Sberbank CZ Annual Report (Unaudited)
This version of the annual report was prepared for marketing purposes and has not been audited. Sberbank CZ Annual Report 2020
1. Table of Contents
1. Table of Contents
2. Bank Profile 3
3. Introduction by the Management Board 4
4. Key Figures in Summary 6
5. Most Important Events of the Year 7
6. Sberbank Group 9
7. Bank Bodies 12
8. Organisational Chart 27
9. Economic Conditions 28
10. Report of the Management Board 29
11. Products and Services 40
12. Risk Management 42 Sberbank CZ Annual Report 2020
13. Corporate Governance 47
14. Remuneration 58
15. Corporate Social Responsibility 61
16. Additional Information 64
17. Alternative Performance Indicators 67
18. Financial Statements 70
19. Quantitative Indicators 174
20. Capital Requirements 175
21. Report on Relationships 176
22. Affidavit 186
23. Independent Auditor's Report 187
24. Our Network 188
This annual report provides a true and accurate picture of the financial position, business activities and profit and loss of the Bank for the previous fiscal period and of the outlook for the future financial situation, business activities and profit and loss. Unless otherwise stated, the data and information in this report are always reported as of 31 December 2020.
1 Sberbank CZ Annual Report 2020
Sberbank CZ, centrála photo copyright: © Penta Investments
2 Sberbank CZ Annual Report 2020
2. Bank Profile
Corporate name Sberbank CZ, a.s.
Company identification number 25083325
Tax identification number CZ25083325
Registered office U Trezorky 921/2, Jinonice, 158 00 Prague 5, Czech Republic
Legal form Joint-stock company
File No. in the Commercial Register B 4353 maintained by the Municipal Court in Prague, Section B, Insert 4353
Date of incorporation 31 October 1996
Subject of enterprise Banking transactions and financial services of all types in accordance with Sections 1(1)a), 1(1)b) and 1(3)a) – o) of Act No. 21/1992 Sb., on Banks, as amended, which are listed in the banking licence issued under the above Act.
Bank code 6800
BIC/SWIFT VBOECZ2XXXX
Data box identifier f94gyc6
LEI 31570010000000029583
Phone +420 800 133 444
Fax +420 221 969 951
E-mail [email protected]
Website www.sberbank.cz
Banking supervisory authority Czech National Bank
Law Czech Republic
Bank does not have a branch abroad.
3 Sberbank CZ Annual Report 2020
3. Introduction by the Management Board
Ladies and gentlemen, dear clients, business partners and shareholders,
The year 2020 was severely affected by the unprecedented pan- demic of COVID-19 which had an impact on the entire society. Some industries were hit harder than others, but the overall economic impact of the COVID-19 pandemic has been extensive and will un- doubtedly affect 2021. We faced rising unemployment, reduced con- sumption, spreading inability of both people and companies to settle their financial obligations, worsening supplier-customer relationship, limitations in export and import and, naturally, cutback in tourism. Our Bank had to respond to this situation. Its crisis team has adopted a number of measures to protect the Bank’s stability and the health of our clients and employees. We managed to keep the entire branch network in operation and offer our clients new products and services to help them in this extraordinary situation. The Bank was also flexible in adopting all restrictions decreed by the Czech government in order to prevent the pandemic from spreading further.
The COVID-19 epidemic has accelerated the arrival of digitisation in the entire financial sector. Clients began to focus on online com- munication with their bank and use all services and applications online. The transformation process, which we had already commenced in 2019, was instrumental in completing several key projects, such as new current account packages which we successfully introduced to our clients together with our new internet and mobile banking. As a result, the number of clients actively using mobile banking has more than doubled. We have strengthened the Bank’s responsible approach to the environment by, for example, launching the gradual transformation of our car fleet to electric and hybrid vehicles. We have also streamlined the Bank’s organisational structure. We learned to work within the online environment and more than 50% of our employees worked from home when needed. We continued to trans- form our performance together with strict cost control which trans-
1 For details on the alternative performance indicators, see Chapter 17.
4 Sberbank CZ Annual Report 2020 3. Introduction by the Management Board
lated into the cost-income ratio stabilisation at 71.6%. We success- I would also like to take this opportunity and say special thanks fully implemented all new regulatory requirements (such as the to our clients for their trust and loyalty. We tried our best to help moratorium on deferred loan repayments) in an extremely short them overcome last year’s market crisis and move forward with time and offered our clients discounted loans to help them face the success. Finally, I would also like to thank our employees for all the COVID-19 pandemic consequences. I am really pleased to say that work and effort they have exerted for our clients and for our Bank last year we managed to cope with the crisis which interfered with to make it in 2020. I am very pleased that they went beyond their the entire market and keep our Bank healthy and stable. responsibilities and helped those in need during these difficult times, whether it was helping seniors or children in children’s homes, In 2020, the Bank achieved a net profit after tax of CZK 19 million, engaging in the Movember movement, supporting cancer prevention as it had to create the largest reserves and provisions in its history and treatment or volunteering in the field of environmental care. while its operating revenues lowered. In this annual report, you will see detail information on our business indicators, and I would like to I am convinced that our Bank is well prepared to face the uncer- take this opportunity to first highlight several facts. The decline in tainties and challenges brought by COVID-19 pandemic and subse- operating revenues was mainly due to a significant reduction in the quent world-wide crisis, and I look forward to 2021. interest rate by 200 basis points in the first half of last year. However, despite challenging market conditions and the impact of COVID-19 epidemic, we saw a growing interest in consumer loans and good income from insurance and investments commissions, especially in the last quarter of 2020. Growth in the corporate segment was in- fluenced by the fact that some of the frequently funded industries were hit hard last year. As a result, net income from financial oper- ations before the creation of reserves and provisions amounted to CZK 2.045 billion, i.e. 21% lower year-on-year. The balance sheet total increased by 7% to CZK 89.4 billion, the total volume of client deposits grew by 12% to CZK 78.1 billion, while the total volume of loans to clients slightly decreased to CZK 61.3 billion. Thanks to several cost- saving measures, our administrative costs further decreased by CZK 110 million to CZK 1,376 million.
By strict risk monitoring during uncertain circumstances of last year, the Bank maintained a low share of non-performing loans in the unpredictable conditions of last year, reaching 2.14%. The capital adequacy ratio reached the level of 17.24%, which is well above the Dušan Baran threshold required by the regulator and allows further development Deputy Chairman of the Management Board of the Bank.1
1 For details on the alternative performance indicators, see Chapter 17.
5 Sberbank CZ Annual Report 2020
4. Key Figures in Summary
The method of calculation quantitative indicators is described and explained in Chapter 17 Alternative Performance Indicators.
in million CZK 2020 2019 2018 2017 2016 Total assets 89,404 83,710 79,755 81,464 71,965
Capital Adequacy Ratio 17.24% 16.59% 16.18% 16.44% 16.55%
Liabilities to clients 78,131 69,568 66,088 64,129 55,787
Receivables from clients 61,360 63,059 62,902 60,483 55,613 Profit from financial operations before the creation of reserves and loss provisions 2,045 2,571 2,419 2,228 2,028
Administrative expenses 1,376 1,486 1,577 1,454 1,398
Profit on ordinary activities before tax 22 676 478 531 336
Profit for the year 19 539 377 424 272
Number of clients 110,706 110,846 117,056 112,559 108,310
Number of employees* 701 746 828 914 840
Number of points of sale 24 24 25 28 28
Share of non-performing loans (NPL) 2.14% 1.54% 2.63% 5.43% 5.74%
* recalculated average registered number of employees
TOTAL ASSETS PROFIT FROM FINANCIAL OPERATIONS BEFORE THE CREATION CZK billion OF RESERVES AND LOSS PROVISIONS 89.4 CZK billion 81.5 83.7 2.57 79.8 2.42 72.0 2.23 2.03 2.05
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
NUMBER OF CLIENTS SHARE OF NON-PERFORMING LOANS (NPL) thousandh in % 117.1 108.3 112.6 110.8 110.7
5.74 5.43
2.63 2.14 1.54
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
6 Sberbank CZ Annual Report 2020
5. Most Important Events of the Year
In January... On 22 April 2020, a regular meeting of the Audit Committee and On 29 January 2020, Sberbank was announced as the winner of the Supervisory Board was held, where, among other things, the Bank’s the Financial Product of 2019 Prize and became No. 1 in consolidation. financial results for 2019 were discussed. Sberbank CZ Consolidation won 1st place in the Loan Consolidation category of the Financial Product 2019 competition announced by the During the COVID-19 pandemic, the Sberbank Endowment Fund financial portal Finparáda.cz. Sberbank CZ thus confirmed its position helped the most vulnerable social group – senior citizens in retirement as a bank which has been offering one of the most advantageous homes. The Fund donated 520 litres of the Anti-COVID disinfectant consolidations on the market. (prepared according to the official WHO instructions) to senior centres in Blatná, Pardubice and Trnová. In February... According to the annual rating from Brand Finance, UK, Sberbank The Bank’s Annual Report and Financial Statements for 2019 were is one of the 20 most valuable banking brands in the world. It is also prepared and subsequently approved by the sole shareholder of the the most valuable brand in Russia, according to the Brand Finance Bank, published on the Bank’s website and sent to the Czech National Global 500 ranking. The value of the Sberbank brand increased by USD Bank. 870 million to USD 13.233 billion last year. At the same time, it maintained the elite AAA+ bank rating. In May... Since Monday, 11 May 2020, Sberbank CZ renewed regular opera- In March... tion of all its branches and corporate centres which were reopened in Following the declaration of a state of emergency in the Czech their regular opening hours. Therefore, it catered to the needs of its Republic and related restrictive measures, Sberbank CZ was ready to clients and it strived to provide them with the best services possible meet the needs of all its clients. The network branch operation remained as quickly as possible. uninterrupted, the frequency of ATM subsidies was increased and, from Monday, 16 March, Sberbank CZ offered entrepreneurs the unsecured Sberbank, which is a long-term supporter of environmental projects, business FAIR loan with the lowest rate of 4.9% p.a. while it processed replaced part of its car fleet with fully electric vehicles Škoda Citigo. the applications free of charge within 48 hours. For the time being, these emission-free cars will be used for business trips by employees of the Prague headquarters which is equipped with In April... charging stations. From 1 April 2020, the Bank offered new consumer loans and con- solidations with the lowest bonus rate of 2.99% p.a. It responded to In June... the current situation with an offer of such interest rates which will Sberbank announced the launch of its new internet and mobile allow the clients using the FAIR consolidation to significantly reduce banking. The new Sberbank Online and Sberbank Online Mobile inter- their repayments or to obtain funds under favourable terms with the faces provide the clients with comfortable and intuitive user interface FAIR loan. but also secure login using biometrics or fast and convenient checking of their account balance. Since the beginning of April, the Bank has also introduced new current accounts where active clients receive attractive financial bo- On 9 June 2020, Vratislava Šestáková was effectively elected as nuses. When they transfer their current account from another bank, the employee representative in the Bank’s Supervisory Board. they will receive a reward of CZK 1,234, and the same amount will be sent by the Bank for each year as a loyalty bonus. With effect from 22 June 2020, the Bank reduced the interest rate on mortgage loans to 2.19% p.a. Clients thus obtained a very advanta- On 10 April 2020, Sberbank of Russia changed its majority owner geous interest rate when purchasing housing or refinancing an existing to the Russian Federation.
7 5. Most Important Events of the Year Sberbank CZ Annual Report 2020
mortgage with a fixation period of 5, 7 or 10 years. The interest rate for In October... the general-purpose mortgage then dropped to 2.69% p.a. Since October, Sberbank has offered a unique bonus interest rate of 1.99% p.a. It was available to everyone who applied for the FAIR loan On 24 June 2020, a regular meeting of the Supervisory Board was or FAIR consolidation during October and November. The rate of held. 1.99% p.a. was given to all clients of the above loans from CZK 50 thousand to 1 million who have good payment discipline. On 18 June 2020, the sole shareholder reappointed Mr Arndt Röchling as a member of the Bank’s Audit Committee with effect from 1 July On 27 October 2020, the sole shareholder elected Mr Alexander 2020. Witte as a member of the Bank’s Supervisory Board, with effect from 1 November 2020. In July... Sberbank has launched a unique Employee Assistance Programme In November... which offers help in difficult life situations. Employees, including parents Despite the further tightening of restrictions in the Czech Republic, on maternity or parental leave, can now address their personal problems Sberbank kept all its branches in operation. However, before visiting any with experts in psychology, finance, law and health. These services are of the branches, it recommended checking the up-to-date opening provided free of charge even to their family members and are available hours at the sberbank.cz website or using remote access via internet 24/7 and on an anonymous basis. banking, website and call centre at 800 133 444 the capacity of which was expanded. The Bank then decided to temporarily adjust the opening In August... hours of the branches in efforts to maintain their operation and to The sole shareholder elected Mr Arndt Röchling as a member of the ensure the highest possible protection of its employees’ and clients’ Bank’s Supervisory Board with effect from 2 November 2020. health.
Sberbank’s Endowment Fund supported mothers with children in In December... difficult life situations. It co-funded three projects in Q3 of 2020 with Sberbank was helping to overcome the impact of the coronavirus a total amount of CZK 200 000. It contributed funds to social housing for pandemic. It decided to purchase new tablets for the retirement homes women in distress at the Home of St. Markéta in Brno, for assistance care in Brušperk, Humpolec, Chlumec nad Cidlinou, Plzeň and Prague. The provided by the Endowment Fund “Pečovatel” and the “Magnificent elderly residents can use the technology, with the assistance of nurses, Seven” Project organised by the Cesta za snem, z.s. Association. to maintain contact with their families, at least via Skype, in time when visiting is restricted or completely prohibited. In addition, Sberbank With effect from 10 August 2020, the Bank reduced the interest rate donated laptops to the primary school in Strančice to help socially on mortgage loans to 1.79% p.a. to purchase housing or refinance an disadvantaged children with long-distance education. existing mortgage with a fixation period of 5, 7 or 10 years. The interest rate for the general-purpose mortgage then dropped to 2.29% p.a. On 15 December 2020, a regular meeting of the Audit Committee and the Supervisory Board was held. In September... On 7 September 2020, the Supervisory Board elected Mr Arndt As of 31 December 2020, Ms Jozefína Trnavská resigned from her Röchling as its Chairman, with effect from 2 November 2020. post as a member of the Bank’s Supervisory Board.
A regular meeting of the Supervisory Board was held on 30 Sep- tember 2020.
8 Sberbank CZ Annual Report 2020
6. Sberbank Group
6.1. Sberbank Europe a strong partner supporting the cross-border business between Europe and Russia/CIS – the markets of Sberbank Europe’s presence. About Sberbank Europe Sberbank Europe AG, headquartered in Vienna, Austria, is a banking For Sberbank, having a mixture of universal and tailored products group that is 100% owned by Sberbank of Russia, the largest bank in portfolio with attractive conditions for retail, SME, and corporate clients Russia. Sberbank of Russia is servicing more than 70% of the Russian as well as following the purpose of adding value and ensuring a high population. The European subsidiary Sberbank Europe is present in eight level of satisfaction are the key factors in building and maintaining European markets: Austria, Germany, Bosnia and Herzegovina (Sarajevo long-standing and robust relationships with our customers. The bank and Banja Luka), Croatia, the Czech Republic, Hungary, Slovenia, and has experienced a continuous growth of its customer base in the mar- Serbia. Sberbank Europe Group has around 773,500 customers, operates kets of its presence in the last years, demonstrating the ever-thriving 187 branches, and counts around 3900 employees across Europe. customers’ trust. After launch of business on the German market in 2014, Sberbank Europe has substantially expanded its operations by providing high-quality services to local customers. In 2018 the product portfolio was expanded with the consumer instant loans and in 2020 the new credit protection insurance product was successfully intro- duced. Further expansion in the product range (current accounts and credit cards) is planned for the next years and will be aimed to build a stronger connection between the bank’s offering and the customer needs.
After 2018 and 2019 outstanding years of robust performance and strong business achievements in SBEU Group, 2020 turned to be an extraordinary year. A year, which brought unprecedented challenges and risks in the daily business of the Group requiring the management across the whole organization to remain rigorous and take brisk deci- sions to secure the operational resilience and continuity of the whole business. COVID-19 pandemic turned to be a “game changer” in the Strategies banking business, though bringing both a high risk to the business Since Sberbank of Russia acquired Volksbank International in 2012 sustainability overall and creating new opportunities for business trans- as part of the international expansion strategy and rebranded it into formation, which banks have not considered before. SBEU Group was Sberbank Europe, major steps have been taken to gradually transform not an exception, being a front-runner in implementing the measures Sberbank Europe into a fully-fledged, self-funded, and profitable Eu- to bolster its business, supporting customers and protecting employees ropean banking group with a strong focus on retail, small and medi- in this challenging time. um-sized enterprises (SME) and corporate customers in Central and Southeastern Europe (CEE/SEE). As an integral part of one of the most COVID-19 pandemic had an immense effect on the global eco- dynamic and successful financial providers in the world and the largest nomic development turning it into sluggish mode, echoing in local bank in Russia, Sberbank Europe aims to build sustainable bridges countries and making the local economies very fragile and vulnerable between Russia and the European markets. to the evolution of the outbreak. The decrease in overall business activity and level of transactions, business closures and stoppages were The vision of Sberbank Europe is to win customers for life, be a bank among the factors hindering the business development in 2020, of the first choice for the daily customers’ transactions and become throughout the year the Group observed the following direct and sec-
9 6. Sberbank Group Sberbank CZ Annual Report 2020
ondary effects and implications from the government and local regu- In 2020, Sberbank Europe AG continued the implementation of lators’ actions and overall market turbulence on its business including two large Group IT projects that will help to gain market advancement the wide implementation of the loan moratoriums; depreciation of and momentum on the path to its digital evolution: the local currencies affecting the EUR-denominated balance sheets – The OCP program (Omnichannel platform) with the solution from and income statements on a Group level; various monetary and fiscal Backbase, state-of-the-art provider of Online and Mobile Banking. policy changes including the decrease in local repo rates affecting The program is aiming at strengthening the customer-centric interest income generation and overall profitability of the business; approach by rolling out the modern digital platform across the Group, changes in market conditions and market performance resulting in while improving customer satisfaction, enriching the customer losses on securities portfolios, challenging income on derivative busi- experience with innovative solutions and taking the fulfillment of ness. customer needs and demands to the next level. – The FRMP program (Financial and Risk Management Platform) The COVID-19 pandemic response by both the Group and local aiming at introducing the one platform for major financial and risk management can be considered as successful, timely, consistent and calculation modules in the Group while improving the data quality, effective. All-in-all the Group managed the crisis, focusing on the health processing speed and automation, unification, simplification and of its customers and employees, sustainable liquidity and capital po- flexibility standards in reporting and planning. sitions and providing extensive support to its customers aiming to bolster their businesses. Overall the level of COVID-19 business loss The bank has substantially strengthened its funding profile in the was minimized, the Group maintained stable deposit and liquidity last years, where the share of customer deposits was continuously positions across all banks and did not experience any major deposit increasing. Such a strong funding base supports Sberbank Europe busi- outflows. The examples of COVID-19 pandemic responses implemented ness expansion with its local customers and partners, contributing to by the Group included: strong overall crisis management; maintaining further development and prosperity of the CEE/SEE region. strong capital and liquidity positions; extensive support of the customers; adequate risk provisioning and broad implementation of OPEX opti- misation plans. 6.2. Information on Relationships
To remain sustainably successful and profitable banking group in Sberbank Europe AG is the entity directly controlling the Bank and challenging times, Sberbank Europe is convinced more than ever that is part of the Group. Sberbank of Russia is the entity directly controlling it needs to offer extraordinary services supported by fast and efficient Sberbank Europe AG and indirectly controlling the Bank, and is part of processes, digital end-to-end customer journey as well as seamless the Group. The structure of the Group, including the organisational and unified customer experience across all channels. chart, is described in the Report on Relationships (see Chapter 21).
Accelerated digital transformation, continuous technological evolve- Control is exercised mainly through decisions of the sole share- ment, and recent demographic developments are all the main drivers holder in executing the powers of the General Meeting (e.g. through behind the ongoing changes in the customers' needs and expectations an amendment to the Bank’s Articles of Association) and through towards their financial providers. Sberbank Europe knows that the members in the bodies of the Bank, i.e. the Supervisory Board and the only way to best satisfy these demands is to undergo a deep transfor- Audit Committee (e.g. the Supervisory Board appoints and dismisses mation by becoming a banking group with a strong digital edge. Con- members of the Management Board of the Bank). sequently, Sberbank Europe is digitalizing and simplifying all its pro- cesses in order to deliver high-quality, convenient, and competitive The Bank is not dependent on any other company in the Group. products at fair conditions that are available both online and offline, wherever our customers approach us.
