation forthe implementation ofIFRS9,whichisexpected the bankingsectorshould overcome in2017aswell asthe implementation ofthe measuresprescribedby the BNBafter the During 2016the impetus tomarket consolidation inthe sectorwas and willremainasoneofthe preserved challenges which the bankingsectorsignificantly higher financialresultandthe riseintotalassets. 9.05 percent) -remained relatively unchanged onayearly basis(2015-ROA: 1.05percent;cent) ROE:8.11per dueto and their liquidity. Inendof2016profitability indicators –Return onAssets (ROA: 1.41percent) andReturn onEquity(ROE: in 2015.Meanwhile, the sustainablegrowth ofdeposits from households positively affected the banks’financing structure The liquidityratio, showing the abilityofbankstorepaytheir debts, improved further to38.24percent from 36.71percent reflected the significant ofbanksandreforms andinstitutionaldevelopment balancesheet clean-upefforts ofthe regulator. end-2016 their gross amount reached BGN9.96billion wichisby BGN1.1billionlessthaninend-2015. The improvement Overthe year recorded 2016,thethein exposure adecrease.non-performing shareof banks’loanportfolios Thus, asof negatively by affected lower incomefrom interest. 1.3 billionmainlydue todecreased provision effects. However expensesandsomeone-off the net profit ofthe sectorwas levels priortothe global crisis. Profitability recorded a40.5percent increasecomparedtothe previous year, reaching BGN Financial indicators inthe bankingsectorimproved significantly, asthe overall profit for2016recovered neartothe highest cent YoY, uptoBGN47.2bln)andinthe corporate segment (plus8.3percent YoY, uptoBGN26.9bln). year-on-year toBGN74.1blnasofend2016.Apositive tendency was bothinthe observed retail segment (plus6.3per Households’ high propensity tosave remainedadecisive factor forthe deposit basegrowth, moving upby 7.9percent due tothe improving purchasingpower ofthe population. mln) ofthe tonearlyBGN36bln.Retail banks’corporate loanportfolio loansrose by 1.44percent YoY toBGN18.6bln was abletoovercome the negative tendency from 2015.Thus itresultedina0.23percent year-on-year growth (BGN83.01 cent ofitstotalassets. The the sustainableeconomicactivity growth supported oflendingtothe non-government sectorwhich For the year grewby 2016,the banks’loanportfolio 0.64percent toBGN54.5billion,representing approximately 60per

Independent Raiffeisen Group Raiffeisen Bank Addresses auditors` report Segment reports in Bulgaria Economic growth International Vision, mission and CSR 18

Activity of Raiffeisen

Vision, mission and CSR Group in Bulgaria in 2016

Raiffeisenbank (Bulgaria) EAD 2016 key figures Raiffeisen BankRaiffeisen International The decrease of total assets in 2016 is mainly due to repayment of loans, received from foreign financial institutions.

Total Assets Loans and advances to customers

in BGN Thousand in BGN Thousand

6,459,550 6,323,964 6,171, 818 5,959,680 5,981,352 Economic growth

4,998,604 4,650,190

3,912,631 4,030,438 3,834,128 Raiffeisen GroupRaiffeisen in Bulgaria

Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD

The increase in gross loans and advances to customers is driven by higher new volumes in all customer segments. Segment reports

In 2016 the Bank has written off from its balance sheet against loan loss provisions exposures classified as “loss” in the amount of BGN 50 mln. auditors` report Independent Addresses 19

Deposits from Customers Equity

in BGN Thousand in BGN Thousand

4,367,639 4,759,9014,748,602 910,327 910,497 4,235,399 908,985 909,630 4,174,110 863,053 Vision, mission and CSR Vision,

2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD

In 2016 the customer deposit base remained stable on the back of decreasing funds in non-retail segment, compensated by increase in retail deposits. International Raiffeisen Bank Raiffeisen Bank The equity includes also the net profit for the year. In 2016, the Bank paid out dividend to the sole shareholder in the amount of BGN 123 mln.

Net Profit

in BGN Thousand 132,641 Economic growth

61,615

46,553

4,667 (43,814)

2012 2014 2015 2016 in Bulgaria Raiffeisen Group

2013

Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD

The increase in net profit compared to 2015 was driven by the significantly lower impairment loss on loans and advances.

in % in % 2.3 Segment reports Segment

1.1 0.8 17.4

7.9 5.9 0.1 (0.8) Independent (0.8) 0.5 (5.7) 0.5 report auditors`

2012 2014 2015 2016 2012 2011 2014 2013

2013

Source: Audited separate financial statements of Raiffeisenbank (Bulgaria) EAD Addresses Addresses 20

Corporate banking and Vision, mission and CSR Capital markets

Corporate banking

Raiffeisen BankRaiffeisen In 2016 Raiffeisenbank (Bulgaria) EAD was focused on the continuous support to its corporate clients, adding 2.8 per cent International more new companies to its large customer base. The bank has a well-diversified customer portfolio, comprising leading representatives from all growing and export oriented sectors of the economy: agro business, manufacturing, pharmacy, IT, Telecommunications, etc. Raiffeisenbank (Bulgaria) EAD is a reliable partner for many multinational companies and participates in several syndicated loans.

As a universal bank, Raiffeisenbank (Bulgaria) EAD offers and constantly improves its range of banking products including lending, import and export factoring, cash management, documentary operations, deposits, foreign exchange, derivatives, etc. to small, medium and large companies. The Bank further develops its image of supplier of innovative services, offering Economic growth large scope of digital solutions via its Online and Mobile banking, FX Exchange Web based platform and innovative online applications for bank guarantees and letters of credit.

Raiffeisenbank (Bulgaria) EAD is one of the major partners of national and supranational financial institutions, including the National Guarantee Fund and the European Investment Fund (with which it is currently working under three guarantee line programs – COSME, InnovFin and SME Initiative), thus being a sustainable mediator between the EU programs and the Bulgarian entrepreneurs and procuring the improvement of the competitiveness of the Bulgarian economy.

Raiffeisenbank (Bulgaria) EAD invests significantly in modernization of the IT infrastructure and systems in order to become

Raiffeisen GroupRaiffeisen fully compatible with the new trends in the customer’s expectations and behavior. In addition, the Bank has introduced LEAN internal processes, leading to additional efficiency. in Bulgaria

The Voice of the Customer survey enables the Bank to receive regular feedback from its customers. It is conducted regularly with both lending and non-lending clients in order for the Bank to be on the pulse of their requirements and to constantly keep improving.

As of 31 December 2016, Raiffeisenbank (Bulgaria) EAD was the fifth largest lender to legal entities with a market share of 6.82 per cent. The Bank is ranked third in terms of attracted funds from legal entities with a market share of 7.53 per cent. Segment reports Capital Markets

In 2016, Raiffeisenbank (Bulgaria) EAD reaffirmed its leading position on the local foreign exchange and debt capital

auditors` report markets. Independent Throughout 2016 the institution strengthened further the quality cooperation with its customers and counterparties with a focus on enhancing the offered service and overall customer experience. In response to market demand, the Bank successfully added to its product mix a new derivative product for currency risk protection, allowing customers to attain at one and the same time enhanced flexibility and cost optimization.

The increased customer penetration and the improved service led to an improvement in financial results, generated by traditionally strong product areas, and complemented by more complex products for market risk management. Addresses Raiffeisenbank (Bulgaria) EAD is a respected and preferred primary dealer and supports the Ministry of Finance by bidding 21

regularly on the government debt auctions, and by proactive participations in discussions and working groups, organized by the Ministry or the Bulgarian National Bank. At the end of 2016, the Bank was once again appointed a primary dealer for the next calendar year.

Being an integral part of an international banking group, Raiffeisenbank (Bulgaria) EAD successfully employs the experience of its sister network banks and proposes alternative solutions based on а wide range of products, thus providing comprehensive services and treasury products to its demanding retail, corporate and institutional clients.

Group Securities Services

Raiffeisenbank (Bulgaria) specializes in providing a wide range of custodial and depository services to banks and non-bank

financial institutions in Central and Eastern Europe, including Bulgaria, as well as to local corporate customers. mission and CSR Vision,

In recognition of our customers' satisfaction with the high quality custodial and depository services, Raiffeisen Group, including Raiffeisenbank (Bulgaria), continues to receive excellent results and awards in the surveys of leading specialized publications on the trends in management and administration of client assets. In March 2016, Raiffeisen Group was the Best Sub-Custodian Bank in Emerging Europe Award by global Custodian, and in June 2016 won the prestigious Best Sub- custodian CEE Award by Global Investor. The awards once again highlighted the serious commitment and responsibility of Raiffeisenbank in the field of custodial and depository services. These represented the latest recognition for our innovative approach in the search for the best and most effective solution for our customers in the CEE markets. In 2016, a remarkable International growth of 25 per cent YoY in client assets under custody in Raiffesenbank (Bulgaria) was recorded, which further strengthened Raiffeisen Bank our position among the leading financial institutions in Bulgaria in custodial services.

Financial Institutions and Sovereigns

Relationship with Banks, Non – Bank Financial Institutions and Sovereigns

Raiffeisenbank (Bulgaria) EAD develops its relations with first-class international and local financial institutions as well as Economic growth with International Organisations and Central Government Organisations. As of the end of 2016, the Bank had established correspondent relations with more than 1,100 banks while the number of accounts in different currencies, maintained by the bank, was 22. The Bank offers a full range of services to approximately 200 non–bank financial institutions and 150 Central Government Organizations and International Organisations.

Based on the excellent quality of tailor-made services provided to Financial Institutions and the confidence of the international financial community in Raiffeisenbank (Bulgaria) EAD, almost 40 foreign banks – mainly from Europe, North America – and more than 20 international non -banking financial institutions and international organizations maintain accounts with the in Bulgaria Bank in local and foreign currencies. Raiffeisen Group

The Bank continues to be among the preferred partners with increasing number of serviced local Insurance companies, Pension insurance companies, Fund management companies, Investment intermediarie etc. Raiffeisenbank (Bulgaria) is among the local leaders in servicing Central Government Authorities, Sovereigns, Non-Commercial Undertakings – Sovereigns and International Organizations by providing a complex bank service and full range of bank products.

Relationship with International Financial Institutions

Raiffeisenbank (Bulgaria) is one of the leaders on the Bulgarian market in attracting mid-term and long-term funding from reports Segment International Financial Institutions. For the last 14 years, the total amount of agreements negotiated under Credit Line and Risk Sharing Facilities (signed with institutions such as the European Bank for Reconstruction and Development, the European Investment Bank, the European Investment Fund, KfW, the European Fund for Southeast Europe, the Council of Europe Development Bank, the National Gurantee Fund etc.) is more than EUR 800 mln.

Raiffeisenbank (Bulgaria) continued its successful cooperation with IFIs and the National Guarantee Fund. In 2016, the Bank signed three risk sharing facilities with the European Investment Fund and two with the National Gurantee Fund. The total amount of agreements signed with the EIF was EUR 205 mln: out of which EUR 35 mln of them under the InnovFin SME Independent Independent

Guarantee Facility, another EUR 70 mln under the SME Initiative, and the remaining EUR 100 mln under the COSME Loan report auditors` Guarantee. Addresses Addresses 22

Retail Banking

Vision, mission and CSR Private Individuals

In 2016, Raiffeisenbank (Bulgaria) EAD continued its strategy for sustainable growth aiming to deliver excellent customer journey and further enhancement of digital banking channels. The Bank focused on strengthening the primary relationship with customers in daily banking, developing modern transactional and lending products.

Raiffeisenbank’s customer base of individual clients is more than 567,000. By the end of 2016, the retail assets reached BGN 1,592 bln representing a market share of 9.12 per cent. The total attracted funds from private individuals reached BGN 2,721 bln, with 5.77 per cent market share. The number of primary customers exceeded 247,600 and their penetration reached 44 per cent from active customer base.

Raiffeisen BankRaiffeisen The Bank is ranked in Top 5 banks in consumer lending for new volume, with a market share of 9.7 per cent. A new unsecured

International product with fixed among the interest rate up to 7 years was introduced on the market together with online web-based application to facilitate the customer during the loan consultancy process.

In terms of housing lending the Bank strengthened its positions and grew by 55 per cent YoY in new volume. To satisfy customer needs the Bank offers tailor-made approach as well as expert mortgage consultancy service in the newly established mortgage zones. The Bank offers transparent and flexible mortgage products, with options for floating and fixed interest rate for 5 years as well as special conditions for refinancing.

Economic growth In line with the growing digital habits of the customers, the Bank continued to enlarge the range of innovative communication channels and introduced Viber public chat being the first bank in Bulgaria to offer such service and free of charge stickers. BOT Chat was introduced as an unique way of communication between the bank and the customers.

The users of Rаiffeisenbank’s on-line banking continued to grow and as of year-end exceed 305,000. The share of electronic payments steadily increased and reached 87 per cent at the end of 2016. 50 per cent growth has been registered in the electronic payments via mobile banking. The downloads of the mobile application have increased by 52 per cent compared to 2015 due to the new improved interface of the application. New functionalities were enhanced - online payments processing in real time for transactions in local currency.

Raiffeisen GroupRaiffeisen The number of both domestic and international sale transactions, performed by cards, increased by 12 per cent YoY on in Bulgaria the back of various initiatives to stimulate the activity of cardholders. POS network consisted of more than 9,300 and the ATM over 600. As of the end of 2016 the total number of debit and credit cards issued by Raiffeisenbank (Bulgaria) EAD exceeded 480,000. The Bank enhanced its infrastructure for card payments, marking an increase of over 14 per cent of card transactions on POS of the Bank. Meanwhile, the migration of cards and terminals to new card processing platform continued in order to provide to customers innovative functionalities and modern services such as contactless payments, attractive loyalty programme, 3D secure, etc.

During 2016 Raiffeisenbank (Bulgaria) EAD continued to offer the highest service level for affluent customers, via Premium

Segment reports and Top Premium Banking service. Enhanced functionalities of Premium Direct service for remote chat with customers were implemented in order to provide more convenient consultations for daily banking.

Bancassurance business marked a growth of over 29 per cent in 2016 impacted by the increasing consumer awareness as well as attractive and innovative insurance coverage. Endowment and Daily allowance stand-alone insurances were preferred by a number of customers due to the unique features and coverage as well as the fast and simple procedure and the possible tax preferences. New insurance package was introduced for mortgage loans with improved coverage and monthly installments. auditors` report Independent Micro Business

In 2016, Raiffeisenbank (Bulgaria) EAD further strengthened its leading position in the Micro segment, servicing a growing base of more than 65 800 customers. The Bank added new attractive services to its broad lending and non-lending product portfolios for micro companies and business owners, and further improved its specialized personal customer approach.

8 new Micro Business Centers were established in 2016, increasing their total number in the country to 20. Within each one Addresses of them, clients can benefit from full financial consulting, clear and flexible products and services. 23

The focus of activities in 2016 was on:

• increasing customer satisfaction by providing extensive and competent service, constant improvement of service quality, development of customer-tailored products;

• providing micro companies with access to local and EU guarantee programs and credit lines by maintaining strong partnership with the European Investment Fund and the National Guarantee Fund. In 2016, 4 new guarantee agreements were signed: COSME, SME Initiative and InnovFin agreements were signed with EIF; and PRSR 2 agreement was signed with NGF;

• further expansion of the Bank’s presence in the agricultural sector through actively financing the needs of agricultural producers;

• providing modern and innovative banking services, upgrading online banking and mobile banking platform,

ensuring a quick and convenient 24/7 access. Raiffeisenbank was the first bank in Bulgaria to introduce a public mission and CSR Vision, Viber chat for its customers;

• conducting attractive CRM and promotional campaigns, focused on clients in the segment and improved presence in alternative channels;

• facilitating the direct interaction and exchange of information with micro customers. By holding 6 regional business forums and over 60 business breakfasts throughout the country, the bank shared information on the topic of the new programming period, as well as the latest opportunities for financing micro business development. International Raiffeisen Bank Raiffeisen Bank The strong emphasis on personnel development continued to contribute to the more efficient performance of the segment.

Sales and Distribution Channels

Raiffeisenbank (Bulgaria) EAD has a nationwide branch distribution network with 136 branches as of the end of 2016, located in more than 60 cities in the country. The Bank continues to invest in the footprint in order to be more flexible and

convenient for its customers. In 2016, aiming to further improve the network coverage, the Bank opened and relocated Economic growth several newly established branches and also renovated many of the branches to ensure flexible servicing and excellent customer experience. In the last years the Bank imposed a new model of comprehensive service by its multiskilling staff – in all branches the customers can be consulted and serviced for cash and non-cash transactions from one specialist and in

45 branches categorized as Flexi offices they can be further with serviced and consulted by the same specialist for lending products. Especially for micro and small business companies (annual turnover up to 2 mln BGN), Raiffeisenbank continues to invest in specialized Business centers and currently in 20 Business centers small businesses companies and freelancers get access to all-round financial consultancy, clear and business-tailored products and services, financing to continue business development, as well as individual solutions for their personal finance. For private individuals in 2016 Raiffeisenbank

(Bulgaria) EAD established eight specialized Mortgage zones located in biggest cities – Sofia, Plovdiv, Varna and Bourgas. In in Bulgaria the specialized Business centers and Mortgage zones responsible for the service and consulting are teams of highly qualified Raiffeisen Group specialists, who are engaged with the customer and provide financial solutions. As the meeting customer expectations for quality, service, and convenience is of greatest importance, 19 branches work with extended working time during the weekdays, with selected ones operating during the weekends as well.

Raiffeisenbank (Bulgaria) EAD continues to develop its agent network with direct sales agents and external partners. For more than 12 years direct sales agents in 5 big cities, also known as Mobile bankers, visit the customers and consult them absolutely free of charge about the main retail products for private individuals, e.g. consumer loans, debit and credit bank cards, packages. Mobile bankers save customers’ time and efforts by visiting them at time and place convenient to them, and help them to prepare the necessary documents in order to apply for the needed bank service. The external partners’ network with some 450 partners in more than 45 cities as of the end of 2016 is also important alternative channel and great reports Segment contributor to business volumes in retail banking segments.

Raiffeisenbank (Bulgaria) has its own Call Center “Raiffeisen Direct” which is an alternative channel for 24/7 client servicing, facilitating both existing and potential customers in their day-to-day communication with the Bank. The Call Center handles a wide variety of customer enquiries and consults customers about bank products through various remote communication channels – Phone, E-mail, Voicemail, Chat, and Skype. The professional Call Center agents actively conduct outbound x-sell, loyalty and customer satisfaction programs and initiatives to existing and prospect customers. Premium Direct provides personal remote advisory and transactional services for the Premium clients of the Bank. Independent auditors` report auditors`

Reflecting the trends for digitization, Raiffeisenbank (Bulgaria) enhances its electronic channels for transactional services and further develops its web site, internet and mobile banking as sales channels. During the year lead generation for lending products have been launched, enabling existing and potential customers to get professional consultation via the phone for an appropriate loan product. Addresses Addresses 24

Raiffeisenbank (Bulgaria) EAD is recognized as a Bank with clear customer focus and customer experience policy. Raiffeisenbank strives not only to provide excellent service quality according to its internal corporate standards but to exceed customer’s expectations. In order to do so, the Bank closely monitors customer’s experience with the Bank from “end to end”, gathering feedback from all “touch points” with its customers – corporate web page, blog, Facebook fan page, social media, media, Call Center, e-channels, blogs, regular telephone interviews, tablets in offices, etc. The Bank invests in activities and Vision, mission and CSR initiatives to continuously improve the customer experience in all channels and touch points. Raiffeisen BankRaiffeisen International Economic growth Raiffeisen GroupRaiffeisen in Bulgaria

Segment reports auditors` report Independent Addresses 25

Operations and process management

Operations Vision, mission and CSR Vision,

The implemented Lean and BPMS methodology in the processing of local and foreign currency payments continues to positively impact the efficiency and automation level, the cost optimization, as well as the establishment of better cooperation with internal customers.

Customer payments in foreign currency marked an increase of 11 per cent in incoming payments and 3 per cent in outgoing and interbank payments. The share of electronic payments reached 85 per cent during 2016.

Customers’ local currency payments (outgoing and interbank) increased by 9 per cent compared to previous year. The share International Raiffeisen Bank Raiffeisen Bank of electronic local currency payments also increased and reached 86 per cent. The Bank increased to 9 per cent its share in payments processed through the local payments system BISERA.

The Bank constantly improves the possibilities offered to customers for ordering local currency outgoing and interbank payments without and with EUR/BGN FX conversion, aiming at 24/7 payments service. The Bank already offers electronic foreign currency payments in XML format.

During 2016 the Bank continued offering trade finance consultancy to corporate customers, which contributed to establishing long-term customer relationship and high confidence levels. The number of trade finance transactions remained stable, with a 57 per cent increase in issued documentary letters of credit, leading to a 5 per cent increase in total documentary Economic growth transactions processed in 2016 compared to 2015.

Information technology in Bulgaria Raiffeisen Group With regard to information technology, in 2016 the Bank continued to focus with priority on the IT transformation program, aiming at covering the business requirement towards information systems and optimizing the entire IT architecture. Within the program a detailed roadmap was developed for implementing the IT solution on integrated customer, product and pricing information and providing customers with enhanced access to the Bank’s products and services. A provider was elected for the two main IT solutions related to automation of the work at the front office. In cooperation with the lead provider elected for the IT transformation program, the Bank already started analysis and design of the solution for providing product and pricing information. Within the scope of the transformation program the implementation of the Customer information file was completed.

Part of the IT transformation program is also the unification and optimization of the Bank’s reporting systems, one of which is reports Segment already in production and will be the basis for future IFRS 9 compliance. An upgrade was completed of the Data warehouse, which is the main data source for the Bank’s reporting. During the past year the Bank continued to work on automation of Risk reporting, as well as on the project for managing data architecture.

Several business and regulatory projects were finalized in 2016, like the implementation of SEPA credit transfer in XML format according to EU regulations. Independent Independent

In 2016 some changes in the organizational structure of the Bank’s IT division were undertaken, aiming at improving report auditors` the services and the cooperation quality with internal and external customers, as well as achieving business goals and implementing the Bank’s project portfolio.

The IT architecture roadmap was updated and the main version of data architecture was enhanced. Addresses Addresses 26

A key focus in 2016 was the improvement of the systems’ productivity, security and stability. Upgrades of main systems were completed, including the documents storing system Omni, the business process automation system IBM BPM, the server platform of the Bank’s core banking system, etc. As a result, a significant increase was achieved in the IT systems’ processing time, stability and accessibility, which enabled the increase in customer servicing time during working and non-working days.

Vision, mission and CSR In 2016, some of the main internal IT services, like the corporate telephony were also improved and renewed. A new version of Cisco call manager was implemented with enhanced functionalities, and a new numeration plan was introduced.

The Bank’s electronic channels were improved during the past year and the security level was significantly increased through implementing a fraud prevention system and a system to combat attacks against the accessibility of the Bank’s electronic channels. Raiffeisen BankRaiffeisen International Economic growth Raiffeisen GroupRaiffeisen in Bulgaria

Segment reports auditors` report Independent Addresses 27

Human Resources

As of the end of 2016, the staff of Raiffeisenbank (Bulgaria) EAD totaled 2,736 employees, 50 per cent of which were employed in the branch network. 82 per cent of the employees are university graduates while their average age is 38 years.

In 2016, the main focus in human resources management was the improvement of employee engagement, performance and leadership development. Further automation of core HR processes was provided which leads to more efficient process management, paper-less and faster communication with stakeholders, ability to produce variety of reports and will allow monitoring of key HR KPIs.

In 2016 one of the main HR priorities was the Employer branding project. The aim of the project is to strengthen our image as an employer of choice and be able to attract more and better candidates, and also promote the bank as a good employer

internally. mission and CSR Vision,

Another very important and successful HR project was the Branch Management Academy – a structured leadership and professional skills development program for Branch managers and Microcenter Leaders.

New internal and external professional and soft skills trainings were offered to staff based not only in Sofia, but in the other big cities in Bulgaria as well.

The results of the second Engagement survey, conducted in 2016 showed significant improvement in all areas, especially, in International dimensions as: Confidence in Senior Management, Respect & Recognition, Training; Authority and Empowerment. Significant Raiffeisen Bank increase was measured also in Employee Engagement and Enablement indexes. The results were discussed with managers and an action plan for further improvement was approved.

Further efforts were invested in new HR approaches as onboarding process and mentorship programs, coaching workshops and consultations, 360-degree feedback for managers, structured career paths for different positions, Intranet communication. Further investments in work-life balance programs, sports and teambuilding events were made in 2016. RBBG participated in various HR international programs as the International young potential program, etc.

The Internal Customer Satisfaction Survey was performed for the third year in a row where a significant improvement of Economic growth the Internal Satisfaction Index was measured. Judging by the employees' feedback, the survey was perceived very well and significant improvement of the communication and cooperation within the entire organization is now visible.

In 2016, the total amount of remuneration paid by the Bank to members of the Supervisory board and the Board of Directors was BGN 4,009 thousand.

The members of the Supervisory Board and of the Board of Directors do not hold participating interests in commercial companies as unlimited liability partners and do not own more than 25 per cent of the capital of another company. The Chairman of the Management Board, Oliver Roegl, sits on the Supervisory Board of Raiffeisen banka a.d. Beograd. in Bulgaria Raiffeisen Group

In the past year, Board members or persons associated with them did not entered into contracts with the Bank outside the scope of its ordinary activities or substantially deviating from market conditions.

There are currently no provisions to give members of the Supervisory and Management Board rights to acquire Bank shares or bonds. Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 28

Group companies Vision, mission and CSR This consolidated report covers the activities of the Bank and its subsidiaries and associates (hereinafter referred to as the Group) in 2016. As of 31 December 2016, the Bank holds the following investments in subsidiaries and associates:

Subsidiaries

Subsidiaries are companies controlled by the Bank. Control is the power to manage an entity's financial and operating policies so as to derive benefits as a result of its activities. Raiffeisen BankRaiffeisen

International The income and expenses of the subsidiary are included in the consolidated financial statements from the date of acquisition to the date on which the Bank ceases to control the subsidiary.

Intra-group balances, transactions, income and expenses arising from transactions between the Group's companies are fully eliminated in the preparation of consolidated financial statements. Gains and losses arising from intragroup transactions that are recognized in the assets, such as loans and receivables, are eliminated altogether.

Economic growth The subsidiaries controlled by the Bank as of 31 December 2016 are as follows:

Company Percentage of participation Raiffeisenbank (Bulgaria) EAD 100% ownership of Raiffeisen SEE Region Holding GmbH, Austria

Raiffeisen Services EOOD 100% ownership of Raiffeisenbank (Bulgaria) EAD

Raiffeisen Leasing Bulgaria OOD 24.5% ownership of Raiffeisenbank (Bulgaria) EAD; Raiffeisen GroupRaiffeisen 75.5% ownership of Raiffeisenbank Leasing in Bulgaria International GmBH, Austria

Raiffeisen Asset Management (Bulgaria) EAD 100% ownership of Raiffeisenbank (Bulgaria) EAD

Raiffeisen Insurance Broker EOOD 100% ownership of Raiffeisenbank (Bulgaria) EAD

Raiffeisen Real Estate EOOD 100% ownership of Raiffeisenbank (Bulgaria) EAD

Company for cash services AD 20% ownership of Raiffeisenbank (Bulgaria) EAD Segment reports auditors` report Independent Addresses 29

Raiffeisen Leasing Bulgaria OOD

Raiffeisen Leasing Bulgaria OOD was established in 2004 with shareholders Raiffeisenbank (Bulgaria) EAD, holding 24.5 per cent of its shares, and Raiffeisen Leasing International GmbH, holding 75.5 per cent.

In July 2016 the extraordinary General Meeting of the shareholders of Raiffeisen Leasing Bulgaria OOD approved Raiffeisen Leasing International GmbH's request for relief from partnership in Raiffeisen Leasing Bulgaria OOD. All the shares of Raiffeisen Leasing International GmbH were taken by the other shareholder - Raiffeisenbank (Bulgaria) EAD. After the shares' transfer, the legal form of the company changed to Raiffeisen Leasing Bulgaria EOOD.

Raiffeisen Leasing Bulgaria ЕOOD has already been an active player on the leasing market for the past 12 years. The main mission and CSR Vision, leased assets offered to the customers are new and used vehicles, construction and agricultural machinery, light and heavy trucks, trailers and forklifts, machines and equipment as well as real estate leasing.

The market share of Raiffeisen Leasing Bulgaria ЕOOD as of 31 December 2016 was 9.02 per cent, based on the leasing portfolio (BNB statistics). The total volume of the leasing market as of 31 December 2016 amounted to BGN 3,314 mln which was a increase of BGN 226 mln compared to 31 December 2015.

As of 31 December 2016 the total assets of Raiffeisen Leasing Bulgaria OOD amounted to BGN 313 mln. International Raiffeisen Bank Raiffeisen Bank

At the end of 2016 the net lease receivables of Raiffeisen Leasing Bulgaria OOD amounted to BGN 292 mln. The leased assets were distributed as follows: vehicles – 80.7 per cent, equipment – 7.3 per cent and real estate – 12.0 per cent.

The customers of Raiffeisen Leasing Bulgaria ЕOOD are Corporates representing 78.4 per cent of the total portfolio, followed by small and medium enterprises – 13.9 per cent and private individuals – 7.7 per cent.

