Listen, understand, respond. 2013 Annual Report 2013 Consolidated Reports and Accounts 15 years of UniCredit Group UniCredito Italiano establishment Merger of Credito Italiano, Rolo Banca 1473, Cariverona, Cassa di 1999 Risparmio di Torino, Cassamarca, Cassa di Risparmio di Trento e Rovereto, Cassa di Risparmio di Trieste. Beginning of international growth. The expansion process in Central and Eastern Europe starts with the acquisition of the Polish Bank Pekao. Geographical growth and diversification Development in emerging markets. Acquisition of Bulbank 2000 (Bulgaria) and Pol’nobanca - then Unibanka - (Slovakia). Acquisition of the US fund manager Pioneer Investment of Boston and establishment of Pioneeer Global Asset Management. Merger with the German HVB Group and establishment of a single large European bank 2005 UniCredit merged with the German HVB Group, which was created in 1998 from two Bavarian banks (Bayerische Vereinsbank and Bayerische Hypotheken-und Wechsel-Bank), so establishing a single, large European bank. Acquisition of Yapi Kredi by Koç (Turkey). Merger with Capitalia. Strengthening the presence of the Group in Italy and abroad 2007 UniCredit strengthen its position in the Italian market thanks to the integration with the Capitalia group – established in 2002 from the merger of Banca di Roma Group, the Bibop-Carire Group, Banco di Sicilia, MCC and Fineco. The Group also strengthen its presence in CEE with the acquisition of Ukrsotsbank in Ukraine. A new service model: “Together for our customers” Together with customer is the organic business evolution program 2010 designed to better focus on customers’ needs and enhance proximity to territories through a set of interventional measures to combine the specialization of our businesses with the simplification of the Group structure. The new UniCredit A rock solid commercial bank leader in Europe which combines 2012 operational efficiency and customer satisfaction by investing both in the traditional and digital communication. UniCredit Tower, the new Headquarter 2014 UniCredit Tower represents a model of: - sustainability, with more than a 40% reduction in CO2 emissions; - modernity, as it’s ranked among the world’s 10 most beautiful skyscrapers (source: Emporis Building Data Company); - efficiency, resulted in a reduction in occupied office space, saving almost 25 million euros annually, with better efficiency. 22 2013 Annual Report · UniCredit Bulbank Accelerate Response times and problem solving. Sometimes our Customers may encounter some difficulty, either at a branch or when banking online. These difficulties require quick solutions. To help our Customers quickly, we offer them a questionnaire after every banking transaction. If they tell us they are not satisfied with the quality of a product or service, their branch manager contacts them directly within 48 hours, with a solution. In a six-month period, 15 percent of our Customers filled out the questionnaires, with 87 percent saying they were satisfied with our resolution of their issue. Customer Sactisfation Unit - UniCredit Bank - RUSSIA BULGARIAN ECONOMY IN 2012 50 years of UniCredit Bulbank Bulbank, 100% state owned, was founded as then Bulgarian Foreign Trade Bank (BFTB) with head office in Sofia, paid-up capital of BGN 40 million and statutory specialization in foreign trade payments and 1964 finance. Initially the Bank’s premises were in the building of BNB. BFTB was the first Bulgarian bank to move to SWIFT whereby it significantly strengthened its operational performance and enhanced the 1991 reliability of its transactions. The Bank moved to its current Headquarter – an exemplary building on 7, Sveta Nedelia Sq., furnished with all required facilities that allow for 1992 considerably improved banking services quality. The Bank started building domestic branch-network by opening branches in Plovdiv and Kardjali. Hebros Bank , who later became part of UniCredit Bulbank, was founded 1993 by merger of eight commercial banks in Bulgaria; The Annual General Meeting of Shareholders passed a resolution for changing the name of BFTB to Bulbank (Bulgarian Foreign Trade Bank) AD. An interesting fact was that since its foundation, the Bank has been known among its foreign partners as Bulbank because of its telegraph 1994 and telex address. Bulbank’s branch network expanded through the opening of the regional Bourgas Commercial Bank and Stara Zagora Commercial Bank. Procedure for the privatisation of Bulbank was opened. Bulbank diversified its electronic international card payment system by co-branding with Visa International and Europay International and 1998 continued the expansion of its branch network in the country. Bulbank’s privatization was completed on October 2 and the bank 2000 