10 Sberbank CZ Annual Report 2020 6. Sberbank Group
The Bank complies with and is governed by Act No. 90/2012 Coll. • Modern bank: The future vision for Sberbank Europe is to be a hy- on business corporations (the “Business Corporations Act”). The Busi- brid bank – a fully digital bank with a physical presence. Sberbank's ness Corporations Act stipulates that anyone who, using their influence ambition is to service its ever-increasing tech-savvy customers in a business corporation, significantly and decisively affects the actions to the highest quality standards by undergoing a complete digital of that business corporation to its detriment, is obliged to provide transformation by introducing omnichannel banking tools and compensation for the damage, unless they prove that they could have expanding its digital products portfolio. reasonably assumed that they acted in an informed manner and in the • Light bank: Being an agile institution in a fast-moving and dynamic defensible interest of the entity affected. The measures to ensure that the banking landscape, is what sets us apart from the rest. Sberbank controlling entity does not abuse the control arise from the Business Europe continues to improve its operations by implementing state- Corporations Act. They include in particular the duty of the Manage- of-art efficiency measures characterized by strict cost management, ment Board to prepare a report on relationships between the controlling robotization, process automation, branch network optimization, entity and the controlled entity and between the controlled entity and competency improvement, and effective steering among others. entities controlled by the same controlling entity for the past fiscal • People-focused: One of the core strengths of Sberbank Europe is period, and the duty of the controlling entity to compensate the con- its diverse and competent human capital. We at Sberbank strongly trolled entity for any damage incurred. The Report on Relationships believe that the way we treat our people will directly affect and for 2020 is presented in the chapter entitled Report on Relationships reflect on the services we provide to our highly valued custom- (see Chapter 21). ers. For this reason, to retain and attract the best talent in the region, we aim at promoting open culture and at providing the best environment for our employees to grow, through implement- 6.3 Sberbank Europe’s business ing leadership and succession planning, talent management and acquisition, training and workshops, helping them to strengthen model their core competencies. Sberbank Europe’s business model is based on five strategic pillars: • Profitable & self-sustainable: Sberbank Europe pursues self-sus- tainable growth, focuses on high-margin products and businesses, exercises prudent capital management while further boosting the business in the local banks. Stable income streams, improved asset quality, and enhanced risk management will be the main contribu- tors to sustainable business growth and profitability strengthening in the years to come. • Customer-oriented: Customer centricity is at the heart of every successful business. That is why Sberbank Europe has made high customer satisfaction, strengthening the customer experience and excellence within its top priorities. To build an excellent relation- ship, attract and retain the customers in the market, Sberbank is always trying to exceed the expectations by continuously upgrading its product offerings, providing new channels, and entering new partnerships.
11 Sberbank CZ Annual Report 2020
7. Bank Bodies
7.1. Management Board
CHAIRMAN OF THE MANAGEMENT BOARD VICE-CHAIRMAN UNTIL 31 JANUARY 2021 OF THE MANAGEMENT BOARD
Edin KARABEG Dušan BARAN Chief Executive Officer Member of the Management Board responsible for finance management
MEMBERS OF THE MANAGEMENT BOARD
Jindřich HORNÍČEK András KALISZKY Daniel KRUMPOLC Member of the Management Member of the Management Member of the Management Board responsible for Board responsible for Board responsible for risk management banking operations corporate banking
12 Sberbank CZ Annual Report 2020 7. Bank Bodies
Edin KARABEG Dušan BARAN Chief Executive Officer Member of the Management Board responsible for finance management
Member of the Management Board since: 26 March 2018 Member of the Management Board since: 1 September 2017 Chairman of the Management Board since: 26 March 2018 Vice-Chairman of the Management Board since: 22 May 2018 Banking experience: 22 years Banking experience: 25 years Management experience: 14 years Management experience: 19 years Membership in the Management Board was terminated on 31 Jan- uary 2021
Edin Karabeg was born in Austria on 18 January 1972. He holds Dušan Baran was born on 6 April 1965 in Sušice. He graduated from a bachelor's degree in economics and management from the Vienna the Faculty of Mathematics and Physics of Charles University, the School branch of Webster University and earned an MBA degree in a pro- of Banking in Colorado and completed other educational programmes gramme offered by the IMADEC institution in Vienna in cooperation in the USA. Between 1993 and 2013, he worked for Česká spořitelna, a.s., with the Faculty of Economics of the University of Texas in Austin. where he served, among others, as a member of the Management He started his career at the Organization for Security and Cooperation Board (1998-1999), chairman of the Management Board (1999–2000) in Europe as a Personal Officer. In 2003, he moved to Bank Austria and deputy chairman of the Management Board (2000–2013). From Creditenstalt AG (Unicredit Group) as International Risk Manager and 2014 to August 2017, he provided professional financial management from there to HVB Splitska banka in the Republic of Croatia. From advisory services to senior executives and owners of financial institu- 2006, he worked at Unicredit CAIB in Vienna as Equity Analyst and tions and companies. Since 1 September 2017, he has been a member subsequently as Business Manager. He held the post of CEO and Member of the Management Board of the Bank responsible for finance man- of the Management Board of Capital Bank Macedonia in charge of risk agement. management; from 2010 he worked in Hypo-Alpe-Adria International AG in leading positions, among other things he was CEO of Hypo Alpe He is a chairman of the Supervisory Board of the Sberbank CZ Adria Leasing and Hypo Alpe Adria Leasing Macedonia, as well as Endowment Fund; he is not a member of the bodies of any other a member of the Supervisory Board and chairman of the Supervisory companies. Board in several subsidiaries of this company. From October 2012 to February 2018, he was CEO of Sberbank BH, a member of the Sberbank Europe group. Since 26 March 2018, he has held the position of the Bank’s CEO and chairman of the Management Board.
He is not a member of the bodies of any other companies.
13 7. Bank Bodies Sberbank CZ Annual Report 2020
7.1. Management Board
Jindřich HORNÍČEK András KALISZKY Member of the Management Board Member of the Management Board responsible for risk management responsible for banking operations
Member of the Management Board since: 1 February 2016 Member of the Management Board since: 13. June 2018 Banking experience: 19 years Banking experience: 16 years Management experience: 14 years Management experience: 20 years
Jindřich Horníček was born in Brno on 18 August 1977 and studied András Kaliszky was born on 17 January 1968 in Budapest. He gradu- economics at Masaryk University. In 2000-2001 he worked at Kasol- ated from the Technical University in Budapest and has a master's venzia Morava s.r.o., where he managed problematic receivables. In degree in Business Administration and Management at the University 2002, he joined Volksbank CZ, a.s., where he worked in various positions, of Wisconsin in Millwaukee. In 1998–2002 he worked for Pricewater- including Relationship Manager for the business unit (2001–2002), Risk houseCoopers Ltd. – PWC Consulting as Senior Consultant, Manager Manager (2002–2007), Head of SME Credit Risk (2007–2009) Head of and Senior Manager. From 2003 to 2004, he worked for IBM Business SME and Retail Credit Risk (2009–2010), Head of the Credit Risk Divi- Consulting as Senior Manager. Between 2001 and 2014, he worked at sion (2010–2012) and Head of the Underwriting Division (2012–2016). UniCredit Bank Hungary, from 2008 to 2014 as a member of the Man- In February 2016 he became a member of the Management Board of agement Board responsible for the company operations. In 2014–2018, the Bank responsible for risk management. he was a member of the Management Board of Raiffeisen Bank Hun- gary responsible for organisation operations. He is a member of the Supervisory Board of the Sberbank CZ Endowment Fund; he is not a member of the bodies of any other He is not a member of the bodies of any other companies. companies.
14 Sberbank CZ Annual Report 2020 7. Bank Bodies
Daniel KRUMPOLC Member of the Management Board responsible for corporate banking
Member of the Management Board since: 13. June 2018 Banking experience: 20 years Management experience: 20 years
Daniel Krumpolc was born in Prague on 11 July 1970. He graduated from the University of Economics. In 2000–2018 he worked for Citigroup Citi Commercial Bank (CCB) – Citibank Prague in various positions, including Senior Relationship Manager (2000–2008), Head of Middle Market Department (2008–2011), Head of SME Sales (2011–2012) and Head of CITI COMMERCIAL Bank Division for the Czech Republic and Slovak Republic.
He is not a member of the bodies of any other companies.
15 7. Bank Bodies Sberbank CZ Annual Report 2020
7.1. Management Board
COMMITTEES ESTABLISHED BY THE MANAGEMENT BOARD Assets and Liabilities Management Committee Credit Committee The Committee members with voting rights are: The Committee members with voting rights are: Member of the Management Board responsible for Finance Man- Member of the Management Board responsible for Finance Man- agement, Chief Executive Officer, Member of the Management Board agement, Chief Executive Officer, Member of the Management Board responsible for Risk Management, Member of the Management Board responsible for Risk Management, Member of the Management Board responsible for Corporate Banking, Head of OU 026 ALM/Treasury and responsible for Corporate Banking and Head of Organisational Unit Head of OU 070 Integrated Risk Management. 368 Corporate Underwriting.
Edin KARABEG Edin KARABEG Chief Executive Officer Chief Executive Officer and Chairman of the Management Board and Chairman of the Management Board
Dušan BARAN Dušan BARAN Vice-chairman of the Management Board Vice-chairman of the Management Board responsible for finance management responsible for finance management
Jindřich HORNÍČEK Jindřich HORNÍČEK Member of the Management Board Member of the Management Board responsible for risk management responsible for risk management
Daniel KRUMPOLC Daniel KRUMPOLC Member of the Management Board Member of the Management Board responsible for corporate banking responsible for corporate banking
Pavel SÜSSER Jan PACÁK Head of OU 026 ALM/Treasury Head of OU 386 Corporate Underwriting
Tomáš HANZLÍK Head of OU 070 Integrated Risk Management
16 Sberbank CZ Annual Report 2020 7. Bank Bodies
Non-Performing Loan Management Committee Risk Committee The Committee members with voting rights are: The Committee members with voting rights are: Member of the Management Board responsible for Finance Man- Member of the Management Board responsible for Finance Man- agement, Chief Executive Officer, Member of the Management Board agement, Chief Executive Officer, Member of the Management Board responsible for Risk Management, Member of the Management Board responsible for Risk Management, Member of the Management Board responsible for Corporate Banking, Head of Organisational Unit 037 responsible for Corporate Banking, Head of Organisational Unit 070 Workout & Restructuring and Head of Organisational Unit 073 Credit Integrated Risk Management and Head of Organisational Unit 073 Risk. Credit Risk.
Edin KARABEG Edin KARABEG Chief Executive Officer Chief Executive Officer and Chairman of the Management Board and Chairman of the Management Board
Dušan BARAN Dušan BARAN Vice-chairman of the Management Board Vice-chairman of the Management Board responsible for finance management responsible for finance management
Jindřich HORNÍČEK Jindřich HORNÍČEK Member of the Management Board Member of the Management Board responsible for risk management responsible for risk management Daniel KRUMPOLC Daniel KRUMPOLC Member of the Management Board responsible for corporate banking Member of the Management Board responsible for corporate banking Tomáš HANZLÍK Head of OU 070 Integrated Risk Management Jiřina MEVALDOVÁ Head of OU 037 Workout & Restructuring Martin VAKOČ Head of OU 073 Credit Risk Martin VAKOČ Head of OU 073 Credit Risk
17 7. Bank Bodies Sberbank CZ Annual Report 2020
7.1. Management Board
COMMITTEES ESTABLISHED BY THE MANAGEMENT BOARD Operating Committee Social Committee The Committee members with voting rights are all members of The Committee members with voting rights are: the Management Board of the Bank. Head of 160 HR Management, Head of 551 Operations, Head of 175 Compliance & AML, Head of 001 Retail Sales and Head of 720 Opera- tional Risk & Fraud Management.
Edin KARABEG Petr ČEŘOVSKÝ Chief Executive Officer Head of 160 HR Management and Chairman of the Management Board Vratislava ŠESTÁKOVÁ Dušan BARAN Head of 551 Operations Vice-chairman of the Management Board responsible for finance management Martin VLČEK Head of 175 Compliance & AML Jindřich HORNÍČEK Member of the Management Board Milan HORÁK responsible for risk management Head of 001 Retail Sales
András KALISZKY Petr VINŠ Member of the Management Board Head of 720 Operational Risk & Fraud Management responsible for banking operations
Daniel KRUMPOLC Member of the Management Board responsible for corporate banking
18 Sberbank CZ Annual Report 2020 7. Bank Bodies
7.2. Supervisory Board
DEPUTY CHAIRMAN MEMBERS OF THE SUPERVISORY BOARD OF THE SUPERVISORY BOARD
Arndt Nikolai RÖCHLING Sonja SARKÖZI Aleksei MIKHAILOV
Alexander WITTE Dirk Adolf HINZE
Vratislava ŠESTÁKOVÁ Petr PODANÝ Branko SUŠIĆ
19 7. Bank Bodies Sberbank CZ Annual Report 2020
7.2. Supervisory Board
Arndt Nikolai RÖCHLING Sonja SARKÖZI
Member of the Supervisory Board since: 2 November 2016 Member of the Supervisory Board since: 14 January 2019 Chairman of the Supervisory Board since: 2 November 2020 Banking experience: 34 years Banking experience: more than 25 years Management experience: 20 years Management experience: 14 years
Arndt Röchling was born in the Federal Republic of Germany on Sonja Sarközi was born in the Republic of Austria on 13 July 1967. 20 October 1967. He graduated from the University of Passau, majoring She graduated from the High School for Business Studies in Vienna. In in Business Management with a focus on banking, finance, organisation 1987–2001, she held various Senior and Executive Management positions and human resources. He wrote and defended his doctoral thesis at in BAWAG P.S.K. and easybank AG. In 2001–2009, she was a member of the University of Frankfurt an der Oder. In 2001–2007, he worked in the Management Board at easybank AG. From 2003 to 2016, she was various positions at Raiffeisen Zentralbank Austria AG. In 2007–2009, a member of the Supervisory Board in the Austrian banking sector and, he headed the Financial Controlling Department at Raiffeisenbank from 2004 to 2007, she was a member of the Supervisory Board of Russia. In 2009–2015, he was a member of the Management Board of BAWAG Bank CZ. In 2009–2016, she was the Chairwoman of the Man- Raiffeisenbank Russia responsible for Finance. In 2015–2016, he was agement Board (CEO) of easybank AG and, in 2016, she held the posi- a member of the Management Board of Deutsche Bank in the Russian tion of Chief Innovation Officer (CIO) at BAWAG P.S.K. Group. Since 2017, Federation and, since 2016, he has been a member of the Management she is a member of the Management Board of Sberbank Europe AG Board of Sberbank Europe AG in Vienna responsible for Finance. in Vienna and she is CEO since 1 August 2018.
Membership in the bodies of other companies: Membership in the bodies of other companies: He is a member of the Management Board of Sberbank Europe AG She is a member of the Management Board and the CEO of Sber- in Vienna, Chairman of the Audit Committee of Sberbank Srbija a.d. bank Europe AG in Vienna, Chairwoman of the Supervisory Board of Beograd in the Republic of Serbia, Chairman of the Supervisory Board Sberbank d.d. Slovenia, Deputy Chairwoman of the Risk Committee of Sberbank Srbija a.d. Beograd in the Republic of Serbia, Chairman of the at Sberbank d.d. Slovenia, Deputy Chairwoman of the Supervisory Supervisory Board, Chairman of the Nomination Committee, Chairman Board at Sberbank Magyarország Zrt. and member of the Audit and of the Risk Committee and Chairman of the Remuneration Committee Compliance Committee at Sberbank Magyarország Zrt. of Sberbank BH d.d. Sarajevo in Bosnia and Herzegovina and Chairman of the Audit Committee of Sberbank, CZ a.s.
20 Sberbank CZ Annual Report 2020 7. Bank Bodies
Aleksei MIKHAILOV Alexander WITTE
Member of the Supervisory Board since 1 July 2019 Member of the Supervisory Board since 1 November 2020 Banking experience: 14 years Banking experience: 32 years Management experience: 17 years Management experience: 24 years
Aleksei Michailov was born in the Russian Federation on 24 Feb- Alexander Witte took over his duties as the Chief Risk Officer (CRO) ruary 1975. In 1997, he graduated from the Faculty of Mathematics and at Sberbank Europe AG in Vienna end of 2017. Before joining Sberbank Informatics at the Novgorod State University in Velikij Novgorod, Europe AG, Alexander Witte spent more than 20 years with the Raif- Russian Federation. feisen Group, serving, among others, as their CRO in Serbia, Ukraine and the Asia-Pacific region. He also headed Raiffeisen’s underwriting In 1999–2006, he held various positions in IT companies within the unit for Central and Eastern Europe. From 12/2013 till June 2017 he was Russian Federation. From 2006 to 2008, he was the CIO of Alliance CRO at Russia’s second largest bank – VTB – in Ukraine. In 2001–2002, Bank in Kazakhstan. In 2009–2013, he was the Head of Retail Tech- Alexander served as EBRD’s Country Representative in Armenia. nologies Office at Sberbank of Russia in Moscow. In 2013–2018, he Throughout his career of more than 30 years he has gathered valuable worked in managerial positions in the following companies – ATF experience within the financial industry in CEE, Russia, CIS, China and Bank&KNG Finance Holding (Kazakhstan), Probiznesbank (Russian Singapore. Mr Witte is fluent in five languages (Russian, German, English, Federation), Sberbank Technologies (Sberbank Group) and then Sber- Bulgarian and Serbian) and holds a Doctor title in Law from the Uni- bank of Russia. Since 2018, he has held the position of Chief Technical versity of Vienna. Officer and a member of the Management Board at Sberbank Europe AG in Vienna. Membership in the bodies of other companies: He is a member of the Management Board of Sberbank Europe AG Membership in the bodies of other companies: in Vienna, the Chairman of the Supervisory Board at SBERBANK a.d. He is a member of the Management Board at Sberbank Europe AG Banja Luka, the president of the Supervisory Board at Sberbank Mag- in Vienna, member of the Supervisory Board, Deputy Chairman on the yarország Zrt. in Hungary, the president of Audit and Compliance Audit Committee, Deputy Chairman of the Remuneration Committee, Committee at Sberbank Magyarország Zrt. in Hungary, the member Chairman of the Risk Committee and Chairman of the Nomination of the Board of Directors at Sberbank Srbija a.d. in Serbien, and the Committee at Sberbank d.d. in Croatia, Deputy Chairman of the member of the Supervisory Board at Sberbank CZ, a.s. in Prague. Supervisory Board, Deputy Chairman of the Nomination Committee and Deputy Chairman of the Risk Committee at Sberbank BH d.d. in Sarajevo, Bosnia and Herzegovina.
21 7. Bank Bodies Sberbank CZ Annual Report 2020
7.2. Supervisory Board
Dirk Adolf HINZE Vratislava ŠESTÁKOVÁ
Member of the Supervisory Board since: 1 November 2018 Member of the Supervisory Board since: 9 June 2020 Banking experience: 24 years Banking experience: 11 years Management experience: 29 years Management experience: 14 years Membership in the Supervisory Board was terminated on 31 Jan- uary 2021.
Dirk Adolf Hinze was born on 11 July 1951 in Wuppertal, the Federal Vratislava Šestáková was born in Havířov on April 8, 1970. She grad- Republic of Germany. He graduated from the University of Wuppertal. uated from the Faculty of Agriculture at Mendel University in Brno. In 1982–1997, he worked at Citibank in the Federal Republic of Germany From 1994 to 2006 she worked in the pharmaceutical industry. Since and in New York as Management and Sales Trainer, Head of Training 2006, she has started working in banking industry at GE Money Bank Centre Department, Head of Management Training Department, Training in the various managerial positions, mainly in the area of Operations. Director, Sales Director and Area Director. From 1998 to 2002, he held Subsequently, she continued in managerial roles in the area of cus- the position of Chief Director responsible for Retail Clients and Small tomer service and project management at company innogy. Since 2018, and Medium-Sized Enterprises in Československá obchodní banka, a.s. he has been leading the Back Office departments at Sberbank CZ. In 2002–2004, he was a member of the Executive Committee of Československá obchodní banka, a.s. in Bratislava. In the period of Membership in the bodies of other companies: 2004–2007, he worked in the German branch of GE Money Bank as Member of the Supervisory Board of Nadační fond Sberbank CZ the director of retail banking and a member of the Management Board. until 31 January 2021. In 2007–2011, he was a member of the Management Board of Raiffeisen- bank Russia. He has been an independent consultant since 2012.
He is not a member of the bodies of any other companies.
22 Sberbank CZ Annual Report 2020 7. Bank Bodies
Petr PODANÝ Branko SUŠIĆ
Member of the Supervisory Board since 14 January 2019 Member of the Supervisory Board since 14 January 2019 Banking experience: 11 years Banking experience: 25 years Management experience: 11 years Management experience: 18 years
Petr Podaný was born on 14 November 1981 in town Příbram in Branko Sušić was born on 13 May 1971 in town Pilsner in Czecho- Czechoslovakia. He graduated from the Faculty of Applied Sciences in slovakia. He graduated from the University of Economics in Prague, Pilsen, majoring in Cybernetics with a focus on information and control majoring in Foreign Trade Economics. Between 1996 and 1998, he worked systems. In 2012, he graduated as Master of Business Administration, in the Treasury Department of Raiffeisenbank Prague. In 1998–2006, focusing on human resources management. In 2006–2008, he worked he worked at Deutsche Bank Prague in the Global Markets Division, as an IT consultant. From 2008 to 2012, he held various positions at which he later led as the Head of Sales for the Czech Republic and Komerční banka. Between 2012–2014, he held the position of Senior Slovakia. From 2006 to 2012, he worked in the Czech and Slovakian Manager at a technology and consulting company. Since 2014, he has branch of Credit Agricole CIB as the Head of Fixed Income Markets been responsible for Data & Analytics at Sberbank CZ. Department. In 2012–2014, he worked at the Prague branch of Com- merzbank AG as Head of Corporates & Markets responsible for Czech He is not a member of the bodies of any other companies. and Slovak Republic. Since August 2014, he has been working for Sber- bank CZ, currently as Head of Corporate & Investment Banking.