In 2016, the attracted and utilized medium and long-term financing reached to BGN 292 mln, out of which BGN 28 mln from international financial institutions. Economic growth

Raiffeisen Leasing Bulgaria ЕOOD has registered 9 branches in the regional cities throughout the country.

in Bulgaria Raiffeisen Group Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 30

Raiffeisen Asset Management

Vision, mission and CSR (Bulgaria) EAD

Market Share/Asset under management

The dynamic global market environment influenced financial markets in 2016. Record declines in financial markets at the beginning of the year, leaving the UK from the European Union, presidential elections in the US and Bulgaria influenced the performance of the Raiffeisen Asset Management’ funds. The launch of the new fund in euros the Raiffeisen Bulgaria Global Mix – contributed to increasing the amount of assets under management. Raiffeisen BankRaiffeisen International However, redemptions from institutional and corporate clients led to a decrease in market share of Raiffeisen Asset Management from 16,8 per cent by the end of 2015 to 14,2 per cent by the end of 2016. During the period the Company was able to increase the number of retail clients. By increasing the relative share of the investments of the retail clients for the account of big institutional and corporate clients, the company is aiming to limit the concentration risk, which will lead to stability and predictability of its cash flows.

Market share of RAM Economic growth in BGN Thousand

250,000 235,880

200,000

152,970 150,000 141,910 141,370

100,000 Raiffeisen GroupRaiffeisen in Bulgaria 50,000 31.12.2016 30.06.2015 31.12.2015 30.06.2016

By the end of 2016 RAM manages and distributes four local funds, covering conservative and high-risk spectrum.

New products and initiatives/Client base Segment reports In January 2016, RAM has received an approval from the Financial Supervision Commission (FSC) for the transformation of its biggest fund – MF Raiffeisen (Bulgaria) Liquidity Fund into MF Raiffeisen Conservative Fund Bulgaria, as in line with its new investment policy the fund may invest up to 100 per cent of its assets in Bulgarian Government debt.

In April 2016, RAM launched a mutual fund – MF Raiffeisen (Bulgaria) Global Mix, representing feeder collective investment scheme, investing at all time 85 per cent or more of its assets in units of master fund MF Raiffeisen Raiffeisenfonds-Sicherheit, managed by Raiffeisen Capital Management, Vienna. As of 31st December 2016, the assets accumulated in the fund amounted to BGN 7,2 mln. auditors` report Independent RCM Funds

As of 31st December 2016, the clients’ assets in RCM funds, Vienna, distributed by RAM amounted to BGN 18 mln.

Investment approach and achieved return

Raiffeisen Asset Management (Bulgaria) EAD applied analytical and professional expertise working in close collaboration Addresses with Raiffeisen Group in making investment decisions, creation and management of the local funds’ portfolios. 31

Assets under management in the mutual funds managed by RAM as of the end of 2016 are as follows:

• MF Raiffeisen Conservative Fund Bulgaria is the biggest mutual fund in Bulgaria with assets amounting to BGN 87.6 mln;

• MF Raiffeisen (Bulgaria) Active Protection, managing BGN 48.5 mln;

• MF Raiffeisen (Bulgaria) Global Growth, managing BGN 9,5 mln;

• MF Raiffeisen (Bulgaria) Global Mix, managing BGN 7,3 mln. Vision, mission and CSR Vision, International Raiffeisen Bank Raiffeisen Bank Economic growth

in Bulgaria Raiffeisen Group Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 32

Raiffeisen Insurance Broker EOOD Vision, mission and CSR Raiffeisen Insurance Broker EOOD, a company founded in 2006, is 100 per cent owned by Raiffeisenbank (Bulgaria) EAD. On 30 March 2006 the Financial Supervision Commission listed Raiffeisen Insurance Broker EOOD in the Register of the insurance brokers under Registration No 250-3B, thus marking up the launch of its activities of insurance intermediation.

In fulfillment of the highest customer service standards, Raiffeisen Insurance Broker performs various activities, some of which are related to studying and analyzing the insurance market trends, preparation of detailed analysis, modeling of specific insurance products, administrating insurance contracts and last but not least - assistance in cases of insurance events. Raiffeisen Insurance Broker provides high-quality insurance intermediation services to individuals and legal entities. The company‘s clients are borrowers of Raiffeisenbank (Bulgaria) EAD, lease holders of Raiffeisen Leasing Bulgaria OOD and other customers outside the Raiffeisen Group.

For the Retail customers the Broker offers tailor made product „Property Certificate” which are issued on the spot. Raiffeisen BankRaiffeisen International The product is flexible, it optimized the work process and increased the customer satisfaction.

The Broker uses additional sales channel through Insurance zones to offer wide range of insurance products.

Insurance experts have been able to provide specific insurance expertise to Bank customers since December 2015.

The financial data as of 31 December 2016 shows that for the past one-year period Raiffeisen Insurance Broker realized

Economic growth BGN 24 mln premium income. Raiffeisen GroupRaiffeisen in Bulgaria

Segment reports auditors` report Independent Addresses 33

Future outlook

In 2017 the Group will focuse on:

• Keeping its leading market position

• Further developing its sales and servicing channels and exploring for alternatives

• Further investing in infrastructure and process optiimization, as well as in its employees, in order to ensure high service quality and customer satisfaction Vision, mission and CSR Vision, • Achieving steady growth in loan portfolio by keeping good risk profile of new business

• Supporting its corporate customers in its capasity of a key partner of international financial institutions by mediating the guarantee facilities of of the European investment fund under InnovFin, COSME and SME Initiative, as well as the guarantee facilities of the National guarantee fund

• Its active role in granting funding under European and national initiatives for micro companies

• Increasing of primary customers through various initiatives for attracting new and keeping existing customers International Raiffeisen Bank Raiffeisen Bank

• Improving the functionalities of its digital channels (mobile and internet banking, website, Viber, etc.), aiming at increasing share of online sales of credit and non-credit products

• Continuing the stepwise migration of cards and terminals to a new more perfect card platform, in order to offer to its customers innovative functionalities and modern services

• Increasing partnership with third parties with the aim to offer enriched pallette of financial services and excellent customer experience Economic growth • Developing the product range in the capital markets area with focus on solutions for derivative hedging of currency and interest rate risk to increase activity of corporate customers and product utilization

• Adjusting processes in line with the dynamic regulatory framework. in Bulgaria Raiffeisen Group Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 34

Corporate governance statement Vision, mission and CSR Raiffeisenbank (Bulgaria) EAD sees good corporate governance as part of current business practice, a set of balanced relationships between the Bank’s Managing Bodies, its sole shareholder and all other stakeholders – employees, clients, partners, regulators and society as a whole.

In the pursuit of its activities, Raiffeisenbank (Bulgaria) EAD is guided by the principles of corporate governance recommended to be followed by the National Corporate Governance Commission.

Along with the aforementioned principles, which are of a recommendatory nature, Raiffeisenbank (Bulgaria) EAD, as part of the Raiffeisen Group, follows corporate governance requirements laid down at group level and binding upon the Bank’s managing bodies and employees, with a Code of Conduct of the RZB Group adopted for this purpose (information under Article 100n, (8) (1b) of the Public Offering of Securities Act (POSA)). Raiffeisen BankRaiffeisen

International Raiffeisenbank (Bulgaria) EAD and the companies of the entire Raiffeisen Group follow the Code of Conduct, taking into account that the effective application of good corporate governance practices contributes to reaching higher standards in the Bank’s activities, maintaining and improving the reputation of the entire Raiffeisen Group, and establishing transparent relationships with all stakeholders (information under Article 100n, (8) (1b) of POSA).

Raiffeisenbank (Bulgaria) EAD hereby declares its commitment to:

Introduce procedures and principles to which the Bank’s Managing Bodies will adhere in order to create the conditions

Economic growth necessary to enable shareholders to exercise their rights in full.

Ensure the Bank’s Managing Bodies (Supervisory and Management Board) follow the principles of transparency, independence and responsibility in accordance with the Bank’s objectives and strategies (information under Article 100n(8)(5) of POSA) established in the Policy on diversity in the executive, management and supervisory bodies (information under Article 100n(8)(6) of POSA).

2.1. The Supervisory Board of Raiffeisenbank (Bulgaria) EAD consists of four (4) members selected by the Bank’s Sole Shareholder for a fixed term of office of no longer than five (5) years. Raiffeisen GroupRaiffeisen 2.2. The Supervisory Board performs its activities in accordance with the By-laws of the Bank and the Rules of the in Bulgaria Supervisory Board of Raiffeisenbank (Bulgaria) EAD.

2.3. The Management Board of Raiffeisenbank (Bulgaria) EAD consists of five (5) members selected by the Supervi- sory Board for a fixed term of office of no longer than five (5) years.

2.4. The Management Board performs its activities in accordance with the By-laws of the Bank and the Rules of the Management Board of Raiffeisenbank (Bulgaria) EAD. Segment reports 2.5. In the performance of their tasks and responsibilities, the Supervisory and Management Boards are guided by applicable law, the Bank’s By-laws, the internal rules and procedures of the Bank and Raiffeisen Group, and the principles of integrity and competence.

2.6. The Management Board acts independently on behalf of the Bank and makes decisions on all matters, unless the relevant activities are within the remit of the Sole Shareholder or Supervisory Board. In the performance of its duties, the Management Board:

• manages and represents the Bank; auditors` report Independent • manages the Bank’s ongoing activities;

• sets the Bank’s objectives, adopts plans, programs and strategies for the Bank’s activities;

• adopts the Bank’s organizational and management structure.

2.7. The Management Board must obtain prior approval from the Supervisory Board in the following cases:

Addresses • determination of the common company policy, including the initiation or discontinuation of types of business;

• annual budget of the Bank and (when required) of its consolidated companies prepared in accordance with the International Financial Reporting Standards (including investment budget) and 35

• annual plan for financing of the Bank from institutional investors and deviations therefrom [Financing from institutional investors covers international and local bond issues, including bond issues (covered and uncovered) for non-professional investors, bilateral loans, syndicated loans, unsubordinated and subordinated transactions, as well as deposits from banks and other institutions with a maturity of more than one year in foreign or local currency]

• the organizational structure relating to the Management Board defines the powers of each member of the Management Board (Organizational Structure); any functional changes in the Organizational Structure of the Management Board and Management Board level – minus 1, as well as the creation of new portfolios and the closure of old portfolios at the Management Board and Management Board level – minus 1;

• all matters to be presented to the Sole Shareholder for their final resolution;

• acquisition, incorporation, disposition or liquidation of companies or business units of any kind, or parts thereof,

whether the investment results from normal business activities or the restructuring of loans, and the acquisition, mission and CSR Vision, registration, disposition or liquidation of holdings, and participating interest in or the creation of joint ventures with other companies of any type, directly or indirectly through related companies and any capital-related measures (e.g. capital increase or decrease), in respect of the capital of any subsidiary;

• acquisition, investment and disposal in any way of investment schemes (trusts, funds or similar), provided they are not made for the purpose of sale (trading portfolio assets) or within the remit of an existing coordinating risk management body at group level; International

• Decisions relating to company restructuring (merger or division) of any subsidiary or other related company Raiffeisen Bank that directly affects the Bank in respect of the disposal of its assets or relates to the takeover of the assets or the assumption of liabilities of the relevant subsidiary or other related company, as well as any restructuring measures involving related companies which are credit institutions;

• the conclusion or termination of consortium agreements and agreements tied to votes with affiliates in any subsidiary or other related company or in respect of options or similar agreements that may affect the value or interchangeability of the participating interest of the Bank in any subsidiary or other related company, and the conclusion of such contracts with the counterparty if it is part of the same group of companies is not subject to approval by the Supervisory Board; Economic growth • participation in or termination of profit or loss sharing agreements, group taxation arrangements or similar arrangements by the Bank;

• creation and closure of branches and offices, if not provided for in the annual budget (but in any event, if the branch or office has been opened abroad);

• acquisition and disposal of real property, as well as the creation of mortgages and encumbrances on real property owned by the Bank or any of its subsidiaries (including commercial real property included in the annual business plan and exceeding the EUR 500,000 limit or having an area of more than 350 m2), and any agreements relating in Bulgaria to the above, as well as any additional increase in expenditure exceeding the approved budget by at least 5 per Raiffeisen Group cent of the budgeted costs or EUR 50,000;

• rental contracts or leases of immovable property to be let by the Bank for a period longer than five years and a total contract value of more than EUR 500,000, and any investments related to such contracts;

• internal rules on the powers of the Management Board concerning decisions to grant loans and set country credit limits (Loan Committee Rules), governing which decisions require the approval of the Loan Committee and/or the approval of the Supervisory Board; Segment reports Segment • approval to grant loans, including credit lines and the assumption of contingent liabilities to one creditor (or to one of more creditors from one economic entity), and decisions on country credit limits requiring the approval of the Supervisory Board pursuant to the Loan Committee Rules approved in accordance with paragraph (n) of these Rules;

• internal rules on the powers of the Management Board concerning problem exposures (Rules of Procedures of the Problem Loan Committee) laying down which decisions require the approval of the Problem Loan Committee and/ or the approval of the Supervisory Board; Independent Independent

• approval for the restructuring, allocation or release of provisions and the write-off of problem exposures to a single report auditors` Borrower (or to one or more borrowers from a group of economically related parties) that requires the approval of the Supervisory Board, in accordance with the Rules of Procedure of the Problem Loan Committee; Addresses Addresses 36

• loan grant or increase, including internal credit lines and contingent liabilities of members of the Bank’s Supervisory or Management Board;

• approval of the loan grant or increase procedure, including internal credit lines and contingent liabilities to Bank employees; Vision, mission and CSR • introduction and modification of any pension, compensation or social insurance plan or other social insurance scheme for the benefit of a member of the Management Board, employees or their families, or other persons having a contractual relationship with the Bank upon or after retirement, or termination of the appointment at or contractual relationship with the Bank, as well as the introduction and modification of any shareholder equity plan (e.g. securities options) or profit distribution plan that relates to a member of the Management Board, employees or their families, or other persons having a contractual relationship with the Bank, and the introduction of or substantial changes in compensation schemes (general principles, principles and structure of basic pay, salary scales, bonus principles and structure, and incentive plans) and other benefit schemes, but in any case, only schemes where annual expenditure exceeds 10 per cent of the Bank's total payroll cost, provided that approval from the Supervisory Board is not required to do otherwise;

• appointment of governing body members/managers, supervisory body members (supervisory or advisory/ Raiffeisen BankRaiffeisen

International oversight board) of any subsidiary or other affiliate, except in cases where third parties or entities outside the group are entitled to appoint the respective persons to perform their duties by virtue of their right to nominate or as a result of other voting rights to the relevant bodies;

• assumption of the duties of supervisory board members or directors in non-affiliated companies by Management Board members or Bank employees; and

• contract with a Supervisory Board member under which that Supervisory Board member undertakes to provide services that are beyond his/her responsibilities as a Supervisory Board member, to the Bank or any of its

Economic growth subsidiaries for payment of a value higher than a purely symbolic remuneration for the service; this also applies to contracts with undertakings in which the Supervisory Board member has a significant economic interest. The discharge of duties at the Raiffeisen Bank International AG Group in Vienna or the mere performance of responsibilities by a Supervisory Board member as a management body member or manager does not imply the treatment of the relevant undertaking as an “undertaking in which the Supervisory Board member has a significant economic interest”, unless the circumstances give rise to the assumption that the Supervisory Board member derives personal benefit from that undertaking.

• The Supervisory Board is entitled to decide what other matters require its approval. Raiffeisen GroupRaiffeisen 2.8. Management Board members are guided in their work by the generally accepted principles of integrity, profes- in Bulgaria sionalism and confidentiality, and respect the ethical rules adopted by the Bank.

2.9. Supervisory and Management Board member follow, in their work, the principle of avoidance and prevention of real or potential conflicts of interest, in accordance with the Policy adopted by the Bank on the avoidance and disclosure of conflicts of interest. Any conflict of interest should be disclosed to the other Management

Board members and the Supervisory Board. Management Board members should inform the Supervisory Board whether, directly, indirectly or on behalf of third parties, they have a material interest in any transactions or issues that have a direct impact on the Bank. All transactions between the Bank and any of its affili- Segment reports ates and any Management Board member or person or company closely associated with the Management Board are carried out at market conditions. Transactions and their terms and conditions must be approved in advance by the Supervisory Board, except for commonly executed bank transactions.

2.10. Raiffeisenbank (Bulgaria) EAD declares that it follows a diversity policy in the selection and evaluation of the members of the Bank’s executive, management and supervisory bodies, and believes that this policy contributes to ensuring a reliable management and oversight system based on the principles of transparency and independence. auditors` report 2.11. Main criteria and principles of the diversity policy in the selection and evaluation of members of the execu- Independent tive, management and supervisory bodies of Raiffeisenbank (Bulgaria) EAD (information under Article 100n (8) (6) of POSA):

• Only legally capable individuals may be governing body members. Persons who are over 68 years of age may not be appointed as Management Board members and their term of office may not be renewed. Persons who have reached the age of 75 may not be appointed as Supervisory Board members and their term of office may not be renewed. All Management Board or Supervisory Board members should meet the requirements of Regulation No 20 of Bulgarian National Bank (BNB) of 28 April 2009 on the issue of approvals to members of the Management Addresses Board (Board of Directors) and the Supervisory Board of a credit institution and requirements in relation to the performance of their duties. No other limitations on age, gender, nationality or education shall be imposed on Management and Supervisory Board members; 37

• Good reputation, professional experience and managerial skills, given the complexity and specifics of the activities conducted by the Bank;

• Ability to strike a balance between experience, professionalism and knowledge of the activities, as well as independence and objectivity in the expression of opinions and decision-making;

• Management and Supervisory Board members may be re-elected without any restrictions.

Internal Control System (information under Article 100n, (8) (3) of POSA)

Raiffeisenbank (Bulgaria) EAD has implemented an Internal Control System that both helps the Bank achieve its objectives and:

• prevents losses, Vision, mission and CSR Vision,

• ensures reliable financial accountability, and

• ensures compliance with the relevant statutory and internal regulations.

The Bank’s internal control system is used to achieve its strategic objectives, increase process efficiency and reduce risk.

The internal control system is based on the internal regulations applicable to the Raiffeisen Group, Bulgarian law and the International

internal regulations of Raiffeisenbank (Bulgaria) EAD (policies, procedures, instructions, etc.), which govern all significant Raiffeisen Bank and strategically important topics.

Participants in the internal control system who carry out control activities at different levels are the Bank’s management and structural units’ heads. They are responsible for carrying out the Management Board’s decisions, including implementing strategies and policies, and creating an effective Internal Control System. The management team creates more specific internal control policies and procedures.

Risk Management System (information under Article 100n, (8) (3) of POSA)

4.12. As a result of its activities, Raiffeisenbank (Bulgaria) EAD is exposed to the following risks: credit risk, market Economic growth and liquidity risk, operational risk.

А. Credit risk

The Bank has incorporated and observes organizational and operational independence of the risk control functions from business lines that it monitors and controls. The organizational structure and risk control and management processes are coordinated by clearly defined responsibilities, the Bank's current policies and rules, and the job descriptions of each unit. in Bulgaria The Bank's risk strategy is adhered to and subject to approval by the Management Board and the Supervisory Board. A Raiffeisen Group system of control processes has been put in place to identify measure, monitor and manage the risks documented in the risk management policies.

The Bank follows rules and procedures approved by the Managing and Supervisory Board on the internal control of the overall lending and credit risk management process. They are prepared in accordance with the requirements of the Credit Institutions Act, BNB regulations and the rules of the Raiffeisen Group.

Credit policy, specialized credit management bodies and credit risk assessment are regulated in the lending rules. Apart from these rules, there are rules on the delegation of approval powers to departments under the Executive Director in charge of

Risk and Finance Management by the Bank’s Credit Committee. All executives and employees involved in the lending process reports Segment are required to follow the approved credit policy and lending process.

The Bank's credit policy is determined by its Supervisory Board, which provides interpretations and clarifications regarding its application. It is based on the principles of profitability, liquidity and collateral.

The Bank's credit policy is implemented by the Management Board, Executive Directors, Credit Committee, Internal Audit, Risk Management, Corporate Banking, Corporate Segment – Middle Market, Retail Banking and Micro & SME Client Lending at the Bank's Head Office in Sofia. Independent auditors` report auditors`

The credit policy is implemented through the regulation and management of credit parameters, market niches, rules and procedures, including in the form of documents adopted by the Bank’s Management Board.

The Bank has collective management bodies for the lending and risk exposure regulation process: Credit Committee and Problem Loan Committee. Addresses Addresses 38

The Credit Committee is a specialized body responsible for managing the lending process. Its main function is to conduct the Bank’s credit policy, as determined by the Management Board, and to make decisions on credit transactions that exceed the powers of the departments under the Executive Director in charge of Risk and Finance Management. The Loan Committee operates at the Bank's Head Office and is directly subordinate to the Management Board.

Vision, mission and CSR Risk exposures are assessed and the amount of necessary individual impairment is determined by a specialized collective body at the Bank: Problem Loan Committee. Its activity is carried out in compliance with the requirements of the Credit Institutions Act and the Bank’s internal regulations. The Problem Loan Committee prepares an assessment of risk exposures, both on the basis of the International Financial Reporting Standards and the internal directives of the Raiffeisen Group.

The Bank operates an Early Warning Signals System, whose role is to ensure the timely collection of data on indicators and their correct analysis and assignment of client risk statuses.

B.Market and liquidity risk

The Bank has rules and procedures in place to identify the various types of market and liquidity risk, which have been developed in accordance with the Group’s directives and the Bank’s established practice. Those include the main rules and Raiffeisen BankRaiffeisen

International procedures for identifying, measuring and managing market and liquidity risk. They also define the responsibilities of the Market and Liquidity Risk Management Department, which is responsible for managing the Bank’s market and liquidity risk, as well as its relationship with the RBI Group.

The Asset and Liability Management Committee is responsible for the overall management of the Bank’s balance sheet structure. In particular, it manages the Bank’s short-term and structural liquidity, the interest rates applicable to the Bank, the internal pricing parameters and their effect on net interest income, and the value of assets and liabilities. A more detailed description of the competences and organizational structure of the committee is set out in the Rules of Procedure of the Asset

Economic growth and Liability Management Committee and in the relevant internal documents regulating market risk management.

The activity of the Asset and Liability Management Committee is governed by rules drawn up in accordance with the Credit Institutions Act. Those rules set out the objectives of the Asset and Liability Management Committee, its delegated decision- making powers and the responsibilities of its members and the Committee as a whole.

The main objectives of the Asset and Liability Management Committee are:

• manage the Bank’s balance sheet structure;

Raiffeisen GroupRaiffeisen • manage the Bank’s exposure to interest and exchange rate differences; in Bulgaria • manage the Bank’s liquidity;

• Facilitate the exchange of information between the Bank’s departments with a view to optimizing risk and liquidity management.

In addition to the objectives set out above, the Asset and Liability Management Committee:

• analyses and discusses the current market development and condition of the Bank’s competitors; Segment reports

• examines any legislative changes and their impact on the Bank’s balance sheet structure and liquidity;

• examines legal provisions and their impact on the Bank’s open position;

Minutes of the Committee’s meetings must be provided to RBI Vienna.

C. Operational risk (OR) auditors` report Independent Operational risk is the risk of loss resulting from inadequate or poorly functioning internal processes, people and systems, or from external events. The definition includes legal risk but excludes strategic and reputational risk. Legal risk is the risk of loss resulting from non-compliance with legal provisions, established ethical standards and contractual obligations. Model risk (the risk that the models used in the Bank’s overall risk management process or their application are not suited to achieving the objectives set) is fully covered in the sub-categories of OR.

Raiffeisenbank (Bulgaria) EAD and its subsidiaries, as part of RBI, consider operational risk a separate risk category and adhere to the Group’s policies, rules, procedures and principles, as laid down in the Sound Practices for the Management Addresses and Supervision of Operational Risk published by the Basel Committee on Banking Supervision, because they view those principles as fundamental to managing operational risk. They aim to implement into the Bank a properly formulated and coherent methodology for the detection, assessment, monitoring, control and reduction of the operational risks faced by the 39

Group’s companies in the course of their daily business activities.

The key steps in operational risk control taken by the Bank are risk identification, risk assessment and monitoring, risk reporting and mitigation. The Bank manages operational risk by registering and analyzing operational events, making risk assessments, monitoring risk indicators and performing scenario analyses, implementing contingency plans, optimizing processes and activities, ensuring adequate insurance coverage, outsourcing, etc.

Operational risk assessments of the Bank and its subsidiaries are reviewed on a regular basis. The assessments are carried out once a year, at a maximum interval (including approval from the Operational Risk Committee of RBBG and its subsidiaries) of 15 months. The assessments are made before the start of the scenario analysis preparation process because the results of the assessments constitute key data about what scenarios should be analyzed. In the event of extraordinary circumstances (e.g. new business environment, new activities, etc.), the assessment is carried out immediately. The results of the study are published on the internal (intranet) webpage on RBI operational risk control. Vision, mission and CSR Vision, Early warning indicators have been put in place, which are metric or statistical data providing information on the Group’s risk exposure and are used to monitor specific exposure areas associated with operational risks. The Bank uses a flexible approach where indicators are selected from the responsible management function (top-down) and ORM (bottom-up), which allows the control of the respective risk exposures. Early warning indicators are coordinated with RBI.

The indicators aim to anticipate an increasing or decreasing operational risk. Each business department/unit of the Bank and its subsidiaries determines the operational risk indicators for its activities by monitoring changes in their values over time. They are determined for risks rated as high (rating of 5 or higher). International Raiffeisen Bank Raiffeisen Bank The Bank operates an Operational Risk Management Committee. The Committee is a specialised internal body, part of the management of Raiffeisenbank (Bulgaria) EAD in the field of operational risk management and control. The Bank’s Management Board, as the highest operational risk management body, determines the composition and members of the Operational Risk Management Committee, and delegates duties and responsibilities.

4.13. Regulatory Compliance

The Bank has a local Compliance unit. The Compliance Department has been set up according to the Group’s Compliance Requirements, which are organized in accordance with the requirements of the Basel Committee on Banking Supervision titled Economic growth “Guidelines on the Control of Compliance in Banks”.

The Department monitors compliance with current laws, regulations and rules, as well as national and international standards

(Best Practice) and the group and internal rules of the Raiffeisen Group. The Compliance Department reviews the development of internal guidelines, procedures and organizational rules to ensure that the Bank, as well as its governing bodies and employees are familiar with the rules, work in accordance with them, and that the Bank will not take advantage of unlawful business practices.

The aim of the ongoing work on regulatory compliance is to advise and assist the Bank and its employees on all measures in Bulgaria that may be useful to prevent the violation of rules and even criminal activity. This also includes the management of conflicts Raiffeisen Group of interest between the Bank, employees and customers. Basically, all those measures are necessary to protect the Bank’s reputation and good name. If there is reasonable suspicion based on facts and information that a customer or transactions have an unlawful purpose or involve the Bank in a high risk to its reputation, the Compliance Unit clearly applies the necessary safeguards to the Bank which, in extreme cases, may even include reporting to the authorities.

Information on the existence of takeover/merger bids in 2016 (information under Article 100n (8) (4) of POSA – respectively under Article 10, paragraph 1, letters (c), (d), (f), (h) and (i) of Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids) Segment reports Segment As of 31/12/2016, Raiffeisenbank (Bulgaria) EAD has not received any takeover and/or merger bids.

5.14. 5.1. Information under Article 10(1) (c) of Directive 2004/25/EC on takeover bids: significant direct and indirect shareholdings (including indirect shareholdings through pyramid structures and cross-shareholdings) within the meaning of Article 85 of Directive 2001/34/EC.

The company is part of the Austrian Raiffeisen Group. The Bank's sole shareholder is Raiffeisen SEE Region Holding GmbH,

Austria. The ultimate controlling entity is Raiffeisen Bank International, Austria. Independent auditors` report auditors`

Raiffeisenbank (Bulgaria) EAD is the sole shareholder of the following companies:

–– RAIFFEISEN ASSET MANAGEMENT (BULGARIA) EAD;

–– RAIFFEISEN SERVICE EOOD; Addresses Addresses 40

–– RAIFFEISEN INSURANCE BROKER EOOD;

- RAIFFEISEN LEASING BULGARIA EOOD;

The Bank holds shares amounting to 20 per cent of the capital of Cash Service Company AD. Vision, mission and CSR

5.15. Information under Article 10(1) (d) of Directive 2004/25/EC on takeover bids: holders of any securities with special control rights and a description of those rights.

The capital of Raiffeisenbank (Bulgaria) EAD is divided into 603,447,952 (six hundred and three million four hundred and forty seven thousand nine hundred and fifty two) shares with a par value of BGN 1 (one) each. The shares of the Company are registered, dematerialized and indivisible, and there are no separate classes of shares.

Each share gives the right to one vote in the General Meeting of Shareholders, the right to a dividend and a proportional liquidation dividend of the Bank's assets.

The Bank’s shares may only be dematerialized. Raiffeisen BankRaiffeisen International 5.16. 5.3. Information under Article 10(1) (f) of Directive 2004/25/EC on takeover bids: any restrictions on voting rights, such as limitations of the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the company’s cooperation, the financial rights attaching to securities are separated from the holding of securities.

The Bank’s current By-laws does not provide for such restrictions.

Economic growth 5.17. Information under Article 10(1) (h) of Directive 2004/25/EC on takeover bids: rules governing the appointment and replacement of board members and the amendment of the articles of association.

Raiffeisenbank (Bulgaria) EAD has a two-tier management system, including a Supervisory Board and a Management Board.

The Rules of Procedure of the Supervisory Board are laid down in the By-laws of Raiffeisenbank (Bulgaria) EAD and the Rules of the Supervisory Board of Raiffeisenbank (Bulgaria) EAD.

The Rules of Procedure of the Management Board are laid down in the By-laws of Raiffeisenbank (Bulgaria) EAD and the Rules of the Management Board of Raiffeisenbank (Bulgaria) EAD. Raiffeisen GroupRaiffeisen in Bulgaria The Bank’s Supervisory Board and Management Board are governed by current law, the Bank’s statutes and procedures, and the standards of integrity and competence in the performance of its duties and responsibilities.