became a member of UniCredit Group; Bulbank embarked on a process of deep redesign of its business model seeking to become more open to its customers and to improve its efficiency and financial performance. Accordingly with the set objectives 2001 and tasks, a new organizational structure was introduced. The Bank penetrated the retail banking sector. Bank Biochim’s privatization was completed and the institution become member of HVB Group; a merger with newly created HVB Bank Bulgaria follows; HVB Bank Bulgaria becomes HVB Bank Biochim; at the beginning 2002 of 2005 Hebros bank joins the group; Bulbank celebrated 40th anniversary as the biggest Bulgarian bank and 2004 undisputable market leader; UniCredit Group announced merger with HVB Group; Bulbank completes 2005 implementation of unified information system The process of merger between Bulbank, HVB Bank Biochim and Hebros Bank starts The company for consumer financing UniCredit Clarima Bulgaria is established 2006 The specialized company UniCredit Factoring Bulgaria is established The General meetings of shareholders of Bulbank, HVB Bank Biochim and Hebrosbank take decisions to merge the three institutions in 2007 On April 27, 2007 the integration of the three UniCredit banks in Bulgaria is completed and UniCredit Bulbank is firmly positioned as the number 2007 one bank in Bulgaria. UniCredit Bulbank opens first Branch of the Future in Bulgaria, part of the long-term goal for providing the state-of-the-art easy to deal with client 2012 experience through all bank channels Celebrating 50 years anniversary, UniCredit Bulbank is the Indisputable market leader: number one in assets, loans, deposits, shareholders’ capital and profit. It provides the full range of financial services in Bulgaria also through the leading in their field subsidiaries UniCredit 2014 Factoring, UniCredit Leasing, UniCredit Consumer Financing, as well as mutual funds through Pioneer Investments Bulgaria. 4 2013 Annual Report · UniCredit Bulbank Contents Financial Highlights (Unconsolidated) 6 Financial Highlights (Consolidated) 7 Supervisory Board and Management Board 10 Organisation Chart 13 Counterparty Credit Rating (Standard & Poor’s) 13 Bulgarian Economy in 2013 21 Market Positioning 25 Unicredit Bulbank Activity Review 26 Unconsolidated Financial Results 26 Operating Profit by Business Segment 28 Unconsolidated Assets and Liabilities 29 Consolidated Financial Results 34 Risk Management 35 Corporate, Investment and Private Banking 38 Retail Banking 41 Asset and Liability Management 43 Human Resources 44 Global Banking Services 45 Customer Satisfaction Management 46 Corporate Social Responsibility and Sustainable Development 47 Major Subsidiaries and Associates 48 Separate Financial Statements 51 Independent Auditors’ Report 51 Separate Income Statement 53 Separate Statement of Comprehensive Income 54 Separate Statement of Financial Position 55 Separate Statement of Changes in Equity 56 Separate Statement of Cash Flows 58 Notes to Unconsolidated Financial Statements 61 Consolidated Financial Statements 109 Independent Auditors’ Report 109 Consolidated Income Statement 111 Consolidated Statement of Comprehensive Income 112 Consolidated Statement of Financial Position 113 Consolidated Statement of Changes in Equity 114 Consolidated Statement of Cash Flows 116 Notes to Consolidated Financial Statements 119 Bank Network 167 UniCredit Bulbank · 2013 Annual Report 5 Financial Highlights (Unconsolidated) (Thousands of BGN, Income Statement Figures unless otherwise stated) YEAR CHANGE 2013 2012 Net interest income 417 139 406 167 2.7% Net fee and commission income 165 099 154 221 7.1% Net income from trading, investments and dividends 44 522 74 080 -39.9% Other operating income, net 12 235 4 905 149.4% Operating income 638 995 639 373 -0.1% Operating expenses -251 954 -252 947 -0.4% Gross operating profit 387 041 386 426 0.2% Impairment losses on financial assets and provisions -217 962 -154 682 40.9% Provisions for risk and charges -9 691 5 931 -263.4% Income from PPE 922 1 215 -24.1% Profit before tax 160 310 238 890 -32.9% Net profit 143 639 214 297 -33.0% Volume Figures YEAR CHANGE 2013 2012 Total assets (eop) 12 670 172 12 593 635 0.6% Net customer loans (eop) 8 637 803 8 546 838 1.1% Customer deposits (eop) 8 705 491 8 227 899 5.8% Shareholders' equity (eop) 2 104 329 2 071 515 1.6% RWA (eop) 9 427 963 9 969 200 -5.4% Key Performance Indicators (%) YEAR CHANGE 2013 2012 Return on average assets (ROA) 1.1 1.8 -0.6pp Return on average equity (ROE) 6.9 10.7 -3.8pp Cost/Income ratio 39.4 39.6 -0.1pp Net profit margin 22.5 33.5 -11.0pp Capital/Asset ratio (eop) 16.6 16.4 0.2pp Total capital ratio (eop) 20.0 18.4 1.6pp Tier 1 capital ratio (eop) 19.7 17.6 2.0pp Risk weighted assets/Total assets