He is not a member of the bodies of any other companies.
Members of the Supervisory Board whose membership ended in 2020.
Members of the Supervisory Board whose membership ended in 2020
Jozefína TRNAVSKÁ
Date of membership termination: 31 December 2020
Jozefína Trnavská was a member of the Supervisory Board from 1 October 2019. Her position on the Bank's Supervisory Board was terminated with effect from 31 December 2020.
23 7. Bank Bodies Sberbank CZ Annual Report 2020
7.3. Audit Committee
CHAIRMAN MEMBERS OF THE AUDIT COMMITTEE OF THE AUDIT COMMITTEE
Arndt Nikolai RÖCHLING Dirk Adolf HINZE Béla CZIGONY
24 Sberbank CZ Annual Report 2020 7. Bank Bodies
Arndt Nikolai RÖCHLING Dirk Adolf HINZE
Member of the Audit Committee since: 1 July 2016 Member of the Audit Committee since: 30 November 2018 Chairman of the Audit Committee since: 4 July 2016 Banking experience: 24 years Banking experience: more than 25 years Management experience: 29 years Management experience: 14 years
Arndt Röchling was born in the Federal Republic of Germany on Dirk Adolf Hinze was born on 11 July 1951 in Wuppertal, the Federal 20 October 1967. He graduated from the University of Passau, majoring Republic of Germany. He graduated from the University of Wuppertal. in Business Management with a focus on banking, finance, organisation In 1982–1997 he worked at Citibank in the Federal Republic of Germany and human resources. He wrote and defended his doctoral thesis at and in New York as Management and Sales Trainer, Head of Training the University of Frankfurt an der Oder. In 2001–2007 he worked in Centre Department, Head of Management Training Department, Training various positions at Raiffeisen Zentralbank Austria AG. In 2007–2009 Director, Sales Director and Area Director. From 1998 to 2002 he held he headed the Financial Controlling Department at Raiffeisenbank the position of Chief Director responsible for Retail Clients and Small Russia. In 2009–2015 he was a member of the Management Board of and Medium-Sized Enterprises in Československá obchodní banka, a.s. Raiffeisenbank Russia responsible for Finance. In 2015–2016 he was In 2002–2004 he was a member of the Executive Committee of a member of the Management Board of Deutsche Bank in the Russian Československá obchodní banka, a.s. in Bratislava. In the period of Federation, and since 2016 he has been a member of the Management 2004–2007, he worked in the German branch of GE Money Bank as Board of Sberbank Europe AG in Vienna responsible for Finance. the director of retail banking and a member of the Management Board. In 2007–2011 he was a member of the Management Board of Raiffeisen- Membership in the bodies of other companies: bank Russia. He has been an independent consultant since 2012. He is a member of the Management Board of Sberbank Europe AG in Vienna, chairman of the Audit Committee of Sberbank Srbija a.d. He is not a member of the bodies of any other companies. Beograd in the Republic of Serbia, chairman of the Supervisory Board of Sberbank Srbija a.d. Beograd in the Republic of Serbia, chairman of the Supervisory Board, chairman of the Nomination Committee, chairman of the Risk Committee and chairman of the Remuneration Committee of Sberbank BH d.d. Sarajevo and chairman of the Supervisory Board of Sberbank CZ, a.s.
25 7. Bank Bodies Sberbank CZ Annual Report 2020
7.3. Audit Committee 7.4. Sole Shareholder
Béla CZIGONY Sberbank Europe AG
Member of the Audit Committee since: 1 July 2019 Registration number: FN 161285i Banking experience: 15 years Management experience: 10 years Sberbank Europe AG is the sole shareholder of the Bank.
Béla Czigony was born on 25 September 1977 in Budapest. He studied It is based in Vienna at: economics and European Studies at the University of Budapest. He Schwarzenbergplatz 3, worked as a Controller and EU Expert at the Ministry of the Interior 1010 Vienna, in Hungary from 2002 to 2005. From 2005 to 2015, he worked in various Republic of Austria positions at MKB Bank. He worked as a Reporting Specialist at the Accounting and Financial Reporting Unit from 2005 to 2010. From 2010 to 2012, he was Head of the IFRS Reporting Unit. From 2012 to 2015, he was Head of the IFRS and Supervisory Reporting Department. From 2015 to April 2017 he worked as Senior Manager at Audit Advisory at Deloitte. Since April 2017, he has been working as Head of Accounting at Sberbank Europe AG in Vienna.
Membership in the bodies of other companies: He is a chairman of the Audit Committee of Sberbank BH d.d. Sarajevo.
Members of the Audit Committee whose membership ended in 2019
Reinhard KAUFMANN
Date of membership termination: 30 June 2019
Reinhard Kaufmann was a member of the Bank's Audit Committee from 18 April 2014. His position on the Bank's Audit Committee was terminated with effect from 30 June 2019.
26 Sberbank CZ Annual Report 2020
8. Organisational chart
GENERAL MEETING AUDIT COMMITTEE
SUPERVISORY BOARD SOCIL COMMITTEE 130 Audit/Revision RISK COMMITTEE
175 Compliance & AML MANAGEMENT BOARD CREDIT COMMITTEE
DISTRESSED ASSETS COMMITTEE 153 Security Office
ASSET & LIABILITY COMMITTEE
OPERATING COMMITTEE
CHIEF CHIEF CHIEF CHIEF CHIEF EXECUTIVE CORPORATE RISK OPERATIONS FINANCIAL OFFICER OFFICER OFFICER OFFICER OFFICER
105 Board Affairs & 020 Investment 037 Workout & 015 IT 026 ALM/Treasury Legal Banking & Restructuring Global Markets
014 Marketing & 030 SME 070 Integrated Risk 195 Project 082 Data & Analytics Communication Management Management
160 HR Management 035 Real Estate & 073 Credit Risk 551 Operations 080 Accounting, Project Finance Management Reporting & Tax
001 Retail Sales 045 Credit Analysis & 720 Operational 190 FacilityControlling Product Risk & Fraud Management Manegement Management
155 Product & 368 Corporate 490 Central Campaign Underwriting Procurement
056 Digital Sales & Services Legend:
Board Rezort (BoD Member) Committee Dpartment B – 1 Valid: 31.12.2020 Unit / B – 2
27 Sberbank CZ Annual Report 2020
9. Economic Conditions
In Q3 of 2020, there was a swift economic recovery related to The total Y/Y growth of the price level in Q3 of 2020 reached 4.1%. loosening the government restrictions which had paralysed part of The price level of consumer and investment goods grew and the the economy in Q2. Gross domestic product (GDP) thus increased by exchange trade also had an impact on the growth of the price level. 6.9% compared to Q2. However, the loss generated in Q2 could not Consumer prices rose by 3.3% Y/Y with alcohol and tobacco playing be compensated and the year-on-year decline reached as high as a key role (10.3%) and foodstuffs and non-alcoholic beverages less 5.0%. The Y/Y decline in GDP was mainly due to investments which than in previous quarters (4.0%) as well as housing and energy (2.7%). dropped on the year-on-year as well as quarter-on-quarter basis. The year-on-year slump in oil prices affected the entire economy. Household consumption was also lower Y/Y, especially in the area It was reflected in a slight decline in consumer prices of transport of services and medium-term consumer goods. On the other hand, (-0.2%) and a decline in industrial producer prices in the Czech Re- the foreign trade balance sheet developed positively in Q3. European public and the EU. Union saw similar development – massive Q/Q increase in GDP (11.5%) but an overall Y/Y decline of -4.2%. Compared to the EU average, the In Q3, the monetary policy interest rates remained unchanged. Czech Republic is worse off in terms of the Y/Y decline in GDP, and The outflow of funds from term deposits continued. The specific even more so in terms of the Q/Q recovery. situation also undermined the dynamics of consumer loans, although their interest rates continued to decline. The growth in the volume Gross value added (GVA) increased Q/Q (Q2 and Q3 of 2020) by of housing loans remained relatively unaffected. 7.3%. Most industries showed a large increase in Q/Q comparison, with the exception of professional, academic, technical and admini The overall employment fell by 1.7% year-on-year in Q3. A sig- strative activities (-4.0%). Part of the spring losses was erased in the nificant drop related to the decrease in the number of employees manufacturing industry (Q/Q increase of GVA by 16.5%) as well as in employment agencies affected professional, academic, technical in trade, transport, accommodation and catering (13.5%). However, and administrative activities (-6.8%). The year-on-year decrease in most industries lagged behind Y/Y in Q3, especially professional, aca- employment in manufacturing industry (-3.9%) as well as in trade, demic, technical and administrative activities (-14.1%) as well as trade, transport, accommodation and catering (-2.6%) were also relatively transport, accommodation and catering (-9.3%). The manufacturing significant. At the same time, the unemployment rate did not show industry dropped by -4.9% Y/Y. A year-on-year increase in GVA was a significant increase (in Q3, it grew by 0.8 pp. to 2.9% Y/Y). However, recorded in agriculture, forestry and fishing (+3.7%) or information the number of economically inactive people, especially women, in- and communication activities (+0.4%). creased significantly. Employees over 60 also entered the economically inactive group. The average gross monthly salary in Q3 reached CZK Foreign trade recovered in the Q3 of 2020 from a previous massive 35,402 and increased by 5.1% (CZK 1,716) Y/Y. decline. Exports of goods and services grew by 26.2% and imports by 16.3% Q/Q. However, the recovery concerned only trade in goods; Increased expenditures and reduced income related to the re- no recovery of services occurred and their imports even fell quar- strictions implemented under the COVID-19 pandemic led to a state ter-on-quarter. The balance sheet of trade in goods and services in budget deficit of CZK 252.7 billion in Q1-Q3 of 2020, while the second Q3 reached a record surplus of CZK 126.6 billion which increased by quarter of 2020 represented the largest share in the deficit. Total state CZK 36.7 billion year-on-year. In Q3, mainly motor vehicle exporters budget income decreased Y/Y from the beginning of 2020 by 4.1% (CZK were able to erase the spring losses. Exports of computers, electronic 45 billion). The loss was mainly due to tax revenues, including insur- and optical devices, as well as food products, increased year-on-year. ance contributions. Expenditures increased by 16.6% (CZK 187 billion). The drop in the value of oil and natural gas import also played a large These were mostly expenditures related to anti-pandemic measures role in improving the balance sheet. (mainly supporting measures to help businesses) and welfare benefits.
Source: CSO, The Development of the Czech Economy – Q3 2020
28 Sberbank CZ Annual Report 2020
10. Report of the Management Board
10.1. Introduction to cease their activity and thus became very high-risk recipients of bank financing. For this reason, there was a year-on-year decrease in 10.1.1. Meeting the Objectives in 2020 assets in the SME segment by 3.1%. The Bank entered 2020 with a plan to increase the number of clients and boost the economic result. It continued to progress with In the Corporate segment, the Bank succeeded in strengthening business activities and planned to continue effective growth in all target relationships and achieved growth. It particularly recorded a significant client segments – Retail, SME and Corporate banking. The goal was increase in deposit products, a slight increase in volumes of active to efficiently manage interest income and expenses and increase fee products, a rise in the average interest margin on the credit portfolio income. In managing the client portfolio, the Bank sought to maintain and an increase in fees. and strengthen relationships with clients through cross-selling products and services as well as acquiring new clients. In Export & Trade, the Bank was successful in maintaining similar results Y/Y, i.e. at the same level as before the pandemic. However, as early as the first quarter, the Bank, and with it the entire Czech Republic, was hit by the coronavirus pandemic and re- The Bank has also expanded corporate financing with government lated restrictions which completely limited some sectors of the econo- COVID programmes to help businesses react to the current corona- my. The banking sector was particularly affected by the moratorium virus pandemic. on repayments of business and consumer loans which was announced for three to six months until the end of October 2020. Retail Banking Results Despite the difficult situation, the Bank was able to grow in sales The government restrictions also severely restricted the provision of key products in the Retail segment. In the Micro segment – entre- of an entire range of services. Bank still managed to keep all branches preneurs and small businesses – stable portfolio growth continued. It open and provide the clients with services to the widest possible extent. managed to increase the number of clients which actively use the new However, it adopted necessary measures to ensure the highest pos- Sberbank current account, which was launched in early April. This is sible safety and health protection of both clients and employees. Dur- the new FAIR account available in three variants: START, PLUS and ing the regular meeting of the crisis team, the Bank reacted to the EXTRA, which offers a unique loyalty bonus of CZK 1,234 paid each year current developments and acted in a way as to prevent the corona- to existing and new clients. The TV advertising campaign boosted the virus from spreading among its employees as well as to ensure the number of newly opened accounts during the year to two and a half functionality of all its services and products for the clients. times the number at the beginning of 2020.
It focused on the support of online services which were continu- The Bank managed the volume of deposits at the same level Y/Y, ously strengthened, as well as on further expansion of products which although it was forced to respond to a reduction in the base rate and could be set up remotely by the clients. The call centre operation was reduce interest rates on savings accounts and term deposits. also expanded. However, personal contact with clients, especially from the corporate segment, was limited, including business travel. The Consumer loans, which are among the Bank’s key products, slumped employees started working from home as much as possible and, in in the first half of the year. Firstly, it was due to the government measures justified cases, the Bank also provided coronavirus tests for employees. closing down a wide range of services, and also because of the concerns of citizens regarding further development of the situation. While the Corporate Banking Results restrictions were loosening, the Bank managed to increase the volumes. Nevertheless, the Bank continued to prepare new products and It came up with a special offer of consumer loan with a bonus rate of services in all segments where it operated. The entire market was, 1.99% p.a. This product helped to maintain an interest in loans, and the however, affected with the COVID-19 pandemic. Some industries had volumes doubled compared to previous months.
29 10. Report of the Management Board Sberbank CZ Annual Report 2020
Mortgage loans provided by Bank recorded an outflow of interest The Bank managed to finish one of the largest projects of the last and subsequent drop in Q2, but it was resumed as early as autumn few years. In Q1 of 2020, the Bank launched the new internet and when the Bank reached maximum sales thanks to strong demand. mobile banking and gradually transferred the clients to the new systems. However, its development further continues and new features and Investments were successful and became the only way to increase tools are being added which will bring clients greater comfort and the value of finances compared to inflation due to the fall in interest security. In this context, the Bank also completed Strong Customer rates on deposit products. The Bank expanded its offer of investments Authentication, a regulatory requirement for two-phase verification with new mutual funds and corporate bonds. Regarding mutual funds, of clients after logging in to the internet banking and for confirming the Bank focused on ecologically and socially responsible investments. payments. This responsible investing, which is in keeping with the Bank’s strategy, seeks to support environmental care and ecological approach to doing Due to the crisis caused by the spread of coronavirus, the year business and, therefore, it became popular with our clients. 2020 also posed a major challenge for IT which had to very quickly react to the situation and secure a stable VPN connection of most Sberbank CZ expanded its offer of loans for entrepreneurs and headquarters employees to the banking system and adapt the operation small businesses with a support financing programme in cooperation of the entire Bank to the work-from-home concept. with ČMZRB. These were COVID II, COVID-PRAHA and COVID III programmes which the Bank still offers to existing and new clients However, the Bank also focused on the development of other among entrepreneurs and small businesses. strategic digital areas, such as website and e-shop. The new website was launched at the beginning of 2020, and the Bank followed up with Assets a new e-shop for consumer loans in Q3. Its main advantages are the The Bank owns four floors of the M-Palác administrative building simple process of filing a loan application (the result of which is an located at Heršpická 5 in Brno. increase in the volume of completed online applications which doubled in the new e-shop) as well as the possibility of automation. The year All movable assets (furniture, IT equipment, technological equipment 2020 thus ended with the automation of processing the applications of the buildings, etc.) have been brought to rented premises of the received in the new e-shop. Bank or the Bank’s own premises and serve for the operation of 24 business branches and two corporate centres. 10.1.2. Expected Bank Development and Financial Position of the Bank in 2021 The net book value of the land, buildings and equipment amounted Since March 2020, the Czech Republic has been facing a pandemic to CZK 437 million as of 31 December 2020 (CZK 515 million as of of COVID-19, which has affected society as a whole and which con- 31 December 2019). tinues at the beginning of 2021. The expected year-on-year decline in real gross domestic product in 2020 is -7.2%. In 2021, the economy is The cost of fully depreciated tangible assets still in use was CZK expected to recover, especially from the second quarter onwards, and 149 million as of 31 December 2020 (CZK 140 million as of 31 December year-on-year real gross domestic product growth of +1.7%. 2019). Our bank had to respond to this situation as well. Our crisis man- Strategic Projects agement team has taken a number of measures to protect the sta- In addition to achieving the Bank’s business goals, one of the im- bility of the bank and the health of its clients and employees. We portant priorities is to also successfully implement key projects. Their managed not only to maintain the entire branch network open, but aim is to develop and implement new products and services and to also offered new products and services to our clients to help them in increase the efficiency of the Bank’s internal processes and systems. this extraordinary situation. The Bank flexibly adopted all measures
30 Sberbank CZ Annual Report 2020 10. Report of the Management Board
taken by the Government of the Czech Republic to prevent further 10.2. Comment on IFRS Financial spread of the pandemic. Results
Competition in the banking market will remain strong as the market In accordance with the International Financial Reporting Standards continues to diversify into large and medium-sized banks. The rapid (IFRS), the Bank reported a net profit of CZK 19 million in 2020 which adoption of digital solutions by customers, exacerbated by the afore- means a year-on-year decrease in net profit caused by the outbreak mentioned COVID-19 pandemic, will continue to support investment of the COVID-19 pandemic and a reduction in economic activity. The in technology and the digitization of banking services. decrease in profit was mainly due to the increased costs of credit losses which grew by CZK 203 million Y/Y due to the expected dete- In 2021, we will focus on further improving selected products and rioration of the macroeconomic environment related to the COVID-19 services for retail and corporate clients, gradually increasing market epidemic. Another reason is lower interest income calculated by the share in key customer segments, availability for our customers through effective interest method which fell by 12% to CZK 1,964 million. On the the physical distribution network, client center and digital channels, other hand, the Bank followed up the development of administrative and increasing the share of active clients in our portfolio. costs from the previous years and achieved savings of 7% which rep- resents CZK 110 million. Total administrative costs, which include the The bank plans further gradual improvement of internet and mo- staff costs, general operating expenses and depreciation of tangible bile banking for retail clients, development of corporate banking, ATM and intangible assets, thus reached CZK 1,376 million. The Bank’s total networks and cards, and continued digitalization of credit processes. operating revenues decreased by 20% Y/Y to a total of CZK 2,045 mil- lion. As part of the strategy, the bank will also focus on the satisfaction of our employees and the quality of the work environment, taking into Statement of Comprehensive Income account the impact of COVID-19 on the manner and form of work “Net interest income” dropped by CZK 264 million on a year-on- performed. year basis. The decrease in “Interest expenses calculated by the effec- tive interest method” was caused by a significant decrease in the two- The Bank's financial results will be externally affected by the on- week repo CNB rate which declined from 2% to 0.25%. Interest income going COVID-19 pandemic and the low interest rate environment with on deposits deposited with the CNB decreased by 36% year-on-year a positive outlook in the second half of 2021. The Bank's business strategy to a total of CZK 115 million. The decrease in interest income by more for sustainable growth in key segments remains valid. The Bank plans than CZK 234 million was partly compensated by lower “Interest to develop its environmental policy in 2021 in accordance with the expenses calculated by the effective interest method” which decreased Group's environmental strategy. by CZK 41 million Y/Y. The decrease in interest expenses was due to a decline in the client rate on deposit products which was made The Bank has sufficient capital and liquidity for further development, possible by the market situation and a reduced need for liquidity as as well as adequate reserves to cover unexpected and undesirable a result of the credit growth slowdown. market developments. The bank's financing is secured thanks to a sta- ble amount of client deposits. “Net income from fees and commissions” decreased by 24% on a year-on-year basis to a total of CZK 324 million. The reason for this
decrease was an increase in the costs of fees and commissions, namely the costs of foreign currency transactions and payment card fees associated with the transition to own payment cards during 2020. Fee and commission income decreased by 2% Y/Y.