According to Article 5(7) of the By-laws of Raiffeisenbank (Bulgaria) EAD, the sole shareholder has exclusive competence to

make decisions on the following matters:

• Amendments to the By-laws;

Segment reports • Capital increase and decrease;

• Bond issue authorizations;

• Selection and dismissal of Supervisory Board members;

• Approval of annual financial statements and profit distribution, as well as acceptance of the Supervisory Board and Management Board report;

auditors` report • Remuneration of Supervisory Board members; Independent • Selection of a specialized auditing company to verify and certify the annual financial statements;

• Company transformation and/or dissolution;

• Selection and dismissal of the Specialized Internal Audit Service manager.

The functions and powers of the Supervisory Board are set out in Article 6 of the Bank’s By-laws and in the Rules of the

Addresses Supervisory Board of Raiffeisenbank (Bulgaria) EAD and the Rules of the Management Board of Raiffeisenbank (Bulgaria) EAD. In addition to the other competencies mentioned in Article 6 of the Charter of the Bank, the Supervisory Board: 41

• Selects and dismisses Management Board members;

• Adopts rules of procedure of the Bank’s Supervisory and Management Board;

• Approves predetermined actions and deals of the Management Board;

Detailed information on the rules governing the appointment or replacement of Supervisory or Management Board members is given in item 2 of this Statement and, respectively, in the By-laws of Raiffeisenbank (Bulgaria) EAD and the Rules of Procedure of the Supervisory Board and the Management Board of Raiffeisenbank (Bulgaria) EAD.

5.18. Information under Article 10(1) (i) of Directive 2004/25/EC on takeover bids: powers of board members and in particular the power to issue or buy back shares.

The capital of Raiffeisenbank (Bulgaria) EAD may be increased by decision of the Sole Shareholder by the methods provided mission and CSR Vision, in the Commerce Act:

• Issue of new shares;

• Increase of the par value of shares already issued, or

• Conversion of bonds into shares. International

The By-laws of Raiffeisenbank (Bulgaria) EAD does not provide for special powers of the Supervisory or Management Board Raiffeisen Bank to increase the Bank's capital or buy back shares.

Stakeholders

6.19. Raiffeisenbank (Bulgaria) EAD believes that effective interaction with stakeholders has a direct impact on corporate governance. With this in mind, the Bank identifies who are the stakeholders involved in the conduct of the Bank's business on the basis of their degree and spheres of influence, role and attitude towards its sustainable development, direct impacts which in turn can affect its activities, including sole owner/shareholders, regulatory and other authorities of state and local government, clients, employees, public groups and others. Economic growth

6.20. Raiffeisenbank (Bulgaria) EAD, recognizing the public significance of its activities, adheres to the principle of publicity of the information on its activities and strives to build and maintain sustainable, constructive relations

with regulatory and other authorities of state and local government. The Bank conducts its activities in strict compliance with the laws and other legal acts of the Republic of Bulgaria and the European Union. The Bank's relations with state and local government authorities are based on the principles of responsibility, good faith, professionalism, partnership, mutual trust, as well as respect and fulfilment of its obligations.

Raiffeisenbank (Bulgaria) EAD publishes the RZB Group Code of Conduct and the this Corporate Governance Statement on in Bulgaria the Bank's website (https://www.rbb.bg/bg) in compliance with Article 100n, paragraph 7 and 8 of the Public Offering of Raiffeisen Group Securities Act, in conjunction with Article 40, paragraph 1 and 2 of the Accountancy Act. This Statement is also enclosed with the Annual Report of Raiffeisenbank (Bulgaria) EAD.

This Corporate Governance Statement forms an integral part of the 2016 Annual Financial Statements of Raiffeisenbank (Bulgaria) EAD. Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 42 Vision, mission and CSR Raiffeisen BankRaiffeisen International Management report

Segment reports Independent Auditors’ Report Raiffeisen GroupRaiffeisen in Bulgaria auditors` report Independent Addresses 43 Vision, mission and CSR Vision, International Raiffeisen Bank Raiffeisen Bank Management report Management Notes to the Financial Statements 54 Segment reports Segment

in Bulgaria Raiffeisen Group Independent Independent auditors` report auditors` Addresses Addresses 44 45 46 47 48 49 50 51 52 53

Notes to the Financial Statements

1. Basis of Preparation

(а) Reporting entity Vision, mission and CSR Vision, Raiffeisenbank (Bulgaria) EAD (the Bank) with identification number 831558431, registered under N 14195/1994 in the Commercial registry, is indirectly 100 per cent owned by Raiffeisen Bank International, Austria. The ultimate owner is Raiffeisen Zentralbank AG, Austria.

The Bank has a general banking license issued by the Bulgarian National Bank (BNB) according to which it is allowed to conduct all banking transactions permitted by the Bulgarian legislation in the country and abroad, as well as to conduct all deals and services in its capacity of investment intermediary according to the Public offering of securities Act and the the regulations related to it. International Raiffeisen Bank Raiffeisen Bank The Bank is a joint-stock company with two-tier management system. The management and representation is performed by the Board of directors under the control of the Supervisory board.

The consolidated financial statements of the Bank for 2016 represent the financial statements of the Bank and its subsidiaries and associated companies as described in note 35, referred to as the Group.

(b) Basis of accounting

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Economic growth Standards (IFRS), as adopted by the European Union. The reporting framework „IFRS adopted by EU” in its essence is the adopted national accounting base IAS, as accepted by the EU, regulated by the Bulgarian Accountancy act and defined under p. 8 of the additional provisions thereof.

TThese financial statements have been prepared on the historical cost basis except for the following: in Bulgaria

• financial assets and liabilities at fair value through profit or loss, which are measured at fair value; Raiffeisen Group

• available-for-sale financial instruments, which are measured at fair value;

• defined benefit retirement obligations to employees, which are accounted at their net present value, adjusted for any actuarial gains/losses.

(d) Presentation of the financial statements

These consolidated financial statements are presented in Bulgarian leva (BGN) rounded to the nearest thousand, which is reports Segment the Group’s functional currency.

The Group presents the statement of financial position based on liquidity ranking. A maturity analysis up to 12 months and more than 12 months from reporting date is presented in the accompanying notes.

The Group’s assets and liabilities are presented gross in the statement of financial position, except for items, for which there is legal or contractual right to be netted. Independent Independent auditors` report auditors` (e) Comparable information

Financial statements include comparative information from previous reporting period. The information related to the previous financial year may be corrected if this correction is necessary in terms of comparison to the information presented for the current financial year. Addresses Addresses 54

2. Significant Accounting Policies

These consolidated financial statements are prepared by applying one and the same accounting policy by the Group and its subsidiaries. Vision, mission and CSR (a) Basis of consolidation

These consolidated financial statements are prepared in accordance with IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in associates and joint ventures”, whereby participations with more than 50 per cent of the voting rights are fully consolidated and all participations with more than 20 per cent of the voting rights are consolidated using the equity method.

Transactions between entities under common control

As part of Raiffeisen Group restructuring, in 2016 Raiffeisenbank (Bulgaria) EAD acquired 75.5 per cent from the share capital of Raiffeisen Leasing Bulgaria EOOD and became 100 per cent owner of the entity. The following accounting policy Raiffeisen BankRaiffeisen

International is applied with regard to this deal under common control:

In the absence of IFRS that is directly applicable to transactions between entities under common control, the Bank applied the requirements of IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, using also current information sources (as far as they are not contradicting the general framework or a concrete IFRS or interpretation thereof) in defining own accounting policy for accounting of such transactions. In establishing own accounting policy the Bank considers the substance of the transactions, as well as the needs of key users of the financial statements. Business combinations between entities under common control are excluded from the scope of IFRS 3 – Business combinations, hence the standard does

Economic growth not prescribe their accounting treatment and an entity may elect either to use the acquisition method or the method of consolidating participations when reporting the transaction. In the presented below financial statements the Bank has applied the method of consolidating participations, which consist of the following:

• The assets and liabilities of the acquired entity are considered at their book values that have been presented in the separate financial statements of the acquired entity by the time of the transaction

• No corrections are undertaken with regard to fair values or recognition of new assets or liabilities at the date of acquisition, which would otherwise be required when applying the acquisition method. Corrections are made only in order to unify the accounting policies applied by the entities under common control. Raiffeisen GroupRaiffeisen

in Bulgaria • The difference between paid/transferred consideration and the “acquired” net assets at the effective date of the transfer is presented under as “Change in consolidation group” in equity.

• The statement of comprehensive income includes the activity of the acquired entity after the date of acquisition. For accounting purposes the effective date of acquisition is 01 January 2016, therefore the statement of comprehensive income includes the activity of Raiffeisen Leasing Bulgaria EOOD for the period from the acquisition to 31

December 2016. This effective date is adopted based on management judgment that the full control of Raiffeisen Leasing EOOD commences from the announcement of the Group restructuring.

Segment reports Comparative financial information is not restated, because according to IFRS 10 Consolidated financial statements the acquired entity is not included in the financial statements of the acquiring entity before the date at which control was taken over.

(b) Income and expense recognition

Income is recognized to the extent, that the Group assumes economic benefits will be realized and income could be measured reliably. auditors` report

Independent Interest income and expense

Interest income and expense are recognized in profit or loss for all interest bearing instruments on an accrual basis using the effective interest rate.

Interest income and expense presented in profit or loss include:

• interest on financial assets and liabilities at amortized cost; Addresses • interest on investment securities designated as at fair value through profit or loss, which excludes trading assets; interest income from trading assets is disclosed in net trading result; 55

• interest on available for sale securities carried at fair value through other comprehensive income;

Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

In the current environment of negative market interest rates, the Group realizes interest expense on financial assets, as for example deposits with other banks or maintaining minimum reserves with the Central Bank that are above the required minimum. These expenses are disclosed under “interest expense” as explained in note 7.

Fair value changes

Fair value changes on derivatives are presented in net result from derivatives in profit or loss. Fair value changes in trading assets are included in net trading income Fair value changes of investments securities carried at fair value through profit or mission and CSR Vision, loss, are presented in net income from investments in profit or loss, which also includes gains and losses on the realization of available-for-sale financial assets, and impairment losses on available-for-sale financial assets and investments in associates.

Fees and commission

Fees and commission are generally recognized on an accrual basis when the service has been provided.

Fees and commission income and expenses that are integral to the effective interest on a financial asset or liability are International Raiffeisen Bank Raiffeisen Bank included in the measurement of the effective interest income/expense. Loan commitment fees for credit lines that are likely to be drawn down, are deferred and are recognized as an adjustment to the effective interest income on the loan. Loan syndication fees are recognized as revenue when the syndication has been completed and the Group has recognized in its statement of financial position the respective part of the syndication. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses – are recognized upon completion of the underlying transaction. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts, usually on a time-apportionate basis.

Other fees and commission income, including account servicing fees, sales commission, payments transfer fees, cash Economic growth transaction fees, card payment commissions are recognized as the related services are performed.

Other fees and commission expense, which is not part of the effective interest expense, represents mainly transaction and service fees, which are expensed as the services are received.

Dividends

Dividend income is recognized in profit or loss when the Group’s right to receive payment is established.Net trading income in Bulgaria Raiffeisen Group Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realized and unrealized fair value changes, interest, dividends and foreign exchange differences.

Determining whether a credit agreement contains leasing

At origination of a credit agreement, the Group determines whether it is or contains leasing. At origination or at a subsequent measurement of a credit agreement that contains leasing, the Group divides payments and other considerations related to reports Segment this agreement into leasing and other elements based on the percentage of their fair values.

When the Group concludes that payments could not be divided reliably, asset and liability are recognized to the amount of the fair value of the base asset; subsequently the liability is decreased by the payments and an expense is recognized using the Group’s differential interest rate.

The Group as lessor Independent Independent auditors` report auditors` Finance lease

When the Group is lessor under finance lease agreements a receivable is recognized to the amount of the net investment in finance lease, which includes all minimum lease payments due under the leasing agreement and the unguaranteed residual value discounted with the respective effective interest rate. Addresses Addresses 56

A leasing agreement is classified as finance lease if the lessor transfers to the lessee all significant risks and rewards arising from the ownership of the leased assets.

The main indicators considered by the Group when determining whether all significant risks and rewards are transferred include among other: comparison between the net present value of the minimum lease payments and the fair value of the Vision, mission and CSR leased asset at the beginning of the lease agreement; comparison between the duration of the lease agreement and the useful life of the leased assets; the right of the lessee to acquire the assets at the end of the finance lease agreement. Lease agreements that do not transfer all significant risks and rewards arising from the ownership of the asset are classified as operational lease.

Minimum lease payments

Minimum lease payments are defined as the payments that the lessee will make or is obliged to make during the period of the lease agreement. From the Group’s perspective minimum lease payments include also the asset’s residual value guaranteed by third party in case there is an arm’s length guarantee agreement.

Commencement of the lease agreement and commencement of the term of the lease agreement Raiffeisen BankRaiffeisen International It should be differentiated between the commencement of the lease agreement and the commencement of the term of the lease agreement. The lease agreement commences on the earlier of both dates - the date of the lease agreement and the date when the parties engage with the main conditions of the lease agreement. By that date:

• the lease agreement is classified as finance or operational lease; and

• in case of finance lease are determined the amounts that should be recognized at the commencement of the term of the lease agreement Economic growth

Commencement of the term of the lease agreement is the date when the lessee is entitled to exercise he right to use the leased asset. This is also the date when the Group initially recognizes the lease receivable.

Initial and subsequent measurement

At the date the lease agreement commences the Group recognizes finance lease receivable to the amount of the net lease investment. The initial direct costs related to the lease agreement are considered when determining the lease receivable. During the term of the lease agreement the Group recognizes interest income from finance lease. The net investment in finance

Raiffeisen GroupRaiffeisen lease is disclosed under “Loans and receivables from customers” net of impairment, which is calculated according to the

in Bulgaria Group’s Policy for impairment of financial assets at amortized cost.

Operational lease

Assets rendered under operational lease are classified as “means of transport”. The lessor retains all significant risks and rewards from the ownership of the leased assets. The assets continue to be part of the lessor’s inventory and their depreciation for the term of the lease agreement is included in the operating expenses of the lessor. The income from the operational lease is recognized in profit or loss for the year on a linear basis over the term of the respective lease agreement. The initial direct

Segment reports costs related with the conclusion of the operational lease agreement are included in the book value of the leased asset and are recognized on a linear basis over the term of the operational lease agreement.

The Group as lessee

Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased asset is initially measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. auditors` report Independent Assets held under leases where substantially all the risk and rewards of ownership are not transferred, are not recognized in the Group’s statement of financial position.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Addresses 57

(d) Foreign currency transactions

All transactions in foreign currencies are translated to the functional currency of the Group at exchange rates fixed by the Bulgarian Central Bank at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate fixed by the Bulgarian Central Bank at that date and the revaluation result is recognized in comprehensive income.

(e) Financial assets and financial liabilities

The Group classifies its financial instruments in the following categories: financial assets at fair value through profit or loss including trading assets and liabilities and derivatives; loans and receivables; held-to-maturity investments; available-for-sale financial assets and other financial liabilities. The Group determines the classification of financial assets and liabilities at their initial recognition. Vision, mission and CSR Vision,

The Group initially recognizes loans and advances, deposits, debt securities, borrowings and subordinated liabilities on the date they are originated. All other financial instruments (including regular-way purchases and sales of financial assets) are recognized on the trade date on which the Bank becomes a party to the contractual provisions of the instrument.

(i) Financial assets at fair value through profit or loss - recognition and measurement

The Group designates financial assets and liabilities at fair value through profit or loss when: International Raiffeisen Bank Raiffeisen Bank • the financial assets or liabilities are managed, evaluated and reported on a fair value basis;

• the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; or

• the financial asset or liability contains an embedded derivative that significantly modifies the cash flows that would otherwise be required under the contract.

Financial assets and liabilities at fair value through profit or loss are initially recognized in the Group’s statement of financial position at fair value and are subsequently measured at fair value. Transaction costs are directly recognized in profit or loss. Economic growth

(ii) Trading assets and liabilities – recognition and measurement

Trading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit or position taking. Trading assets and liabilities are initially recognized and subsequently measured at fair value in the statement of financial position with transaction costs taken directly to profit or loss. All changes in fair value are recognized as part of net trading income in profit or loss. Trading assets and liabilities are not reclassified subsequent to their initial recognition. in Bulgaria

(iii) Derivatives – recognition and measurement Raiffeisen Group

Derivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured accordingly to the quoted market prices obtained from active financial markets. If no information on the market price is available, valuation techniques such as discounted cash flow models are used as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

(iv) Loans and receivables – recognition and measurement

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active reports Segment market and that the Group does not intend to sell immediately or in the near term.

Loans and advances to banks are classified as loans and receivables.

Loans and receivables are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method less any impairment losses. Independent Independent

(v) Held-to-maturity – recognition and measurement report auditors`

Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity.

Held-to-maturity investments are initially measured at fair value plus incremental direct transaction costs and subsequently measured at amortised cost using the effective interest method. A sale or reclassification of a more than insignificant amount

of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available-for-sale. Addresses 58

However, sales and reclassifications in any of the following circumstances would not trigger a reclassification:

–– sales or reclassifications that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value;

Vision, mission and CSR –– sales or reclassifications after the Group has collected substantially all of the asset’s original principal; and

–– sales or reclassifications that are attributable to non-recurring isolated events beyond the Group’s control that could not have been reasonably anticipated.

(vi) Available-for-sale – recognition and measurement

Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices and which are not classified as at fair value through profit or loss or held to maturity. Available-for-sale financial assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on debt instruments, are recognized in other comprehensive

Raiffeisen BankRaiffeisen income and accumulated in the fair value reserve. When these assets are derecognized, the gain or loss accumulated in International equity is reclassified to profit or loss.

Interest income is recognized in profit or loss using the effective interest method.

(vii) Other financial liabilities – recognition and measurement

Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method. Economic growth

Deposits, borrowings from banks, debt securities issued and subordinated liabilities are the Group’s main funding sources and are classified as other financial liabilities, carried at amortized cost.

(viii) Fair values of financial assets and liabilities

“Fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. Raiffeisen GroupRaiffeisen in Bulgaria When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

Segment reports The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognized in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.

If an asset or a liability measured at fair value has a bid price and a ask price, then the Group measures assets and long

auditors` report positions at a bid price and liabilities and short positions at an ask price. Independent The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.

The Group recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position when Addresses the Group has a legally enforceable right to set off the recognized amounts and the transactions are intended to be settled on a net basis. 59

Income and expenses are presented on a net basis only if permitted under IFRS, as adopted by the EU, or for gains and losses arising from group of similar transactions such as in the Group’s trading activities.

(ix) Derecognition

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.

The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.

The Group enters into transactions whereby it transfers assets recognized on its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are mission and CSR Vision, retained, then the transferred assets are not derecognized from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. Upon transfer of a financial asset on which the Group retains control, the asset continues to be recognized in the statement of financial position, the Group assesses the extent to which it is exposed to changes in the fair value of the asset.

In certain transactions the Group retains rights to service a transferred financial asset for a fee. The transferred asset is derecognized in its entirety if it meets the derecognition criteria. An asset or liability is recognized for the servicing rights,

depending on whether the servicing fee is more than adequate to cover servicing expenses (asset) or is less than adequate International for performing the servicing (liability). Raiffeisen Bank

(f) Cash and cash equivalents

Cash and cash equivalents comprise cash balances on hand and in current accounts in other banks, unrestricted cash deposited with the Central bank and placements with banks with original maturity of less than 3 months.

Cash at banks is classified as loans and receivables and is carried at amortized cost in the statement of financial position. Economic growth (g) Deals with securities

Securities borrowing and lending and repurchase agreements

(i) Securities borrowing and lending

Investments lent under securities lending arrangements are recognized in the statement of financial position and are measured in accordance with the accounting policy for financial assets designated at fair value through profit or loss, available for in Bulgaria sale or held to maturity. Cash collaterals received in respect of securities lent are recognized as liabilities to either banks Raiffeisen Group or customers. Investments borrowed under securities borrowing agreements are not recognized as assets of the Group. Cash collateral placements in respect of securities borrowed are recognized under loans and advances to either banks or customers. Income and expenses arising from the securities borrowing and lending business are recognized on an accrual basis over the period of the transactions and are included in interest income or expense.

(ii) Repurchase agreements

The Group enters into purchases (sales) of investments under agreements to resell (repurchase) substantially identical

investments at a certain date in the future at a fixed price. Investments purchased subject to commitments to resell them at reports Segment future dates are not recognized.

The amounts paid are recognized as receivables under repurchase agreements. The receivables are shown as collateralized by the underlying security. Investments sold under repurchase agreements continue to be recognized in the statement of financial position and are measured in accordance with the accounting policy for either assets held for trading or at fair value through profit or loss as appropriate. The proceeds from the sale of the investments are reported in the statement of financial position as liabilities on repurchase agreements. Independent Independent

The difference between the sale and repurchase considerations is recognized on an accrual basis over the period of the report auditors` transaction and is included in interest income or expense. Addresses Addresses 60

(h) Offsetting

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position when the Group has a legally enforceable right to set off the recognized amounts and the transactions are intended to be settled on a net basis. Vision, mission and CSR

(i) Impairment

Impairment of financial assets

At each reporting date the Group assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. In case such evidence exists, recoverable amount of the assets is defined. Raiffeisen BankRaiffeisen

International Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows on the asset that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. Loans and advances are measured and classified based on their credit risk grade, delinquency, financial difficulty of the borrower and his cash flow generating ability. If the Group has more than one credit exposure against a group of borrowers with common risk characteristics, all exposures are classified according Economic growth to the grade of the borrower bearing the highest credit risk.

The Group considers evidence of impairment at both an individual and collective level. Exposures which are past due more than 90 days or for which some or all of the default indicators mention above have been identified, are assessed for individual impairment. All significant assets found not to be individually impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortized cost) with similar risk characteristics.

In assessing collective impairment the Group uses statistical modelling of historical trends of the default rates, timing of

Raiffeisen GroupRaiffeisen recoveries and the amount of loss incurred, adjusted for management’s judgments as to whether current economic and credit

in Bulgaria conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.

Individual impairment losses on individually identified assets are measured as the difference between the carrying amount of

the financial assets and the present value of estimated cash flows, considering the risk grade of the borrower, discounted at the assets’ original effective interest rate. Short-term balances are not discounted.

When a loan (or part of a loan) is uncollectible, it is written off against the related allowance for loan impairment. Such loans Segment reports are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

When a subsequent event causes the amount of impairment loss to decrease and that decrease can be objectively related to an event after the impairment recognition, the impairment loss is reversed through profit or loss.

Loans and advances are presented net of impairment losses. The increase of the impairment losses is recognized in profit or loss. The Group reintegrates in its current year income impairment losses, which are released as a result of a partial or the total collection of the provisioned exposure, as well as in case of reclassifying the exposure into a lower credit risk group. auditors` report

Independent Allowances for impairment losses on a collective basis are allocated against exposures to cover existing losses, which could not be identified for each individual loan according to the Group’s provisioning policy. The Group’s policy for allocation of portfolio based allowances for impairment losses determines the principles for reducing the statement of financial position amount of a portfolio of loans with similar credit risk characteristics to their recoverable amount as at the reporting date.

In case indication for impairment is identified for assets available for sale, the cumulative loss recognized in other comprehensive income is reclassified to profit or loss. The cumulative loss represents the difference between the purchase price and the current fair value of the financial asset, decreased by losses that are already recognized in profit or loss. Addresses 61

Impairment on non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or CGUs.

The ‘recoverable amount’ of an asset or CGU is the greater of its value in use and its fair value less costs to sell. ‘Value in use’ is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Vision, mission and CSR Vision, Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. International

(j) Investments in associates Raiffeisen Bank

The Group accounts for its investments in associates at cost. Dividends from associates are recognized in profit or loss when the Group's right to receive the dividend is established. The Group assesses at the end of each reporting period whether there is any indication that an investment in associate may be impaired. If any such indication exists, the Group estimates the recoverable amount of the investment based on the ability of the entity to continue to generate income and to pay out dividends to the Group.

.(k) Property, plant and equipment Economic growth Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation. Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of property or equipment have significant part in the total cost of the asset, or have different useful lives, then they are accounted and depreciated as separate items (major components) of property and equipment. in Bulgaria Raiffeisen Group Subsequent costs

The cost of replacing part of an item of property, plant or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably.

Depreciation

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives. Leased assets are Segment reports Segment depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.

The estimated depreciation rates are as follows:

Assets % Buildings 4 Equipment 15 – 50 Independent Independent Fixtures and fittings and reconstructions 15 report auditors` Vehicles 20 – 25

Assets are not depreciated until they are brought into use and transferred from assets in the course of construction into the relevant asset category. Addresses Addresses 62

(l) Intangible assets

Recognition and measurement

Vision, mission and CSR Intangible assets, which are acquired by the Group, are stated at cost less accumulated amortization and any impairment losses.

Subsequent costs

Subsequent expenditure on intangible assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred.

Amortization

Amortization is calculated on a straight-line basis over the expected useful life of the asset. The annual rates of amortization are as follows: Raiffeisen BankRaiffeisen International Assets % Licences 15 – 33 Computer software 20 – 50 (m) Repossessed assets

Economic growth Repossessed assets are measured at the lower of carrying amount and the net realizable value. Carrying amount includes acquisition expenses, state fees for court executors, etc.

Net realizable value is the estimated selling price reduced by approximately evaluated costs for sale realization.

(n) Provisions for liabilities and charges

A provision is recognized in the statement of financial position when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Raiffeisen GroupRaiffeisen Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market in Bulgaria assessments of the time value of money and, where appropriate, the risks specific to the liability. Short-term provisions are usually not discounted.

(o) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits include salaries, bonuses and benefits in kind and are expensed as the related service is Segment reports provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(ii) Defined contribution plans

Obligations for contributions to defined contribution plans comprise contributions to state-owned institutions and to obligatory pension funds managed by privately-owned management companies, in accordance with legal requirements or individual choice. Obligations for contributions to defined contribution plans are expensed as the related service is provided. auditors` report Independent (iii) Defined benefits

The Group’s obligation in respect of defined benefits is calculated separately for each plan and the amount of future benefits that employees have earned in the current and prior periods is estimated and that amount is discounted at an appropriate discount rate.

The calculation is performed annually by a qualified actuary using the projected unit credit method. The Group determines Addresses the net interest expense on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability. 63

Remeasurements of net defined benefit liability which comprise actuarial gains and losses and are recognized in other comprehensive income. Net interest expense and other expenses related to defined benefits, including costs for past service, are recognized in profit or loss. (p) Financial guarantees and loan commitments

“Financial guarantees” are contracts that require the Group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. “Loan commitments” are firm commitments to provide credit under pre-specified terms and conditions.

(q) Income tax

Income tax expense comprises current and deferred tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI. mission and CSR Vision,

(i) Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable or receivable in respect of previous years. Current tax also includes any tax arising from dividends. International

(ii) Deferred tax Raiffeisen Bank

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:

• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

• temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and Economic growth

• taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority. in Bulgaria

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that Raiffeisen Group it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Segment reports Segment (r) Segment reporting

The Group applies IFRS 8 “Operating segments” which requires the Bank to present operating segments based on the information that is internally provided to the Management.

(s) Transactions with securities Independent Independent

The Bank performs for customers the following transactions with securities: report auditors`

• Services related to investments in securities

• Transfers from/to securities accounts with the Bank to/from securities accounts with other banks and/or custodians

• Maintenance and servicing of securities accounts Addresses Addresses 64

• Administration of customer’s securities portfolios

• Custody services for pension funds, CIUs, investment funds and SPEs

The customer’s securities are held on individual customer securities accounts and are separated from the Bank’s own assets. Vision, mission and CSR

Fees and commissions received from transactions with securities are recognized in profit or loss when the service is provided.

(t) Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous financial year. The following amendments to standards have been adopted by the Company as of 1 January 2016:

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets (Amendments): Clarification of Acceptable Methods of Depreciation and Amortization

Raiffeisen BankRaiffeisen The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are International generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, the ratio of revenue generated to total revenue expected to be generated cannot be used to depreciate property, plant and equipment or amortise intangible assets. The amendments have no effect on the Group’s financial position or performance.

IAS 16 Property, Plant and Equipment and IAS 41 Agriculture (Amendments): Bearer Plants

The amendments are not relevant to the Group’s activity. Economic growth

IAS 19 Employee benefits (Amended): Employee Contributions

The amendment applies to contributions from employees or third parties to defined benefit plans. The objective of the amendment is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. The amendment has no effect on the Group’s financial position or performance.

IFRS 11 Joint Arrangements (Amendment): Accounting for Acquisitions of Interests in Joint Operations Raiffeisen GroupRaiffeisen in Bulgaria The amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business in accordance with IFRS. The Group has no interests that could fall within the scope of this amendment.

IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (Amendments)

The amendments clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Also, the amendments clarify that only a subsidiary that is not an investment entity itself and provides support services to the investment Segment reports entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. The amendments have no effect on the Group’s financial position or performance.

IAS 1 Presentation of Financial Statements: Disclosure Initiative (Amendment)

The amendments to IAS 1 Presentation of Financial Statements further encourage companies to apply professional judgment in determining what information to disclose and how to structure it in their financial statements. They clarify, rather than auditors` report

Independent significantly change, existing IAS 1 requirements. The amendments relate to materiality, order of the notes, subtotals and disaggregation, accounting policies and presentation of items of other comprehensive income (OCI) arising from equity accounted Investments. The amendments affect presentation only and have no impact on the Group’s financial position or performance.

IAS 27 Separate Financial Statements (Amended)

The amendment allows entities to use the equity method to account for investments in subsidiaries, joint ventures and associates

Addresses in their separate financial statements. The amendment has no effect on the Group’s consolidated financial statements. 65

Annual improvements to IFRSs 2010-2012 Cycle

Summary of amendments and related standards are provided below:

• IFRS 2 Share-based Payments – amended definitions of ‘vesting condiitons’ and ‘market condition’ and adding the definitions of ‘performance condition’ and ‘service condition’;

• IFRS 3 Business Combinations – clarification on the accounting for contingent consideration arising from business combination;

• IFRS 8 Operating Segments – additional disclosures of management judgement on aggregating operating segments and clarification on reconciliation of total segments’ assets to the entity’s assets;

• IFRS 13 Fair Value Measurement – clarification on interaction with IFRS 9 as regards short-term receivables and Vision, mission and CSR Vision, payables;

• IAS 16 Property, Plant and Equipment – amended to state that when an item of property, plant and equipment is revalued, the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount while the accumulated depreciation is calculated as a difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses;

• IAS 24 Related Party Disclosures – clarified that a management entity that provides key management services

to a reporting entity is deemed to be a related party; disclosure of the service fee paid or payable is required; International Raiffeisen Bank Raiffeisen Bank

• IAS 38 Intangible Assets – same amendment as IAS 16 above.

The adoption of the above amendments to standards has no effect on these financial statements of the Group.

Annual improvements to IFRSs 2012-2014 Cycle

Summary of amendments and related standards are provided below:

• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – clarification that changing from one of Economic growth the disposal methods to the other (through sale or through distribution to the owners) should not be considered to be a new plan of disposal, rather it is a continuation of the original plan;

• IFRS 7 Financial Instruments: Disclosures – provides examples of continuing involvement in a financial asset and clarifies required disclosures in the condensed interim financial report;

• IAS 19 Employee Benefits – clarification on long-term liability discount rate determination;

• IAS 34 Interim Financial Reporting – clarification on required interim disclosures: they must either be in the in Bulgaria interim financial statements or incorporated by cross-reference to other interim financial information (e.g., in the Raiffeisen Group management report) that is available to users on the same terms as the interim financial statements and at the same time.

The adoption of the above amendments to standards has no effect on these financial statements of the Group.

Standards issued but not yet effective and not early adopted

Standards issued but not yet effective and not early adopted up to the date of issuance of the Company’s financial statements are listed below. This listing is of standards and interpretations issued, which the Company reasonably expects to have an reports Segment impact on disclosures, financial position or performance when applied at a future date. The Company intends to adopt those standards when they become effective.

IFRS 9 Financial Instruments: Classification and Measurement

The standard is effective for annual periods beginning on or after 1 January 2018 with early adoption permitted. The final version of IFRS 9 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 Independent auditors` report auditors` measurement, impairment, and hedge accounting. The Group is in process of analysing and assessing the impact of the new standard on its future financial position or performance. In 2016 the Group started a large scale project under the methodological guidance of Raiffeisen Bank International focused on the analysis and assessment how the standard will impact the Group’s future financial position and activity. Within the scope of the project is also the preparation of the Group’s IT systems for the implementation of the new standard. The project is led by the Bank’s project office with the participation of representatives from different business units, Finance division, Risk controlling and IT. The project work is divided into two main streams – classification and measurement and respectively impairment of financial instruments. Addresses Addresses 66

IFRS 15 Revenue from Contracts with Customers

The standard is effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. 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 industry. The standard’s requirements will also apply to the recognition Vision, mission and CSR and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity’s ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgments and estimates. The Group will analyse and assess the impact of the new standard on its financial position or performance.

IFRS 15 Revenue from Contracts with Customers (Clarifications)

The clarifications apply for annual periods beginning on or after 1 January 2018 with earlier application permitted. The objective of the clarifications is to clarify the IASB’s intentions when developing the requirements in IFRS 15 Revenue from Contracts with Customers, particularly the accounting of identifying performance obligations amending the wording of the “separately identifiable” principle, of principal versus agent considerations including the assessment of whether an entity

Raiffeisen BankRaiffeisen is a principal or an agent as well as applications of control principle and of licensing providing additional guidance for International accounting of intellectual property and royalties. The clarifications also provide additional practical expedients for entities that either apply IFRS 15 fully retrospectively or that elect to apply the modified retrospective approach. These clarifications have not yet been endorsed by the EU. The Group will analyse and assess the impact of these clarifications on its financial position or performance.

IFRS 16 Leases

The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the Economic growth recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). The new standard requires lessees to recognize most leases on their balance sheet and to have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged. The standard has not been yet endorsed by the EU. The Group will analyse and assess the impact of the new standard on its financial position or performance.

Amendments in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Raiffeisen GroupRaiffeisen The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in in Bulgaria dealing with the sale or contribution of assets between an investor and its associate or joint venture. A full gain or loss is recognized when a transaction involves a business or a partial gain or loss is recognized when a transaction involves assets that do not constitute a business. The IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have not yet been endorsed by the EU. It is not expected that these amendments would impact the Group’s financial position or performance of the Company.

IAS 12 Income taxes (Amendments): Recognition of Deferred Tax Assets for Unrealised Losses

Segment reports The amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. The objective of these amendments is to clarify the accounting for deferred tax assets for unrealised 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 combined versus separate assessment. These amendments have not yet been endorsed by the EU. It is not expected that these amendments would be relevant to the Group.

IAS 7 Statement of Cash Flows (Amendments): Disclosure Initiative

auditors` report The amendments are effective for annual periods beginning on or after 1 January 2017, with earlier application permitted. Independent The objective of these amendments is to enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments will require entities to provide disclosures that enable investors to evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes. These amendments have not yet been endorsed by the EU. It is not expected that these amendments would be relevant to the Group.

IFRS 2 Share-based Payment (Amendments): Classification and Measurement of Share based Payment Transactions

The amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. Addresses The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, for share-based payment transactions with a net settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share-based payment that changes the 67

classification of the transaction from cash-settled to equity-settled. These amendments have not yet been endorsed by the EU. It is not expected that these amendments would impact the Group’s financial position or performance.

IFRS 4 Insurance Contracts (Amendments): Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

The amendments are not relevant to the Group would not impact its financial position or performance.

IFRIC 22 Foreign Currency Transactions and Advance Consideration

The interpretation is effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. This interpretation addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency. The interpretation has not yet been endorsed by the EU. The Group will assess the impact of the new interpretation on its financial position or mission and CSR Vision, performance.

IAS 40 Investment Property (Amendments): Transfers of Investment Property

The amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The amendments clarify transfers of property to, or from, investment property when there is a change in the use of such property which is supported by evidence. These amendments have not yet been endorsed by the EU. It is not expected that these amendments would impact the Group’s financial position or performance. International Raiffeisen Bank Raiffeisen Bank

Annual Improvements to IFRSs 2014-2016 Cycle

In the 2014-2016 annual improvements cycle, the IASB issued amendments to three standards which are effective for annual periods beginning on or after 1 January 2017 / 1 January 2018. Summary of amendments and related standards are provided below:

• IFRS 1 First-time Adoption of International Financial Reporting Standards – deletion of short-term exemptions for first-time adopters (effective for annual periods beginning on or after 1 January 2018); Economic growth • IFRS 12 Disclosure of Interests in Other Entities – clarification of the scope of the Standard (effective for annual periods beginning on or after 1 January 2017), and

• IAS 28 Investments in Associates and Joint Ventures – measuring an associate or joint venture at fair value (effective for annual periods beginning on or after 1 January 2018).

The improvements to IFRSs 2014 – 2016 Cycle have not yet been endorsed by EU. The will assess the impact of the amendments on its financial statements. in Bulgaria Raiffeisen Group 3. Financial Risk Management

Introduction and overview

The Group is exposed to the following risks from its use of financial instruments:

A. Credit risk reports Segment

B. Liquidity risk

C. Market risks

D. Capital management Independent Independent

Risk management framework report auditors`

The Management Board has overall responsibility for the establishment and oversight of the Group’s risk management framework.

Risk management is been overseen by the Supervisory Board Risk Committee established following the requirements of art. 6 of the Bulgarian national bank Ordinance 7 on organization and risk management of banks. The SB Risk Committee shall advise the Management Board and the Supervisory Board on the Group’s overall current and future risk appetite and strategy Addresses 68

and assist the Management Board and the Supervisory Board in overseeing the implementation of that strategy by senior management.

The Board has established in addition the Group’s Asset and Liability Committee (ALCO), Credit Committee, Problem Loans Committee, Operational Risk Management Committee and Portfolio Committees of the Group, which are responsible for Vision, mission and CSR developing and monitoring Group risk management policies in their specified areas.

The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training programs and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

By its nature the Group’s activities are principally related to the use of financial instruments. The Bank accepts deposits from customers at both fixed and floating rates and for various periods and seeks to invest these funds in high quality assets.

Raiffeisen BankRaiffeisen A. Credit risk International The Group is permanently exposed to credit risk, arising from the probability that counterparties might default on their contractual obligation under loans and advances when due or in full. Credit risk is the most important risk for the Group’s business; management therefore carefully manages its exposure to credit risk. The Group has a set of policies and procedures in relation to credit approval and credit exposures management. In addition, the Group is exposed to off-balance sheet credit risk through commitments under unutilized extended credit lines and issued guarantees.

Concentrations of credit risk (whether on or off-balance sheet) might arise from risk exposures to one borrower or group

Economic growth of borrowers, with similar economic characteristics, that might be affected in equal terms by changes in economic or other circumstances in meeting their contractual obligations.

The Group is exposed to credit risk also in result of its trading and investment activities, as well as in result of its activities as an investment intermediary for its customers or for third parties. The credit risk arising on trading and investment activities is managed through the management of market risk.

The risk that counterparts to financial instruments might default on their obligations is monitored on an ongoing basis by the Group. In monitoring credit risk exposures related to trading instruments, consideration is given to instruments with a positive fair value and to the volatility of the fair value of trading instruments. Raiffeisen GroupRaiffeisen in Bulgaria Management of credit risk

The Supervisory Board has delegated responsibility for the management of credit risk to the Group’s Management Board. The Management Board defines the credit policy based on analysis of the business situation and the assessment of the risk associated with credit business. The scope of the Corporate Lending Policy is to present a clear picture in which direction

the Group’s corporate credit portfolio shall develop within the next year. The approval of the Corporate Lending Policy by Supervisory Board ensures, that the steps proposed by the Group with regards to targeted industries, products, etc. and the subsequent impacts of those steps on the corporate credit portfolio are in line with the plans of the Supervisory Board and Segment reports therefore in line with the basic strategy of RBI Group.

The credit risk management is performed by the organizational units reporting to the Chief Risk Officer. The main responsibilities of these units are:

• Recommend and manage portfolio concentration limits based on approved limits for proactive steering of the concentrations on GCC (Group of Connected Customers) level;

• Provide independent review of limit applications and credit risk assessment based on internal models; auditors` report

Independent • Perform proactive risk management of transactional and portfolio activities;

• Ensure that risk management standards, policies, practices and tools of the RBI Group are adhered to by all business units in the credit process;

• Assist the Risk Originating Units/Account Managers in establishing business-specific risk management practices (not contradicting standard tools introduced by RBI Group) for the approval, measurement, reporting, monitoring, limiting and analysis of credit risk of corporate customers; Addresses • Assist in the identification, classification and management of problematic exposures, including exposures with forbearance; 69

• Ensure that “early warning signs” reported by the Risk Originating Units are considered properly and internal actions (e.g. downgrading of Customer Rating, Review and establishment of action plans for potential problematic exposures) are initiated quickly;

• Cooperate with the Risk Originating Unit in establishing the Credit Policy, review the final Credit Policy paper and recommend amendments whenever necessary as well as monitor the compliance with the approved Credit Policy.

Risk limit control and mitigation policies

The Group manages limits and controls concentrations of credit risk wherever they are identified – in particular, to individual counterparties and groups, and to industries and countries.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one

borrower, or group of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis mission and CSR Vision, and subject to regular reviews, when considered necessary.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations.

Credit risk measurement

In measuring credit risk of loans and advances to customers and to banks at a counterparty level, the Group reflects three International components (i) the probability of default by the client or counterparty on its contractual obligations; (ii) current exposures Raiffeisen Bank to the counterparty and its likely future development, from which the Group derives the “exposure at default”; (iii) the likely recovery ratio on the defaulted obligations (the loss given default), and (iv) loss identification period which is the probability of default horizon.

These credit risk components, which reflect expected loss are compliant with the regulatory requirements of Bulgarian National Bank and the European Directive for capital adequacy and are embedded in the Group’s daily operational management. However, when determining the impairment losses to reduce the carrying amount of the exposure, the requirements of IAS 39 are applied, which are based on losses that have been incurred at the reporting date. Economic growth The Group assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of exposures and counterparty. They have been developed internally and combine statistical analysis with judgment and are validated, where appropriate, by comparison with externally available data. Clients of the Group are segmented into rating classes, reflecting the range of default probabilities defined for each rating class. This means, that in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Group regularly validates the performance of the rating and their predictive power with regard to default events. The Group uses the assessments of recognized external credit assessment institutions where available to benchmark the internal credit risk assessment. in Bulgaria

Since November 1st, 2014 Raiffeisenbank (Bulgaria) EAD has received an approval to apply internal ratings based approach Raiffeisen Group for the assessment and management of the credit risk according to the requirements of the current bank regulations, namely Regulation (EC) 575/2013.

Exposure at default is based on the amounts the Group expects to be owed at the time of default. For example, for a loan this is the outstanding principal. For a commitment, the Group includes any amount already drawn plus the further amount that may have been drawn by the time of default, should it occur.

Loss given default represents the Group’s expectation of the extent of loss on a claim should default occur. It varies by type of counterparty, type of seniority of claim and availability of collateral or other credit mitigation. reports Segment

For debt securities or other bills, both internal and external ratings are used for managing of the credit risk exposures. The investments in those securities and bills are viewed as a way to gain a better credit quality mapping and maintain a readily available source to meet the funding requirement at the same time, hence ensuring also compliance with the respective regulatory requirements and ratios.

Collateral Independent Independent auditors` report auditors` The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is taking security for funds advances. The Group implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types used by the Group are:

–– mortgages over residential properties;

–– cash deposits; Addresses Addresses 70

–– pledge of business assets such as premises, inventory and accounts receivable;

–– bank guarantees;

–– portfolio guarantees issued by first-class international or national institutions; Vision, mission and CSR –– pledge of financial instruments such as debt securities and equities.

Long-term finance and lending to corporate entities are generally secured; consumer loans for individual persons are generally unsecured. In addition, in order to minimize the credit loss the Group might seek additional collateral from the counterparty when impairment indicators are noticed for the relevant individual loans and advances.

Derivatives

The Group maintains strict credit risk limits towards its counterparties which have derivative deals (exposures) having in mind the deal structure in terms of currencies, term and notional amount. They can be split into two categories as follows:

Raiffeisen BankRaiffeisen –– Settlement Limit: limits the maximum payments due on each single day; International

–– FX-Derivatives Limit: limits the replacement cost of all OTC Derivative products in case the counterparty defaults.

At any time, the amount subject to credit risk is limited to the current fair value of instruments that are favorable to the Group (i.e. assets, where their fair value is positive), which in relation to derivatives is only a small fraction of the contract, or notional values used to express the volume of instruments outstanding. The credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments. Economic growth Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from the Bank’s market transactions on any single day.

Credit-related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written

Raiffeisen GroupRaiffeisen undertakings by the Group on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralized by the underlying shipments of goods to which they relate in Bulgaria and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an

amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because long-term commitments generally have a greater degree of credit risk than short-term commitments. However, any commitments that are unconditionally cancellable at any time by the Group without Segment reports prior notice, or that effectively provide for automatic cancellation due to deterioration in the borrower’s creditworthiness, are considered by the Group to bear no risk.

Policy for risk exposures assessment and allocation of impairment allowances for credit risk

The internal and external rating systems focus more on credit quality mapping from the inception of the lending and investment activities. In contrast, impairment allowances are recognized for financial reporting purposes only for losses that have been incurred at the reporting date based on objective evidence of impairment. auditors` report

Independent The Group applies different approaches with regard to assessment of impairment and determination of the credit loss, depending on the customer segment and product type.

Individual impairment allowance is set aside for defaulted customers in all segments:

–– exposure is past due more than 90 days;

–– exposure is identified as unlikely to be paid on the basis of default indicators Addresses Allowances for impairment of retail customers’ secured exposures are measured at 100 per cent after considering the collateral value if it is mortgage. For unsecured products for private individuals individual impairment is defined based on time since default, accounting for the observed discounted historical recovery after default until the ultimate collection period is reached. 71

Exposures of retail customers, for which no individual impairment has been identified, are grouped together in pools according to their internal rating. The collective impairment of each pool is measured according to the historic default rate and loss upon default for the respective rating class. The historic default rate represents the number of defaulted exposures during the observation period as percentage from total number of exposures in the respective pool. The observation period is 12 months and the average is calculated on historically available consecutive 12-month periods and considers only existing non-defaulted exposures at the beginning of the period. The collective impairment is determined by multiplying the exposure by the historic default rate, which corresponds to the rating class of the customer and by the level of Loss Given Default (LGD). LGD values are also based on historical data spanning more than 5 years, as defined for IRB parameter estimation. LGD is defined as 100 per cent less the average historically observed recovery rate.

For certain retail products with non-significant exposure that are not covered by IRB models, individual allowances are calculated after 180 days past due and in case of other unlikely to pay indicators. Accounts that are individually assessed for impairment and identified as impaired are excluded from a collective assessment of impairment, but they may enter into the model, which determines loss factors used for collective allowances for impairment. Vision, mission and CSR Vision,

In December 2015 Raiffeisenbank (Bulgaria) EAD has introduced internal-rating based model in the calculation of allowance for impairment losses for loans to private individuals and micro entities. Estimates of specific parameters (Historic Default Rate, Loss Given Default and Credit Conversion Factor) are subject to annual recalculation, following the established internal processes of the Bank for internal-rating models. With this change being in default is the main criteria for the calculation of impairment allowance on collective and individual level.

Exposures to non-retail customers are evaluated and classified based on the credit risk level, the period of delay of amounts International

due, the assessment of the debtor’s financial state and the main sources for repayment of the debtor’s obligations. Raiffeisen Bank

The Group applies a policy for determining allowance for collective impairment of exposures to corporate customers. Exposures to large, middle and small corporate customers, as well as financial institutions for which no individual impairment has been identified, are grouped together in pools according to their internal rating. The collective impairment of each pool is measured according to the historic default rate for the respective rating class. The historic default rate represents the number of defaulted customers within the observation period as percentage from total number of customers in the respective pool. The observation period is 12 months and the average is calculated on 5 consecutive 12-month periods and considers only customers with existing exposures at the beginning and the end of the period. The collective impairment is determined by multiplying the net exposure after deduction of the highly liquid collateral by the historic default rate, which corresponds to the rating class of the customer and by the level of loss on the unsecured part of the exposure (Loss Given Default, LGD). Due Economic growth to the limited historical data for recovered amounts on defaulted exposures, the Group applies the Group benchmark for LGD according to the respective rating models.

Except for trading assets and derivatives (considered later), the Group’s maximum credit risk exposure net of impairment is presented in the below table. Balances with the Central bank do not bear credit risk.

Loans and advances Loans and advances Investment securities Contingent

to customers to banks (excluding equity liabilities in Bulgaria

investments) Raiffeisen Group As at 31 December 2016 2015 2016 2015 2016 2015 2016 2015

Carrying amount 3,979,675 3,555,359 382,606 780,530 961,656 706,658 - - Commitment 1,227,084 1,172,180 43,407 14,906 - - 313,897 262,002 Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 72

Credit risk exposures

Loans and Contingent Unutilized As at 31 December 2016 advances liabilities loan

Vision, mission and CSR in BGN Thousand to customers commitments Individually impaired: Minimal risk - - - Very good credit standing - - - Good credit standing - - - Sound credit standing - - - Acceptable credit standing - - - Marginal credit standing - - - Weak credit standing / sub-standard - - - Raiffeisen BankRaiffeisen

International Very weak credit standing / doubtful 16 - - Default 162,349 5,535 79 Unrated Retail 135,482 0 2,716

Gross amount 297,847 5,535 2,795

Allowance for impairment (215,708) (3,363) - Economic growth Carrying amount 82,139 2,172 2,795

Including exposures with forbearance measures 185,417 987 1

Collectively impaired subject to IBNR:

Minimal risk - - - Very good credit standing 1,204 45,417 - Good credit standing 167,292 45,173 219

Raiffeisen GroupRaiffeisen Sound credit standing 745,053 92,053 - in Bulgaria Acceptable credit standing 537,063 29,432 - Marginal credit standing 127,750 6,726 637 Weak credit standing / sub-standard 42,953 2,044 -

Very weak credit standing / doubtful 7,876 2,069 - Default 8 - - Unrated 81 120 0 Segment reports Retail 1,906,228 6,253 178,462 Gross amount 3,535,508 229,287 179,318

Allowance for impairment (31,394) (244) (1,263)

Carrying amount 3,504,114 229,043 178,055

Including exposures with forbearance measures 85,732 - - auditors` report Independent Addresses 73

Loans and Contingent Unutilized As at 31 December 2016 advances liabilities loan in BGN Thousand to customers commitments Past due, but not impaired: Good credit standing 42 - 263 Sound credit standing 1,013 59 7,095 Acceptable credit standing 571 - 191 Marginal credit standing 1,531 - - Weak credit standing / sub-standard 862 - 7 Very weak credit standing / doubtful 475 - - Vision, mission and CSR Vision, Default 0 - 2 Retail 988 - 449 Gross amount 5,482 59 8,007 Including exposures with forbearance measures 1,170 - - Past due comprises: International

1-30 days 5,035 59 Raiffeisen Bank 30-60 days 192 - - 60-90 days 209 - - 90-180 days 46 - - 180 days + 0 - - Gross amount 5,482 59

Including exposures with forbearance measures 1,170 - - Economic growth Neither past due, not impaired: Minimal risk 49 - 84

Excellent credit standing 2,288 783 7,734 Very good credit standing 19,404 11,764 35,543 Good credit standing 93,991 39,891 299,762

Sound credit standing 109,982 10,742 433,066 in Bulgaria

Acceptable credit standing 84,453 10,667 186,740 Raiffeisen Group Marginal credit standing 35,407 1,480 27,343 Weak credit standing / sub-standard 12,790 496 6,547 Very weak credit standing / doubtful 8,526 12 646 Default - - 1 Unrated 321 - 53 Retail 20,729 352 39,445 Segment reports Segment Gross amount 387,940 76,187 1,036,964

Including exposures with forbearance measures 10,349 39 973

Total portfolio 4,226,777 311,068 1,227,084

Allowance for impairment (247,102) (3,607) (1,263)

Carrying amount 3,979,675 307,462 1,225,821 Independent Independent

Including exposures with forbearance measures 282,668 1,026 975 report auditors` Addresses Addresses 74

Loans and Contingent Unutilized As at 31 December 2015 advances liabilities loan in BGN Thousand to customers commitments Individually impaired: Vision, mission and CSR Minimal risk - - - Very good credit standing - - - Good credit standing - - - Sound credit standing - - - Acceptable credit standing - - - Marginal credit standing 3 - - Weak credit standing / sub-standard 1 - - Very weak credit standing / doubtful 1 - -

Raiffeisen BankRaiffeisen Default 269,561 12,546 - International Unrated 16 - - Retail 151,475 - -

Gross amount 421,057 12,546 -

Allowance for impairment (248,088) (1,247) -

Carrying amount 172,969 11,299 -

Economic growth Including exposures with forbearance measures 285,019 1,927 -

Collectively impaired subject to IBNR: Minimal risk - - - Very good credit standing 960 4,441 - Good credit standing 196,744 26,529 - Sound credit standing 443,612 38,797 - Acceptable credit standing 399,327 69,013 - Raiffeisen GroupRaiffeisen in Bulgaria Marginal credit standing 104,244 3,148 - Weak credit standing / sub-standard 16,113 273 - Very weak credit standing / doubtful 24,953 2,600 - Unrated 709 30 -

Retail 1,682,124 5,553 -

Gross amount 2,868,786 150,384 - Segment reports Allowance for impairment (30,872) (274) -

Carrying amount 2,837,914 150,110 -

Including exposures with forbearance measures 97,242 39 -

Past due, but not impaired: Good credit standing 247 - - Sound credit standing 370 - - auditors` report

Independent Acceptable credit standing 1,354 - - Marginal credit standing 559 - - Weak credit standing / sub-standard 130 - - Very weak credit standing / doubtful 1,478 - - Retail 770 - -

Gross amount 4,908 - - Addresses Including exposures with forbearance measures 989 - - 75

Loans and Contingent Unutilized As at 31 December 2015 advances liabilities loan in BGN Thousand to customers commitments Past due comprises: - 1-30 days 4,484 - - 30-60 days 303 - - 60-90 days 39 - - 90-180 days 68 - - 180 days + 14 - - Gross amount 4,908 - - Vision, mission and CSR Vision, Including exposures with forbearance measures 989 - -

Neither past due, nor impaired: Excellent credit standing 6 59 4,923 Very good credit standing 144,946 55,708 125,559 Good credit standing 47,415 9,158 227,383

Sound credit standing 114,338 9,154 390,313 International Raiffeisen Bank Raiffeisen Bank Acceptable credit standing 98,833 14,475 182,085 Marginal credit standing 38,719 3,268 37,684 Weak credit standing / sub-standard 9,778 768 3,327 Very weak credit standing / doubtful 20,045 175 4,733 Default - - 20 Unrated 5 6 189

Retail 65,483 250 195,964 Economic growth Gross amount 539,568 93,021 1,172,180

Including exposures with forbearance measures 16,111 175 -

Total portfolio 3,834,319 255,951 1,172,180

Allowance for impairment (278,960) (1,521) -

Carrying amount 3,555,359 254,430 1,172,180 in Bulgaria

Including exposures with forbearance measures 399,360 2,142 - Raiffeisen Group

Individually impaired

Individually impaired are those exposures with criteria for individual impairment as described above in the “Policy for risk exposures assessment and allocation of impairment allowances for credit risk”.

Collectively impaired Segment reports Segment Collectively impaired exposures are those without indications for need of individual impairment.

Past due, but not impaired

Past due, but not impaired are past due exposure which are subject to collective impairment, however it is 0.

Neither past due, nor impaired Independent Independent auditors` report auditors` Neither past due, nor impaired are exposures that are not past due and are subject to collective impairment, however it is 0. Addresses Addresses 76

Risk Categories

Risk categories are defined according to the rating and the correspondent limits of the estimated probability of default in the corporate segments as follows:

Vision, mission and CSR Lower limit Upper limit Risk categories of probability of probability of default of default

Minimal risk >0.0000% ≤0.0300% Excellent credit standing >0.0300% ≤0.0751% Very good credit standing >0.0751% ≤0.1878% Good credit standing >0.1878% ≤0.4694% Sound credit standing >0.4694% ≤1.1735% Acceptable credit standing >1.1735% ≤2.9338% Raiffeisen BankRaiffeisen International Marginal credit standing >2.9338% ≤7.3344% Weak credit standing/ sub-standing >7.3344% ≤18.3360% Very weak credit standing/ doubtful >18.3360% <100% Default 100% n.a.

Forborne exposures Economic growth For the purpose of the reports above, forborne exposures are debt contracts in respect of which forbearance measures have been extended. Forbearance measures consist of concessions towards a debtor facing or about to face difficulties in meeting its financial commitments (“financial difficulties”).

Investment securities are treated as neither past due, nor impaired with good/ very good credit standing.

Set out below is an analysis of the gross and net (of allowances for impairment) amounts of individually impaired assets by risk grade. Raiffeisen GroupRaiffeisen

in Bulgaria in BGN Thousand Gross amount Net amount

As at 31 December 2016 Minimal risk - -

Very good credit standing - - Good credit standing - - Sound credit standing - - Segment reports Acceptable credit standing - - Marginal credit standing - - Weak credit standing / sub-standard - - Very weak credit standing / doubtful 16 16 Default 162,349 48,173 Unrated

auditors` report Retail 135,482 33,950 Independent Total 297,847 82,139 Addresses 77

in BGN Thousand Gross amount Net amount

As at 31 December 2015 Minimal risk - - Very good credit standing - - Good credit standing - - Sound credit standing - - Acceptable credit standing - - Marginal credit standing 3 - Weak credit standing / sub-standard 1 -

Very weak credit standing / doubtful 1 - mission and CSR Vision, Default 269,561 112,700 Unrated 16 - Retail 151,475 60,269 Total 421,057 172,969

Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used International for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price or indexes of Raiffeisen Bank similar assets where the update frequency depends on the asset type and the market conditions.