31 10. Report of the Management Board Sberbank CZ Annual Report 2020
“Net profit from financial instruments measured at fair value Assets through profit or loss and exchange rate differences” was down “Cash and deposits with central banks” increased by one third by 6% year-on-year to CZK 163 million. The main reason was a fluc- on a year-on-year basis. This increase was mainly due to the increase tuation in the exchange rate of the Czech crown during 2020. in the volume of deposits with the central bank by almost CZK 5.5 billion. Cash fell by 22% Y/Y thanks to the optimisation of the amount “Net profit from derecognition of financial assets measured of cash in distribution. The Bank's liquidity position increased over the at amortised value” decreased by 52% Y/Y to CZK 35 million after past year and is on a very good level. The share of highly liquid assets2 deducting nonrecurring effects of 2019. This is due to a lower volume in the total assets as of the end of 2020 amounts to almost 27%. of assigned loans and other receivables. “Loans and credit to clients” dropped by CZK 1,699 million Y/Y “Costs of credit losses on financial assets” increased by CZK and, by the end of 2020, amounted to CZK 61.4 billion. This decline in 203 million in 2020 and, by the end of the year, reached CZK 517 million. loans was largely due to a higher outflow of existing mortgage volumes, This reflects the difficult economic situation caused by the COVID-19 despite strong production of new mortgage loans. In the second quar- pandemic and unfavourable macroeconomic situation. The share of ter, sales of new loans in the retail portfolio were also affected by the non-performing loans in the total portfolio increased year-on-year global COVID-19 pandemic. It also had an impact on the volume of from 1.5% as of 31 December 2019 to 2.1% at the end of 2020. corporate financing with a year-on-year decline, both for new loans and the existing ones due to stricter criteria for the financial rating of “Administrative expenses” decreased by 7% year-on-year, by CZK clients and optimisation of the Bank’s portfolio in terms of risk. In 2021, 110 million to the final CZK 1,376 million in absolute terms. The main the economy is expected to stabilise which will result in renewed reason was the Bank’s successful optimisation during 2020. The decrease growth in client loans. in administrative expenses was mainly the result of a drop in personnel costs by 14% Y/Y to CZK 763 million due to the decrease in the number “Debt securities” increased by CZK 1,655 million in 2020 to CZK of employees from 746 at the end of 2019 to 701 as of 31 December 2020. 2,076 million. This increase was mainly due to the purchase of the Czech government bonds at a book value of CZK 1,402 million as of 31 De- “Other operating expenses” increased by 16% year-on-year to cember 2020 which were part of the “Debt securities measured at fair a final CZK 111 million. The largest item is the contribution to the Crisis value against other comprehensive income” portfolio. Management Fund of CZK 69 million which increased by CZK 2 million Y/Y. The second-largest item is represented by the costs of disposing “Land, buildings and equipment” decreased in value by CZK of unused intangible assets in the amount of CZK 20 million in 2020, 77 million in 2020. Their total book value is CZK 438 million. the amount of which was negligible in 2019. “Intangible assets” increased its value by CZK 5 million Y/Y to “Income tax” amounts to CZK 3 million which corresponds in pro- a total of CZK 762 million. Compared to the previous year, the increase portion to the level of profit before tax. The effective tax rate after is minimal. This was due to lower investments because of the com- adjustment from the effects of 2019 (tax estimate vs reality) is 25%. pletion of key projects, such as the multi-channel banking application or payment card issuance support application. Statement of Financial Standing In 2020, the balance sheet total of the Bank increased by nearly The development of other Bank assets is connected with standard CZK 5.7 billion year-on-year to CZK 89.4 billion. This almost 7% increase operation. There were no other significant events during the year that in the total balance sheet was due to the growth of client deposits. could have a fundamental impact on the fluctuation of these items.
2 Quickly liquid assets are the sum of the lines “Cash and deposits at central banks” and “Claims against banks” and “Debt securities measured at fair value against other comprehensive income” in the “Statement of Financial Standing” presented in the annual financial statements.
32 Sberbank CZ Annual Report 2020 10. Report of the Management Board
Liabilities 10.3. Individual Areas There was a significant decrease in “Payables to banks” by 81% to CZK 467 million related to a reduced need for liquidity as a result of 10.3.1. Retail Banking a decrease in client loans. In 2020, the Bank recorded a number of successes in the area of banking services for retail clients. Sales of key products in the retail “Payables to clients”, which represent the main source of financing segment grew, the Micro financing segment portfolio continued to of the Bank’s assets, grew by 12% to CZK 78.1 billion on a year-on-year grow steadily. basis. This was a net increase of CZK 8.6 billion. The biggest growth was recorded in savings accounts which increased by CZK 4 billion Y/Y. We managed to increase the number of clients, which actively use The increase in current accounts was CZK 4.3 billion. the new attractive Sberbank current account. Our clients were more engaged in using our wide product portfolio, including related servic- “Liabilities from debt securities issued” decreased on a year- es. The profit per client thus increased year-on-year by 14%. Our clients’ on-year basis by 100% and by the end of December amounted to CZK loyalty in interacting with the branch is also confirmed by maintaining 0 million due to the settlement of mortgage bonds. Other liabilities of an excellent level of the transaction NPS (Net Promoter Score) and the Bank3 decreased Y/Y by 35% to CZK 755 million. For the most part, a significant improvement of the strategic NPS. this balance sheet item is formed by temporary and short-term liabili- ties arising from the continued clearance of domestic and foreign We were successful in providing clients with services in the area payment transactions and can show considerable volatility. of securities investments, which, in many cases, helped them to main- tain a positive interest rate appreciation of funds while the rates on “Subordinated liabilities” shown by the Bank in the amount of traditional deposit products were declining. CZK 184 million as of the end of 2020 represent the subordinated debt from the parent company Sberbank Europe AG, the sole shareholder In the second half of the year, the Bank adequately responded to of the Bank. The Bank adopted it in the past in order to comply with the perpetual demand for mortgage loans, and many clients came to the internally prescribed capital buffer that aims to ensure compliance Sberbank CZ to solve their housing needs. with regulatory requirements for the total capital adequacy of the Bank under standard market conditions. Despite the pitfalls of the COVID-19 pandemic, the branch network and the Call Centre were fully available to clients throughout the year Equity without major restrictions. The equity of the Bank as of the end of 2020 amounted to CZK 9.2 billion. It was almost the same as in 2019. There was no increase in Despite the slight decrease in the overall number of clients, we the Bank’s equity by the shareholder in the course of 2020. There was were able to increase the number of clients who actively use their also no dividend payment. The profit from 2019, following the legal account. allocation to the statutory reserve fund, remained part of the Bank’s equity as “Retained earnings”. 10.3.2. SME Banking The SME segment is one of the Bank’s strategic units and its long- term aim is to provide our clients with high-quality services and expand our client base. SME Banking spans three specific sub-segments: tradi- tional corporate SME banking with six regional teams, a dedicated team for real estate projects, and a team for the public sector.
3 Other liabilities of the Bank comprise the following items of the “Statement of Financial Standing” presented in the annual financial statements: Income tax payable, Other liabilities, Accrued revenues and expenses, and Reserves.
33 10. Report of the Management Board Sberbank CZ Annual Report 2020
In 2019, a new strategy was implemented based on building long- companies (turnover of EUR 50 to 250 million). One of the key pillars term relationships with clients and on an active approach to potential of sustaining this business model is the rigorous assessment and moni- clients, development of bankers and simplification of internal processes toring of the clients’ risk profiles and their transactions while focusing in order to provide comprehensive services and maximum flexibility. on risk-related client segments. This continuous activity has resulted in the fact that the number of insolvency cases in the segment was One of the first steps in the implementation of strategic changes zero. included a leaner management structure and the decision to strengthen the capacity of the sales network. There were also efforts to streamline We continued the gradual reduction of exposure with selected the loan process – the backbone of the business process. From the clients and groups of related clients within the conservative manage- client’s perspective, these changes translated into a significant accelera- ment of concentration limits. In 2020, the corporate banking traders tion of decision-making on the eligibility for loan products. cooperated closer with their sister product organisational units, namely Global Markets and Export & Trade Finance. The SME division offers clients a wide range of banking services and products. These range from cash management, through appreciation HR did not record any significant staff turnover. The decision to of funds, various forms of financing, including financing for foreign create and fill the Account Manager positions proved beneficial and trade, to the hedging of payment, currency and interest rate risks. allowed traders to fully concentrate on trading opportunities. In strictly adhering to the anti-epidemic measures, we significantly expanded In 2020, SME banking was affected by the COVID-19 pandemic the option to work from home and set up a rotation of teams within and the economic downturn across Europe, resulting in a decline in the Bank’s premises while maintaining full operation of the organisa- investment activities even in the SME segment in the Czech Republic. tional unit. There was a year-on-year decline in the provision of new financing to businesses within SME which manifested by a year-on-year decline This year recorded a significant increase in the volume of deposit in assets by 3.1%. Loans granted to SME clients accounted for 19.7% products, especially in CZK, both for existing and newly acquired cor- (compared to 21.6% in 2019) of the Bank’s credit business within the porate clients. Compared to 2019, we recorded a slight increase in Corporate, SME and Retail segments; the slight decrease occurred volumes of active products and in the average interest margin of the primarily because of the growth in the Corporate segment. credit portfolio. There was also an increase in the fees section compared to the previous year’s results. In 2021, we expect an improvement in the macroeconomic situa- tion across Europe and recovery of the economic situation in the Czech In 2021, the corporate banking segment will emphasise the quality Republic. The goal for 2021 is to return to asset growth and support of the credit portfolio, both for existing active transactions by thorough businesses in their growth as well. monitoring and new loan transactions. In addition to trading with existing clients, the sales activities will also include acquiring new clients 10.3.3. Corporate banking for active trading and a clear focus on all achievable cross-sell in order Throughout the year, both corporate and investment banking teams to achieve reasonable long-term profitability. fulfilled the granular growth strategy which was part of our business strategy for 2020. And all despite the unexpected circumstances of the 10.3.4. Export & Trade Finance COVID-19 pandemic. Not only did we manage to strengthen business The Export & Trade Finance (ETF) is part of the Corporate and relationships with existing clients, but we also acquired new clients in Investment Banking Division. The key ETF products are documentary both teams, in the segment of large companies (with a turnover of transactions (guarantees, letters of credit), export financing and -fi over EUR 250 million) as well as in the segment of medium-sized nancing assignment of claims with insurance.
34 Sberbank CZ Annual Report 2020 10. Report of the Management Board
The ETF results for 2020 were maintained at the “pre-pandemic” trading on its own account within Large Trading Book, the provision level of 2019; on a year-on-year basis, the 2020 revenues were at 97.5% of market prices for the GM Sales client organisational unit also con- of the revenues in the previous year. The original revenue plan for 2020 tinues to be one of the core activities of GM Trading. was met at 101%; however, Q4 in 2020 recorded a plan increase. The new 2020 revenue plan was met at 93%. 10.3.6 Strategic Projects of the Bank, Information Systems and Technologies This year, we will focus on stabilising the portfolio and maintain- The year 2020 was a major challenge due to the crisis caused by ing the profitability of the transactions, especially in the area of purchase the spread of the coronavirus. IT was tasked, basically overnight, with of claims from letters of credit and financing foreign trade transactions, securing a stable VPN connection of most of the headquarters em- mainly related to exports to Russia, countries of CIS and countries ployees to the banking system and accommodating for the entire Bank where the Sberbank Group operates. We will continue to acquire new operating on the work-from-home basis. Despite the initial problems, clients to expand the distribution base for ETF products. The main risk the IT team facilitated the full use of the Bank’s system for all its em- appears to be the current pandemic-incurred slowdown in the global ployees working remotely within a few days. We witnessed the Bank’s economy, including severe travel restrictions, which prevent the smooth ability to effectively manage IT systems and provide the necessary conclusion of new export transactions. support remotely.
10.3.5 Global Markets Although the Bank still perceives the coronavirus situation as Throughout 2020, we conducted transactions related to the pro- a very difficult one, it is important to continue working on business-ori- cess of liquidity management in CZK and on all nostro accounts of ented, or rather client-oriented, projects. Even before the crisis started, Sberbank CZ in foreign currencies within GM Trading. The GM Trading the Bank launched new website www.sberbank.cz which with its team carried out purchases of Czech government bonds based on ALM modern concept serves as a model for all other banks within Sberbank orders. We also offered standard GM Trading service for GM Sales Europe. Under the spring quarantine, we were able to prepare new consisting of providing market prices for Global Markets offered to the current account product packages with a unique reward system for Bank’s clients, mainly in the foreign exchange market and providing its retail clients, to improve the SberCoins application for the branch interest rates via interest rate swaps. GM Trading also actively performed network, to implement a new client for the electronic mail and simple standard operations on its Large Trading Book account. calendar management and mainly to bring the new MCP internet and mobile banking to a state in which it could be offered to our new GM Sales recorded a slight decrease in FX spot foreign exchange retail clients. operations; however, the sales of currency and interest rate hedging products recorded a significant increase in the number of sales com- It was the MCP project which was the highest IT priority from the pared to 2019. In 2020, spot trades were carried out at a higher margin. point of view of business requirements. In order to initiate mass mi- The sales of deposit products to the Bank’s clients continued in all gration of clients, it was necessary to deliver two additional patches major currencies. The volume of bond sales to the Bank’s clients re- which brought about new functionalities to meet the clients’ expec- mained essentially unchanged compared to 2019. tations as much as possible and to adapt the migration process of existing clients to meet all legal requirements. In the first half of 2020, there was an increase in revenues, mainly from an increase in “plain vanilla” client foreign exchange transactions. The IT works on the MCP projects continued even when it was Profitability from securities trading decreased slightly. There was an already used by the clients, and all bugs and client preferences of the increase in the volume of client deposit products. The standard service new banking system were identified. The IT release Delivery Package 3 for ALM in the execution of the liquidity management strategy of the (DP3) released in August addressed all the deficiencies. banking book continued in the area of GM Trading. In addition to
35 10. Report of the Management Board Sberbank CZ Annual Report 2020
It also delivered the missing functionalities of transaction man- The release also faced the challenge of introducing a new front-end agement authorisations which were instrumental in the mass migra- system (FES). Since the “old” FES no longer met the technical require- tion of existing clients to the new internet and mobile banking (MCP). ments and operated with outdated technologies, it was necessary to In the first half of September, a new comprehensive notification sys- completely reprogram the system based on modern standards. Due tem was launched; therefore, IT completed the entire delivery of this to relatively deep integration with the main banking system, this event extensive MCP system. In mid-September, it was then possible to required considerable efforts to test and verify the proper operation launch the long-awaited migration aimed to transfer all retail users of all its components. FES has thus been finished up to the stage where of the Bank’s internet and mobile banking to the new MCP platform. new requirements for its improvement and further development were By the end of 2020, virtually the entire portfolio of active clients had adopted. been migrated to the new platform. Another task worthy of notice is the new functionality for re-send- DP3 also brought about further improvements to the card port- ing PINs for payments cards delivered to the client’s address or the folio management thanks to new functionalities within the FES system, branch or possibility to change the card limits in the MCP internet and as well as improvements or rectifications based on feedback from mobile banking. individual business areas. The required changes in the systems for corporate clients were also arranged – import and export of SEPA In parallel with DP4, we’ve prepared a new platform for DMS docu- payments, notifications for non-executed payments, or import of pay- ment management which will allow efficient document transfer within ments with different due dates. electronic communication with clients. The pilot mode was launched during January 2021. During the autumn, the IT area concentrated on preparing IT re- lease Delivery Package 4 (DP4) launched at the end of November. The A very important step was to incorporate the ESB integration plat- aim is to shorten the time between individual deliveries in order to form in the company high-availability systems. As part of the ongoing allow for faster responses to the dynamically changing banking envi- project to stabilise our IT infrastructure, many important improvements ronment. We started with a period of three months between the indi- have already been delivered in both production and non-production vidual releases; however, our ambition is to reduce it to two months environments. This activity has been contributing to constant improve- and over time to a monthly release cycle. ment in stability and performance of the Bank’s systems.
For example, DP4 brought about SCA (Strong Customer Authenti- 10.3.7. Digital Channels cation) which in short means two-phase client authentication for In 2020, the Bank continued to develop strategic digital areas, such logins into internet banking and payment confirmations. The imple- as online banking, website, e-Shop and all the processes in the back- mentation had to be reflected into all direct channels currently provided ground of these channels. After restructuring, the organisational unit to the clients; whether it was the old SOB and new MCP internet stabilised and, despite significant limitations, such as lack of digital banking, mobile application or the PSD2 interface for third-party ap- competence or insufficient capacity, it found a way to ensure its entire plications. agenda. It was mainly thanks to its focus on process automation to increase work efficiency. Furthermore, it resulted in the implementation of another part of the European Parliament’s Regulation on cross-border payments (Regu- During Q1 of 2020, all technical preparations for the launch of the lation 924) and the need to show the client the total amount of the new internet and mobile banking were finalised and the migration transaction, including fees and exchange rates, before it is processed. campaign for the new platform targeted at the Bank’s existing clients was prepared. In Q2 of 2020, the new banking system was launched and the client migration began. The migration came in waves so that
36 Sberbank CZ Annual Report 2020 10. Report of the Management Board
the transition of clients to the new platform was managed both with of our employees contributed to the successful management of the regard to capacity as well as minimising the strain incurred to the situation and uninterrupted operation of the Bank. At the same time, clients by this migration. Clients could switch to the new banking the emerging situation promoted the already existing trend of trans- system in three ways: on their own using the online migrator, with ferring to the online environment. help from the Bank’s call centre or by visiting a branch and solving the entire situation in person with a banker. The launch of the new bank- In February, we cooperated with the Ipsos agency and carried out ing system and the client migration presented a very challenging task a pulse survey, following up on the employee satisfaction survey from which was not without a few complications in the beginning. How- the previous years aimed at measuring the NPS score development, ever, the entire matter was resolved relatively quickly and now it is which reflects the employee commitment and loyalty to the Bank, and already possible to observe the rise in satisfaction of both existing and to check the effect of the steps taken in the previous period. new clients with the new banking system. In mid-2020, we launched a new above-standard employee as- The beginning of 2020 also meant finalising and launching the new sistance programme which provides free, anonymous and quick help website. First of all, it now operated on the modern Sitecore 9 platform, in solving problems and unexpected life situations. The activities im- and its entire layout has been improved to meet the world standards plemented as part of the “Dny zdraví” (Health Days) project for support and to make the website simpler and more comprehensible. In Q3, the of the employees’ mental and physical health was moved to the online Bank followed up on this successful project by a brand new e-Shop environment. for consumer loans; for clients, this brought the advantages of simple and convenient environment for filling in the loan application, even In the area of employee education and development, last year was from their mobile phone. Our new e-Shop not only brought about focused on creating a functioning online platform, which will be flex- better customer experience visible in the increased volume of com- ible and will take into account the diverse needs of the employees at pleted online applications (in comparison to the old e-Shop, twice as various positions and levels. The tender procedure chose the Seduo many clients complete their consumer loan applications and do not platform, which will be implemented in 2021 and will offer our em- leave) but also paved the way for automation thanks to the new Site- ployees a wide range of educational and development activities. core platform. The year 2020 thus ended with the automation of pro- cessing the applications received in the new e-Shop. Due to the impact of the coronavirus, the Bank also put a greater emphasis on personnel cost management and budget planning. 10.3.8. Human Resources Management The Bank’s priorities in HR focus on personnel costs management, 10.3.9 Marketing proper setup of work with HR in internal guidelines and processes of In 2020, the Bank’s marketing activities focused primarily on pro- the Bank, work performance management and evaluation, remunera- moting the sale of new current account packages and consumer loan tion and benefits, implementation and maintenance of corporate cul- as well as loan consolidation. Mass media, especially television and ture and quality of management education. online media, remained as the main communication channels and were complemented by targeted press and outdoor advertising. Regarding, human capital, the year of 2020 was significantly affected by the worldwide COVID-19 pandemic forcing use to re-eval- At the beginning of the year, we selected a new communication uate a number of well-established procedures and seek new ways for agency and introduced our clients to a new communication concept the efficient operation of the Bank and management of its employees leaving them with a feeling of pride in their personal and business under these conditions. Most employees worked from home for some achievements supported by the Bank. We launched the new Sberbank time. The HR Department was tasked with providing the employees website and we offered commercial clients a new micro loan with with the necessary support and up-to-date information. The flexibility a special rate of 4.9% p.a. The release of the new current account
37 10. Report of the Management Board Sberbank CZ Annual Report 2020
package and new loan consolidation in the spring was already affected The advertising campaigns and marketing activities met the set by the coronavirus pandemic and the country’s state of emergency; goals and Sberbank brand awareness has continued to grow on the nevertheless, these products were very well received by the Bank’s Czech market. Despite the extremely demanding conditions on the clients. The package included not only a new current account with market, we also managed to maintain a high Net Promoter Score, i.e. a bonus for active use and savings account with a favourable interest client satisfaction indicator, which we measure on a daily basis at the rate, but also contactless payment card and new internet and mobile level of individual bankers at all branches. banking. At the same time, the migration of existing clients to a new platform commenced. 10.3.10 Communication The Bank’s external and internal communication in 2020 was most Following the loosening of the preventive measures, the key mar- affected by the COVID-19 pandemic which has had an impact on our keting activity was the new TV campaign promoting the sale of the society as a whole. We and our crisis management team have also new current account packages launched in August. We accompanied responded to this situation and during the year adopted and commu- this campaign with a brand new commercial spot which we introduced nicated a number of measures to protect the stability of the Bank and to commercial TV channels as well as online media. It had a major the health of our clients and employees. At the beginning of 2020, impact on both the sale of the new packages as well as the positive Communication merged with Marketing, and the newly established perception of the Sberbank brand by the general public. organisational unit then carried out a number of activities and com- prehensive projects aimed at informing employees, clients, media and In the autumn, we offered clients a unique reward for the timely the general public about all the Bank’s key activities. It introduced new repayment of their consumer loan for private individuals in the form products and services for clients, the Bank’s financial results, fulfilment of a bonus rate of 1.99% p.a. which was among the most favourable of goals and key projects. It also carried out a short employee satis- on the market. The offer was completely transparent and valid for all faction survey which verified the perception of the implementation of clients who met the condition of timely repayment. As the government’s changes which began in 2019. We communicated with the public main- moratorium on deferred loan payments due to the coronavirus ended ly through the media, websites and social networks. just as the campaign was released, it was a major success. Communication with Media Along with launching the new website, the e-shop and the process Regular communication with the media and the public became of opening new products online were completely restructured in 2020. even more important during the coronavirus pandemic. The Bank This led to an increase in the share of direct sales through online mainly communicated the availability of banking services, the opening channels. We started cooperating with a new digital agency and formed hours of branches (the operation of the Sberbank branch network was a new online strategy of the Bank, including social network strategy. never interrupted due to the pandemic in 2020), the process of sub- At the end of the year, we had over 20,000 followers on Facebook and mitting applications for deferral of bank payments under the govern- 2,500 on Instagram. In addition, the Bank was also active on YouTube ment moratorium or possibility to use COVID-19 subsidy programmes and LinkedIn. for businesses.