The table below stratifies credit exposures from mortgage loans and advances to retail customers by ranges of loan-to-value (LTV) ratio. LTV is calculated as the ratio of the gross amount of the loan to the value of the collateral. The gross amounts exclude any impairment allowances. The valuation of the collateral excludes any adjustments for obtaining and selling the collateral. The value of the collateral for residential mortgage loans is based on the collateral value at origination updated based on changes in house prices indices or individual review where applicable.

in BGN Thousand 2016 2015 Economic growth

Loan to value (LTV) ratio:

Less than 50% 49,428 151,529 51% to 70% 370,219 205,044 71% to 90% 266,458 223,322 91% to 100% 38,395 41,085 in Bulgaria More than 100% 61,268 120,135 Raiffeisen Group Total 785,768 741,116

The table below indicates the finance lease exposure in mortgages classified by Loan-to-value (LTV) ratio. The LTV is calculated as a relation of the gross finance lease exposure to the underlying market value of the mortgage. The impairment is not considered in the gross exposure. The valuation of the collateral does not include future acquisition and realization costs. As at 31 December 2016 the net investment in mortgages amounts to BGN 35,250 thousand and the weighted value of the collateral related to these finance leases amounts to BGN 29,632.

in BGN Thousand 2016 reports Segment Loan-to-Value (LTV):

Less than 50% 1,259 51% to 70% 861 71% to 90% 7,294

91% to 100% 19,476 Independent auditors` report auditors` More than 100% 9,202 Total 38,092 Addresses Addresses 78

Concentration of risks of loans and advances by industry sector

The following table breaks down the Group’s main credit exposures at their gross carrying amounts, as categorized by the industry sectors: Vision, mission and CSR in BGN Thousand 2016 % 2015 % Manufacturing 1,027,644 24% 864,144 22% Construction and real estate 219,854 5% 212,624 6% Transport 155,723 4% 86,499 2% Trade 810,298 19% 771,883 20% Other 355,274 9% 406,693 11% Individuals 1,657,984 39% 1,492,476 39% hereof mortgages 785,768 19% 741,116 19%

Raiffeisen BankRaiffeisen Total 4,226,777 3,834,319 International

Concentration of risks of loans and advances by customers

As at 31 December 2016 the sum of the ten largest credit exposures to customers amounts to BGN 598,873 thousand, respectively BGN 560,404 thousand as at 31 December 2015.

Exposures to banks Economic growth The Bank places free liquidity on the money market and as short-term credit facilities only to credit institutions with very good credit rating. Free liquidity is placed mainly with the mother company or other members of the Raiffeisen banking group.

The Bank has established correspondent banking relations with other credit institutions worldwide and maintains accounts in different currencies with first-class international banks.

Risk from the residual amount of leased assets

Raiffeisen GroupRaiffeisen Due to its leasing business the Group is exposed to risk from the residual amount of the leased assets. In case of default or in Bulgaria seizure of assets under finance lease or expiry of operational lease, the assets’ residual amount may not be recovered by direct sale or subsequent lease.

The Group manages the risk from not recovery of the residual amount in case of finance lease by demanding from customers initial instalments that are determined based on the kind of the asset and whether it is new or second hand. In case of

operational lease the Group analyses the expected residual value in order to determine the term of the lease agreement and the regular lease payments.

Segment reports The table below illustrates the concentration of finance lease receivables by asset kind:

31 December 2016 Net investment in BGN Thousand in finance lease % Asset kind

Vehicles 109,814 38% Immovable property 38,092 13%

auditors` report Trucks 64,091 22% Independent Agricultural machinery 39,267 14% Machinery and equipment 21,448 8% Construction machinery 9,349 3% Other 5,244 2%

Gross amount 287,305 100%

Addresses Allowance for impairment (5,996)

Net amount 281,309 79

Credit risk from exposure in securities

An analysis of the credit quality of the maximum credit exposure for securities, based on ratings assigned by rating agencies where applicable, is as follows:

in BGN Thousand 2016 2015 Securities held for trading

Bulgarian government securities BB+/Ba1 32,326 54,292 Bulgarian corporate bonds Unrated - 820 Vision, mission and CSR Vision, Foreign government securities AAA/Aaa 1,910 - AA+/Aa1 1,000 - AA/Aa2 613 -

Total securities held for trading 35,849 55,112 International Raiffeisen Bank Raiffeisen Bank

in BGN Thousand 2016 2015 Securities measured at fair value through profit or loss Bulgarian corporate bonds Unrated - 3,145 Bulgarian corporate shares Unrated 2,272 2,259 Economic growth

in BGN Thousand 2016 2015

Securities available for sale Bulgarian government securities BB+/Ba1 174,866 147,529 Foreign government securities in Bulgaria

AA+/Aa1 27,765 28,103 Raiffeisen Group AAA/Aaa 74,668 - Foreign corporate bonds A+/A1 97,579 - Foreign corporate shares A+/A1 3,186 9,927 Segment reports Segment in BGN Thousand 2016 2015 Securities held to maturity

Bulgarian government securities BB+/Ba1 506,544 451,488 Bulgarian corporate bonds

Unrated 9,830 - Independent auditors` report auditors` Bulgarian municipality bonds BB+/Ba1 22,840 27,408 Foreign government securities AA+/Aa1 47,564 48,985

Total investment securities 967,114 718,844 Addresses Addresses 80

B. Liquidity risk

Liquidity risk may be defined as the potential inability of the Group to fund the increases in assets or meet its payment obligations associated with its financial liabilities when they fall due, without incurring unacceptable losses. Vision, mission and CSR With view of conducting effective management and control, the Group distinguishes two dimensions of the liquidity risk - short-term liquidity risk and funding liquidity risk.

Organizational structure for liquidity risk management

By virtue of the liquidity risk management framework, established on Group level, the Assets and Liabilities Committee (ALCO) shall oversee the Group’s liquidity position in light of the risk limits set in place and approve the Funding plans (an annual plan for meeting the funding needs as well as a strategic plan for the next three calendar years). In addition, the Committee strives to ensure compliance with liquidity risk standards and policies, as well as with relevant legal and regulatory requirements.

Liquidity management process and strategy Raiffeisen BankRaiffeisen International The Liquidity position of the Group is managed on day-to-day basis and the figures are being reported regularly at ALCO.

The Group’s liquidity management strategy revolves around the aim to timely deliver liquidity resources that are sufficient in amount, quality and structure for meeting obligations, when due, in both normal and stressed conditions without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group does not maintain liquid assets for covering the total amount of all outflows, as historical experience has shown that part of the deposits would not be withdrawn but rolled over. In light of the above, cash inflows and outflows are analyzed Economic growth under both “going concern” and “stress-test” scenarios, taking into consideration contractual features and behavioral peculiarities. Liquidity gaps are viewed under the perspective of different time horizons and currencies. If a liquidity gap reaches an unacceptable level, relevant escalation procedures are activated and countermeasures are put in place depending on the gap significance and time bucket.

The key elements of the Bank’s Liquidity Strategy are as follows:

–– Maintaining a diversified funding base with an adequate proportion of customer deposits (both retail and corporate) and wholesale funding;

Raiffeisen GroupRaiffeisen –– Carrying a portfolio of liquid assets, diversified by currency and maturity; in Bulgaria

–– Applying an adequate system of tools for measuring and monitoring the Group’s liquidity situation with respect to the internally imposed limitations and regulatory requirements; monitoring of liquidity ratios, maturity mismatches, behavioral characteristics of the Bank’s financial assets and liabilities;

–– Dynamic process for carrying out stress tests of the Group’s liquidity position. The latter are subject to continuous redevelopment and improvement in line with the regulatory requirements on both local and European level. They are supplemented by a system of early warning indicators designed to timely identify the emergence of liquidity

Segment reports risk, as well as by action plans to be activated in case of a crisis situation;

–– Adequate reporting framework enabling a continuous evaluation of the liquidity profile and application of relevant corrective actions, if needed;

–– Avoiding concentrations on Group of connected customers level and inclusion of these concentrations as potential outflow on the first day.

Liquidity Stress Tests auditors` report

Independent The Group performs three types of stress tests with view of capturing its capacity to withstand negative circumstances: market specific, reputational and a combination of the two. The results are reviewed/analyzed on an on-going basis and also are reported to the Managing Board for further countermeasures, if needed.

The stress-testing framework involves monitoring of a system of limits imposed on the Group’s liquidity position. They designate a survival period of at least one month, the latter being translated by a requirement for positive liquidity mismatches over the first 30 days. The liquidity limits are defined on both total currency level as well as for each material currency (BGN, EUR, USD and joint BGN/EUR basis). The stress test results over the first 30 days for BGN and USD have to be positive; the

Addresses EUR result may be negative up to EUR -100 mn. but given that the joint BGN/EUR is positive. 81

In accordance with a recommendation issued by the European Central Bank (ECB) towards RBI Vienna, the 30-day focus would be extended over a 90-day horizon for all currency. The latter would capture the additional countermeasures on top of the CBC – potentially ones of the corrective actions stated in the RBBG Recovery Plan.

Liquidity buffer

TThe Group maintains a Liquidity Buffer composed of cash and core liquid assets to ensure, to the maximum extent possible, an extended survival period. Therefore the Group constantly strives for optimization of the Net liquid assets to the total Group’s liabilities ratio.

For this purpose net liquid assets are considered as including cash and cash equivalents, balances with the Bulgarian national bank, nostro accounts and placements with banks with a remaining maturity up to 7 days, tradable debt securities, issued by central governments and central banks, treasury bills and bonds of the Government of Republic of Bulgaria, tradable debt

securities, issued by institutions with first-class credit rating, tradable debt securities, issued by international development mission and CSR Vision, banks and international organizations. Liquid assets do not include pledged assets. The amount of the pledged assets as at 31 December 2016 and 31 December 2015 is BGN 229 mn and BGN 304 mn respectively.

The table below illustrates the liquid assets to total attracted funds ratio for the past two years.

2016 2015 Average for the period 36.1% 34.1% International Raiffeisen Bank Raiffeisen Bank Maximum for the period 39.5% 35.8% Minimum for the period 33.6% 31.5% As of 31 December 33.8% 35.4%

Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month respectively, as these are key periods for liquidity management. The starting point for those projections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets.

Unmatched medium term assets, the level and type of undrawn lending commitments, the usage of overdraft facilities and the Economic growth impact of contingent liabilities such as standby letters of credit and guarantees are also monitored and analyzed.

Funding approach

Sources of liquidity are regularly reviewed by Treasury/ALM Department to maintain a wide diversification by currency, geography, provider, product type and term.

The diversification of wholesale funding is controlled/limited by a special Group-wide concept named “Counterparty Funding in Bulgaria

Concentration Risk”. It impacts the Stress Test results and de-incentives the attraction of significant funding from Group of Raiffeisen Group connected customers.

Early warning system

TThe Group periodically monitors certain liquidity ratios considered to be representative when first signals of liquidity deficiencies occur. The ratios observed cover the following areas - quality of receivables, liabilities dependability, liquid assets tradability, market environment and other qualitative and quantitative ratios.

Cash flows from non-derivative liabilities reports Segment

The maturity of non-derivative liabilities is expressed as the cash flows payable by the Group under financial liabilities by remaining contractual maturities at the reporting date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Group manages the inherent liquidity risk based on expected undiscounted cash inflows.

Cash flows from derivative liabilities

The Group’s derivatives will be settled on a gross basis and include: Independent auditors` report auditors`

–– Foreign exchange derivatives – currency forwards, currency swaps

–– Interest rate derivatives – single currency interest rate swaps, cross currency interest rate swaps. Addresses Addresses 82

The tables below set out the remaining contractual maturities of the Group’s financial liabilities:

As at 31 December 2016 Less than 1-3 3 months 1-5 years More than Total inflow/ Carrying in BGN Thousand 1 month months to 1 year 5 years outflow amount Vision, mission and CSR Non derivative liabilities Deposits from banks (31,763) - - - - (31,763) 31,763 Deposits from customers (3,995,465) (237,368) (487,519) (14,685) - (4,735,037) 4,734,884 Borrowings from banks (3,453) (36,266) (94,135) (240,058) (19,306) (393,218) 387,662 Subordinated liabilities (2,020) (845) (8,541) (45,656) (384,559) (441,621) 365,281 Current tax liabilities (33) - - - - (33) 33 Other liabilities (644) (21,936) (13,337) (6,854) - (42,771) 42,771 Loan commitments - (1,270,491) - - - (1,270,491) -

Raiffeisen BankRaiffeisen Total non-derivative International instruments (4,033,378) (1,566,906) (603,532) (307,253) (403,865) (6,914,934) 5,562,394

Derivative liabilities - Foreign exchange derivatives 6,047 - Outflow (42,116) (77,018) (67,232) (18,110) - (204,476) - Inflow 41,075 75,308 63,626 17,709 - 197,718 Economic growth - Interest rate derivatives 182 - Outflow (32) (64) (287) (1,080) - (1,463) - Inflow 24 48 217 817 - 1,106

Total derivative liabilities (1,049) (1,726) (3,676) (664) - (7,115) 6,229

As at 31 December 2015 Less than 1-3 3 months 1-5 years More than Total inflow/ Carrying

Raiffeisen GroupRaiffeisen In BGN Thousand 1 month months to 1 year 5 years outflow amount in Bulgaria Non derivative liabilities

Deposits from banks (48,325) - - - - (48,325) 48,325 Deposits from customers (3,879,186) (330,989) (521,939) (21,946) - (4,754,060) 4,752,846

Borrowings from banks (3,714) (12,080) (50,112) (188,873) (48,357) (303,136) 298,181 Subordinated liabilities (2,159) (944) (9,253) (49,323) (395,331) (457,010) 365,457 Other liabilities (7,461) (29,030) (13,555) (2,437) - (52,483) 52,483 Segment reports

Loan commitments - (1,187,086) - - - (1,187,086) -

Total non-derivative instruments (3,940,845) (1,560,129) (594,859) (262,579) (443,688) (6,802,100) 5,517,292

Derivative liabilities - Foreign exchange derivatives 2,413 auditors` report - Outflow (8,210) (28,418) (51,038) - - (87,666) Independent - Inflow 7,997 27,730 49,262 - - 84,989 - Interest rate derivatives 186 - Outflow (20) (40) (181) (925) - (1,166) - Inflow 19 38 170 882 - 1,109

Total derivative liabilities (214) (690) (1,787) (43) - (2,734) 2,599 Addresses 83

The next table illustrates the carrying amounts of assets and liabilities by remaining maturities less than and more than 12 months.

in BGN Thousand 2016 2015

Less than More than Less than More than 12 months 12 months 12 months 12 months Assets Cash and balances with the Central bank 1,044,846 - 1,275,552 - Trading assets 35,849 - 55,112 - Derivatives 6,029 289 2,561 186 Vision, mission and CSR Vision, Loans and advances to banks 243,712 138,894 762,054 18,476 Loans and advances to customers 1,450,074 2,529,601 1,321,184 2,234,175 Investment securities 331,725 635,389 69,552 649,292 Investments in associates - 1,708 - 6,556 Current tax assets 257 - 1,808 - Property, plant and equipment - 29,753 - 23,878 International Intangible assets - 21,359 - 18,292 Raiffeisen Bank Other assets 25,918 14,016 7,830 15,664 Deferred tax assets - 1,143 - 1,265 Total assets 3,138,410 3,372,152 3,495,653 2,967,784 Liabilities Derivatives 5,931 298 2,413 186 Deposits from banks 31,763 - 48,325 - Economic growth Deposits from customers 4,720,148 14,736 4,727,617 25,229 Borrowings from banks 132,389 255,273 58,494 239,687

Subordinated liabilities - 365,281 - 365,457 Current tax liabilities 33 - 22 - Other liabilities 51,725 17,140 55,410 21,069

Total liabilities 4,941,989 652,728 4,892,281 651,628 in Bulgaria Raiffeisen Group Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 84

In the table below is presented the analysis of the financial assets comprising the liquidity reserve that is available to the Group in order to cover outgoing cash-flows on its financial liabilities in case of liquidity crisis:

in BGN Thousand 2016 2015

Vision, mission and CSR Liquid assets Cash and balances with the Central bank 1,047,684 1,275,552 Government treasury bills and investment grade debt securities 636,655 426,626 Nostro accounts and placements with banks with a remaining maturity up to 7 days 129,349 240,157 Total liquid assets 1,813,688 1,942,335

C. Market risk

Raiffeisen BankRaiffeisen In general market risk is the risk from experiencing loss due to unexpected changes in the market factors (interest rates, International foreign currency rates, prices etc.) which are influencing in a negative way the value of the assets and/or the entire portfolio.

The Group takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument or the bank’s assets in the portfolio will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to unexpected and unfavorable market movements and volatility changes of the market factors (interest rates, credit spreads, foreign exchange rates, etc.) and changes in indices and equity prices. The Group separates exposures to market risk into either trading or non-trading portfolios.

Economic growth All marked-to-market instruments are recognized at fair value in the statement of financial position based on quoted bid prices, and all changes in market conditions directly affect net trading income (through trading instruments) or equity value (through available for sale instruments).

The Group manages its trading portfolios in accordance with the changes in market conditions, as well as through setting by the management of respective limits for the relative instruments.

Management of Market risk

Raiffeisen GroupRaiffeisen EExposure to market risk is formally managed in accordance with risk limits set by senior management for buying or selling

in Bulgaria of financial instruments.

Overall authority for market risk is vested in ALCO. Market Risk Management responsible departments on Bank and Group Level are developing detailed risk management policies (subject to review and approval by ALCO and Group Market Risk Committee) and for the day-to-day review of their implementation.

The table below sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios. Segment reports As at 31 December 2016 Non-trading in BGN Thousand Carrying amount Trading portfolios portfolios

Assets subject to market risk Cash and balances with the Central bank 1,044,846 - 1,044,846 Trading assets 35,849 35,849 - Derivatives 6,318 6,318 - auditors` report

Independent Loans and advances to banks 382,606 - 382,606 Loans and advances to customers 3,979,675 - 3,979,675 Investment securities 967,114 - 967,114 Liabilities subject to market risk Derivatives 6,229 6,229 - Deposits from banks 48,325 - 48,325 Addresses Deposits from customers 4,734,884 - 4,734,884 Borrowings from banks 387,662 - 387,662 Subordinated liabilities 365,281 - 365,281 85

As at 31 December 2015 Non-trading in BGN Thousand Carrying amount Trading portfolios portfolios

Assets subject to market risk Cash and balances with the Central bank 1,275,552 - 1,275,552 Trading assets 55,112 55,112 - Derivatives 2,747 2,747 - Loans and advances to banks 780,530 - 780,530 Loans and advances to customers 3,555,359 - 3,555,359 Investment securities 718,844 - 718,844 Vision, mission and CSR Vision, Liabilities subject to market risk Derivatives 2,599 2,599 - Deposits from banks 50,519 - 50,519 Deposits from customers 4,752,846 - 4,752,846 Borrowings from banks 298,181 - 298,181

Subordinated liabilities 365,457 - 365,457 International Raiffeisen Bank Raiffeisen Bank

Market risk measurement techniques

Market risk is the risk from experiencing loss or negative effect that unexpected and unfavorable changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/ issuer’s credit standing) will affect the Group’s income or the value of its holdings of financial instruments. The objective of the Group’s market risk management is to manage and control market risk exposures within acceptable parameters in connection with the risk appetite and the entire Group’s strategy. Economic growth Value at risk

The Group applies a “value at risk” methodology (VAR) to its trading and non-trading portfolios to estimate the market risk of positions held and the potential losses expected, through appropriate analytical method, supported by empirical conditions and documented analyses. This method is applied consecutively and with a certain level of conservatism, which is usually higher if there is only limited data available.

The Group uses VaR Limits for market risk on both total and split by the following risk factors levels: foreign exchange (FX), interest rate risk (IR), basis risk (Bs) and spread risk (SP). The overall structure of VaR Limits is subject to review and approval in Bulgaria by ALCO. VaR Limits are allocated to both trading and non-trading portfolios but also on total Bank level as well. Raiffeisen Group

VAR is a statistically based estimate of the potential loss on the current portfolio from adverse market movements. It expresses the maximum amount the Group might lose, but only to a certain level of confidence (99 per cent). There is therefore a specified statistical probability (1 per cent) that actual loss could be greater that the VAR estimate. The VAR model assumes a certain “holding period” until positions can be closed (1 day). It also assumes that market moves occurring over this holding period will follow a similar pattern to those that have occurred in the past. The VAR approach used in the Group since the beginning of 2010 is a hybrid one, i.e. both aspects of historical simulation and of a parametric approach are combined and extreme events resulting from a period of stressed risk factors are added. Segment reports Segment Volatility regimes are taken into consideration via rescaling of historic returns (used volatility is a weighted average of 80 per cent of the recent 20 business days and 20 per cent of the past two years) giving significant stress on the recent market conditions.

Actual outcomes are monitored regularly to test the validity of the assumptions and parameters/factors used in the VAR calculation.

The use of this approach does not prevent losses outside of these limits, but to a certain extent the application of the hybrid Independent Independent model takes into consideration extreme events of significant market movements. report auditors`

The quality of the VAR model is continuously monitored by back-testing the VAR results on the trading portfolio of the Bank. All back-testing exceptions and any exceptional revenues on the profit and loss sides of the VAR distribution are investigated, and all back-testing results are reported to the Management board. Addresses Addresses 86

VAR summary

in BGN Thousand (1d, 99 %) As at 31 December 2016 As at 31 December 2015 Trading portfolio VAR Vision, mission and CSR Diversified 84 116 Hereof interest rate risk 70 113 Hereof spread risk 20 62

Non-trading portfolio VAR Diversified 1,171 955 Hereof interest rate risk 1,194 882 Hereof spread risk 258 935

Total VaR Diversified 1,227 987 Raiffeisen BankRaiffeisen

International Hereof interest rate risk 1,257 847 Hereof spread risk 273 966

VaR development during 2016 by risk type

in BGN Thousand (1d, 99 %) Average Maximum Minimum

Economic growth Trading portfolio VAR Diversified 94 228 38 Hereof interest rate risk 53 169 8 Hereof spread risk 64 201 15

Non-trading portfolio VAR Diversified 1,191 1,878 757 Hereof interest rate risk 981 1,842 605 Raiffeisen GroupRaiffeisen Hereof spread risk 620 1,293 206 in Bulgaria Total VaR Diversified 1,244 1,910 771 Hereof interest rate risk 995 1,870 609 Hereof spread risk 681 1,436 231

The limitations of the VaR methodology are recognized by supplementing VaR Limits with other position and sensitivity limit structures. In addition the Group uses a wide range of stress tests to model the financial impact of a variety of market scenarios on the trading and non-trading portfolios. The output of the respective simulations and their impact on Group level Segment reports are reported regularly at ALCO meetings.

Stress tests

Stress tests provide an indication of the potential size of losses that could arise in extreme conditions. The stress tests include risk factor stress testing, where the worst case scenario stress movements are applied to each risk category; emerging market stress testing, where emerging market portfolios are subject to stress movements; and ad hoc stress testing, which includes applying possible stress events to specific position or regions. auditors` report

Independent The results of the stress tests are presented and reviewed on ALCO meetings by the Management Board on an on-going basis. The stress testing is tailored to the business and typically uses scenario analysis.

Interest rate risk

Interest rate risk is the probable negative influence of the market interest rates on the net interest income, which forms main part of the Group’s financial result.

Addresses In comparison to the other risks the interest rate risk could be minimized trough the mutual management of assets and liabilities. 87

The policy of the Group to minimize interest rate risk is to grant floating rate loans against the received floating rate external financings. Interest rate risk is also managed through the balanced use of different funding sources (borrowings from other local banks, long-term borrowings from foreign banks, customer deposits etc.), as well as through purposeful credit policy, providing for increasing return.

In the current low and negative interest rates’ market environment the Group continues its policy for optimization and willingness to minimize its interest rate risk by introducing possible strategies which will allow it to grant loans with fixed interest rate for a mid-term period having in mind the expectations for keeping the low interest rate market environment in Europe within this period.

It is of crucial importance for the Management of the Group to control the interest rate sensitivity of assets and liabilities. Due to the nature of banking an absolute matching in maturities or in periods of re-pricing of contracted interests on financial assets and liabilities is not possible. Vision, mission and CSR Vision, The Group’s interest rate exposures are monitored and managed by generating interest rate sensitivity reports. The majority of the Group 's interest bearing assets and liabilities are structured to match either short-term assets and short-term liabilities, or long-term assets and liabilities with re-pricing opportunities within one year, or long-term assets and corresponding liabilities whereby re-pricing is performed simultaneously.

For most interest-bearing assets and liabilities exists a possibility of re-pricing at a relatively short notice and any interest rate sensitivity gaps are considered immaterial. International

The following table indicates the periods in which interest bearing financial assets and liabilities re-price as at 31 December Raiffeisen Bank 2016.

Up to 3 months From 3 From 1 More than Total in BGN Thousand months to year to 5 years As at 31 December 2016 1 year 5 years Assets Loans and advances to banks 276,928 46,906 58,772 - 382,606

Loans and advances to customers 3,434,774 133,434 333,972 77,495 3,979,675 Economic growth Investment securities 101,275 224,992 519,893 115,496 961,656 Total assets 3,812,977 405,332 912,637 192,991 5,323,937

Liabilities Deposits from banks 31,763 31,763 Deposits from customers 4,248,290 482,154 4,440 - 4,734,884

Borrowings from banks 261,366 95,841 3,912 26,543 387,662 in Bulgaria Raiffeisen Group Subordinated liabilities 365,281 - - - 365,281 Total liabilities 4,906,700 577,995 8,352 26,543 5,519,590 Net position (1,093,723) (172,663) 904,285 166,448 (195,653) Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 88

The following table indicates the periods in which interest bearing financial assets and liabilities re-price as at 31 December 2015.

Up to 3 months From 3 From 1 More than Total in BGN Thousand months to year to 5 years Vision, mission and CSR As at 31 December 2015 1 year 5 years Assets Loans and advances to banks 604,092 176,438 - - 780,530 Loans and advances to customers 3,086,759 315,482 108,606 44,512 3,555,359 Investment securities 47,430 9,936 558,566 90,726 706,658 Total assets 3,738,281 501,856 667,172 135,238 5,042,547 Liabilities Deposits from banks 48,325 - - - 48,325

Raiffeisen BankRaiffeisen Deposits from customers 4,245,400 505,116 2,330 - 4,752,846 International Borrowings from banks 101,873 173,503 - 22,805 298,181 Subordinated liabilities 365,457 - - - 365,457 Total liabilities 4,761,055 678,619 2,330 22,805 5,464,809 Net position (1,022,774) (176,763) 664,842 112,433 (422,262)

The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Economic growth Group’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis point (bp) parallel fall or rise in all yield curves worldwide and a 50 bp rise or fall in the greater than 12-month portion of all yield curves. This analysis is presented in the table below for the year 2016, respectively 2015.

Sensitivity of the expected net interest income (Banking book).

plus 100 bp minus 100 bp plus 50 bp minus 50 bp 2016 parallel parallel parallel parallel in BGN Thousand increase decrease increase decrease Raiffeisen GroupRaiffeisen after 1 year after 1 year in Bulgaria as at 31 December (38,902) 38,902 (16,000) 16,000 Average for the period (34,395) 34,395 (14,125) 14,125 Maximum for the period (38,902) 38,902 (16,018) 16,018

Minimum for the period (31,040) 31,040 (12,601) 12,601

plus 100 bp minus 100 bp plus 50 bp minus 50 bp

Segment reports 2015 parallel parallel parallel parallel in BGN Thousand increase decrease increase decrease after 1 year after 1 year as at 31 December (33,271) 33,271 (13,892) 13,892 Average for the period (30,661) 30,661 (12,661) 12,661 Maximum for the period (33,793) 33,793 (14,180) 14,180 Minimum for the period (24,511) 24,511 (9,474) 9,474 auditors` report

Independent Early warning limits

To support the operative steering of risk-based limits and structural limits, different boundary values for the limit utilization are defined. Such “early warning limits” serve as a warning signal when risk exposures approach the limit in certain business areas or risk types (usually 70 per cent of the limit) and giving signal to the management of the Group for the situation and discussion of the possible decisions aiming at preventing and/or mitigating the negative effect in order to prevent stop loss limit breach. A violation of these early warning limits leads to intensified monitoring and closer supervision of the respective exposure. Hence these limits are not considered as a separate and independent type of limit but rather serve the purpose of

Addresses supporting operative approved limits management. 89

Stop-loss limits

All Risks (including interest rate risk) are limited effectively through stop loss processes which lead to an automatic reduction in exposure if the portfolio loss exceeds a predefined amount. Such a stop loss limit figuratively truncates the loss distribution at the stop loss level (plus a loss amount for transaction costs for closing open positions). Stop loss limits typically are used in trading book operations but can be employed for banking book positions as well if a fairly liquid market for these assets exists or if hedging instruments are available.

The potential loss will not materialize with its whole amount, as stop loss limits are effectively in place.

The Group applies a High Watermark YTD S/L limit with immediate effect has been introduced, which locks the negative effect out of the trading and the daily Mark-to-Market revaluation in certain amount from the highest achieved YTD result for the Trading Portfolio. Vision, mission and CSR Vision, Currency risk

TThe Group is exposed to currency risk through transactions in foreign currencies. The Group operates in the main currencies: US dollars, Euro, GB pounds, Swiss francs and others. As a result of the currency Board in place in Bulgaria, the Bulgarian currency (BGN) is pegged to the Euro, therefore currency risk arises mainly from exchange rate Euro/US dollar fluctuations. The Group is not exposed to substantial currency risk due to the fact that it monitors and maintains the proportion between amounts and terms of its US dollar assets and liabilities. International Raiffeisen Bank Raiffeisen Bank The Group’s transactional exposures give rise to foreign currency gains and losses that are recognized in profit or loss. These exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in Bulgarian leva.