The coronavirus epidemic in 2020 had a negative impact mainly In the spring, the Bank launched a new current account package on marketing activities for commercial clients while the majority of and new internet and mobile banking. Then in the autumn, it launched regular events for both existing and future commercial client could new consumer loan and loan consolidation with a very favourable not take place due to the government restrictions. Among other things, interest rate which helped hundreds of clients after the moratorium trade fairs, conference and breakfast meetings were cancelled. A number ended. The Bank also implemented several types of research on the of cultural and sporting events previously sponsored by Sberbank did expected effects of the moratorium on the clients’ ability to settle their not take place. In the autumn, we offered our commercial clients at obligations and on the use of online services during the epidemic which least online seminars with attractive topics. were acclaimed by the media.
38 Sberbank CZ Annual Report 2020 10. Report of the Management Board
Although the Bank is one of the smaller banks on the Czech mar- ket, there were more than 2,300 articles published about us in 2020, most of which were positive or neutral. The main topics covered in- cluded the use of the Bank products and services (66%), corporate topics and information about the Sberbank Group (15%) and responses to the Bank’s corporate social responsibility activities (6%). The media also published interviews with Sberbank representatives or covered HR topics.
Communication with Employees At the beginning of the year, the best employees of 2019 in cate- gories Sberbank Star, Colleague of the Year, Team of the Year and Banker of the Year for retail and corporate banking were announced and awarded. The members of the Management Board thanked them for their excellent work and outstanding results.
Although the Bank’s transformation continued in 2020 and focused on higher efficiency of the Bank, streamlining internal processes and organisational structure, implementing key projects and reorganising product offer, the key internal topic was ensuring the Bank’s operation and safety and health of the employees under the extraordinary circum- stances.
Since the Czech government announced a state of emergency, all employee gatherings ceased for safety reasons and their internal com- munication has moved to the online environment. The Bank’s Man- agement Board cooperated with the crisis management team and regularly informed all the Bank’s employees about the implemented preventive measures through online conferences, mass e-mails and the Bank’s magazine. Most employees were allowed to work from home. We introduced a new form of online education and a new “Mám nápad” (I’ve got an idea) programme motivating employees to seek possible improvements of existing products and services or further increase in productivity. In the autumn, along with the reorganisation of the product portfolio for clients, the Bank introduced a new special offer on products for its employees which was very well received.
In 2020, the process of shared drives and the entire intranet mi- grating to a new platform SharePoint 2019 was completed. It enables easier editing and searching, secure access from mobile phones, online discussion and many other new functionalities
39 Sberbank CZ Annual Report 2020
11. Products and Services
Products for corporate clients (SME and Corporate) Products for Retail Segment The Bank offers the Business Current Account to corporate clients For all their financial needs, the retail clients can use the entire line for everyday banking. In addition to domestic payments, clients can of FAIR products; this line is characteristic for its transparent conditions also use a special Sberbank payment within the international payment and the possibility of quickly and easily checking the price. In 2020, the system, discounted payments to selected banks in the Sberbank Group product range was further modified to be even more attractive for and discounted incoming and outgoing rouble payments from/to any clients. bank in Russia. The main strategic goal of Retail is to constantly increase the num- ber of active clients; therefore, we have introduced a new account For the appreciation of available funds, the Bank offers a Savings with a unique 1234 loyalty bonus in 2020. At the beginning of April, the Account for corporate banking and term deposits. In relation to the current accounts for individuals were expanded by a new product appreciation of funds, the Bank also offers solutions customised to called FAIR account in three options: START, PLUS and EXTRA. This meet the needs of each client through Global Markets. new line of current accounts offers a unique loyalty bonus of CZK 1,234 each year for every active client, both new and existing. There was The Bank demonstrates advantageous conditions and expertise in a follow-up sales campaign to promote this current account for indi- products and services related to the rouble. In this area, the Bank viduals, which was aired on TV – a TV premier for the Bank current secured a strong market position, mainly thanks to the rapid process- accounts. The number of newly opened accounts gradually increased ing of transactions and a strong partner in the rouble market. In the during the year, reaching 2.5 times the number of sales at the beginning area of risk hedging and the foreign exchange market, the Bank offers of 2020. As the number of newly opened current accounts grew, the a variety of hedging options according to the individual needs of clients. number of new active clients also increased.
The Bank offers a full range of financing to companies – opera- In the area of deposit products, it was necessary to react dynami- tional financing, investment loans, structured financing, etc. The Bank’s cally to the sharp decline in market interest rates, i. a. taking into account financing services are based on an individual approach that considers the development of PRIBOR 3M rate. This resulted in a gradual and each client’s specific requirements. Clients from the corporate sector repeated lowering of interest rates on savings accounts and term de- who focus on investment and property development can take advan- posits. Despite this significant drop in interest rates, the Bank’s offer tage of the special financing of the Real Estate Department. The Bank still attracted clients, and the planned volume of deposits was main- also offers specialised products in the public and agricultural sectors. tained. The financing of export and foreign trade is another component of the Bank’s offer. An integral part of the Bank’s activities is financing with In the spring, the bonus rate for FAIR loans and consolidations the support of Českomoravská záruční rozvojová banka, a.s. and Ex- underwent extensive changes. The Bank motivated clients with a bet- portní garanční a pojišťovací společnost, a.s. which has expanded to ter rate for higher volumes. For loans over CZK 600 thousand, it offered include the government COVID programmes responding to the current clients a very advantageous bonus rate of 2.99%. The spring campaign, coronavirus pandemic. which was designed to communicate the 2.99% rate using billboards and transit stop ads, was unfortunately affected by the nation-wide The anti-pandemic restrictions in place, especially the limitation state of emergency. The curfew, concerns about the future and re- of movement and physical contact, increase the need for digital com- strictions, which logically followed, had a significant impact on sales munication. The Bank is preparing electronic communication between results. In April, when the Bank originally expected a sharp increase in the Bank and the client based on electronically certified signatures volumes as a result of this ad campaign, it recorded a significant decline that will fully replace the binding physical signatures on contractual instead. Loosening the restrictions during the summer led back to and other documents. a slow rise in the sales volumes. A significant increase was recorded thanks to the autumn radio campaign with the slogan “Guaranteed
40 Sberbank CZ Annual Report 2020 11. Products and Services
rate with a bonus for everyone”. The special BONUS rate of 1.99% stayed A large part of the 2020 agenda was to provide communication until the end of 2020 and also significantly contributed to maintaining with clients regarding streamlining the savings account portfolio and the appeal of the loan at the beginning of this year. The volumes thus informing them on changes in interest rates. It also communicated climbed to twice the amount of the previous months. changes in the Bank’s terms and conditions, updates regarding the COVID-19 pandemic, reconstruction of branches, etc. Following the great boom in mortgage sales in the first quarter, Products for Entrepreneurs and Small Businesses with there was a big slump due to the unusual situation and COVID-related a Turnover of Up to CZK 25 Million consequences. The Bank managed to revive the sales in the second In 2020, the benefits for corporate loans were boosted, i.e. by the half of last year and reach a maximum thanks to strong demand. Our maturity of secured loans up to 25 years or the maximum amount of market share rose above 2% in the second half of the year, and the unsecured loan up to CZK 3 million. In response to the COVID-19 spread Bank now aspires to further strengthen this position during this year. in the Czech Republic, the Bank expanded its product offer to include loans within the relief programme in cooperation with ČMZRB. These Although 2020 was challenging in many aspects, the area of in- were COVID II, COVID-PRAHA and COVID III programmes which the vestment was relatively prosperous during that time. Investments Bank still offers to existing clients, new entrepreneurs and small busi- generally grew in value and the Bank also regularly expanded the nesses. offer of investment instruments with new attractive ones. Regarding mutual funds, the Bank focused on ecologically and socially responsible investments which now became more than just a trend. In addition, responsible investments are also a strategy followed by many mutual investment funds in the Czech Republic; these funds have been newly included in the Bank offer and were instantly popular with the clients.
The offer of corporate bonds, which are among the investment instruments with above-standard annual interest rates, was also suc- cessfully expanded. Current yields are from 3 to 7% per year. At a time of low interest rates on deposit products, the clients seek corporate bonds as an alternative to appreciate their money. The most successful bond issues are EPH Financing CZ, J&T Energy Financing or Aquila Real Asset Finance.
When promoting sales in the course of 2020, CRM focused mainly on retail financing offers. It continuously provided calculation and re- cording of pre-approved loan offers, both in the PI and Micro segments.
Another challenging task was assistance in migrating the retail clients to the MCP, including the planning and management of indi- vidual waves of communication and regular reporting to project man- agement. The organisational unit was also involved in the SCA project where it was responsible for providing information to the relevant clients, i.e. all payment card holders and internet banking users in the Corporate segment.
41 Sberbank CZ Annual Report 2020
12. Risk Management
12.1. Introduction The following committees form an essential part of the risk man- agement system:
The Bank maintains a prudent and balanced approach to risk man- Risk Committee, to which the Management Board of the Bank agement in order to achieve reasonable returns at an acceptable risk has delegated decision-making in the following areas: level. This approach is based on applicable regulations and risk strategy • approving the risk management principles and basic methods, of the Bank. The Bank determines the internal guidelines and keeps limits, scenario assumptions and any other parameters used in the them up-to-date, maintains a system of regulatory and internal limits, risk management process, monitoring credit, market and opera- the amount of and compliance with which are regularly monitored, tional risks (including compliance with limits), and approving cor- and, in cooperation with its parent company, continuously develops rective measures when limits are exceeded or adverse development advanced risk management tools. trends occur, • approving the methodology of the creation, monitoring and up- The major general principles of the risk management process are dating of models for risk management and approving other models optimisation of the risk/expected return ratio, effective internal control for risk management, and system, segregation of incompatible duties, identification and analysis • monitoring the adequacy, reliability and effectiveness of internal of risks, portfolio diversification and, last but not least, ensuring the guidelines, procedures and limits for risk management. accuracy and completeness of data in banking systems. Bank man- agement is regularly informed about the degree of risk taken, and the Assets and Liabilities Management Committee, which primarily risk management system is monitored and evaluated. considers the current and prospective interest and currency risks in the investment portfolio, as well as liquidity risks, financing and man- Within the organisational structure of risk management, the Man- agement of the regulatory capital in order to optimise the revenue-risk agement Board has the central position; it determines the risk man- profile. agement strategy, approves the Bank’s risk appetite with regard to the medium-term strategy of the Bank, approves all key documents Credit Committee, which particularly decides on the acceptance of in the area of risk management, approves the models for credit risk credit risk in relation to individual counterparties, notably by approving management, and decides on significant risk positions. the amount of new exposures and regular revisions of the credit risk of the existing exposures. In 2020, the Bank focused on analysing the impact of the COVID-19 pandemic on the Bank’s risk position. It reflected the expectation of Non-Performing Loan Management Committee, which in par- worsened future development, in particular, of the credit quality of the ticular makes decisions in the following areas: Bank’s banking portfolio, in its risk appetite and adjusted the key pa- • approving the principles of management of non-performing loans, rameters for risk management so it would be able to quickly respond • considering and approving internal guidelines, methodologies and to potentially negative development. work procedures related to the management of non-performing loans, Risk management is ensured by the Risk Management Division, • setting principles for increasing the exposure of clients with respect which is managed by a designated member of the Management Board. to non-performing loans, The Risk Management Division measures and analyses the Bank’s risk • deciding on how to address individual significant non-performing position, determines methods for management of individual risks, checks loans within the extent of the approval powers granted to the compliance with limits, provides information on the results that are Committee, identified and potentially approves risk positions within its established • setting rules for the management of individually insignificant authority. non-performing loans,
42 Sberbank CZ Annual Report 2020 12. Risk Management
• monitoring the development of non-performing loans and taking • Operational Risk and Fraud Management, which is responsible corrective measures in the event of undesirable developments, for operational risk management and fraud risk prevention. making decisions on granting approval powers for dealing with non-performing loans to employees of the Problematic Claim Unit, the Manager of the Problematic Claim Unit and the CRO. 12.2. Capital Adequacy Ratio
The Committee comprises members of the Management Board TTo determine the own fund requirement, the Bank uses the stand- of the Bank and executive officers from the respective areas of risk ardised approach for credit and operational risk. For market risk, the management. Information on the Executive Committees of the Bank’s Bank calculates the own fund requirement for the general risk of the Management Board, including their composition, can be found in Chap- trading portfolio using a maturity-based method, for specific risk of ter 7 of this Annual Report. the trading portfolio and for currency risk.
The Risk Management Division consists of the following five or- Forecasts of the Bank’s capital adequacy ratio are prepared regu- ganisational units: larly on the basis of the data on the existing structure of assets and • Integrated Risk Management, which is involved in the preparation their projected future development, in particular in the area of loans of the risk management strategy, is responsible for monitoring the provided. There is a contingency plan for emergency situations that capital adequacy ratio and measuring the risk position in the Bank’s could harm the Bank’s capital adequacy ratio. credit portfolio, as well as for managing market and liquidity risk, • Credit Risk, which is responsible for credit risk management and In accordance with regulatory requirements, the Bank has sufficient establishing the credit processes, capital to cover risks. • Underwriting, which assesses the credit risk level undertaken by the Bank and approves/recommends decisions on the limits for Per the requirements of Pillar II of the Basel Capital Accord known the Bank’s counterparties, as Basel III, the Bank evaluates the risks taken and adequacy of its • Restructuring and Workout, which is responsible for debt re- capital with respect to all significant risks (Internal Capital Adequacy covery, and Assessment Process) at least once a year.
CAPITAL ADEQUACY DEVELOPMENT
20%
18%
16%
14%
12%
Total capital adequacy 10% Tier 1 capital ratio
8% 3/17 3/15 6/17 9/17 3/14 3/16 3/18 3/19 6/15 9/15 6/14 9/14 6/16 6/18 9/16 9/18 6/19 9/19 12/17 3/20 12/13 12/15 6/20 9/20 12/14 12/16 12/18 12/19 12/20
43 12. Risk Management Sberbank CZ Annual Report 2020
The Bank also assessed its capital position with regard to the po- assigned a fixed annual probability of default of the client, which is tential impact of the COVID-19 pandemic and adjusted the related used as one of the parameters of the decision-making process. The internal limits so it would be able to respond to potential losses and rating tools are regularly tested and adjusted accordingly to ensure suitably assess or reassess its strategy, not only in risk management that the client’s estimated probability of default is correct. but also in its overall strategy. Another criterion in assessing a loan proposal is the quality of hedging instruments, while the Bank generally does not accept credit 12.3. Credit Risk exposures the approval of which requires the accepted collateral. The catalogue of the hedging instruments defines the acceptable types of Providing loan products is one of the central business activities of collateral, the method used for determining their fair value, the fre- the Bank. This corresponds to the emphasis that is placed on credit quency of revaluation and the responsibilities of each department of risk management. The Bank applies a conservative policy to managing the Bank. credit risks. Each transaction, which means a risk undertaken by the Bank, should generate a profit which is at least adequate to the level The assessment and approval of loan proposals are independent of such risk. In particular, the Bank adheres to the following principles: of the business units. The approval powers are delegated by the Man- • It is necessary to avoid any credit risk level that would threaten agement Board and are divided into several levels. The Bank carries the very existence of the Bank. out regular monitoring of individual exposures in order to monitor the • Non-quantifiable residual credit risks are continually limited to an quality of the credit portfolio. This process increases the likelihood that appropriate level by the continuous improvement of processes and future client defaults will be recognised early. For this case, the Bank systems and employee training. has established a system for the timely settlement of problematic • A sufficient capital volume is used to cover the credit risk. receivables, which reduces the probability of incurring losses through • Credit criteria and the minimum requirement for the funding of providing loans. counterparties are defined in such a way that it is possible to manage the quality of newly provided credit transactions in ac- In response to the COVID-19 pandemic in 2020, the Bank intensi- cordance with the Bank’s risk capacity. fied monitoring of individual exposures, in particular, in the affected industries, in order to identify in time if a client experiences problems The credit risk management process includes identifying risks, and to help them in finding a suitable solution before their situation measuring risk exposure, monitoring limits and adopting measures to translates into a non-performing loan with a potential risk of loss for reach an optimal level of credit risk. The process takes place at the the Bank. level of the individual counterparties of the client’s bank, as well as at the level of the credit portfolio. In response to COVID-19 and the statutory moratorium on loan repayments, the Bank also implemented a number of new reports In evaluating the credit quality of the client, the Bank focuses mainly which collected additional information necessary to continuous credit on the analysis of the client’s financial and non-financial condition, the risk management. client’s ability to repay the loan provided from their cash flow, and experience with the client. Regular evaluation of compliance with the set of limits is an inte- gral part of credit risk management. The Bank sets limits for both the The credit quality of each client is assessed, among other things, portfolio (by segment, industry, product etc.) and individual transactions. by using an internal rating tool corresponding to the type of client or Within the set of limits, both regulatory and internal limits are evalu- the type of financing under assessment. Each client is classified into ated. one of 26 grades on the internal rating scale. Each rating grade is
44 Sberbank CZ Annual Report 2020 12. Risk Management
The Bank assesses receivables from clients in terms of a possible 12.4. Market Risks decline in their value, especially with regard to a rating downgrade, delays in repayment or any other breach of the original contractual The main instrument for market risk management is a system of terms by the counterparty. limits for individual types of market risks. Compliance with these limits is monitored regularly. The Management Board, members of the Risk The Bank assesses the impairment of claims according to IFRS9 Committee and the relevant business units are to be informed imme- from two perspectives: diately of any limit overrun and the related corrective measures taken. 1. collective depreciation, which is applied to each group of assets Limits are set internally by the parent company or the regulatory pro- based on statistical models and is covered by collective loss pro- visions and approved by the Risk Committee. Stress testing of market visions, and risks takes place regularly. 2. individual impairments associated with individual loans, for which there is objective evidence of impairment, and covered with indi- The Bank manages the currency risk by closing its FX position vidual loss provisions. through hedging transactions. The FX position in individual currencies is monitored daily and compared with the applicable limits. As part of the implementation of IFRS9, the Bank classifies indi- vidual financial instruments into three different groups, each repre- The Bank quantifies the interest rate risk using monitoring tools senting a different rate of credit risk increase compared to the risk based on contractual and behavioural re-fixing of the interest rate for expected when the financial instrument was granted. Depending on individual assets, liabilities and off-balance-sheet items of the Bank. the group to which a financial instrument is assigned, the Bank deter- mines the expected loss from the financial instrument within one year One of the fundamental tools is the daily gap report on the interest or up to the maturity of the financial instrument. rate risk. It serves as a basis for simulations of the impact of interest rate shocks (standardised shocks, scenarios recommended by BCBS In accordance with IFRS9, the Bank reports such a decrease in the and other scenarios) on the economic value (NPV) of the balance. value of receivables which represents the currently expected losses Other tools include the analysis of the impact of interest rate variations from credit risk in the following period. One of the Bank’s key activities on the Bank’s net interest income (NII) and the analysis of the impact was to ensure that it adequately reflects the expectations of deterio- of assumptions and models on the Bank’s interest rate risk. rated macroeconomic development in the level of expected losses according to IFRS9. At the same time, the Bank assessed which assets The results of these analyses are monitored and compared with deteriorated in terms of credit risk level, even though this deterioration the applicable limits. The Bank mitigates the interest rate position may not be measurable by standard procedures, e.g. due to the absence resulting from long-fixed assets by interest rate swaps. of regular repayments during the statutory moratorium on loan re- payments. The Bank then assigned a higher level of credit risk to such From a regulatory standpoint, the Bank holds an extensive trading assets. portfolio. Positions in this portfolio are monitored on a daily basis and compared with the applicable limits. The Bank calculates the own fund requirement for general, specific and currency risk. Stress testing of trading book positions takes place regularly.
The Bank responded to the uncertainty in the financial markets caused by the COVID-19 pandemic by reducing its open market risk positions and adjusting related limits.
45 12. Risk Management Sberbank CZ Annual Report 2020
12.5. Liquidity risk To manage and identify operational risk, the Bank uses the collec- tion of operational risk events, their classification and subsequent Operational liquidity risk management is carried out daily by moni- evaluation, Risk Self-Assessment and scenario analysis for risks with toring short-term and long-term liquidity indicators in the main indi- a high impact on the Bank and a low frequency of occurrence. vidual currencies, as well as the aggregate for all currencies. On the basis of the development of these indicators, the Bank continually On the basis of identified operational risks, the Bank takes measures manages its liquidity position. The Bank distinguishes between the aimed at effectively minimising the probability of the occurrence of contractual maturity of the balance sheet items and the modelled similar events, and the measures are designed not only according to the expected maturity. frequency of occurrence and volume of the realised/projected financial impact but also with regard to the seriousness and cause. The Bank develops stress scenarios of its liquidity position based on data on the existing structure of assets and liabilities and their The Bank has also drawn up contingency plans for critical situations expected behaviour in model stress situations on a bi-weekly basis. and the restoration of operations to ensure business continuity to the A contingency plan has been prepared for the theoretical possibility fullest extent possible, and recovery plans for key IT applications. of extraordinary circumstances threatening the Bank’s liquidity.
The Assets and Liabilities Management Committee informs the 12.7. Concentration Risk Bank management of the development of the Bank’s liquidity and the measures taken. Sufficient diversification of the underlying credit risk is ensured by a system of limits of concentration risk with respect to groups of re- During 2020, the Bank reacted to the spread of the COVID-19 lated clients, sectors in which clients operate, countries or even indi- pandemic and set up a working group focusing on the Bank’s liquidity vidual clients. The Bank also sets the own fund requirement for con- management, both in terms of deposits and new loans, creating new centration risk within the Internal Capital Adequacy Assessment reports and increasing the reporting frequency on the Bank’s liquidity Process. position in order to minimise the risks related to potential outflow of liquidity. In the area of liquidity, the degree of concentration of client de- posits is monitored, regularly compared with the applicable limits, and presented to the Bank’s management. 12.6. Operational Risk
In accordance with regulatory requirements, the Bank has the necessary internal guidelines for operational risk management, including information security, business continuity, outsourcing and an internal control system that is set for the individual processes at all organisa- tional levels.
The basic methods that are applied include the avoidance, reduc- tion, transfer and acceptance of operational risk. The operational risk management process includes risk identification, recording, evaluation and assessment, including measures to minimise risk, and takes place at the level of actual events as well as hypothetical risks.
46 Sberbank CZ Annual Report 2020
13. Corporate Governance
In accordance with Section 9 of the Articles of Association of Sber- – transferring, leasing or pledging an enterprise, winding up the Bank bank CZ, a.s., the Bank's internal structure system is dual. The bodies with liquidation or transforming the Bank, of the Bank are the General Meeting, the Management Board, the – changing the rights attached to individual classes or types of shares, Supervisory Board and the Audit Committee. Only private individuals – restricting the transferability of registered shares, may be members of the Management Board, the Supervisory Board – excluding or limiting the pre-emptive right to acquire convertible and the Audit Committee. Members of the bodies are obliged to exer- and priority bonds, and excluding or limiting the pre-emptive right cise their duties with due professional care and diligence and to respect to acquire new shares, the prohibition of competition to the extent stipulated by law. – increasing the registered capital with material non-cash contri- butions, – changing the subject of enterprise, 13.1. General Meeting – approving the Supervisory Board’s Rules of Procedure, – approving the Audit Committee’s Rules of Procedure. The General Meeting is the supreme body of the Bank. The General Meeting cannot reserve the right to make decisions Sberbank Europe AG is the sole owner of all the Bank's shares and on matters that have not been vested in the General Meeting by law as the sole shareholder of the Bank it exercises the powers of the or by the Articles of Association. General Meeting. The decisions of the sole shareholder are written and, if required by law, take the form of a notarial deed. The sole In 2020, the sole shareholder of the Bank adopted in particular shareholder has the right to require that the Management Board and the following major decisions in the capacity of the General the Supervisory Board take part in the decision-making process that Meeting: occurs within the capacity of the General Meeting. – Decision of the sole shareholder acting in the capacity of the General Meeting dated 23 April 2020 The powers of the General Meeting include in particular Through this decision, the sole shareholder in particular considered making decisions on the following: and acknowledged the report on the Bank’s business activities and – amending the Articles of Association, its assets, acknowledged the report on relationships for 2019, ap- – increase or decrease of registered capital, proved the annual financial statements for 2019, decided on the – issue of convertible or priority bonds, Management Board’s proposal for the distribution of profit for 2019 – appointing and dismissing members of the Supervisory Board, and determined the external auditor for 2020. approving performance agreements with members of the Super- visory Board and their amendments, – Decision of the sole shareholder acting in the capacity of the General – appointing and dismissing members of the Audit Committee, ap- Meeting dated 18 June 2020 proving performance agreements with members of the Audit By this decision, the sole shareholder re-appointed Mr Arndt Nikolai Committee and their amendments, Röchling as a member of the Audit Committee with the effect – approving the annual financial statements and making decisions from 1 July 2020. on the distribution of profits or the covering of losses, – considering the report on the bank’s business activities and its – Decision of the sole shareholder acting in the capacity of the General assets, Meeting dated 7 August 2020 – appointing an auditor to perform the statutory audit, By this decision, the sole shareholder re-elected Mr Arndt Nikolai – submitting an application for the admission of the Bank’s shares Röchling as a member of the Supervisory Board with the effect for trading on the European regulated market or for the exclusion from 2 November 2020. of shares from this trading,
47 13. Corporate Governance Sberbank CZ Annual Report 2020
– Decision of the sole shareholder acting in the capacity of the General The Supervisory Board shall meet at least twice a year. Meetings Meeting dated 27 October 2020 of the Supervisory Board shall be convened by the Chairman or Deputy By this decision, the sole shareholder appointed Mr Alexander Witte Chairman of the Supervisory Board or their representative. The Super- as a member of the Supervisory Board with the effect from 1 No- visory Board is quorate if an absolute majority of its members are vember 2020. present. Resolutions of the Supervisory Board shall be adopted by a simple majority. If the numbers of votes are equal, the vote of the 13.2. Supervisory Board chairman of the Supervisory Board (in the chairman’s absence the vote of the deputy chairman) shall decide. Minutes of every meeting shall The Supervisory Board is a supervisory body that oversees the be drawn up. The Supervisory Board may also adopt decisions outside performance of the Management Board and the activities of the Bank. of its meetings, in writing or using technical means (per rollam deci- The Supervisory Board checks whether the Management Board per- sions). Details are laid down in the Supervisory Board’s Rules of Pro- forms its duties in accordance with the law and the Articles of Asso- cedure, approved by the General Meeting. ciation and whether members of the Management Board act in the interests of the Bank and with due professional care and diligence. The responsibilities of the Supervisory Board include Members of the Supervisory Board perform their duties with due pro- in particular: fessional care and diligence. No one is authorised to give to the Su- – reviewing the annual financial statements and the proposal of the pervisory Board any instructions related to its statutory duty to super- Management Board for the distribution of profit or covering of vise the activities of the Management Board. loss, and submitting its opinion to the General Meeting, – informing the General Meeting of the results of the Supervisory According to the valid Articles of Association of the Company, the Board’s supervisory activities, Supervisory Board consists of nine members. At least one member of – electing and dismissing members of the Management Board, ap- the Supervisory Board is an independent member. proving performance agreements with members of the Manage- ment Board and their amendments, Members of the Supervisory Board are elected and dismissed by – approving the Management Board’s Rules of Procedure, the General Meeting for a four-year term of office. Members of the – approving the allocation of organisational units among members Supervisory Board elect the chairman and deputy chairman of the of the Management Board within the Bank’s organisational chart, Supervisory Board from among their ranks. A member of the Super- – supervising whether the management and control system is func- visory Board cannot be a member of the Management Board or a per- tional and effective, including the evaluation at least once a year, son authorised to act on behalf of the Bank. – regularly discussing the strategic direction of the Bank, – evaluating the activities of internal audit and compliance, Members of the Supervisory Board are listed in the Chapter Bank – expressing its opinion on proposals of the Management Board for Bodies (see Chapter 7.2). the appointment of persons to the positions of risk management, compliance and internal audit, or their dismissal, Members of the Supervisory Board are liable to the Bank for any – determining the remuneration policy with respect to persons in damage they cause due to a breach of their legal obligations. Members positions of risk management, compliance and internal audit. of the Supervisory Board are functionally responsible to the Bank rep- resented by the shareholder. The Supervisory Board gives consent to the Management Board for certain acts specified in the Bank's Articles of Association, such as The Supervisory Board is authorised to appoint Supervisory Board establishing, relocating and closing a branch, or determining the Bank's committees with decision-making powers. Given the size of the Bank, annual budget. no such Supervisory Board committees are set up and their competence is exercised by the Supervisory Board itself.
48 Sberbank CZ Annual Report 2020 13. Corporate Governance
Meetings and per rollam decisions of the Supervisory Board 13.3. Management Board In 2020, four regular meetings of the Supervisory Board were held, specifically on 22 April 2020, 24 June 2020, 30 September 2020 and The Management Board is the governing body of the Bank re- 15 December 2020, at which the Supervisory Board made decisions on sponsible for the business management of the Bank and representing matters that fell within its authority. In addition to the aforesaid meet- the Bank in all matters. The Management Board is responsible for ings, the Supervisory Board adopted a number of other per rollam establishing, maintaining and evaluating the functional and efficient decisions. management and control system of the Bank as a whole and in parts. The Management Board exercises the rights of the employer. No one Major per rollam decisions adopted by the Supervisory Board in is authorised to instruct the Management Board as to the management 2020 include: of the Bank’s business unless the law provides otherwise. – Written decision of the Supervisory Board dated 5 June 2020 The Supervisory Board re-elected Mr. Jindřich Horníček as a member According to the valid Articles of Association of the Company, the of the Management Board as of 1 July 2020 and also re-elected Management Board consists of five members. Members of the Man- Mr. Dušan Baran as a member of the Management Board as of agement Board are elected and dismissed by the Supervisory Board 1 September 2020. for a three-year term of office, unless the relevant performance agree- ment provides otherwise. Re-election is permissible. Members of the – Written decision of the Supervisory Board dated 23 June 2020 Management Board elect the chairman of the Management Board In accordance with the Bank's internal guidelines, the Supervisory from among their ranks. During the term of office, the Supervisory Board assessed and subsequently decided on the credibility and Board may dismiss the individual members of the Management Board. professional competence of the nominated candidate, Mr. Alex- ander Witte, to perform the function as a member of the Bank’s Members of the Supervisory Board are listed in the Chapter entitled Supervisory Board. The Supervisory Board assessed that it would Bank Bodies (see Chapter 7.1). have sufficient collective knowledge, skills and experience and would be considered eligible for its activities as a whole. Members of the Management Board shall perform their duties with due professional care and diligence and act in good faith and in – Written decision of the Supervisory Board dated 3 August 2020 the best interests of the Bank and the shareholder. They are experts In accordance with the Bank's internal guidelines, the Supervisory in managing large corporations with international experience and the Board assessed and subsequently decided on the credibility and capacity for teamwork. Their function requires continuous improve- professional competence of Mr. Arndt Röchling, to re-perform the ments in the field as well as in the area of corporate governance, function as a member of the Bank’s Supervisory Board. The Su- a proactive approach to the fulfilment of obligations, the ability to pervisory Board assessed that it would have sufficient collective contribute to the development of the Bank’s strategy and, last but not knowledge, skills and experience and would be considered eligible least, loyalty to the Bank. Members of the Management Board shall for its activities as a whole. adhere to high ethical standards and are responsible for ensuring that the Bank complies with applicable laws. They are personally account- – Written decision of the Supervisory Board dated 7 September 2020 able for any damage they cause to the Bank due to a breach of legal The Supervisory Board elected Mr. Arndt Röchling as a chairman obligations and are functionally responsible to the Bank represented of the Supervisory Board as of 2 November 2020. by the Supervisory Board and the shareholder.
– Written decision of the Supervisory Board dated 11 November 2020 The Management Board may establish committees (for more in- The Supervisory Board approved new bond program of the bank. formation, see the Subchapter 13.4 entitled Committees Established by the Management Board).
49 13. Corporate Governance Sberbank CZ Annual Report 2020
The Management Board shall meet according to the Bank’s needs, Responsibilities of the individual members of the Management but at least once a month. Meetings of the Management Board shall Board are divided by fields (sections) in the organisational chart ap- be convened by the Chairman of the Management Board or the Chair- proved by the Supervisory Board. The functions of individual members man’s representative. The Management Board is quorate if an absolute of the Management Board are defined by the Bank’s internal guideline. majority of its members are present. Resolutions of the Management Each member of the Management Board manages the section that Board shall be adopted by a simple majority. In the case of equal has been assigned to that member and makes decisions on matters numbers of votes, the chairman of the Management Board shall have falling within the competence of that member’s section separately, the deciding vote. The Management Board may also adopt decisions unless the decision-making on the matter in question falls within the outside of its meetings in writing or using technical means (per rollam competence of the Management Board as a whole. The division of decisions). Details are laid down in the Management Board’s Rules of powers among the individual members of the Management Board Procedure, approved by the Supervisory Board. shall be without prejudice to the overall responsibility of the members of the Bank’s Management Board. Members of the Management Board The responsibilities of the Management Board include shall inform one another of any significant matters dealt with at the in particular: level of their respective sections and also of those matters that may – approving and regularly assessing the overall Bank’s strategy, the have an impact on other sections. organisational structure of the Bank, the human resource man- agement strategy, the risk management strategy, the strategy The Management Board regularly informs the Supervisory Board related to capital and capital ratios, the strategy for the development about the operation of the Bank and provides the Supervisory Board of the information and communication system, the principles of with the necessary materials and instruments. The Management Board the internal control system and the security policy, is also obliged to inform the Supervisory Board about any events that – approving new products and other issues that are of fundamental may be of major importance to the Bank. importance or that may have significant impact on the Bank, – approving the statutes of committees, The Management Board decides on all Bank matters that are not – approving the strategic and periodic plan of internal audit, reserved by law or the Articles of Association for the General Meeting, – proposing the persons in charge of ensuring the performance of the Supervisory Board or the Audit Committee. the risk management function, the compliance function and the internal audit function or their dismissal to the Bank’s Supervisory Board, 13.4. Committees Established by – assessing the credibility and suitability of individuals in key functions the Management Board of the Bank, – making decisions on actions outside the ordinary course of the The Management Board is authorised to establish committees in Bank’s trade, accordance with the Bank’s Articles of Association and Decree No. – determining the principles of human resources management, in- 163/2014 Sb. on the performance of the activities of banks, credit unions cluding the principles for the selection, remuneration, evaluation and investment firms. In accordance with this authority, the Manage- and motivation of employees, ment Board established the committees listed below and defined their – submitting ordinary, extraordinary, consolidated or interim finan- authorities, powers, composition and the course of action in the bylaws cial statements and proposal for distribution of profit or loss in of the respective committees. Members of the committees are listed accordance with the Bank's Articles of Association to the General in the Chapter entitled Bank Bodies (see Chapter 7). Meeting for approval, – ensuring proper bookkeeping of the Bank.
50 Sberbank CZ Annual Report 2020 13. Corporate Governance
The Management Board has set up the following Committees: Committee. Under certain conditions, the Committee may adopt de- 1) Assets and Liabilities Management Committee, cisions outside of meetings in writing (per rollam decisions). Detailed 2) Credit Committee, information will be set out in the Bylaws of the Assets and Liabilities 3) Non-Performing Loan Management Committee, Management Committee. 4) Risk Committee, 5) Operating Committee, 2) Credit Committee 6) Social Committee. The Credit Committee is a committee that manages credit risk. It decides on loan transactions which entail credit risks, unless the 1) Assets and Liabilities Management Committee decision-making has been delegated to the individual approval au- The Asset and Liabilities Management Committee is a committee thorities within the Bank, and on cases where the Risk Committee or with the main task to manage and evaluate the effects of the develop- the Management Board has decided so, and on other matters pursuant ment of interest rates, exchange rates, liquidity, and funding opportu- to the Bylaws of the Credit Committee. nities and to monitor risk-weighted assets development, level of reg- ulatory capital and profit forecasts, i.e. the main elements affecting As a rule, the Credit Committee will meet once a week. The meeting regulatory capital requirements. It makes decisions on the rules for is convened by the secretary of the Credit Committee. managing assets and liabilities, considers the current and prospective interest and currency risks in the investment portfolio, as well as The Committee is quorate with the cumulative fulfilment of the liquidity risks, financing and management of the regulatory capital in following conditions: order to optimise the revenue-risk profile. 1) An absolute majority of the Committee members with voting rights is present or otherwise involved (using technical means). The Assets and Liabilities Management Committee will meet at 2) A member of the Management Board responsible for risk man- least once a month. The meeting is convened by the secretary of the agement or their representative is present or otherwise involved Committee. (using technical means). 3) The Head of OE Corporate Underwriting or their deputy is present The Committee is quorate with the cumulative fulfilment of the or otherwise involved (using technical means). following conditions: 1) an absolute majority of the Committee members with voting rights Resolutions of the Committee are adopted by a simple majority. is present or otherwise involved (using technical means), If the numbers of votes are equal, the vote of the chairman of the 2) at least three members of the Management Board are present or Committee (member of the Management Board responsible for risk otherwise involved (using technical means), and management) will decide. Minutes will be drawn up from every meeting 3) the chairman or deputy chairman of the Committee (or their rep- of the Committee. Under certain conditions, the Committee may adopt resentative) is present or otherwise involved (using technical means). decisions outside of meetings in writing (per rollam decisions). Detailed information will be set out in the Bylaws of the Credit Committee. Resolutions of the Committee are adopted by a simple majority of the present members of the Committee with voting rights. If the 3) Non-Performing Loan Management Committee numbers of votes are equal, the vote of the chairman or the deputy The Non-Performing Loan Management Committee is a commit- chairman of the Committee (or their representative) will decide. Each tee that manages and deals with non-performing loans of the Bank. member of the Management Board is entitled to exercise his/her right It establishes and approves the principles of non-performing loans of veto when voting on individual items on the agenda of the meeting. management, management strategies and action plans, monitors the If the right of veto is exercised, the vetoed proposal is postponed un- development of non-performing loans and takes corrective measures til the next meeting of the Management Board to be discussed and in the event of undesirable developments. decided upon. Minutes will be drawn up from every meeting of the
51 13. Corporate Governance Sberbank CZ Annual Report 2020
The Non-Performing Loan Management Committee will meet at The Risk Committee will meet at least once a month. The meeting least once a week. The meeting is convened by the secretary of the is convened by the secretary of the Committee. Non-Performing Loan Management Committee, or their representative. The Committee is quorate with the cumulative fulfilment of the The Committee is quorate with the fulfilment of the following following conditions: conditions: 1) an absolute majority of the members of the Committee (including 1) an absolute majority of the Committee members with voting rights those represented by proxy) is present or otherwise involved (using is present or otherwise involved (using technical means) and si- technical means), and multaneously 2) a member of the Management Board responsible for risk man- 2) a member of the Management Board responsible for risk man- agement or Head of OE Integrated Risk Management is present agement or Head of RWO is present or otherwise involved (using or otherwise involved (using technical means); provided that the technical means); provided that the presence of their representative presence of their representative is not sufficient, such member is is not sufficient, such member is required to be present in person required to be present in person or using technical means, and or using technical means, and simultaneously 3) a member of the Management Board responsible for risk man- 3) at least two members of the Bank’s Management Board (if the agement or a member of the Management Board responsible for Management Board member responsible for risk management is finances is present or otherwise involved (using technical means); present counts as one of the Bank’s Management Board members provided that the presence of their representative is not sufficient, to meet this condition) are present or otherwise involved (using such member is required to be present in person or using technical technical means). means. 4) If the Bank’s Management Board member responsible for risk management is not present, the Head of RWO must attend the Resolutions of the Committee are adopted by a simple majority. meeting in person or via videoconference or by means of two-way A member of the Management Board responsible for risk management voice communication. is entitled to exercise the right of veto. Minutes will be drawn up from every meeting. Under certain conditions, the Committee may adopt Resolutions of the Committee are adopted by a simple majority. decisions outside of meetings in writing (per rollam decisions). Detailed If the numbers of votes are equal, the vote of the chairman of the information will be set out in the Bylaws of the Risk Committee. Committee (member of the Management Board responsible for risk management) will decide. The chairman of the Committee is entitled 5) Operating Committee to exercise the right of veto. Minutes will be drawn up from every It decides on matters relating to the Bank's project portfolio man- meeting. Under certain conditions, the Committee may adopt decisions agement and is responsible for strategic management, approving and outside of meetings in writing (per rollam decisions). Detailed infor- planning of projects within the Bank. Its scope of activities includes, mation will be set out in the Bylaws of the Non-Performing Loan in particular, prioritising projects, evaluating the economic benefits Management Committee. of projects, deciding on project implementation and approving the annual project plan. 4) Risk Committee The Risk Committee is the Bank's committee for risk management. The Committee will meet at least once a month. The meeting is It approves risk management rules, monitors credit, market and op- convened by the secretary of the Committee. erational risks and approves corrective measures. The Risk Committee does not decide on individual credit risk cases but deals with the risk The Committee is quorate if an absolute majority of the Committee profile of the Bank as a whole. members with voting rights is present or otherwise involved (using technical means) and at the same time the chairman or deputy chairman is present or otherwise involved (using technical means).