Foreign currency position as at 31 December 2016:

In BGN € Other foreign Total in BGN Thousand currency

Financial assets Economic growth

Cash and balances with the Central bank 891,307 143,937 9,602 1,044,846 Trading assets 6,789 29,060 - 35,849

Derivatives 0 488 5,830 6,318 Loans and advances to banks 4,740 199,222 178,644 382,606 Loans and advances to customers 2,063,087 1,845,032 71,556 3,979,675

Investment securities 354,762 534,498 77,854 967,114 in Bulgaria Raiffeisen Group Other assets 35,936 3,793 205 39,934

Total financial assets 3,356,621 2,756,030 343,691 6,456,342

Financial liabilities

Derivatives - 5,841 388 6,229 Deposits from banks 30,965 139 659 31,763 Deposits from customers 2,649,170 1,709,381 376,333 4,734,884

Borrowings from banks - 387,662 - 387,662 reports Segment Subordinated liabilities - 365,281 - 365,281 Other liabilities 40,192 24,469 4,204 68,865

Total financial liabilities 2,720,327 2,492,773 381,584 5,594,684

Net position 636,294 263,257 (37,893) 861,658 Independent Independent auditors` report auditors` Addresses Addresses 90

Foreign currency position as at 31 December 2015:

In BGN € Other foreign Total in BGN Thousand currency Vision, mission and CSR Financial assets Cash and balances with the Central bank 1,192,511 70,973 12,068 1,275,552 Trading assets 25,721 29,391 55,112 Derivatives 222 2,525 2,747 Loans and advances to banks 8,289 440,984 331,257 780,530 Loans and advances to customers 1,717,486 1,791,052 46,821 3,555,359 Investment securities 334,181 384,663 - 718,844

Other assets 20,568 2,587 339 23,494 Raiffeisen BankRaiffeisen

International Total financial assets 3,298,756 2,719,872 393,010 6,411,638

Liabilities Derivatives - 2,568 31 2,599 Deposits from banks 42,022 1,188 5,115 48,325 Deposits from customers 2,608,459 1,732,166 412,221 4,752,846 Borrowings from banks - 298,181 - 298,181

Economic growth Subordinated liabilities - 365,457 - 365,457 Other liabilities 35,613 34,560 5,582 23,798

Total financial liabilities 2,686,094 2,434,120 422,949 5,543,163

Net position 612,662 285,752 (29,939) 920,432

D. Capital management

Raiffeisen GroupRaiffeisen The Group’s objective when managing capital, which is broader concept than the equity on the face of the statement of in Bulgaria financial position are:

–– To comply with the capital requirements set by the local banking regulator;

–– To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for

shareholders;

–– To maintain a strong capital base to support the development of Group’s business Segment reports The Bulgarian central bank is the competent authority in the Republic of Bulgaria that is exercising prudential supervision over credit institutions according to Regulation (ЕС) №575/2013 of the European parliament and of the Council on prudential requirements for credit institutions and investment firms (Basel III), effective from 01 January 2014.

Following the requirements on capital buffers according to Directive 2013/36/ЕС (CRD IV), the management board of the Bulgarian national bank adopted a capital conservation buffer and a systemic risk buffer to be maintained by all local banks as a percentage of their risk weighted assets, as laid down in Ordinance № 8 of the Bulgarian national bank from 24 April 2014 regarding Banks’ capital buffers. In accordance with the ordinance, from 1 January 2016 the BNB shall assess and set the appropriate countercyclical capital buffer rate for banks in the country on a quarterly basis. auditors` report Independent Capital conservation buffer

• Aim of the buffer – the establishment of a capital conservation buffer is aiming at avoiding future situations, in which failed banks will need government support, i.e. taxpayers’ money. This buffer shall provide additional funds in case of recovery and resolution of credit institutions in crisis conditions;

• Level of the buffer – credit institutions shall maintain a capital conservation buffer from their common equity Tier

Addresses I capital at the amount of 2.5 per cent of their total risk exposure amount;

• Entry into force – the capital conservation buffer shall be effective with the entry into force of Ordinance №8 from 24 April 2014 of the Bulgarian central bank on the capital buffers of credit institutions. 91

Systemic risk buffer

• Aim of the buffer – preservation of the year to date accumulated capital reserves in the Bulgarian banking system, as well as to prevent and mitigate the effect of long-term non-cyclical systemic or macro prudential risks, which could cause disruption in the financial system and serious negative consequences to it;

• Level of the buffer –the buffer shall be at the amount of 3 per cent from the total risk exposure amount of exposures in the Republic of Bulgaria, and in the exercise of the supervisory judgment by the BNB, it shall apply to expo¬sures in third countries;

• Entry into force – the systemic risk buffer shall be effective as of 31 December 2014 and shall apply to all Bulgarian credit institutions.

Countercyclical capital buffer Vision, mission and CSR Vision,

• Aim of the buffer - the countercyclical capital buffer is a macro prudential instrument provided for in BNB Ordinance No. 8 on Banks’ Capital Buffers, in accordance with the requirements of Directive 2013/36/EU. The main purpose of the buffer is to safeguard the banking system against potential losses, stemming from build-up of cyclical systemic risk during periods of excessive credit growth;

• Level of the buffer – in order to determine the buffer rate, the BNB applies the Basel Committee on Banking Supervision (BCBS) methodology, contained also in parts I and II of the Annex to the Recommendation of

the European Systemic Risk Board of 18 June 2014 on guidance for setting countercyclical buffer rates International Raiffeisen Bank Raiffeisen Bank (ESRB/2014/1). As of 31 December 2016 the countercyclical capital buffer is set to 0 per cent.

In accordance with art. 9, paragraph 1 of the BNB Ordinance No. 8 in relation to art. 39, paragraph 2 of the Law on credit institutions and in line with the Guidelines of the European Banking Authority, the Bulgarian national bank identified 10 Bulgarian banks as other systemic important institutions (OSII), among which is also Raiffeisenbank (Bulgaria) EAD. The level of the OSII capital buffer set by BNB for the Bank is as follows:

• 2017г. – 0 per cent

• 2018г. – 0.25 per cent Economic growth

• 2019г. – 0.50 per cent

• 2020г. – 0.75 per cent.

Basel III introduces the requirement of total capital ratio, core equity tier I capital ratio and tier I capital ratio, as well as the capital requirements for credit, market and operational risks. It defines the minimum required amount, the elements and the structure of own funds of credit institutions and the minimum capital requirements for the risks they undertake. in Bulgaria

The capital ratios as percentage of the total risk exposures of credit institutions are defined as follows: Raiffeisen Group

• Core equity tier I ratio – 4.5 per cent

• Tier I ratio – 6 per cent and

• Total capital ratio – 8 per cent.

The capital adequacy and the adherence to the regulatory capital requirements are monitored by the Bank’s management. Segment reports Segment The Group’s regulatory capital consists of:

–– Core tier I capital – ordinary share capital and retained earnings (incl. statutory reserve fund)

–– Tier II capital – qualified subordinated debt.

The following items are deducted from the capital:

–– Accumulated other comprehensive income Independent auditors` report auditors`

–– Intangible assets

–– IRB shortfall of credit risk adjustments to expected losses. Addresses Addresses 92

As at December 31, 2016 the Capital base of the Group comprises as follows (unaudited):

in BGN Thousand

Common equity Tier I items: Vision, mission and CSR - Paid in capital instruments 603,448 - Retained earnings 173,629 - Total deductions from Tier I (25,421) Tier II capital: - Subordinated debt eligible for Tier II capital 363,002 - Total deductions from Tier II (927)

TOTAL OWN FUNDS 1,113,731

In compliance with Basel III requirements the Bank is calculating its total risk exposure as a sum of: Raiffeisen BankRaiffeisen International –– the risk weighted exposure amounts for credit, counterparty credit and dilution risks for its total exposures excluding the risk weighted exposures from its trading portfolios;

–– the capital requirement for position, foreign exchange and commodities risk, multiplied by 12.5;

–– the capital requirement for operational risk, multiplied by 12.5;

–– The amount of capital requirement in respect of the risk associated with credit valuation adjustment for OTC

Economic growth derivative instruments other than credit derivatives recognized to reduce risk-weighted exposure amounts for credit risk, multiplied by 12.5.

The table below illustrates the Bank’s total risk exposure and capital ratios as of December 31, 2016.

in BGN Thousand

TOTAL RISK EXPOSURE AMOUNT 3,454,356

RISK WEIGHTED EXPOSURE AMOUNTS FOR CREDIT, COUNTERPARTY

Raiffeisen GroupRaiffeisen CREDIT AND DILUTION RISKS AND FREE DELIVERIES 2,949,343 in Bulgaria Standardised approach 325,811

SA exposure classes excluding securitisation positions 325,811 Corporates 182,341 Retail 55,652 Secured by mortgages on immovable property 9,177

Segment reports Exposures in default 9,540 Other items 69,101

Internal ratings based Approach (IRB) 2,623,532 IRB approaches when neither own estimates of LGD nor Conversion Factors are used 1,764,016 Institutions 231,083 Corporates - SME 762,118 Corporates - Specialised Lending 41,960 auditors` report

Independent Corporates - Other 728,855 Addresses 93

in BGN Thousand IRB approaches when own estimates of LGD and/or Conversion Factors are used 854,264 Retail - Secured by real estate SME 123,523 Retail - Secured by real estate non-SME 276,155 Retail - Qualifying revolving 32,615 Retail - Other SME 51,499 Retail - Other non-SME 370,472 Equity IRB 5,252

TOTAL RISK EXPOSURE AMOUNT FOR POSITION, FOREIGN

EXCHANGE AND COMMODITIES RISKS 8,563 mission and CSR Vision, Risk exposure amount for position, foreign exchange and commodities risks under standardised approaches (SA) 8,563 Traded debt instruments 8,563 TOTAL RISK EXPOSURE AMOUNT FOR OPERATIONAL RISK (OpR ) 496,375 OpR Standardised (STA) / Alternative Standardised (ASA) approaches 496,375 International

TOTAL RISK EXPOSURE AMOUNT FOR CREDIT VALUATION ADJUSTMENT 75 Raiffeisen Bank

Standardised approach 75

CET1 Capital ratio 21.76%

Surplus(+)/Deficit(-) of CET1 capital 596,210

T1 Capital ratio 21.76%

Surplus(+)/Deficit(-) of T1 capital 544,395 Economic growth Total capital ratio 32.24%

Surplus(+)/Deficit(-) of total capital 837,383

4. Use of Estimates and Judgements

The preparation of these separate financial statements requires management to exercise its judgment in the process of in Bulgaria applying the Bank’s accounting policies and the reported value of assets, liabilities, income and expense. Actual results may differ from these estimates and judgments. Raiffeisen Group

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

Impairment of financial assets

Financial assets accounted for at amortised cost are evaluated for impairment on a basis described in the accounting policy.

At each reporting date financial assets are reviewed for the presence of indications of impairment. reports Segment

The specific counterparty component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgments about the counterparty’s financial situation and the net realizable value of any underlying collateral. Financial assets carried at amortized cost, are presented in the statement of financial position net of allowances for impairment losses.

Collectively assessed impairment allowances cover credit losses inherent in portfolios of loans and advances with similar Independent Independent credit risk characteristics when there is objective evidence to suggest that they contain impaired loans and advances, but the report auditors` individually impaired items cannot yet be identified. The Bank’s policy for allocation of collective allowances for impairment losses determines the principles for reducing the statement of financial position amount of a portfolio of loans with similar credit risk characteristics to their recoverable amount as at the reporting date. In assessing the need for collective loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. Addresses Addresses 94

The accuracy of the allowances depends on the estimates of future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances.

In December 2015 Raiffeisenbank (Bulgaria) EAD has introduced internal-rating based model in the calculation of allowance for impairment losses for loans to private individuals and micro entities. Estimates of specific parameters (Historic Default Vision, mission and CSR Rate, Loss Given Default and Credit Conversion Factor) are subject to annual recalculation, following the established internal processes of the Bank for internal-rating models. With this change being in default is the main criteria for the calculation of impairment allowance on collective and individual level.

Determining fair values

Valuation of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group discloses information on the fair values of those financial assets and financial liabilities, for which there is available market information and the fair value of which significantly differs from

Raiffeisen BankRaiffeisen their carrying amount. International

If there is no active market for a certain financial instrument, then the Group determines fair values by using valuation techniques. The valuation techniques consider recent direct deals between knowledgeable, willing market participants (if such exist), information about current fair values of similar financial instruments, analysis of discounted cash flows, as well as models with option prices. The chosen valuation technique maximises the use of observable market data, relies as less as possible on specific for the Group valuations, includes factors that market participants would take into account when determining the price. The valuation technique is compatible with the accepted methodology for pricing of financial instruments. The information used by the valuation technique adequately represents the market expectations and valuations of

Economic growth the risk factors and the yield inherent for the financial instrument. The Group verifies the valuation techniques and tests their validity by using prices from observable current market transactions with the same financial instrument or based on other observable market data.

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received, except for transactions, where the fair value of the financial instrument is evident from the comparison with other similar observable market transactions with the same financial instrument, or could be based on valuation techniques that uses only data from observable markets. When the transaction price is the best evidence of the fair value of the financial instrument at initial recognition, then the financial instrument is initially recognised at its transaction price and each difference between that price and the value derived from a valuation technique is recognised

Raiffeisen GroupRaiffeisen subsequently in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is in Bulgaria wholly supported by observable market data or the transaction is closed out.

Assets and long positions are measured at a bid price and liabilities and short positions at an ask price. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties to the extent that the Bank believes that a third party market participant would take them into account in pricing a transaction.

Segment reports The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurement:

• Level 1: inputs that are quoted market price (unadjusted) in active markets for identical financial instruments.

• Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. auditors` report Independent • Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The Group uses widely recognized valuation models for determining the fair value of common and simpler financial instruments, like interest rate and currency swaps that use only observable market data. For these financial instruments market Addresses conditions enable the use of valuation models.

For more complex instruments, the Bank uses proprietary valuation models, which usually are developed from recognized valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived 95

from market prices or rates or are estimated based on assumptions. When entering into a transaction, the financial instrument is recognized initially at the transaction price, which is the best indicator of fair value, although the value obtained from the valuation model may differ from the transaction price. This initial difference, usually an increase, in fair value indicated by valuation techniques is recognized in profit or loss depending upon the individual facts and circumstances of each transaction and not later than when the market data becomes observable.

The value produced by a model or other valuation technique is adjusted to allow for a number of factors as appropriate, because valuation techniques cannot appropriately reflect all factors market participants take into account when entering into a transaction. Valuation adjustments are recorded to allow for model risks, bid-ask spreads, liquidity risks, as well as other factors. Management believes that these valuation adjustments are necessary and appropriate to fairly state financial instruments carried at fair value on the Bank’s statement of financial position, so that they are as close as possible to a market price, which would be determined on an arm’s length principle between not related parties.

The determination of fair values is monitored by the Group’s “Risk controlling Division” and is independent of trading and Vision, mission and CSR Vision, investment operations. Specific controls include: verification of observable pricing inputs and re-performance of model valuations; a review and approval process for new models and changes to models.

The tables below analyse financial instruments measured at fair value by the level in the fair value hierarchy into which the fair value measurement is categorised:

31 December 2016 in BGN Thousand Level 1 Level 2 Level 3 Total International Raiffeisen Bank Raiffeisen Bank Assets

Trading assets 35,849 - - 35,849 Derivatives - 6,318 - 6,318 Investment securities 374,935 3,186 2,215 380,336 Liabilities Derivatives - 6,229 - 6,229 Economic growth

31 December 2015 in BGN Thousand Level 1 Level 2 Level 3 Total

Assets

Trading assets 54,292 820 - 55,112 Derivatives - 2,747 - 2,747

Investment securities 175,675 13,073 2,215 190,963 in Bulgaria Raiffeisen Group Liabilities Derivatives - 2,599 - 2,599

Derivatives are classified within level 2, because they are OTC and their fair value is calculated using observable inputs for similar financial instruments traded on active markets. Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 96

The following tables set out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorized:

31 December 2016 Level 1 Level 2 Level 3 Total Total in BGN Thousand fair carrying Vision, mission and CSR values amount Assets Cash and balances with central banks - - 1,044,846 1,044,846 1,044,846 Loans and advances to banks - - 384,672 384,672 382,606 Loans and advances to customers - - 4,081,873 4,081,873 3,979,675 Investment securities 561,541 32,670 - 594,211 586,778

Liabilities Deposits from banks - - 31,763 31,763 31,763 Raiffeisen BankRaiffeisen

International Deposits from customers - - 4,735,173 4,735,173 4,734,884 Borrowings from banks - - 389,005 389,005 387,662 Subordinated liabilities - - 365,281 365,281 365,281

31 December 2015 Level 1 Level 2 Level 3 Total Total in BGN Thousand fair carrying values amount Economic growth Assets Cash and balances with central banks - - 1,275,552 1,275,552 1,275,552 Loans and advances to banks - - 780,639 780,639 780,530 Loans and advances to customers - - 3,286,515 3,286,515 3,555,359 Investment securities 512,511 27,408 - 539,919 527,882

Liabilities Raiffeisen GroupRaiffeisen

in Bulgaria Deposits from banks - - 48,325 48,325 48,325 Deposits from customers - - 4,754,073 4,754,073 4,752,846 Borrowings from banks - - 303,175 303,175 298,181 Subordinated liabilities - - 365,457 365,457 365,457

Cash and balances with central banks are classified within level 3 as they cannot be related to an active market or to other observable inputs. It is assumed that the carrying amount is their fair value. Segment reports The fair value of loans and advances to banks is determined considering the nature of the receivable. When it is a short-term money market placement of liquid funds it is assumed that the carrying amount is the fair value. For these instruments there is no active market and observable inputs to determine their fair value.

Loans and advances to customers are classified within level 3 as there is no active market for such financial instruments. The fair value of loans and advances to customers that are not in default is obtained by valuation techniques based on discounted expected cash flows. The discount factor used is the rate of return of a risk free investment, adjusted for the probability of default and the expected loss. For exposures in default, as well as for short-term receivables and overdrafts the Group assumes that their fair value corresponds to their carrying amount. The calculation of fair value of loans and advances is sensitive to auditors` report

Independent changes in the adjustment for probability of default and expected loss, which is in fact the main unobservable input. When probability of default increases, the fair value will decrease and vice versa when probability of default decreases.

For liabilities measured at amortized cost there is also lack of observable inputs, because of the absence of an active market for such financial instrument. Their fair value is obtained by using valuation techniques based on expected discounted cash flows. The discount factor used for fixed interest rate liabilities is the rate of return of a risk free investment, increased with the liquidity premium for the respective maturity band. The discount factor for floating rate liabilities is only the liquidity premium. The liquidity premium is based on the CDS of Bulgaria for the respective maturity band. Short-term deposits from

Addresses banks are not discounted and it is assumed that the carrying amount is their fair value. 97

5. Classification of Financial Assets and Liabilities

The following tables illustrate the categories of financial assets and financial liabilities that are recognized in the statement of financial position of the Group.

Held At fair Available Held to Loans At Total 31 December 2016 for value for sale maturity and amortized carrying trading through advances cost amount in BGN Thousand profit or loss Assets Cash and balances with

the Central bank - - - - 1,044,846 - 1,044,846 mission and CSR Vision, Trading assets 35,849 - - - - - 35,849 Derivatives 6,318 - - - - - 6,318 Loans and advances to banks - - - - 382,606 - 382,606 Loans and advances to customers - - - - 3,979,675 - 3,979,675

Investment securities: International Raiffeisen Bank Raiffeisen Bank At fair value through profit or loss - 2,272 - - - - 2,272 At fair value through OCI - - 378,064 - - - 378,064 At amortized cost - - - 586,778 - - 586,778

Total Assets 42,167 2,272 378,064 586,778 5,407,127 - 6,416,408

Liabilities Derivatives 6,229 - - - - - 6,229 Economic growth Deposits from banks - - - - - 31,763 31,763 Deposits from customers - - - - - 4,734,884 4,734,884

Borrowings from banks - - - - - 387,662 387,662 Subordinated liabilities - - - - - 365,281 365,281

Total Liabilities 6,229 - - - 5,519,590 5,525,819 in Bulgaria Raiffeisen Group Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 98

Held At fair Available Held to Loans At Total 31 December 2015 for value for sale maturity and amortized carrying trading through advances cost amount in BGN Thousand profit or loss Vision, mission and CSR Assets Cash and balances with the Central bank - - - - 1,275,552 - 1,275,552 Trading assets 55,112 - - - - - 55,112 Derivatives 2,747 - - - - - 2,747 Loans and advances to banks - - - - 780,530 - 780,530 Loans and advances to customers - - - - 3,555,359 - 3,555,359 Investment securities:

Raiffeisen BankRaiffeisen At fair value through International profit or loss - 5,404 - - - - 5,404 At fair value through OCI - - 185,559 - - - 185,559 At amortized cost - - - 527,881 - - 527,881

Total Assets 57,859 5,405 185,558 527,881 5,611,441 - 6,388,144

Liabilities

Economic growth Derivatives 2,599 - - - - - 2,599 Deposits from banks - - - - - 48,325 48,325 Deposits from customers - - - - - 4,752,846 4,752,846 Borrowings from banks - - - - - 298,181 298,181 Subordinated liabilities - - - - - 365,457 365,457

Total Liabilities 2,599 - - - - 5,464,809 5,467,408 Raiffeisen GroupRaiffeisen in Bulgaria 6. Segment Analysis

The Group operates in the following main segments:

–– Retail customers – incorporating private banking services, private customer current accounts, savings, deposits,

credit and debit cards, consumer loans and mortgages;

–– Large corporate – incorporating current accounts, deposits, overdraft facilities, loan and other credit facilities, real estate financing, foreign currency and derivative products; Segment reports

–– SMEs - incorporating current accounts, deposits, overdraft facilities, loan and other credit facilities, micro lending, foreign currency and derivative products;

–– Proprietary business – incorporating business transactions conducted on own account and risk of the Bank that are originated from managing market risk positions like FX-dealing, securities and derivatives trading, money market trading, liquidity management and funding, strategic positioning (investment portfolio), interest rate gapping (maturity transformation).

auditors` report –– Segment “Other” includes cash, capital and reserves, dividends received and other assets and liabilities and Independent corresponding results reflected in segment profit or loss, which cannot be distributed in the other segments.

–– Segment results incorporate internal funds transfer pricing. Addresses 99

Retail Làrge SMEs Proprietary Other Total As at 31 December 2016 customers corporates business and budgetary in BGN Thousand companies Segment operating income 147,803 77,010 89,385 10,418 3,210 327,826 Hereof net interest income 101,362 52,426 56,740 3,620 (129) 214,017 Hereof net fee and commission income 33,176 18,313 26,923 1,131 (498) 79,046 Segment assets 1,459,746 1,725,368 836,008 2,266,948 222,492 6,510,562 Segment liabilities 2,721,032 1,111,696 902,156 427,530 432,303 5,594,717 Impairment charge (10,567) 4,217 5,255 3 - (1,092)

Administrative expenses and mission and CSR Vision, other operating expenses (80,311) (34,728) (50,283) (2,202) (5,360) (172,884) Profit before tax 56,925 48,295 44,358 8,219 (3,947) 153,850

Retail Làrge SMEs Proprietary Other Total As at 31 December 2015 customers corporates business and budgetary in BGN Thousand companies International

Segment operating income 136,285 73,531 88,877 3,330 5,293 307,316 Raiffeisen Bank Hereof net interest income 101,796 48,388 58,959 606 3,316 213,066 Hereof net fee and commission income 31,687 20,823 25,973 - (1,449) 77,034 Segment assets 1,360,512 1,462,559 732,288 2,676,153 231,925 6,463,437 Segment liabilities 2,652,515 1,238,271 862,179 535,931 255,013 5,543,909 Impairment charge (36,002) (14,067) (10,780) (4) - (60,853) Administrative expenses and Economic growth other operating expenses (81,950) (33,478) (48,032) (3,705) (9,858) (177,023) Profit before tax 18,333 25,986 30,065 (379) (4,565) 69,440

7. Net Interest Income

in BGN Thousand 2016 2015 in Bulgaria

Interest income Raiffeisen Group

Loans and advances to banks 3,156 1,502 Loans and advances to customers 216,781 229,286 Investment securities 15,847 14,496 Negative interest from financial liabilities 400 -

Total interest income 236,184 245,284

Interest expense reports Segment Deposits from banks (93) (306) Deposits from customers (3,906) (16,880) Long-term borrowings (3,871) (2,236) Subordinated liabilities (11,714) (12,571) Negative interest from financial assets (2,583) (225) Independent Independent

Total interest expense (22,167) (32,218) report auditors`

Net interest income 214,017 213,066

Recognition of interest income is ceased when payments on interest or principal are past due more than 90 days. Subsequently interest income is recognized only upon real payment. Interest income begins again to be accrued on-balance in case all past due payments are settled.

For 2016 interest income on impaired loans amount to BGN 15,309 and respectively BGN 18,580 for 2015. Addresses 100

8. Net Fee and Commission Income

in BGN Thousand 2016 2015 Vision, mission and CSR Fee and commission income Payment transactions 25,811 25,690 Card transactions 30,610 29,329 Cash transactions 7,335 7,617 Opening and maintenance of accounts 13,974 11,810 Other loan fees 3,317 2,877 Documentary transactions 3,583 3,827 Securities business 826 1,017

Raiffeisen BankRaiffeisen Asset management 958 1,841 International Other 2,031 2,273

Total fee and commission income 88,445 86,281

Fee and commission expense Payment transactions (2,440) (2,597) Card operations (domestic and foreign card operators) (13,043) (12,187)

Economic growth Guarantees and loans (1,332) (955) Securities business (124) (103) Other (42) (40)

Total fee and commission expense (16,981) (15,882)

Net fee and commission income 71,464 70,399 Raiffeisen GroupRaiffeisen

in Bulgaria 9. Net Trading Result

in BGN Thousand 2016 2015 Debt securities 521 90

Foreign exchange 16,064 14,447 Net trading income 16,585 14,537 Segment reports Fixed income trading comprises of realized and unrealized dealers margins from changes in market prices of Government treasury bills and corporate bonds.

Trading result from foreign exchange represents the net result arising from purchases and sales of foreign currencies, gains arising from the translation of assets and liabilities, denominated in foreign currencies into Bulgarian leva, as well as the revaluation result of precious metals. auditors` report Independent 10. Net Result from Derivatives

in BGN Thousand 2016 2015 Foreign exchange instruments 12 104 Interest rate instruments (57) 6 Net result from derivatives (45) 110 Addresses

Foreign exchange instruments represent FX forwards and cross currency swaps. Interest rate derivative instruments are interest rate swaps. 101

11. Net Result from Investments

in BGN Thousand 2016 2015 Net valuation result (1,187) 70 Net gains/(losses) on realization of investments 14,384 (914) Net result from investments 13,197 (844)

12. Administrative Expenses Vision, mission and CSR Vision,

in BGN Thousand 2016 2015 Personnel expenses (75,175) (70,905) Materials and services (67,174) (63,913) Depreciation and amortization charge (12,134) (11,333) Annual contribution to the Bulgarian Resolution Fund (6,468) (7,099) International Raiffeisen Bank Raiffeisen Bank Annual contribution in Bulgarian Deposit Insurance Fund (8,422) (20,121) Total administrative expenses (169,373) (173,371)

Personnel expenses include salaries, social and health security contributions under the requirements of the local legislation.

In 2016 the cost for audit, legal and advisory services amounts to BGN 220 thousand (2015: BGN 162 thousand).

13. Other Operating Expenses Economic growth

in BGN Thousand 2016 2015 Impairment of assets acquired from collateral (928) (121) Other (2,583) (3,531)

Total (3,511) (3,652) in Bulgaria Raiffeisen Group 14. Net Impairment Loss on Loans and Advances

Impairment Allowance 2016 2015 in BGN Thousand

Balance as àt January 1 278,960 300,833 reports Segment Change in consolidation group 10,863 - Additional allowances for impairment losses 84,328 117,423 Reversals (72,177) (40,967) Written off receivables (54,873) (98,329) Balance as at December 31 247,101 278,960 Independent Independent auditors` report auditors` Addresses Addresses 102

in BGN Thousand 2016 2015 Additional allowances for impairment (88,719) (118,562) Reversal of write downs 72,526 41,828

Vision, mission and CSR Recoveries from non-performing loans previously written off 15,101 15,881 Net impairment loss on loans and advances (1,092) (60,853)

The net impairment loss on loans and advances includes also the impairment losses for credit risk stemming from the Group’s irrevocable commitments on contingent liabilities. Impairment loss for commitments and contingent liabilities amount to BGN 4,041 thousand for 2016 and BGN 279 thousand for 2015 respectively.

The following tables illustrate the breakdown of impairment losses into individual and collective allowances for impairment.

Individual allowances for impairment 2016 2015 in BGN Thousand Raiffeisen BankRaiffeisen

International Balance as it January 1 248,117 289,167 Change in consolidation group 10,102 - Charge for the period 66,541 91,396 Reversals (54,179) (34,117) Write-offs (54,873) (98,329) Balance as at December 31 215,708 248,117 Economic growth

Collective allowances for impairment 2016 2015 In BGN Thousand Balance as it January 1 30,843 11,666 Change in consolidation group 759 - Charge for the period 17,789 26,027 Reversals (17,998) (6,850)

Raiffeisen GroupRaiffeisen Balance as at December 31 31,393 30,843 in Bulgaria Total 247,101 278,960

15. Tax

Segment reports In BGN Thousand 2016 2015 Current tax (expense) (14,860) (6,816) Deferred tax (expense)/income related to origination and reversal of temporary differences (222) (30) Total tax (expense)/income (15,082) (6,846)

Current income tax expense represents the amount of corporate tax due under Bulgarian law. Deferred tax income or expense results from the change in the carrying amounts of deferred tax assets and deferred tax liabilities. auditors` report Independent The relationship between tax expense and accounting profit is as follows:

in BGN Thousand 2016 2015 Accounting profit 153,850 69,440 Tax at the applicable tax rate (10% for 2015, 10% for 2016) (15,385) (6,944) Tax effect on permanent differences 303 98 Addresses Total tax expense (15,082) (6,846) Effective tax rate 9.80% 9.86% 103

in BGN Thousand 2016 2015 Other comprehensive income (10,292) 10,206 Tax at the applicable tax rate (10% for 2015, 10% for 2016) 1,029 (1,021) Tax expense in OCI 1,029 (1,021)

Reported deferred tax liabilities at December 31, 2016 and 2015 comprise the following:

Assets Liabilities Net (Assets)/Liabilities

in BGN Thousand 2016 2015 2016 2015 2016 2015 Fixed assets - - 1,442 822 1,442 822 Vision, mission and CSR Vision, Unused leave of personnel (447) (411) - - (447) (411) Provisions for employee remuneration (1,088) (864) - - (1,088) (864) Other provisions (548) (571) - - (548) (571) Investments - - 162 162 162 162 Impairment of assets acquired from collateral (420) (295) - - (420) (295) International

Impairment of investments (120) - - - (120) - Raiffeisen Bank Tax loss (124) (108) - - (124) (108) Net (Assets)/Liabilities (2,748) (2,249) 1,604 984 (1,143) (1,265)

Deferred taxes are calculated on all temporary differences using a principal tax rate of 10 per cent.