52 Sberbank CZ Annual Report 2020 13. Corporate Governance
The Committee resolutions are adopted by a simple majority of Members of the executive committees are listed in the Chapter the present Committee members with voting rights, provided that the entitled Bank Bodies (see Chapter 7.3). chairman or deputy chairman of the Committee also voted in favour of the resolution. If the numbers of votes are equal, the vote of the The Audit Committee shall meet at least twice a year. The Com- chairman of the Committee (in the chairman’s absence the vote of the mittee is quorate if an absolute majority of the Committee members deputy chairman) will decide. Minutes will be drawn up from every is present or otherwise involved (using technical means) and at the meeting. Under certain conditions, the Committee may adopt decisions same time the chairman or deputy chairman of the Audit Committee outside of meetings in writing (per rollam decisions). Detailed infor- is present. Resolutions of the Committee shall be adopted by a simple mation will be set out in the Bylaws of the Operating Committee. majority. If the numbers of votes are equal, the vote of the chairman of the Committee (in the chairman’s absence the vote of the deputy 6) Social Committee chairman) shall decide. The Committee may also adopt decisions out- It examines cases of allocating extraordinary funds to the Bank’s side of its meetings, in writing or using technical means (per rollam employees in urgent or possible difficult life situation to come. It dis- decisions). Further information is laid down by the Rules of Procedure cusses and decides on the allocation and amount of additional funds to of the Audit Committee, approved by the General Meeting. employees in a difficult personal situation in the form of additional severance pay or additional financial allowance, e.g. in case of serious The responsibilities of the Audit Committee include illness of the employee or a direct member of their family. in particular: a) monitoring the process of compiling the annual financial statements The Committee convenes as necessary in order for the individual and submits recommendations to the Management Board and cases to be handled in a proper and timely manner. the Supervisory Board to ensure the integrity of the accounting and financial reporting systems The Committee is deemed to have a quorum if an absolute ma- b) evaluating the effectiveness of the Bank’s internal controls, internal jority of the members of the Committee (including those represented audit and risk management system, by proxy) is present or otherwise involved (using technical means). c) monitoring the process of the statutory audit of the annual financial statements, A simple majority of votes of the members of the Committee present d) assessing the independence of the statutory auditor, (quorum) is required to adopt a resolution. If the numbers of votes are e) approving the provision of other non-audit services, equal, the vote of the Committee chairman (in the chairman’s absence f) recommending an auditor to the Supervisory Board, the vote of the deputy chairman) will decide. Under certain conditions, g) providing the General Meeting with information about the Audit the Committee may adopt decisions outside of meetings in writing Committee’s activities. (per rollam decisions). Detailed information will be set out in the Bylaws of the Social Committee. The Committee also carries out other tasks and matters entrusted to the Committee by the Articles of Association or the relevant legis- lation. 13.5. Audit Committee Meetings of the Audit Committee: The Audit Committee consists of three members. The members In 2020, two regular meetings of the Audit Committee were held of the Audit Committee are appointed and dismissed by the General on 24 April 2020 and 15 December 2020, at which the Audit Committee Meeting. Members of the Audit Committee elect and dismiss the chair- made decisions on matters that fell within its authority. In addition to man and deputy chairman of the Audit Committee from Committee the above-mentioned meetings, the Audit Committee adopted some members themselves. per rollam decisions. An example is the decision on the approval of the Committee's activity report for the period from May 2019 to April 2020.
53 13. Corporate Governance Sberbank CZ Annual Report 2020
13.6. Trustworthiness & When assessing the suitability of Supervisory Board members, the suitability of the Supervisory Board as a whole must be considered. Competence Policy The Supervisory Board of the Bank must have sufficient collective knowledge, skills and experience. The Bank shall ensure that members of its governing body, mem- bers of its Supervisory Board and individuals in a key function of the Persons in key functions Bank are trustworthy, sufficiently qualified and experienced. For this Persons in key functions must have sufficient knowledge, skills and purpose, the Bank shall establish internal rules to assess and evaluate experience relevant to their job positions. The assessment is based on such persons. The suitability and professional competence of the members a comprehensive consideration of criteria. The assessment criteria of the Management Board and the Supervisory Board are assessed by include education and expert knowledge relevant to the respective the Bank's Supervisory Board within its competence. The Management tasks of persons in key functions. The criminal and administrative in- Board is a body assessing the suitability and professional competence tegrity and the absence of conflicts of interest of these persons are of individuals in key functions. assessed as well.
Members of the Bank’s Management Board Members of the Management Board, members of the Superviso- The members of the Management Board must have sufficient ry Board and persons in a key function of the Bank must be competent knowledge, skills and experience to perform their functions. They are not only at the beginning of the performance of their duties but per- required to have basic theoretical banking knowledge that enables manently throughout the performance of their duties. For this purpose, them to understand the Bank’s operation and major risks. The assess- regular training and courses are organised for these people. ment criteria include, in particular, education, management experience, financial market experience, knowledge in defined areas, criminal and The suitability of the person under consideration must be assessed administrative integrity, compliance with professional standards, an before the person is selected/appointed or re-elected. Persons being orderly financial situation, time requirements and absence of conflict assessed are obliged to fill in the forms and provide other documents of interest. and materials required for their evaluation. The body evaluating the persons under consideration comes out of the forms and documents When assessing the suitability of Management Board members, received from the persons being assessed for this purpose, and after the suitability of the Management Board as a whole must be consid- evaluating them, it decides whether the person being assessed is cred- ered, too. The Management Board must have sufficient collective ible and suitable. The body that elects/appoints the persons being knowledge, skills and experience. assessed shall follow the result of the assessment.
Members of the Bank’s Supervisory Board The policy on the principles of credibility and professional compe- The members of the Supervisory Board must have knowledge, tence shall not apply to senior management, unless they also hold key skills and experience corresponding to performance of their functions. functions. When these persons are being recruited, however, similar They are required to have basic theoretical banking knowledge that criteria as for the persons in key functions are taken into account to enables them to understand the Bank’s operation and major risks. The ensure that only qualified and experienced people are hired. These evaluation criteria include, in particular, education, professional expe- persons are evaluated by the HR Management organisational unit, rience, basic knowledge in defined areas, criminal and administrative potentially in cooperation with a relevant member of the Management integrity, compliance with professional standards, an orderly financial Board. situation, time requirements and absence of conflicts of interest. The Chair of the Bank’s Supervisory Board is subject to increased demands with regard to the performance of his/her duties.
54 Sberbank CZ Annual Report 2020 13. Corporate Governance
13.7. OECD Code of Corporate – Transparency (especially the statutory auditor’s independence and its assessment by the Audit Committee, access to regular, Governance reliable and sufficiently detailed information in the annual and semi-annual reports of the Bank, information on the ownership The Bank voluntarily complies with the main standards of corpo- structure of the Bank, preparing the report on relationships, eval- rate governance laid down in the Code of Corporate Governance in uating the integrity and professional competence of members of the Czech Republic (2018), the Czech version is published on the the governing bodies, report on the activities of the Management website of the Czech Ministry of Finance. Board),
The Bank respects the principles of corporate governance that best – Responsibilities of the Management Board and the Supervi- reflect how the Bank does its business, the Bank’s interests and the sory Board (in particular the obligation to act with due profes- Bank’s shareholders. These basic standards of corporate governance sional care and diligence, electing and dismissing members of the are reflected in the Articles of Association and in the related internal Supervisory Board by the General Meeting, electing and dismissing guidelines of the Bank. A number of recommendations arising from members of the Management Board by the Supervisory Board, the aforesaid Code are also reflected in Act No. 90/2012 Sb. on business submitting the report on the Management Board’s activities to corporations and other laws of the Czech Republic. the General Meeting, submitting the report on the Supervisory Board’s activities to the General Meeting, monitoring and resolving The Bank’s bodies and their powers are described in the chapter potential conflicts of interest). entitled Corporate Governance (see Chapter 13).
In addition to the aforesaid Code, the Bank voluntarily complies The main principles of corporate governance to which the Bank with the following codes published at websites www.czech-ba.cz and adheres include in particular: www.akatcr.cz: – Protection of shareholders’ fundamental rights (especially the – Code of Ethics of the Czech Banking Association, right to the transfer of shares, the right to receive timely and reg- – Code of Ethics of the Capital Market Association, ularly the information on the Bank from other Bank bodies, the – Code for Loans and Housing (CBA Standard No. 18/2005, the prin- right to elect and dismiss members of the Supervisory Board, the ciples of provision of pre-contractual information related to hous- right to participate in the profits of the Bank, the right to partici- ing loans), pate in making decisions on significant changes in the Bank by – Bank-Client Code (CBA Standard No. 19/2005, the code of conduct amending the Articles of Association), between banks and clients), – Code of Client Mobility (CBA Standard No. 22/2009, client mobility – Prohibition of abuse of insider information by members of the – the process of changing banks), governing bodies and employees (in particular the prohibition – CBA standards in the payment system. of using opportunities for personal gain, conflicts of interest, com- petitive conduct and misusing the company’s assets; members of The codes and CBA standards are incorporated in the Bank’s Code the governing bodies are obliged to act with due professional care of Conduct of Employees and internal work procedures. and diligence),
– Publishing (important information relating to the Bank and its activities are published on the website of the Bank in Czech and possibly also in English),
55 13. Corporate Governance Sberbank CZ Annual Report 2020
13.8. Diversity Policy Since the Bank is, based on its size and the number of employees, a medium-sized company with a lower number of members in its Although the Bank has not yet implemented a diversity policy as governing bodies, it is more difficult to achieve a high level of diversity an internal document, it complies with the requirements for the diver- than in the case of large companies. sity of members of the governing bodies. The diversity requirement is mentioned in the internal guideline on principles of credibility and The Management Board at the end of year 2020 consists of five professional competence. members, the Supervisory Board of nine members and an Audit Com- mittee of three members. The legislation determines special rules for In this internal guideline, the Bank considers, among other things, the composition of the Audit Committee so that the Committee is the personal characteristics of candidates for new members of the professionally competent to perform its function, and the Bank follows Management Board and the Supervisory Board when assessing and these rules in the selection process to comply with the statutory re- evaluating their credibility and professional competence. Moreover, quirement. The Management Board of the Bank consists of men from it places emphasis on their education, professional knowledge and 43 to 55 years of age, with 16 to 25 years of experience in the banking experience, especially considering the fact that the body as a whole sector and with 14 to 20 years of management skills. They acquired should be sufficiently diverse and the body should be able to perform their education either in the Czech Republic or abroad. its duties properly, not only in accordance with regulatory requirements but also with requirements for the quality of personnel management. At the end of year 2020, the Supervisory Board consisted of six A greater diversity of the human factor in these bodies creates a more men and three women aged between 37 and 69, with up to 24 years creative and innovative environment in which people are able to re- of experience in the banking sector and up to 30 years of management spond more flexibly to new challenges that today’s regulated world skills. The Supervisory Board was diverse in terms of geographical origin, of banking brings in a large number. A Bank body as a whole must with three citizens of the Czech Republic, two citizens of the Federal have sufficient collective knowledge, skills and experience to understand Republic of Germany, two citizens of the Republic of Austria, one citizen all the activities of the Bank, ranging from day-to-day operations, the of the Russian Federation and one citizen of the Slovak Republic. In main risks associated with the subject of enterprise and corporate 2020, the General Meeting appointed one new member, and Bank governance to specific knowledge of the banking industry and its regu- employees also elected one new member from themselves. latory environment. Individual members are selected to complement each other, both in terms of their professional knowledge and their The Bank is aware of the importance of diversity principles and experience, so that the body as a whole is capable of performing its intends to focus on setting next new goals in this area in the upcoming functions. years.
The selection of such candidates for membership of the bodies is a demanding and regulated process, in which an assessment is per- 13.9. Internal Control formed of whether the candidate has sufficient experience and skills for the job and is the right person to fit in and thus creates, together Internal control is a process whose participants are the Manage- with the other members, a competent and sufficiently diverse group ment Board, executives and all other employees, and which is designed of people which will, as a whole, be able to perform its function to provide reasonable assurance regarding the achievement of the properly. When a candidate is being selected, great emphasis is put Bank’s objectives relating to: on the professional competence and experience of the individuals, • effectiveness and efficiency of operations, taking into account their personality. • identification, measurement and mitigation of risks, • reliability of financial reports, • compliance with applicable laws and regulations.
56 Sberbank CZ Annual Report 2020 13. Corporate Governance
An effective internal control system provides reasonable (not indicator. In accordance with the identified risks, the relevant processes absolute) assurance of security of property, reliability of financial in- and associated risks are subject to checks (controls). formation and compliance with laws and regulations. This concept of reasonable assurance lies in a constant evolution and implementation The competent officer prepares a plan of checks and controls that of internal controls and constitutes a tool of the bank’s Management includes an overview of ongoing checks and controls in the unit for Board to achieve an optimum balance between the risk of business each organisational unit. For each check or control, it is stated how processes and the level of controls necessary to ensure the achievement its execution is documented. All control activities, including related of the bank’s business objectives. responsibilities, powers and internal guidelines, can be traced back.
The internal control system methodology is based on internal As part of the internal control system, the bank has established control principles as recommended by the Committee of Sponsoring the following types of controls: Organizations of the Treadway Commission (COSO). This approach • operational controls – routine controls of an everyday nature, provides the Bank with a good-quality, clear, practical basis for its own • periodic controls – controls with a minimum of a one-week exe- internal control system. cution interval, • managerial controls/key control indicators – monitoring of the The internal control process consists of the following steps: execution of operational or periodic controls by the authorised person, 1. Targets in business • extraordinary controls – control investigations – their aim is to activities, reporting and discover the objective causes of any negative findings. compliance
The established control mechanisms are periodically reviewed and
5. Reporting on 2. updated as necessary. the functioning Risk identification and effectiveness and analysis of the internal The internal control system is continuously monitored and evalu- control system ated. Its functionality and effectiveness is regularly assessed by the Management Board and the Audit Committee. An internal audit inde- pendently reviews the Bank’s activities, including the risk management system and the internal control system.
4. 3. Identification Monitoring of appropriate The process of accounting and financial reporting may be exposed of internal internal controls controls to risks of inaccuracies resulting from human or technical factors. The Bank attempts to minimise these risks in the following ways: • prepared accounting principles, which are described in the notes The Management Board ensures the setting of appropriate control to the annual financial statements, principles, procedures and activities supporting the control objectives • detailed methodological guidelines and operating procedures for at all levels, and is responsible for maintaining the functionality and all areas of accounting, which are used in everyday accounting effectiveness of the internal control system. practice, • standard inventory process, In the management of key risks within the risk tolerance levels set • established internal controls for accounting, by the bank’s Management Board, each head of an organisational unit • efforts to automate bookkeeping to the greatest possible extent. identifies appropriate internal controls with respect to the cost/benefit
57 Sberbank CZ Annual Report 2020
14. Remuneration
14.1. Principles for Remuneration pays fixed monthly remuneration to the chairman of the Management of Senior Management Board and members of the Management Board for their management activities and other activities related to the performance of their duties Senior managers at the Bank are members of the Management as members of the Management Board. Board and members of the Supervisory Board. In 2020, no new Service Agreements were entered into with new Members of the Management Board and the Supervisory Board members of the Management Board. of the company are listed in the chapter entitled Governing Bodies (see chapter 7). The basic principles for remunerating members of the Management Board are regulated in the internal guideline entitled “Remuneration The Supervisory Board as a body with the power to elect and Policy”. This internal guideline was amended in accordance with Czech dismiss members of the Management Board approves performance and European law. It was approved by the Supervisory Board on 23rd agreements with the individual members of the Management Board; December 2019. The service agreements that are concluded reflect among other things, these agreements govern the method of remu- the principles for determining the remuneration of members of the neration of members, i.e. the amount of income. Management Board governed by this internal guideline.
The Supervisory Board has not established any committees, not The remuneration of the members of the Management Board even a remuneration committee. corresponds to their authority, tasks, expert knowledge and experi- ence. The chairman of the Management Board and members of the The sole shareholder, exercising the powers of the General Meeting, Management Board are remunerated with regard to the assessment is a body with the power to elect and dismiss members of the Super- of their performance, which is measured based on the fulfilment of the visory Board. Some members of the company’s Supervisory Board are defined performance criteria. The performance criteria are established not entitled to any remuneration or payment for the performance of in cooperation with SBEU, are set for each calendar year, and are de- their duties and thus perform the function for free. Only members of rived from the financial goals (profit of SBEU before tax, profit of the the Supervisory Board who are considered as independent members Bank before tax and profit of the controlled organisational unit) and or company representatives, are remunerated based on the respective the fulfilment of structural duties. The variable remuneration com- performance agreements concluded with them in accordance with the ponent is up to 100% of the fixed component. The bonus is a variable relevant provisions of the Business Corporations Act. remuneration component and is subject to regulatory requirements of the Czech National Bank and the European Banking Authority. The In 2020 only one contract on performance of the function between regulatory requirements including possible consequences are also set the company and the Supervisory Board members was concluded, out in the Performance Agreements with the individual members of namely Contract on performance of the function between Sberbank the Management Board. CZ, a.s. and Mrs. Vratislava Šestáková dated 11th August 2020. The Supervisory Board approves the variable component of the The chairman of the Management Board and members of the remuneration of the members of the Management Board in accordance Management Board are remunerated on the basis of their respective with the approved budget of the Bank. Performance Agreements concluded with them in accordance with the relevant provisions of the Business Corporations Act. The Performance The Bank as an institution with an organisational structure of me- Agreement with each member of the Management Board has been dium complexity, does not apply the payment of variable components approved by the Supervisory Board of the company. The company in non-cash instruments.
58 Sberbank CZ Annual Report 2020 14. Remuneration
The variable remuneration component is paid out within a three- 14.2. Income of Senior year period. 60% of the variable remuneration component is paid out immediately, i.e. without delay, and the payment of the remaining 40% Management of the variable remuneration component is deferred for a period of Senior managers at the Bank are members of the Management three years. The entitlement to the variable remuneration component Board and members of the Supervisory Board. with deferred maturity is only awarded if to do so is sustainable from the point of view of the overall financial situation of the Bank. The 1. Income of the Management Board remuneration with deferred maturity is gradually paid out in three Performance Agreements have been made with the individual payments, with the proviso that no more than one payment per year members of the Management Board, under which members of the should be made. The adjustment of the “malus” institute (denial of the Management Board are remunerated. In accordance with their Service entitlement to the payment of the variable remuneration component) Agreements and the Remuneration Policy, the members of the Man- and the “clawback” institute (the recovery of remuneration already agement Board received the following incomes in 2020: paid out) shall also apply to the members of the Management Board. The rules for the application of these institutes are laid down in detail Amount in the Remuneration Policy. in millions Description of CZK
In addition to the aforementioned monthly remuneration and an- Fixed part of remuneration 37.576 nual bonuses, members of the Management Board are also entitled to: Variable part of remuneration* 10.210 • contribution to a supplementary pension of 300 CZK/month, Total financial income 46.263 • 30 days of paid leave, Income in kind** 0.517
• payment of the difference between the gross monthly income and * The variable part of remuneration consists of bonuses paid for the previous years sickness benefit in the event of incapacity for work of up to three ** The income in kind is the sum of additional taxation of 1% of the purchase value of months during one calendar year, the vehicle for the entire year and for all members of the Management Board • if they do not require a company car, they are entitled to a car allowance, The above amounts represent the sum of the income received by • if a member of the Management Board is dismissed before the the individual members of the Management Board for 2020. end of his/her term of office, the severance payment shall be 50% of his/her gross annual income. The sum of all the unpaid variable components of the remuneration of the members of the Management Board with deferred maturity The chairman of the Management Board, members of the Man- amounts to CZK 9,644,620.00. agement Board, members of the Supervisory Board or persons related to them do not hold shares or options to purchase shares of Sberbank The above amounts are based on the managerial skills, expertise CZ, a.s., for the reason that shares of the Bank, are not publicly traded. and experience of the individual members of the Management Board and on the overall benefit to the company. There are no agreements of members of the Management Board with the Bank, that might be substantial and beneficial upon the ter- This income was paid based on meeting the financial, qualitative mination of the legal relationship in terms of users of the annual report, and development criteria and based on the efficiency criteria. except the aforesaid performance agreements. 2. Income of the Supervisory Board Four members of the Supervisory Board were also awarded with remuneration for the performance of their duties in 2020 in total amount of CZK 694,504.
59 14. Remuneration Sberbank CZ Annual Report 2020
14.3. Fees charged by Audit Companies in 2020
Other assurance Consultancy Other In CZK thousands Audit services services services services Total PricewaterhouseCoopers Audit, s.r.o. 5,378 1,646 7,024 PricewaterhouseCoopers Česká republika, s.r.o. 87 87 Ernst & Young Audit, s.r.o. 303 303 Ernst & Young, s.r.o 770 770 Total 5,378 1,949 770 87 8,184
Published information includes VAT, which is not deductible.