Movements in temporary differences during the year are recognized in statement of comprehensive income on the following items: Economic growth Movements during the year

Net tax (assets) / liabilities 2015 Changes 2016

in BGN Thousand comprehensive income – loss/(profit) Fixed assets, net 822 620 1,442 Unused leave of personnel (411) (36) (447) in Bulgaria Provisions for employee remuneration (864) (224) (1,088) Raiffeisen Group Other provisions (571) 23 (548) Investments 162 - 162 Impairment of assets acquired from collateral (295) (125) (420) Impairment of investments - (120) (120) Tax loss (108) (16) (124) Change in consolidation group - 100 -

(1,265) 222 (1,143) reports Segment Independent Independent auditors` report auditors` Addresses Addresses 104

16. Other Comprehensive Income

in BGN Thousand 2016 2015 Vision, mission and CSR Items that will never be reclassified to profit or loss Remeasurements of defined benefit plans 23 (275) Items that will be reclassified to profit or loss Changes in fair value of financial assets available for sale 3,936 10,206 Tax effect on other comprehensive income (394) (1,021) Reclassified to profit or loss (14,228) - Tax effect on other comprehensive income 1,423 - Other comprehensive income (9,240) 8,910 Raiffeisen BankRaiffeisen

International The changes in fair value of assets available for sale in 2015 represent mainly the expected cash proceeds from the sale of 100 per cent of the issued and outstanding share capital of Visa Europe Limited (“Visa Europe”) to Visa Inc. The Bank is a principal member of Visa Europe and its share of the up-front consideration relating to the proposed sale of the issued and outstanding share capital of Visa Europe to Visa Inc. is calculated based on its contribution to Visa Europe’s business.

After all regulatory approvals were obtained the deal was finalized in 2016 and the Bank received income to the amount of BGN 15.2 mn (of which BGN 3.8 mn was received in the form of VISA Inc. class C shares). Economic growth 17. Cash and Balances with Central Banks

in BGN Thousand 2016 2015 Cash on hand 102,329 101,427 ATM cash 54,045 55,371

Raiffeisen GroupRaiffeisen Balances with Central Banks 888,472 1,118,754 in Bulgaria Total 1,044,846 1,275,552

Balances with Central Banks include the current account with the Bulgarian national bank, used for direct participation in the money and treasury bills markets and for settlement purposes, as well as the accounts for holding the obligatory minimum reserves. The current account balances are also eligible to cover the required by the Bulgarian national bank minimum

reserves. Segment reports 18. Trading Assets

in BGN Thousand 2016 2015 Bulgarian government securities 32,326 54,292 Bulgarian corporate bonds - 820 Foreign government securities 3,523 - auditors` report Independent Total trading assets 35,849 55,112

19. Derivatives

The Group uses the following derivative instruments for both hedging and non-hedging purposes. Addresses Currency forwards represent commitments to purchase-sale of foreign and domestic currency, including undelivered spot transactions. 105

Currency and interest rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or interest rates (for example fixed interest for floating rate) or a combination of all these (i.e. cross currency interest rate swaps). Usually for such deals no exchange of principal takes place. The Group’s credit risk represents the potential cost to replace the swap contracts if counterparties fail to fulfil their obligations. The risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken, the Group assesses counterparties using the same techniques as for its lending activities.

The following table indicates all derivative instruments held by the Group.

in BGN Thousand Contract /notional amount Fair values

Assets Liabilities

As at 31 December 2016 mission and CSR Vision, Currency forwards 396,689 6,111 6,040 Forex swaps 40,191 37 7 Interest rate swaps 19,599 170 182

456,479 6,318 6,229

As at 31 December 2015 International Raiffeisen Bank Raiffeisen Bank Currency forwards 191,845 2,545 2,413 Forex swaps 30,967 16 - Interest rate swaps 25,329 186 186 248,141 2,747 2,599

20. Loans and Advances to Banks Economic growth

in BGN Thousand 2016 2015

Money market deposits Domestic commercial banks 66,581 64,488 Foreign commercial banks 93,774 603,887 in Bulgaria 160,355 668,375 Raiffeisen Group Loans to banks Local commercial banks 17 - Foreign commercial banks 166,361 58,778

166,378 58,778

Nostro accounts Domestic commercial banks 2,857 2,885 Segment reports Segment Foreign commercial banks 53,016 50,492

55,873 53,377

Total 382,606 780,530 Independent Independent auditors` report auditors` Addresses Addresses 106

21. Loans and Advances to Customers

in BGN Thousand 2016 2015 Vision, mission and CSR Individual (retail customers): -- Overdrafts 4,078 4,042 - Credit cards 55,877 59,478 - Consumer loans 669,495 641,337 - Mortgages 785,768 741,116 - Finance lease 22,835 -

1,538,052 1,445,973 Corporate entities:

Raiffeisen BankRaiffeisen - Large corporates 1,800,772 1,582,760 International hereof finance lease 187,009 - - SMEs 887,953 805,586 hereof finance lease 76,023 -

2,688,725 2,388,346

Gross loans and advances 4,226,777 3,834,319

Economic growth Less: allowance for impairment (247,102) (278,960) Net 3,979,675 3,555,359

Net investment in finance lease

The net investment in finance lease represents the gross investment in finance lease less the unrealized finance income and less accumulated impairment.

Raiffeisen GroupRaiffeisen in BGN Thousand 2016 in Bulgaria Remaining maturity less than 1 year 34,437 Remaining maturity 1 to 5 years 241,885 Remaining maturity more than 5 years 36,882

Gross investment in finance lease 313,204 Unrealized finance income (25,899)

Segment reports Minimum lease payments 287,305 Impairment (5,996) Net investment in finance lease 281,309

22. Investment Securities auditors` report

Independent A. Securities at fair value trough profit or loss

in BGN Thousand 2016 2015 Bulgarian corporate bonds - 3,145 Bulgarian corporate shares 2,272 2,259 2,272 5,404 Addresses 107

B. Securities available for sale

in BGN Thousand 2016 2015 Bulgarian government bonds 174,866 147,529 Foreign government bonds 102,433 28,103 Foreign corporate bonds 97,579 - Foreign corporate shares 3,186 9,927 378,064 185,559

C. Securities held to maturity mission and CSR Vision,

in BGN Thousand 2016 2015 Bulgarian government bonds 506,544 451,488 Bulgarian corporate bonds 9,830 - Bulgarian municipal bonds 22,840 27,408

Foreign government bonds 47,564 48,985 International Raiffeisen Bank Raiffeisen Bank 586,778 527,881

Total Investment securities 967,114 718,844

23. Property, Plant and Equipment

in BGN Thousand Total Premises Computer Office Motor Office Economic growth equipment furniture vehicles reconsructions Cost January 1, 2016 133,278 6,057 42,896 49,469 1,202 33,654 Additions 11,245 - 5,155 3,499 558 2,032 Change in consolidation group 2,680 286 280 102 2,012 - in Bulgaria Write offs (11,990) - (4,025) (4,554) (552) (2,859) Raiffeisen Group December 31, 2016 135,213 6,343 44,306 48,515 3,220 32,827

Accumulated Depreciation January 1, 2016 109,400 2,196 36,069 41,553 180 29,402 Charge for the period 6,628 244 2,719 1,998 587 1,079 Depreciation of write offs (11,809) - (4,021) (4,527) (403) (2,858) Change in consolidation

group 1,241 - 221 73 947 - reports Segment December 31, 2016 105,460 2,440 34,988 39,097 1,311 27,624

Net Book Value

December 31, 2016 29,753 3,903 9,318 9,418 1,910 5,204 Independent Independent auditors` report auditors` Addresses Addresses 108

in BGN Thousand Total Premises Computer Office Motor Office equipment furniture vehicles reconsructions Cost January 1, 2015 134,735 6,498 41,046 51,348 166 35,677 Vision, mission and CSR Additions 13,200 - 3,733 5,101 1,133 3,233 Write offs (14,657) (441) (1,883) (6,980) (97) (5,256) December 31, 2015 133,278 6,057 42,896 49,469 1,202 33,654 Accumulated Depreciation January 1, 2015 116,996 2,037 35,833 45,886 150 33,090 Charge for the period 6,715 259 2,121 2,640 127 1,568 Depreciation of write offs (14,311) (100) (1,885) (6,973) (97) (5,256) December 31, 2015 109,400 2,196 36,069 41,553 180 29,402 Raiffeisen BankRaiffeisen

International Net Book Value December 31, 2015 23,878 3,861 6,827 7,916 1,022 4,252

Net Book Value January 1, 2015 17,739 4,461 5,213 5,462 16 2,587

Economic growth 24. Intangible Assets

in BGN Thousand Total Software Licences

Cost January 1,2016 63,630 63,275 355 Additions 8,465 8,465 -

Raiffeisen GroupRaiffeisen Write offs (81) (81) - in Bulgaria Change in consolidation group 1,041 1,041 - December 31, 2016 73,055 72,700 355 Accumulated amortization

January 1,2016 45,338 44,983 355 Charge for the period 5,502 5,501 - Amortization of write offs (34) (34) - Segment reports Change in consolidation group 891 891 - December 31, 2016 51,697 51,342 355 Net Book Value December 31,2016 21,359 21,359 - auditors` report Independent Addresses 109

in BGN Thousand Total Software Licences

Cost January 1,2015 50,287 49,932 355 Additions 13,412 13,412 - Write offs (69) (69) - December 31, 2015 63,630 63,275 355 Accumulated amortization January 1,2015 40,785 40,430 355 Charge for the period 4,618 4,618 - Vision, mission and CSR Vision, Amortization of write offs (65) (65) - December 31, 2015 45,338 44,983 355 Net Book Value December 31,2015 18,292 18,292 0

Net Book Value January 1, 2015 9,502 9,502 - International Raiffeisen Bank Raiffeisen Bank

25. Other Assets

in BGN Thousand 2016 2015 Prepayments and other deferrals 19,780 12,028 Repossessed collateral 5,858 3,793 Economic growth Other 14,296 7,673

Total 39,934 23,494

The table below indicates the movement of assets acquired from collateral.

in BGN Thousand 2016 2015 in Bulgaria

Balance as at 1 January 3,793 4,015 Raiffeisen Group Acquisitions 4,906 1,022 Disposals (5,135) (1,123) Write-down (938) (121) Change in consolidation group 3,232 - Balance as at 31 December 5,858 3,793 Segment reports Segment 26. Deposits from Banks

in BGN Thousand 2016 2015 Current accounts Domestic commercial banks 839 6,446 Independent Independent

Foreign commercial banks 30,924 41,879 report auditors` Total 31,763 48,325 Addresses Addresses 110

27. Deposits from Customers

in BGN Thousand 2016 2015 Vision, mission and CSR Large corporate customers and budget entities - Current accounts 1,076,093 1,141,200 - Term deposits 35,602 96,950 1,111,695 1,238,150

SMEs - Current accounts 851,826 802,072 - Term deposits 50,330 60,108 902,156 862,180 Raiffeisen BankRaiffeisen International Retail customers - Current accounts 1,381,943 1,080,389 - Term deposits 1,339,090 1,572,127 2,721,033 2,652,516

Total 4,734,884 4,752,846 Economic growth 28. Borrowings from Banks

Borrowings from banks include long-term loans attracted from international financial institutions for financing small- and medium-sized companies in the field of environmental protection, energy savings, industry, services and tourism as well as municipalities and private individuals.

To finance its credit activities, the Group also attracts syndicated and other loans from foreign credit institutions. Raiffeisen GroupRaiffeisen

in Bulgaria in BGN Thousand 2016 2015 Credit lines from International financial institutions 205,348 245,183 Other borrowings from foreign banks 152,976 52,998 Borrowings from local banks 29,337 -

Total 387,662 298,181 Segment reports 29. Subordinated Liabilities

As at December 31, 2016 the subordinated liabilities comprise:

a) Debt-capital hybrid instrument in the amount of BGN 177,981 thousand (carrying amount BGN 178,372 thousand), attracted by the Bank in 2001. The repayment of the debt is not bound by any maturity. Management believes that the use of this instrument will be for a term of over 5 years.

auditors` report b) Subordinated debt in the amount of BGN 185,022 thousand (carrying amount BGN 186,910 thousand), Independent attracted by the Bank in 2013 and 2014 with an original maturity of 10 years.

The Bank received the permission of the Bulgarian Central Bank to treat these funds as supplementary capital reserve and to increase its capital base for regulatory purposes. Addresses 111

30. Other Liabilities

in BGN Thousand 2016 2015 Transfers in process 18,681 21,604 Provisions for employees’ remuneration 10,794 8,656 Provisions for unused paid leave 4,465 4,085 Provisions for defined contribution plans 1,597 1,356 Impairment losses on credit commitments 4,871 1,521 Other payables 28,457 39,257 Vision, mission and CSR Vision, Total 68,865 76,479

Transfers in process represent customers’ money transfer orders with value date after 31 December 2016.

The Group recognizes a provision for unused paid leave, which is the undiscounted amount of the expected short-term income of its employees for the work performed during the current period.

Provision is recognized also for other liabilities to its employees, such as accrued but not paid remuneration related to International performance, according to Management’s assessment for the achieved results and goals during the financial year. Raiffeisen Bank

Obligations under defined benefit plans

The provision for retirement compensation as at 31 December 2016 amounts to BGN 1,597 thousand. The estimated amount of the liability is based on an actuarial report, which was prepared based on the following actuarial assumptions:

• Discount rate: 2,5 per cent;

• Retirement date: in accordance with regulations on length of service and age. Economic growth

Movement in the present value of the defined benefit obligations

in BGN Thousand 2016 2015 Defined benefit obligations at 1 January 1,356 923 Benefits paid by the plan (50) (37)

Current service cost 223 154 in Bulgaria Raiffeisen Group Interest expense 44 41 Actuarial (gains) losses for the period (23) 275 Change in consolidation group 47 - Defined benefit obligations at 31 December 1,597 1,356

The current service costs and interest expense are recognized in personnel expenses in profit or loss. Actuarial (gains) losses for the period are recognized in other. Segment reports Segment 31. Equity

Share capital

As of December 31, 2016 the registered and fully paid-in capital of the Group comprised of 603,447,952 registered shares with a par value of BGN 1 each. Independent auditors` report auditors`

Statutory reserve

Statutory reserves comprise amounts appropriated for purposes defined by the local legislation. Under the Bulgarian Commercial code, the Group is required to set aside one tenth of its profit in a statutory reserve until it reaches at least 10 per cent of its equity. Addresses Addresses 112

Retained earnings

The Group presents under retained earnings section all distributable reserves in excess of the statutory reserves.

Vision, mission and CSR Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets, until the assets are derecognized or impaired.

32. Commitments and Contingent Liabilities

The Group provides financial guarantees and letters of credit to guarantee the performance of customers to third parties. They represent off-balance financial instruments, being by nature credit substitutes, which engage the Group and expose it to credit risk. Raiffeisen BankRaiffeisen International The contractual amounts of commitments and contingent liabilities are set out in the following table by category. The amounts reflected in the table for guarantees and letters of credit represent the maximum accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted.

in BGN Thousand 2016 2015 Letters of guarantee and letters of credit issued 313,897 262,002

Economic growth hereof to banks 2,828 7,572 Unused credit lines 1,270,491 1,187,086 hereof to banks 43,407 14,906 Total 1,584,388 1,449,088

The Group allocates provisions to cover its credit risk from commitments and contingent liabilities, where its engagement is irrevocable. The provisions for credit risk from commitments and contingent liabilities represent the valuation of the potential loss, which the Group would realize, considering the probability that the customer utilizes the commitment. In order to determine this loss, the Group converts the net off-balance sheet exposure (after deducting liquid collaterals) into a balance Raiffeisen GroupRaiffeisen sheet exposure, by applying respective credit conversion factors. in Bulgaria

For the converted off-balance sheet commitments the same calculation methods for impairment are applied as for the balance sheet exposures.

33. Investments in Associates Segment reports An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence, but not the control, and that is neither a subsidiary nor an interest in a joint venture.

The investments in associates are consolidated in the Group’s financial statements by using the equity method.

As at December 31, 2016 the Group’s participations are as follows:

Cash Collection Company AD – 20 per cent. auditors` report

Independent The activity of the entity is described in note 35. Addresses 113

34. Cash and Cash Equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with less than 3 months original maturity:

in BGN Thousand 2016 2015 Cash on hand and nostro accounts 212,241 210,175 Current account with the Central Bank 888,472 1,118,754 Placements with banks with original maturity of less than 3 months 83,968 226,315 Total 1,184,681 1,555,244 Vision, mission and CSR Vision, 35. Group Members

Subsidiaries

Subsidiaries are these entities, which are controlled by the Bank. International Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Raiffeisen Bank

In order that the consolidated financial statements present financial information about the group as that of a single economic entity, income and expenses of a subsidiary are included in the consolidated statements from the date of acquisition until the Group ceases to exercise control over the entity.

Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full.

The subsidiaries controlled by the Bank as at December 31, 2016 are: Economic growth

Raiffeisen Leasing Bulgaria EOOD – 100 per cent share

Raiffeisen Leasing Bulgaria OOD was established in 2004 with associates Raiffeisenbank (Bulgaria) EAD (24.5 per cent) and Raiffeisen Leasing International GmbH (75.5 per cent). In 2016 the Bank became 100 per cent owner of the company by acquiring the share of Raiffeisen Leasing International GmbH. After the acquisition the legal form of the company changed to Raiffeisen Leasing Bulgaria EOOD. in Bulgaria

Raiffeisen Leasing Bulgaria OOD actively participates in the Bulgarian leasing business and the main products offered to its Raiffeisen Group customers are: leasing of new and used motor vehicles, building and agricultural machines, light and heavy-freight trucks, trailers and motor trucks, leasing of machines and equipment, as well as leasing of immovable property.

As of 31 December 31 2016 the company reaches a market share of 9.02 per cent based on its leasing portfolio (as per statistics of the Bulgarian national bank). The total volume of the local leasing market amounts to BGN 3,314 mn and the total assets of the company amount to BGN 313 mn. The company’s registered capital amounts to BGN 5,900 thousand.

Raiffeisen Service EOOD – 100 per cent ownership Segment reports Segment Raiffeisen Service EOOD is registered in the Bulgarian Trade registry with a capital of BGN 4,220 thousand. Its scope of activity includes property management, financial and accounting consultancy, legal consultancy, accounting services, evaluation of movable and immovable property, financial assets and companies, electronic data handling and analysis, information services, rental of safe boxes, leasing. As of 31 December 2016 the company’s net assets amount to BGN 5,112 thousand.

Raiffeisen Asset Management (Bulgaria) EAD – 100 per cent ownership Independent Independent

Raiffeisen Asset Management (Bulgaria) EAD has been granted a permission for its activities by the Financial Supervision report auditors` Commission in 2005. The entity is licensed to exercise the activities per art. 202, (1), pp. 1, 2, 3 of the Law on public offering of securities and treasury bonds, namely managing of mutual funds and investment companies, management of individual portfolios in its own name, advisory services on investments in securities. As at December 31, 2016 the company’s registered capital amounts to BGN 250 thousand and its net assets BGN 863 thousand. Addresses Addresses 114

Raiffeisen Insurance Broker EOOD – 100 per cent ownership

Raiffeisen Insurance Broker EOOD has been established in 2006 with 100 per cent ownership of Raiffeisenbank (Bulgaria) EAD. The company has been entered in the register of the insurance brokers on 30, March 2006 with decision №250-ЗB of the Financial Supervision Commission. Vision, mission and CSR

The company’s activity is related to intermediation between its customers and the insurance companies.

Raiffeisen Insurance Broker EOOD analyses and researches the insurance market, offers insurance products, which meet the individual requirements of its customers, administers the insurance contracts and lends support in case of insurance events.

Customers of Raiffeisen Insurance Broker EOOD are the borrowers of Raiffeisenbank (Bulgaria) EAD, the lessees of Raiffeisen Leasing Bulgaria OOD and Raiffeisen Real Estate EOOD, as well as customers outside the Group. As at December 31, 2016 the company’s registered capital amounts to BGN 5 thousand and its net assets BGN 5,927 thousand.

Raiffeisen Real Estate EOOD – 100 per cent ownership Raiffeisen BankRaiffeisen

International In 2016 the Bank decided to terminate the activity of the company through liquidation and Raiffeisen Real Estate EOOD was deregistered from the Bulgarian Trade registry.

Associates

An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence, but not the control, and that is neither a subsidiary nor an interest in a joint venture. Economic growth The investments in associates are consolidated in the Group’s financial statements by using the equity method. Under the equity method, the investment in an associate is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The investor's share of the profit or loss of the investee is recognised in the investor's profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investor's proportionate interest in the investee arising from changes in the investee's equity that have not been recognised in the investee's profit or loss. Such changes include those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences. The investor's share of those changes is recognised directly in equity of the investor.

Raiffeisen GroupRaiffeisen Cash Collection Company – 20 per cent share in Bulgaria In 2009 the Bank became shareholder in the Cash collection company, with 20 per cent participation, amounting to BGN 2,500 thousand. In 2016 indications for impairment of the investment were identified and the Bank recognized a loss in the amount of BGN 1,200 thousand.

The table below illustrates the consolidation methods by entities:

Participation Participation Consolidation Consolidation

Segment reports as at as at method 2016 method 2015 31 December 31 December 2016 2015 Raiffeisen Services EAD - 100% - Full consolidation Raiffeisen Services EAD 100% - Full - consolidation Raifeisen Asset Management (Bulgaria) EAD 100% 100% Full Full auditors` report consolidation consolidation Independent Raiffeisen Insurance broker EOOD 100% 100% Full Full consolidation consolidation Raiffeisen Real Estate EOOD - 100% - Full consolidation Raiffeisen Leasing Bulgaria OOD 100% 24.5% Full Equity consolidation method

Addresses Cash Collection Company 20% 20% Equity Equity method method 115

35. Related Party Transactions

Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party on making financial or operational decisions, or the parties are under common control with the Bank.

A number of banking transactions are entered into with related parties in the normal course of business. These include loans, deposits and other transactions.

Parent and ultimate controlling party

The Bank’s immediate parent is Raiffeisen SEE Region Holding GmbH in which Raiffeisen Bank International AG, Austria ultimately holds a 100 per cent interest. The Bank therefore considers that it has a related-party relationship, in accordance with International Accounting Standard 24 Related Party Disclosures (“IAS 24”) with the following: mission and CSR Vision,

–– Shareholders and parties related to shareholders

–– Key management personnel and parties related to key management personnel

Shareholders and parties related to shareholders

Related party Type of transaction Value of the Balance International Raiffeisen Bank Raiffeisen Bank transactions for as of 31 December in BGN Thousand the year ended 2016 2015 2016 2015 Mother company Loans and advances to banks 93,407 553,993 Mother company Positive fair value of derivatives 4,689 1,250 Mother company Tangible and intangible assets 3,225 4,098 Mother company Other assets 1,265 1,260 Mother company Deposits from banks 15,618 25,219 Economic growth Mother company Negative fair value of derivatives 1,718 1,250

Mother company Subordinated liabilities 365,281 365,457 Mother company Other liabilities 86 251 Mother company Interest income 525 1,063 Mother company Interest expense (11,618) (12,571) Mother company Fee and commission income 48 39 in Bulgaria Raiffeisen Group Mother company Fee and commission expense (423) (668) Mother company Net result from derivatives (101) (158) Mother company Administrative expenses (8,706) (9,054) Mother company Other operating expenses (52) (107) Mother company Other operating income - 1 Mother company Contingent liabilities and commitments 7,851 8,164 Segment reports Segment Companies related to Loans and advances to banks 78,866 118,121 the mother company Companies related to Loans and advances to customers - 58,676 the mother company Companies related to Investment securities 97,579 - the mother company Companies related to Tangible and intangible 2,212 2,783 the mother company fixed assets Independent auditors` report auditors` Companies related to Deposits from banks 469 143 the mother company Companies related to Deposits from customers 2,629 4,497 the mother company Companies related to Interest income 1,838 534 the mother company Addresses Addresses 116

Related party Type of transaction Value of the Balance transactions for as of 31 December in BGN Thousand the year ended 2016 2015 2016 2015 Vision, mission and CSR Companies related to Interest expense 1 - the mother company Companies related to Fee and commission income 30 32 the mother company Companies related to Fee and commission expense (1,996) (1,039) the mother company Companies related to Administrative expenses (4,346) (2,734) the mother company Companies related to Contingent liabilities 1,053 4,415 the mother company and commitments

Raiffeisen BankRaiffeisen Associated companies Loans and advances to customers - 68,029 International Associated companies Positive fair value of derivatives - 16 Associated companies Deposits from customers - 3,564 Associated companies Finance lease liabilities - 764 Associated companies Interest income - 558 Associated companies Interest expense - (27) Associated companies Net result from derivatives - 7 Economic growth Associated companies Administrative expenses (226) (397) Associated companies Other operating income - 321 Associated companies Contingent liabilities (guarantees issued) - - 16,220 Associated companies Dividend income 178 966

Key management personnel and parties related to key management personnel Raiffeisen GroupRaiffeisen

in Bulgaria Supervisory Board members, Management Board members and other key management personnel defined as persons having authority and responsibility for planning, directing and controlling the activities of the Bank, directly or indirectly, including any director (whether executive or otherwise) of the Bank, collectively “key management personnel”, close family members of key management personnel, and companies and unincorporated businesses controlled by key management personnel and/or their close family members. During the year 4 persons served as Supervisory Board members and 6 served as Management

Board members. Except the Supervisory and Management Board members, the Bank does not consider any other persons at the reporting date, to be key management personnel.

Segment reports The table below shows the key management personnel compensation:

in BGN Thousand 2016 2015 Short-term employee benefits 4,009 3,606 Total 4,009 3,606

Related party transactions are summarized below. auditors` report

Independent Banking services

The Bank provides current accounts to related parties, and takes deposits from them, on which it incurs interest expense, and provides loans to them, on which it earns interest income. The Bank also earns fee and commission income on banking services provided to related parties.

Other transactions

Addresses Other related party transactions includes rent receivable from and payable to related parties for property occupancy, and costs for other services. 117

Key management personnel

Type of transaction Value of the transactions End balances in BGN Thousand for the year ended as of 31 December 2016 2015 2016 2015 Current accounts and deposits 3,779 3,532 Interest expense (20) (52) Interest income - 10 Fee and commission income 2 4

Remuneration 4,009 3,606 mission and CSR Vision, Loans and credit commitments 2 364

37. Subsequent Events

There are no events after the statement of financial position that would require either adjustments or additional disclosures in these consolidated financial statements. International Raiffeisen Bank Raiffeisen Bank Economic growth

in Bulgaria Raiffeisen Group Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 118 Vision, mission and CSR Raiffeisen BankRaiffeisen International Economic growth Raiffeisen GroupRaiffeisen in Bulgaria

Segment reports Adresses auditors` report Independent Addresses 119 Vision, mission and CSR Vision, International Raiffeisen Bank Raiffeisen Bank Economic growth

in Bulgaria

Adresses 122 Raiffeisen Group Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses 120

Addresses and Contacts

Vision, mission and CSR Branch Network in Bulgaria

Head Office Sofia 8 Sofia 18 1407 Sofia 1715 Sofia 1517 Sofia 55, N.Vaptsarov Blvd. Business Park Sofia, bl. 11A Botevgradsko Shose Blvd., bl. 4, entr. Business Centre EXPO 2000 Tel.: (+359 2) 9 705 711 G-E (+359 2) 9 705 712 Tel.: (+359 2) 8 190 361 Raiffeisen BankRaiffeisen Tel.: (+359 2) 8 190 061 International (+359 2) 8 190 062 (+359 2) 8 190 362 Sofia 9 1330 Sofia Sofia 19 Raiffeisenbank (Bulgaria) EAD Krasna Polyana Compl. 1000 Sofia Offices in Sofia: N. Mushanov Blvd., bl. 31 93A, Vasil Levski Blvd. Tel.: (+359 2) 8 126 051 Tel.: (+359 2) 9 396 019 Sofia Main Branch (+359 2) 8 126 052 (+359 2) 9 396 012 1504 Sofia 18/20, Gogol Str. Sofia 10 Sofia 20

Economic growth Tel.: (+359 2) 91 985 121 1220 Sofia 1612 Sofia (+359 2) 91 985 702 Nadezhda Compl. 7, Tsar Boris III Blvd., entr. A-B Lomsko Shose Blvd., bl. 171 Tel.: (+359 2) 8 051 611 Sofia 2 Tel.: (+359 2) 8 134 011 (+359 2) 8 051 612 1000 Sofia (+359 2) 8 134 012 135, G.S. Rakovski Str. Sofia 22 Tel.: (+359 2) 8 155 711 Sofia 11 1750 Sofia (+359 2) 8 155 712 1463 Sofia Mladost 1 Compl. 3, Hristo Stambolski Str. Saharov Market Sofia 3 Tel.: (+359 2) 9 178 111 Tel.: (+359 2) 9 764 911 1750 Sofia (+359 2) 9 178 116 (+359 2) 9 764 912 Raiffeisen GroupRaiffeisen Mladost 1 Compl, bl.30, entr. V in Bulgaria Tel.:(+359 2) 9 760 976 Sofia 12 Sofia 23 (+359 2) 9 760 969 1202 Sofia 1712 Sofia 65, Maria Luiza Blvd. Sofia 4 Mladost 3 Compl., bl. 304 Tel.: (+359 2) 9 264 041 1303 Sofia Tel.: (+359 2) 8 175 011 (+359 2) 9 264 056 132, Todor Alexandrov Blvd. (+359 2) 8 175 012

Tel: (+359 2) 9 159 930 Sofia 14 Sofia 24 (+359 2) 9 159 919 1111 Sofia 1504 Sofia 43, Shipchenski Prohod Blvd.

Segment reports Sofia 5 10, Yanko Sakazov Blvd. Tel.: (+359 2) 8 171 861 1606 Sofia Tel.: (+359 2) 8 192 711 (+359 2) 8 171 862 5, Gen. Totleben Blvd. Fax: (+359 2) 8 192 712 Tel: (+359 2) 9 157 911 Sofia 15 Sofia 26 (+359 2) 9 157 913 1407 Sofia 1612 Sofia 55, N.Vaptsarov Blvd. Sofia 6 124A, Tsar Boris III Blvd. Business Centre EXPO 2000 1421 Sofia Tel.: (+359 2) 8 081 752 Tel.: (+359 2) 8 190 061; 49, Bulgaria Blvd. (+359 2) 8 081 751 (+359 2) 8 190 062 Business Center Vitosha Sofia 29 auditors` report Tel.: (+359 2) 8 181 911 Sofia 16

Independent 1574 Sofia (+359 2) 8 181 926 1303 Sofia 3, Temenuga Str. 79, Hristo Botev Blvd. Sofia 7 Tel.: (+359 2) 8 924 011 Tel.: (+359 2) 8 138 061 1324 Sofia (+359 2) 8 924 012 (+359 2) 8 138 062 Lyulin 6 Compl. Sofia 30 29, Dzhavaharlal Neru Blvd. Sofia 17 1000 Sofia Tel.: (+359 2) 9 216 911 1700 Sofia 111, G.S. Rakovski Blvd. (+359 2) 9 216 912 9 Acd. Boris Stefanov Str. Tel.: (+359 2) 9 234 411 Tel.: (+359 2) 8 190 431 Addresses (+359 2) 9 234 412 (+359 2) 8 079 513 121

Sofia 31 Sofia 46 Burgas 1 1421 Sofia 1404 Sofia 8000 Burgas 32A, Cherni Vrah Blvd. 2, Deyan Belishki Str. 1, Adam Mitskevich Str. Tel.: (+359 2) 8 065 822 Tel.: (+359 2) 8 085 911 Tel.: (+359 56) 897 845 (+359 2) 8 065 821 (+359 2) 8 085 914 (+359 56) 897 842 Sofia 32 Sofia 47 Mega mall Burgas 2 1336 Sofia, 1324 Sofia 8000 Burgas Lyulin 3 Compl. 15, Tsaritsa Yoanna Blvd. 115, Aleksandrovska Str. Tsaritsa Yoana Blvd., bl.387 Tel.: (+359 2) 9 231 981 Tel.: (+359 56) 875 922 Tel.: (+359 2) 8 144 312 (+359 2) 9 231 953 (+359 56) 875 926 (+359 2) 8 144 311 Sofia 48 Burgas 3 Sofia 33 1407 Sofia 8000 Burgas 1000 Sofia 51B, Cherni Vrah Blvd. Bratya Miladinovi Compl., bl.117 Vision, mission and CSR Vision, 5, Sveta Nedelya Square Tel.: (+359 2) 8 054 915 Tel.: (+359 56) 859 481 Tel.: (+359 2) 9 156 211 (+359 2) 8 054 911 (+359 56) 859 482 (+359 2) 9 156 230 Sofia 50 Burgas 4 Sofia 34 1528 Sofia 8000 Burgas 1040 Sofia 7 Iskarsko shosse Blvd., 5, Ferdinandova Str. 126, Vasil Levski Blvd. Commercial center Evropa Tel.: (+359 56) 851 422 Tel.: (+359 2) 8 062 712 Tel.: (+359 2) 9 040 882 (+359 56) 851 421

(+359 2) 8 062 711 (+359 2) 9 040 881 International

Burgas 5 Raiffeisen Bank Sofia 35 Sofia Cantek 8000 Burgas 1680 Sofia 1619 Sofia Meden Rudnik Compl., bl.187 76, Gotse Delchev Blvd. 81, Nikola Petkov Blvd. Tel.: (+359 56) 857 911 Tel.: (+359 2) 8 157 552 Tel.: (+359 2) 8 081 911 (+359 56) 857 912 (+359 2) 8 157 551 (+359 2) 8 081 912 Burgas 6 Sofia 36 Sofia 53 8000 Burgas 1618 Sofia 1510 Sofia Slaveykov Compl., bl. 126 13, Al. Pushkin Str. 51 Makgahan Str. Tel.: (+359 56) 895 811 Tel.: (+359 2) 8 082 742 Tel.: (+359 2) 9 040 091 (+359 56) 895 812 Economic growth (+359 2) 8 084 042 Fax: (+359 2) 9 040 092 Byala Sofia 37 7100 Byala 1113 Sofia Raiffeisenbank (Bulgaria)EAD 1, Ekzarh Yosif Parvi Square 12, Tsarigradsko Shose Blvd. Tel.: (+359 817) 713 12 Tel.: (+359 2) 8 074 311 Offices in Bulgaria (+359 817) 713 11 (+359 2) 8 074 312 Aytos Dimitrovgrad Sofia 38 8500 Aytos 6400 Dimitrovgrad

1584 Sofia 17, Tsar Osvoboditel Str. 9, Dimitar Blagoev Str. in Bulgaria

Druzhba 2 Compl., Tel.: (+359 558) 29 511 Tel.: (+359 391) 65 111 Raiffeisen Group 120, Tsvetan Lazarov Blvd. (+359 558) 29 518 (+359 391) 65 112 Tel.: (+359 2) 8 079 512 Asenovgrad Dobrich 1 (+359 2) 8 079 511 4230 Asenovgrad 9300 Dobrich Sofia 42 Izlozhenie Str. 25, 25-ti Septemvri Str. 1113 Sofia Tel.: (+359 331) 60 060 Tel.: (+359 58) 653 002 18А, F. J. Curie Str. (+359 331) 60 062 (+359 58) 653 000 Tel.: (+359 2) 8 077 972 Blagoevgrad 1 Dobrich 2 (+359 2) 8 077 971 2700 Blagoevgrad 9300 Dobrich Sofia 43 47, Todor Aleksandrov Str. 20, Otets Paisiy Str. reports Segment 1142 Sofia Tel.: (+359 73) 829 162 Tel.: (+359 58) 655 032 41А, Graf Ignatiev Str. (+359 73) 829 175 (+359 58) 655 031 Tel.: (+359 2) 8 102 211 Blagoevgrad 2 Dulovo (+359 2) 8 102 212 2700 Blagoevgrad 7650 Dulovo Sofia 44 3, Arseniy Kostentsev Str. 11, Vasil Levski Str. 1606 Sofia Tel.: (+359 73) 8 894 521 Tel.: (+359 855) 21 112 8, Praga Blvd. Fax: (+359 73) 8 894 525 (+359 855) 21 111 Independent Independent

Tel.: (+359 2) 8 953 912 report auditors` Botevgrad Dupnitsa (+359 2) 8 953 911 2140 Botevgrad 2600 Dupnitsa Sofia 45 2, Akad. Stoyan Romanski Str. 2, Solun Str. 1606 Sofia Tel.: (+359 723) 68 711 Tel.: (+359 701) 59 811 53, Hristo Botev Blvd. (+359 723) 68 712 (+359 701) 59 812 Tel.: (+359 2) 8 951 711 (+359 2) 8 951 712 Addresses Addresses 122

Elin Pelin Karnobat Peshtera 2100 Elin Pelin 8400 Karnobat 4550 Peshtera Vitosha Blvd., bl.4, entr.B 1, Karnobatska Komuna Str. 19, Doyranska Epopeya Str. Tel.: (+359 725) 698 012 Tel.: (+359 550) 28 843 Tel.: (+359 350) 60 217 (+359 725) 698 011 (+359 550) 28 842 (+359 350) 60 215 Vision, mission and CSR Gabrovo Kostinbrod Petrich 5300 Gabrovo 2230 Kostinbrod 2850 Petrich 30, Skobelevska Str. 11, Ohrid Str. 51/53, Rokfeler Str. Tel.: (+359 66) 810 062 Tel.: (+359 721) 68 861 Tel.: (+359 745) 69 611 (+359 66) 810 061 (+359 721) 68 862 (+359 745) 69 612 Gorna Oryahovitsa Kyustendil Pirdop 5100 Gorna Oryahovitsa 2500 Kyustendil 2070 Pirdop 1, Mano Todorov Str. Demokratsiya Square 59, Tsar Osvoboditel Blvd. Tel.: (+359 618) 61 711 Tel.: (+359 78) 556 312 Tel.: (+359 728) 68 061 (+359 618) 61 722 (+359 78) 556 311 (+359 7181) 68 060 Golden Sands Lovech Pleven 1 Raiffeisen BankRaiffeisen

International 9007 Golden Sands 5500 Lovech 5800 Pleven Hotel Admiral 3, Bulgaria Blvd. 1, Vardar Str. Tel.: (+359 52) 389 413 Tel.: (+359 68) 689 019 Tel.: (+359 64) 883 711 (+359 52) 389 414 (+359 68) 689 023 (+359 64) 883 712 Gotse Delchev Mezdra Pleven 2 2900 Gotse Delchev 3100 Mezdra 5800 Pleven 1, Byalo More Str. 8, G. Dimitrov Str. 2, Tsar Boris III Str. Tel.: (+359 751) 69 451 Tel.: (+359 910) 91 711 Tel.: (+359 64) 890 512

Economic growth (+359 751) 69 452 (+359 910) 91 712 (+359 64) 890 511 Harmanli Montana Pleven 3 6450 Harmanli 3400 Montana 5800 Pleven 1, Bulgaria Blvd. 4, Zheravitsa Sq. 74, Hristo Botev Blvd. Tel.: (+359 373) 80 012 Tel.: (+359 96) 391 911 Tel.: (+359 64) 891 062 (+359 373) 80 013 (+359 96) 391 933 (+359 64) 891 068 Haskovo 1 Nesebar Plovdiv 1 6300 Haskovo 8230 Nesebar 4000 Plovdiv 1-3, Pirin Str. 3, Priboyna Str. 20, Vasil Aprilov Str. Raiffeisen GroupRaiffeisen Tel.: (+359 38) 604 719 Tel.: (+359 554) 46 660 Tel.: (+359 32) 261 911 in Bulgaria (+359 38) 604 726 (+359 554) 46 661 (+359 32) 646 565 Haskovo 3 Nova Zagora Plovdiv 2 6300 Haskovo 8900 Nova Zagora 4000 Plovdiv 146, Bulgaria Blvd. 49, Vasil Levski Str. 125, Shesti Septemvri Blvd.

Tel.: (+359 38) 650 311 Tel.: (+359 457) 61 112 Tel.: (+359 32) 907 911 (+359 38) 650 321 (+359 457) 61 111 (+359 32) 907 912 Isperih Panagyurishte Plovdiv 3

Segment reports 7400 Isperih 4500 Panaguyrishte 4000 Plovdiv 6, Stefan Karadzha Str. 3, G.Benkovski Str. 1, Maria Luiza Blvd. Tel.: (+359 8431) 81 11 Tel.: (+359 357) 60 911 Tel.: (+359 32) 646 575 (+359 8431) 81 12 (+359 357) 60 912 (+359 32) 646 565 Kazanlak Pazardzhik 1 Plovdiv 4 6100 Kazanlak 4400 Pazardzhik 4000 Plovdiv 2, Knyaz Mirski Str. 7, Tsar Shishman Str. 106, Bulgaria Blvd. Tel.: (+359 431) 68 911 Tel.: (+359 34) 403 010 Tel.: (+359 32) 655 811 (+359 431) 68 922 (+359 34) 403 012 (+359 32) 655 812 auditors` report

Independent Kardzhali Pazardzhik 2 Plovdiv 5 6600 Kardzhali 4400 Pazardzhik 4000 Plovdiv 23B, Ekzarh Yosif Str. 13, Han Krum Str. 5, Avksentiy Veleshki Str. Tel.: (+359 361) 60 651 Tel.: (+359 34) 406 711 Tel.: (+359 32) 601 272 (+359 361) 60 652 (+359 34) 406 712 (+359 32) 601 277 Karlovo Pernik Plovdiv 7 4300 Karlovo 2300 Pernik 4023 Plovdiv 1, Evstati Geshev Str. 15, Krakra Str. Saedinenie Blvd., Addresses Tel.: (+359 335) 90 431 Tel.: (+359 76) 688 111 Arimag Shopping Center (+359 335) 90 432 (+359 76) 688 112 Tel.: (+359 32) 271 412 (+359 32) 271 411 123

Plovdiv 9 Sevlievo Troyan 4000 Plovdiv 5400 Sevlievo 5600 Troyan 63, Makedonia Blvd. 1, Svoboda Square 1, Rakovski Square Tel.: (+359 32) 202 255 Tel.: (+359 675) 31 211/212 Tel.: (+359 670) 66 611/612 (+359 32) 202 254 Shumen Varna 1 Pomorie 9700 Shumen 9000 Varna 8200 Pomorie 97, Tsar Osvoboditel Str. 32, Tsar Simeon Parvi Str. 40, Prof. Stoyanov Str. Tel: (+359 54) 850 951/952 Tel.: (+359 52) 688 033 Tel.: (+359 596) 28 912 (+359 52) 688 028 Silistra (+359 596) 28 911 7500 Silistra Varna 3 Popovo 20, Tsar Shishman Str. 9000 Varna 7800 Popovo Tel.: (+359 86) 818 211/212 80-82, Osmi Primorski Polk Blvd. 15-ti January Str. Tel.: (+359 52) 685 711/712 Sliven 1 mission and CSR Vision, Tel.: (+359 608) 401 22/23/27 8800 Sliven Varna 4 (+359 608) 400 89 11, Tsar Simeon Str. 9000 Varna Primorsko Tel.: (+359 44) 610 432/433 91, Slivnitsa Blvd. 8290 Primorsko Tel.: (+359 52) 664 511/512 Sliven 2 54, Treti Mart Str. 8800 Sliven Varna 5 Tel.: (+359 550) 31 040 4, Dimitar Dobrovich Str. 9000 Varna (+359 550) 32 286 Tel.: (+359 44) 610 411/412 68, Vladislav Varnenchik Blvd. International

Radnevo Tel.: (+359 52) 662 411/412 Raiffeisen Bank Smolyan 6260 Radnevo 4700 Smolian Varna 7 6, Georgi Dimitrov Str. 73, Bulgaria Blvd. 9000 Varna Tel.: (+359 417) 81 121 Tel.: (+359 301) 60 130/134 3-5, Vladislav Varnenchik Blvd. (+359 417) 81 123 Tel.: (+359 52) 679 941/942 Sozopol Razgrad 8130 Sozopol Varna Piccadilly 7200 Razgrad 3, Industrialna Zona Str., Sozopol Hotel 9000 Varna 2, Stefan Karadzha Str. Tel.: (+359 550) 24 550 482, Primorski Park II Blvd. Tel.: (+359 84) 611 461 Fax: (+359 550) 22 313 Saltanat Area (+359 84) 611 462 Tel.: (+359 52) 385 312/314 Economic growth Stara Zagora 1 Razlog 6000 Stara Zagora Varna Mall 2760 Razlog 79, Knyaz Boris Str. 9000 Varna 8, Sheynovo Str. Tel.: (+359 42) 617 511 186, Vladislav Varnenchik Blvd. Tel.: (+359 747) 89 011 (+359 42) 617 539 Tel.: (+359 52) 575 832/836 (+359 747) 89 025 Stara Zagora 2 Veliko Tarnovo 1 Ruse 1 6000 Stara Zagora 5000 Veliko Tarnovo 7000 Ruse 67, Tsar Simeon Veliki Str. 23, Vasil Levski Blvd. 22, Slavyanska Str. in Bulgaria Tel.: (+359 42) 696 727 Tel.: (+359 62) 616 411/412 Tel.: (+359 82) 817 961 Raiffeisen Group (+359 42) 696 712 (+359 82) 817 981 Veliko Tarnovo 2 Stara Zagora 3 5000 Veliko Tarnovo Ruse 2 6000 Stara Zagora 37, B Nikola Gabrovski Str. 7000 Ruse 2, Mitropolit Metodi Kusev Blvd. Tel.: (+359 62) 610 511/512 54, Lipnik Blvd. Tel.: (+359 42) 693 511/512 Tel.: (+359 82) 814 352 Velingrad (+359 82) 814 351 Sunny Beach 4600 Velingrad 8240 Sunny Beach Аl. Stambolyiski Str., bl.1 Ruse 3 Hotel Diamond Tel.: (+359 359) 56 920/921 7000 Ruse Tel: (+359 554) 24 565 reports Segment 4, Borisova Str. Vidin (+359 554) 24 566 Tel.: (+359 82) 880 411/412 3700 Vidin Svilengrad 1, Tsar Ivan Asen II Str. Samokov 6500 Svilengrad Tel.: (+359 94) 609 136 2000 Samokov 73, Bulgaria Blvd. (+359 94) 609 111 33, Makedonia Blvd Tel.: (+359 379) 706 52/53 Tel.: (+359 722) 68 011/012 Vratsa Svishtov 3000 Vratsa Sandanski

5250 Svishtov Hristo Botev Square Independent 2800 Sandanski 100, Tsar Osvoboditel Str. Tel.: (+359 92) 668 811/812 report auditors` 1, Hristo Smirnenski Str. Tel.: (+359 631) 61 311/312 Tel.: (+359 746) 34 637 Yambol Fax: (+359 746) 34 632 Targovishte 8600 Yambol 7700 Targovishte 20, Zhorzh Papazov Str. 2, Preslav Str. Tel.: (+359 46) 683 462/464 Tel: (+359 601) 69 551/552 Addresses Addresses 124

Others:

Raiffeisen Leasing Bulgaria 1407 Sofia Lozenets Vision, mission and CSR 32 A, Cherni vrah Blvd., 6th floor Tel.: (+359 2) 491 91 91 Fax: (+359 2) 974 20 57

Raiffeisen Asset Management 1407 Sofia 55, N. Vaptsarov Blvd. Business Centre EXPO 2000 Tel.: (+359 2) 919 85 452 Fax: (+359 2) 943 33 65

Raiffeisen Direct - Call Centre Raiffeisen BankRaiffeisen

International 1407 Sofia 55, N. Vaptsarov Blvd. Business Centre EXPO 2000, Building D Tel.: 0 700 10 000 Fax: (+359 2) 862 38 81

Raiffeisen Insurance Broker 1407 Sofia

Economic growth 55, N. Vaptsarov Blvd. Business Centre EXPO 2000 Tel.: (+359 2) 817 42 60, 817 43 39 Fax: (+359 2) 973 30 94

Raiffeisen Real Estate EOOD 1504 Sofia 5, Sveta Nedelia sqr. Tel.: (+359 2) 817 42 90 Fax: (+359 2) 971 24 04 Raiffeisen GroupRaiffeisen in Bulgaria

Segment reports auditors` report Independent Addresses 125

Contacts of Selected Members of Raiffeisen Bank International AG

Raiffeisen Bank International AG Croatia Serbia Raiffeisenbank Austria d.d. Raiffeisen banka a.d. Austria Magazinska cesta 69 Djordja Stanojevica 16 Raiffeisen Bank International AG 10000 Zagreb 11070 Novi Beograd Austria Phone: +385-1-45 664 66 Phone: +381-11-32 021 00 Am Stadtpark 9 Fax: +385-1-48 116 24 Fax: +381-11-22 070 80 mission and CSR Vision, 1030 Vienna SWIFT/BIC: RZBHHR2X SWIFT/BIC: RZBSRSBG Phone: +43-1-71 707-0 www.rba.hr www.raiffeisenbank.rs Fax: +43-1-71 707-1715 Czech Republic Slovakia www.rbinternational.com Raiffeisenbank a.s. Tatra banka, a.s. [email protected] Hvezdova 1716/2b Hodzovo námestie 3 [email protected] 14078 Prague 4 P.O. Box 42 Phone: + 420-412 446 400 85005 Bratislava 55 International

Banking network Fax: +420-234-402-111 Phone: +421-2-59 19-1000 Raiffeisen Bank Albania SWIFT/BIC: RZBCCZPP Fax: +421-2-59 19-1110 www.rb.cz SWIFT/BIC: TATRSKBX Raiffeisen Bank Sh.A. www.tatrabanka.sk “European Trade Center” Hungary Bulevardi “Bajram Curri” Raiffeisen Bank Zrt. Ukraine Tirana Akadémia utca 6 Raiffeisen Bank Aval JSC Phone: +355-4-23 8 100 1054 Budapest 9, vul Leskova Fax: +355-4-22 755 99 Phone: +36-1-48 444-00 01011 Kiev SWIFT/BIC: SGSBALTX Fax: +36-1-48 444-44 Phone: +38-044-49 088 88 www.raiffeisen.al

SWIFT/BIC: UBRTHUHB Fax: +38-044-295-32 31 Economic growth Belarus www.raiffeisen.hu SWIFT/BIC: AVALUAUK www.aval.ua Priorbank JSC Kosovo V. Khoruzhey str. 31-A Raiffeisen Bank Kosovo J.S.C.

220002 Minsk Rruga UCK, No. 51 Leasing companies Phone: +375-17-28 9-9090 10000 Pristina Austria Fax: +375-17-28 9-9191 Phone: +381-38-22 222 2 Raiffeisen-Leasing SWIFT/BIC: PJCBBY2X Fax: +381-38-20 301 130 International GmbH www.priorbank.by SWIFT/BIC: RBKOXKPR

Am Stadtpark 3 in Bulgaria www.raiffeisen-kosovo.com 1030 Vienna Bosnia and Herzegovina Raiffeisen Group Phone: +43-1-71 707-2071 Raiffeisen Bank d.d. Poland Fax: +43-1-71 707-76 2966 Bosna i Hercegovina Raiffeisen Bank Polska S.A. www.rli.co.at Zmaja od Bosne bb Ul. Grzybowska 78 71000 Sarajevo 00-844 Warsaw Albania Phone: +387-33-287 100 Phone: +48-22-347 7000 Raiffeisen Leasing Sh.a. Fax: +387-33-21 385 1 Fax: +48-22-347 7001 “European Trade Center” SWIFT/BIC: RZBABA2S SWIFT/BIC: RCBWPLPW Bulevardi “Bajram Curri” www.raiffeisenbank.ba www.raiffeisen.pl Tirana Phone: +355-4-22 749 20

Bulgaria Romania Fax: +355-4-22 325 24 reports Segment Raiffeisenbank (Bulgaria) EAD Raiffeisen Bank S.A. www.raiffeisen-leasing.al Nikola I. Vaptzarov Blvd. Calea Floreasca 246C Belarus Business Center EXPO 200 PHAZE III, 014476 Bucharest “Raiffeisen-Leasing” JLLC floor 5 Phone: +40-21-30 610 00 V. Khoruzhey 31-A 1407 Sofia Fax: +40-21-23 007 00 220002 Minsk Phone: +359-2-91 985 101 SWIFT/BIC: RZBRROBU Phone: +375-17-28 9-9394 Fax: +359-2-94 345 28 www.raiffeisen.ro Fax: +375-17-28 9-9974 SWIFT/BIC: RZBBBGSF Russia www.rl.by Independent www.rbb.bg report auditors` AO Raiffeisenbank Bosnia and Herzegovina Smolenskaya-Sennaya 28 Raiffeisen Leasing d.o.o. Sarajevo 119002 Moscow Zmaja od Bosne bb. Phone: +7-495-72 1-9900 71000 Sarajevo Fax: +7-495-72 1-9901 Phone: +387-33-254 354 SWIFT/BIC: RZBMRUMM Fax: +387-33-212 273 www.raiffeisen.ru

www.rlbh.ba Addresses 126

Bulgaria Serbia Branches and representative Raiffeisen Leasing Bulgaria OOD Raiffeisen Leasing d.o.o. offices – Asia and America 32A Cherni Vrah Blvd. Fl.6 Djordja Stanojevica 16 1407 Sofia 11070 Novi Beograd China Phone: +359-2-49 191 91 Phone: +381-11-220 7400 RBI Beijing Branch Vision, mission and CSR Fax: +359-2-97 420 57 Fax: +381-11-228 9007 Beijing International Club Suite 200 www.rlbg.bg www.raiffeisen-leasing.rs 2nd floor Jianguomenwai Dajie 21 Croatia Slovakia 100020 Beijing Raiffeisen Leasing d.o.o. Tatra-Leasing s.r.o. Phone: +86-10-65 32-3388 Radnicka cesta 43 Èernyševského 50 Fax: +86-10-65 32-5926 10000 Zagreb 85101 Bratislava Phone: +385-1-65 9-5000 Phone: +421-2-59 19-3053 RBI Representative Office Zhuhai Fax: +385-1-65 9-5050 Fax: +421-2-59 19-3048 Room 2404, Yue Cai Building www.rl-hr.hr www.tatraleasing.sk No. 188, Jingshan Road, Jida, Zhuhai, Guangdong Province Czech Republic Slovenia 519015, P.R. China Raiffeisen-Leasing s.r.o. Raiffeisen Leasing d.o.o. Phone: +86-756-32 3-3500 é š Raiffeisen BankRaiffeisen Hv zdova 1716/2b Letali ka cesta 29a Fax: +86-756-32 3-3321 International 14078 Prague 4 SI-1000 Ljubljana Phone: +420-2-215 116 11 Phone: +386-1-241-6250 India Fax: +420-2-215 116 66 Fax: +386-1-241-6268 RBI Representative Office Mumbai www.rl.cz www.rl-sl.si 501, Kamla Hub, Gulmohar Road, Juhu Mumbai – 400049 Hungary Ukraine Phone: +91-22-26 230 657 Raiffeisen Corporate Lízing Zrt. LLC Raiffeisen Leasing Aval Fax: +91-22-26 244 529 Akademia ut. 6 Moskovskyi Prospect 9 Phone: +36-1-477 8709 Build. 5 Office 101 Korea Economic growth Fax: +36-1-477 8702 04073 Kiev RBI Representative Office Korea www.raiffeisenlizing.hu Phone: +380-44-590 24 90 #1809 Le Meilleur Jongno Town Fax: +380-44-200 04 08 24 Jongno 1ga Kazakhstan www.rla.com.ua Seoul 110-888 Raiffeisen Leasing Kazakhstan LLP Republic of Korea Shevchenko Str. 146, flat 1 Branches and representative Phone: +82-2-72 5-7951 050008 Almaty Fax: +82-2-72 5-7988 Phone: +7-727-378 54 30 offices – Europe Singapore Fax: +7-727-378 54 31 France RBI Singapore Branch www.rlkz.at RBI Representative Office Paris Raiffeisen GroupRaiffeisen One Raffles Quay Kosovo 9-11 Avenue Franklin D. Roosevelt in Bulgaria #38-01 North Tower 75008 Paris Raiffeisen Leasing Kosovo Singapore 048583 Phone: +33-1-45 612 700 Gazmend Zajmi n.n., Sunny Hill Phone: +65-63 05-6000 Fax: +33-1-45 611 606 10000 Pristina Fax: +65-63 05-6001 Phone: +381-38-22 222 2 Germany Fax: +381-38-20 301 103 USA RBI Frankfurt Branch RB International Finance (USA) LLC www.raiffeisenleasing-kosovo.com Wiesenhüttenplatz 26 1133 Avenue of the Americas, 60 329 Frankfurt Moldova 16th Floor Phone: +49-69-29 921 924 Segment reports I.C.S. Raiffeisen Leasing S.R.L. 10036 New York Fax: +49-69-29 921 9-22 Alexandru cel Bun 51 Phone: +1-212-84 541 00 2012 Chişinău Sweden Fax: +1-212-94 420 93 Phone: +373-22-27 931 3 RBI Representative Office RZB Austria Representative Office New Fax: +373-22-22 838 1 Nordic Countries York www.raiffeisen-leasing.md Drottninggatan 89, 14th floor 1133 Avenue of the Americas, 11360 Stockholm Romania 16th Floor Phone: +46-8-440 5086 Raiffeisen Leasing IFN S.A. 10036 New York Fax: +46-8-440 5089 Calea Floreasca 246 D Phone: +1-212-59 3-7593 auditors` report 014476 Bucharest UK Fax: +1-212-59 3-9870 Independent Phone: +40-21-36 532 96 RBI London Branch Vietnam Fax: +40-37-28 799 88 Leaf C 9th Floor, Tower 42 RBI Representative Office www.raiffeisen-leasing.ro 25 Old Broad Street Ho-Chi-Minh-City London EC2N 1HQ Russia 35 Nguyen Hue Str., Phone: +44-20-79 33-8000 OOO Raiffeisen-Leasing Harbour View Tower Fax: +44-20-79 33-8099 Smolenskaya-Sennaya 28 Room 601A, 6th Floor, Dist 1 119121 Moscow Ho-Chi-Minh-City Phone: +7-495-72 1-9980 Addresses Phone: +84-8-38 214 718, Fax: +7-495-72 1-9901 +84-8-38 214 719 www.raiffeisen-leasing.ru Fax: +84-8-38 215 256 127

Raiffeisen

Zentralbank Osterreich AG Austria Am Stadtpark 9 1030 Vienna Phone: +43-1-26 216-0 Fax: +43-1-26 216-1715 www.rzb.at

Vision, mission and CSR Vision, International Raiffeisen Bank Raiffeisen Bank Economic growth

in Bulgaria Raiffeisen Group Segment reports Segment Independent Independent auditors` report auditors` Addresses Addresses Bulgaria