Services in addition to the statutory audit provided by the Statutory Auditor and its network during 2020:
Price incl. Company Service description VAT (in CZK) Review of the reporting package for 2Q 2020 as per require- PricewaterhouseCoopers Audit, s.r.o. ments of the group auditor 435,600 Review of the reporting package for 3Q 2020 as per require- PricewaterhouseCoopers Audit, s.r.o. ments of the group auditor 435,600 Preparation of a report on the adequacy of measures taken to PricewaterhouseCoopers Audit, s.r.o. protect the customer's assets (MIFID) 423,500 PricewaterhouseCoopers Audit, s.r.o. Technological audit of a cloud platform 350,900 PricewaterhouseCoopers Česká republika, s.r.o. Training and conferences 87,120 Total 1,732,720
60 Sberbank CZ Annual Report 2020
15. Corporate Social Responsibility
15.1. Introduction Promotion of Cancer Prevention In November, the Bank once again participated in the global cam- In 2014, Directive 2014/95/EU of the European Parliament and of paign for the prevention of prostate and testicular cancer – the Mo- the Council amending Directive 2013/34/EU concerning the disclosure vember Project. Sberbank CZ employees contributed almost CZK 30,000 of non-financial and diversity information by certain large undertakings and thus became one of the greatest team donors in the Czech Re- and groups (the “EU Directive”) was adopted. This EU Directive was public. The money raised was donated to the “Muži proti rakovině” implemented in the Czech Accounting Act No. 563/1991 Sb. There is endowment fund for the prevention and treatment of prostate and a requirement for larger companies and undertakings to process and testicular cancer. publish a report on non-financial information, the first one to be pre- pared for 2017. The report may be processed as part of the company’s Christmas Gifts for the Less Fortunate annual report or as a separate report. This report contains selected During the ninth year of the “Pomáháme Ježíškovi” event, our non-financial information related to the company, such as environ- employees fulfilled Christmas wishes of children from children’s homes mental awareness, social and employment issues, human rights, the in Maštov and Černá Voda and seniors from a retirement home in fight against corruption and bribery, etc. Kamenná. These children and seniors had previously created lists of their Christmas wishes, which were delivered to our employees. The Pursuant to Section 32g(7) of Accounting Act No. 563/1991 Sb., Sber- employees then divided the wishes amongst themselves, bought and bank CZ, a.s. is exempted from the obligation to prepare a report on wrapped the gifts, and sent them to the above-mentioned facilities non-financial information. The reason for the exemption is the fact so that the children and seniors could find them under their Christmas that Sberbank Europe AG prepares a report on non-financial infor- trees. The Christmas gifts included toys, cosmetics, clothes, household mation in accordance with the European legislation for the entire supplies, small electronic items and books. In this Christmas fundraiser, group, including Sberbank CZ, a.s. This consolidated report on non-fi- Sberbank employees wrapped and delivered 90 gifts to both children nancial information is published at www.sberbank.at. and seniors.
Sberbank CZ implements main pillars of social responsibility ...and, of course, we have wheelchair accessible branches which include environmental care and healthy lifestyle, support More than three-quarters of our branches have been gradually of healthy and socially disadvantaged citizens and education. Last transformed into barrier-free offices. Sberbank CZ intends to continue year, the Bank also helped via its Endowment Fund to those most to thus adapt its branches. affected by the coronavirus epidemic. The Bank’s employees help to fulfil the social responsibility strategy, either by participating in volunteer events or making a donation on charitable purposes 15.2. Sberbank CZ Endowment via the Endowment Fund account which the Bank then doubles. Fund
Volunteer Days We provide funds for charitable activities through the Sberbank CZ Last year, employee gatherings at company events were limited Endowment Fund, which was established in 2012 as a charitable fund due to the coronavirus epidemic; nevertheless, Sberbank employees and later transformed into a separate legal entity in March 2014. We participated to a limited extent in the project of planting and main- support only non-profit organisations registered in the Czech Republic taining new trees which is a key long-term project of the Endowment (in particular foundations, endowment funds, associations, commu- Fund (cooperation with the Czech Union for Nature Conservation nity organisations and churches), provided that the resources are used within the “Restoration of Old Fruit Tree Varieties” programme). As a part solely for purposes that are consistent with the Fund’s charitable goals of the volunteer programme, the employees can donate their time and mission as set out in its founding charter; the funded areas include, during working hours once a year while such a day is fully paid for by in particular, support for women and children living in substandard the Bank.
61 15. Corporate Social Responsibility Sberbank CZ Annual Report 2020
conditions, support of education and financial literacy, support for homes were the following: Ďáblice Retirement Home in Prague, seniors and disabled individuals and environment-friendly activities. Home of the Blessed Bronislava in Humpolec, Home of St. Jiří es- tablished by the Plzeň Municipal Charity, Domov v Podzámčí Home During 2020, the Endowment Fund gave support to 19 projects in Chlumec nad Cidlinou, ONDRÁŠ Retirement Home in Brušperk. through grants in the amount of CZK 760,106 focusing on those most • Muži proti rakovině Endowment Fund – donation to support affected by the coronavirus pandemic: the prevention and treatment of prostate and testicular cancer. • Olga Havel Business Academy, Specialised and Practical School – donation for participation fees, transport and accommodation for pupils with disabilities and their companions to the European 15.3. Environmental Protection trade fair in Vienna • Léčivka Endowment Fund of the Centre for Supportive Care The Bank has been committed to environmental protection and of Thomayer Hospital – donation for cultural, sporting and leisure landscape restoration. In 2019, we used our Endowment Fund and activities of children treated at Thomayer Hospital commenced cooperation with the Czech Union for Nature Conserva- • Vital life – donation intended for new armchairs in the senior tion to save old fruit tree varieties. In this project, we help to save common room with easy disinfection traditional fruit tree varieties and return them to the countryside. The • Professor Vejdovský Foundation – donation to purchase pocket subject of the cooperation is mapping suitable areas for orchards, their disinfectants for the visually impaired who rely on their touch due planting and subsequent maintenance and educating those interest- to their disability ed in the subject of old fruit tree varieties and the tradition of orchard • Czech Union for Nature Conservation – donation to support growing in general. The entire programme is described at www.stare- the Union’s activities within the “Restoration of Old Fruit Tree odrudy.cz. In the summer of 2020, the Bank’s employees participated Varieties” programme in maintaining the trees they had planted in the previous year. How- • Diocesan Charity Brno – donation for the purchase of basic ever, government precautions prevented them from planting new trees equipment for social housing for women with children in difficult in autumn. life situation accommodated in the Home of St. Markéta in Brno • Pečovatel Endowment Fund – donation to co-finance home Business Trips assistance care for selected clients of the Fund In 2014, Sberbank CZ successfully launched the internal application • Cesta za snem Association – donation to purchase rehabilitation Car Share which supports car sharing. When planning a company car simulators for handicapped children and senior with limited mo- trip, the ride is registered in a special application on the intranet. Any bility colleague who is going the same way can join the ride. This car-sharing • Association for Early Childhood Care, Brno Branch – donation system aids in reducing the average fuel consumption on business to purchase a new vehicle for trips of the association’s employees trips. who help families with visually or otherwise handicapped children • PAHOP, Medical Institute of Palliative and Hospice Care – The Bank also actively supports the ecological behaviour of our donation to purchase new adjustable beds for hospice clients employees by participating in the “Do práce na kole” (Biking to Work) • Retirement homes in Blatná, Trnová and Pardubice – the En- project. It aims to motivate as many people as possible to use a bicycle dowment Fund provided each of these three facilities with 175 litres (or any non-motorised form of transport, including running or walking) of Anti-COVID disinfectant for hands and surfaces as a means of transport around the city. In addition, if employees stop • Tablets for five retirement homes – at the time of the visitation driving to work, they will not only improve their physical condition, ban which severely affected the seniors in retirement homes, the mood and possibly relationships with others but also contribute to Endowment Fund provided five retirement homes with tables cleaner air. enabling the seniors to contact their families. The five retirement
62 Sberbank CZ Annual Report 2020 15. Corporate Social Responsibility
15.4. Respecting Human Rights 15.6. Social and Employment Issues In carrying out banking activities, the Bank does not forget the fundamental human rights and moral values on which civilised society The Bank supports its employees in the area of mental and physical is based. The Bank is aware of its social responsibility and fully respects health; in the past year, we, therefore, focused on the following areas fundamental human rights and freedoms. The company identifies with in the field of employee benefits and employee care: the current positive trends and recognises that the right to have a pay- • With regard to the ongoing COVID-19 pandemic, HR Management’s ment account, among other things, is one of the basic rights of modern task for 2020 was to provide the necessary support and up-to-date society. information to the employees. The Bank has significantly promoted the possibility of working from home and made it possible for all The Bank always acts to avoid and prevent the financing of terror- employees whose working conditions allowed it. The Bank allowed ism and other business transactions with entities that grossly violate employees with children to take care of their family during the human rights. lockdown of school facilities. • It focused on holiday leave management and made sure that its employees plan their days off and use them to the greatest extent 15.5. Fight Against Corruption possible. In order to support the balance between the work and and Bribery private lives of its employees, the Bank provides them with five paid personal days off in addition to the regular five weeks of leave. The Bank fully recognises values and attitudes expressing zero • The Bank actively promotes volunteerism; employees can register tolerance of all forms of direct or indirect bribery or corruption. As for charitable work and their absence in the length of one day is a member of the Czech Banking Association, the Bank consistently paid. The Bank itself organises selected volunteer activities in co- adheres to the Ethical Code of the Czech Banking Association, which operation with the Sberbank CZ Endowment Fund. is one of the cornerstones of conduct of member banks, expressing, • The Bank also supported the establishment of work-life balance among other things, the requirement for a transparent approach and among its employees with a long-term project called “Dny zdraví” execution of banking activities in the financial market. (Health Days) offering its employees workshops and events to support their health. In 2020 with the ongoing pandemic, these Being aware of the seriousness and meaning of corruption, the activities were largely transformed to the online environment. Bank has established and further elaborated specific measures that • In mid-2020, the Bank launched a new above-standard employee effectively prevent corruption or abuse of power by its employees. assistance programme which provides free, anonymous and quick These rules of conduct are mandatory for all employees of the Bank help in solving problems and unexpected life situations in the field and are observed without exception also in other relationships to which of psychology, law, finances and health. the Bank is a contractual party. • In February, the Bank carried out a pulse survey following up on the employee satisfaction survey from the previous year. The aim was to measure the development of the NPS score, which reflects the employee commitment and loyalty to the Bank, and to check the effect of the steps taken in the previous period. • Last year, the Bank once again implemented the benefit programme for employees expanded by a management tool of extra bonuses. It also expanded the number of discounts to employees on the products and services of our partners and other third parties.
63 Sberbank CZ Annual Report 2020
16. Additional Information
16.1. Shares Basic rights and obligations of shareholders: The basic rights and obligations of shareholders are governed by The Bank’s shares are ordinary registered shares, are numbered the Articles of Association and Act No. 90/2012 Coll. on business cor- if so provided by law, and are issued as book-entry securities. Book-en- porations. try shares are registered with the Central Securities Depository Prague (in Czech: Centrální depozitář cenných papírů, a.s.). All the shares carry the same rights and obligations.
The Bank has issued 561,198 dematerialised registered shares with Each shareholder has the right to participate in the management a par value of CZK 5,000 per share. The total volume of the issue is of the Bank through the General Meeting and the right to participate CZK 2,805,990,000. in the Bank’s profits approved for distribution.
The registered capital that has been paid up in full amounts to CZK Shareholders shall exercise their rights and fulfil their obligations 2,805,990,000. assigned to them under the Articles of Association and applicable laws at the General Meeting or outside it. Each shareholder is entitled to The holder of all the above shares is the sole shareholder – Sber- attend the General Meeting, to vote, to request and receive explana- bank Europe AG, with its registered office at Schwarzenbergplatz 3, tions of matters relating to the Bank or entities controlled by the Bank, 1010, Vienna, Republic of Austria. and to raise objections and submit counterproposals. The voting rights attached to shares are not limited. The voting right of each shareholder The shares are freely transferable. The shares are not traded on is associated with the respective share. Each share with a par value of the regulated European market. CZK 5,000 represents one vote. The total number of votes is 561,198.
The Bank has not issued any convertible bonds, which carry the The structure of the Bank's equity is presented in a separate right to their exchange for shares, or any priority bonds, which carry financial statement in the Financial Position Statement in Chapter 18. the right to a preferential subscription for shares. as at 31 December There are no programs based on which employees and members in mil. CZK 2020 2019 of the Management Board may acquire shares of the Bank, options Equity on such shares or other rights to them under preferential conditions. Registered capital 2,806 2,806 Share premium 4,015 4,015 During 2020, the Bank did not own any of the controlling entity's Reserve fund 233 206 own shares or shares. Other capital funds 5 0 Revaluation reserve (20) 2 No members of senior management hold any shares constituting Retained profit 2,206 2,214 an ownership interest in the Bank. Total equity 9,245 9,243
No rating has been assigned to the shares of the Bank.
64 Sberbank CZ Annual Report 2020 16. Additional Information
Company shares: Company Articles of Association: Type ordinary shares The amendment of the Company's Articles of Association is the Form 561,198 registered shares responsibility of the Company's General Meeting in accordance with Appearance book entry the provisions of the Business Corporations Act. Number of shares 561,198 The Company has not entered into any significant agreements Total issue volume CZK 2,805,990,000 that become effective, change or expire in the event of a change in Nominal value per share CZK 5,000 control of the Bank. The Company has not entered into any agreements Share tradability the shares are not traded on any public market with members of the Management Board or employees to whom it would owe performance in the event of the termination of their func- The Bank has not issued any convertible bonds, which carry the tion or employment in connection with a takeover bid. right to their exchange for shares, or any priority bonds, which carry the right to a preferential subscription of shares. The Company has not introduced any programs that would allow employees and members of the Management Board to acquire the Management Board: Company's participation securities, options on such securities or other Members of the Management Board are elected and recalled by rights under preferred conditions. the Supervisory Board for a term of office of three years, unless their service agreements stipulate a different term. Management Board members can be re-elected. The election and dismissal of a member 16.2. Mortgage Bonds of the Management Board is carried out at a meeting of the Supervi- sory Board, which has a quorum if a majority of members are present. All completed issues of the mortgage bonds of the Bank have been Supervisory Board decisions are adopted by a simple majority. If the duly repaid on the maturity date and the bank does not currently have numbers of votes are equal, the vote of the Chairman of the Supervi- any mortgage bonds issued. In November 2020, the Czech National sory Board (in the Chairman’s absence, the vote of the Deputy Chair- Bank approved a new basic prospectus for the mortgage bonds, which man or their representative) shall decide. allows the bank to issue mortgage bonds under this program with a maximum total nominal value of CZK 15 billion. The duration of the The Management Board is the Company's statutory body. The program is 15 years from the date of its approval. Based on this program, Management Board is the governing body of the Company and rep- the bank did not issue any mortgage bonds in 2020. Details of the bond resents the Company in all matters. It is responsible for the creation, program are available at www.sberbank.cz (https://www.sberbank.cz/-/ implementation, monitoring and inspection of the Company’s business media/files/sberbankcz/hzl/prilohy/zakladni_prospekt_2020.pdf). plans, for the organisation of the Company’s activities and exercises the rights of an employer. The Management Board decides on all com- pany matters that are not reserved by law or the Articles of Association 16.3. Judicial Proceedings for the General Meeting, the Supervisory Board or the Audit Committee. A detailed description of the Management Board’s powers is set out Passive Litigation: in Section 15 of the Company's Articles of Association. The Management In 2015, the Bank paid CZK 129.4 million to Mgr. Daniel Schaffer in Board of the Company does not have any special powers pursuant to damages based on the final decision of the court of second instance. Section 118 (5) (h) of the Capital Market Undertakings Act. Since Bank strongly disagrees with this court decision, Bank has filed an extraordinary appeal against the mentioned court decision, which was filed with the Supreme Court of the Czech Republic.
65 16. Additional Information Sberbank CZ Annual Report 2020
On 3 November 2020, Czech Supreme Court rejected Bank’s appeal 16.4. Major Contracts and confirmed previous decision of court of second instance (the High Court in Prague). Except contracts concluded under regular business conditions, no major contracts have been concluded in which the Bank is a contrac- Due to the fact that Bank still believes that its actions were in line tual party and which might result in a liability or claim of any member with all applicable laws and bylaws, and that there are strong arguments of the Group affecting the Bank’s ability to fulfil its obligations to holders against the decision of Czech Supreme Court, Bank decided to file of securities (bonds) based on the issued securities (bonds). a constitutional appeal to the Czech Constitutional Court.
Constitutional appeal was submitted by Bank’s legal representative 16.5. Research, Science and on 12 January 2021. Development
At the end of 2020, no additional litigation against the Bank In 2020, the Bank invested CZK 51 million in research and develop- (passive litigation) with a presumed significant impact on the Bank's ment activities (compared to CZK 49 million in 2019). These are mainly position had been initiated. costs associated with the implementation of projects in the develop- ment of information technology especially projects designed to improve Debt Collection: multi-channel banking, improve the support of the issuance of payment At the end of 2020, the Bank had in particular the following claims cards, including transaction processing and unified platform for credit against its clients: administration. – the Bank's claim in the amount of CZK 16,533,305 registered in insolvency proceedings against a client of the Bank (PO) – the Bank's claim in the amount of CZK 15,717,076 registered in 16.6. Information on insolvency proceedings against a client of the Bank (PO) contributions to the Guarantee – the Bank's claim in the amount of CZK 15,622,659 registered in Fund insolvency proceedings against a client of the Bank (PO) – the Bank's claim in the amount of CZK 13,966,739 registered in As an investment company, the Bank contributes to the Securities insolvency proceedings against a client of the Bank (PO) Brokers’ Guarantee Fund, which provides a guarantee scheme from – the Bank's claim in the amount of CZK 12,944,109 registered in which the clients of an investment firm that is unable to meet its insolvency proceedings against a client of the Bank (PO) obligations to its clients are reimbursed. The basis for calculating the – the Bank's claim in the amount of CZK 11,123,584 registered in Bank’s contributions for 2020 was CZK 26 million (2019: CZK 29 million) insolvency proceedings against a client of the Bank (PO) and the amount of the contribution for 2020 was CZK 0.5 (2018: CZK 0.6 million). The list of the above active and passive litigation is not exhaustive and includes only major litigation. 16.7. Conflict of Interest
The Bank declares that it is not aware of any potential conflicts of interest between the obligations of members of the Management Board, including members of senior management and members of the Supervisory Board to the Bank, and their private interests or other duties.
66 Sberbank CZ Annual Report 2020
17. Alternative Performance Indicators
In order to provide a more qualified presentation of financial results Non-Performing Loans (NPL) and financial performance, the Bank presents users with annual reports The indicator represents the proportion of non-performing loans and additional, alternative indicators of financial performance. These (defaulted loans) listed in point 33b) of the Bank's financial statements are indicators that are derived from the basic indicators described and to the total amount of loans stated in the Bank's statement of finan- presented in the financial statements and the notes thereon, to which cial position: they can be reconciled, or additional data needs to be stated if they in CZK million 2020 2019 are not presented elsewhere in the financial statements or in the an- Non-Performing Loans (NPL) 2.14% 1.54% nual report. – Loans and advances – non-performing 1,357 994 The Bank has decided to use the following alternative performance – Loans and advances to clients – indicators to present the financial results and financial performance. gross 63,272 64,616
Profit from financial operations, i.e. operating income Return on Average Assets (ROAA) This indicator represents the total amount of revenues the Bank This indicator represents the average rate of return on the Bank’s has achieved in its main business, including in particular the acceptance assets. It is calculated as the quotient of the Net Profit for the Ac- of deposits and the provision of loans. counting Period and average Total Assets for the relevant accounting period. Net Profit for the Accounting Period is presented in the State- The indicator is the sum of the selected positions of the Bank’s ment of Comprehensive Income. The average total assets are calcu- statement of comprehensive income presented in the financial state- lated as the arithmetic mean of the total assets status values at the ments: end of each month in the relevant accounting period.
in CZK million 2020 2019 in CZK million or % p.a. 2020 2019 Profit from financial operations Net Profit for the Accounting Period 19 539 before the creation of reserves Average Assets for the Accounting and loss provisions: 2,045 2,571 Period 88,449 79,896 Net interest income 1,523 1,787 Return on Average Assets (ROAA) 0.02% 0.67% Net income from fees and commissions 324 426 Net profit from financial instruments Return On Average Equity (ROAE) measued at fair value through profit This indicator represents the average rate of return on the Bank’s or loss and exchange rate differences 163 174 Tier 1 equity. It is calculated as the quotient of the Net Profit for the Net profit from other financial Accounting Period and average Tier 1 Equity for the relevant account- instruments 0 14 ing period. Net Profit for the Accounting Period is presented in the Net profit from derecognition of financial assets measured Statement of Comprehensive Income. The average Tier 1 equity is cal- at amortised value 35 170 culated as the arithmetic mean of the Tier 1 equity status values at the end of each month in the relevant accounting period. This indicator may be presented in the Annual Report under the designation Operating income. in CZK million or % p.a. 2020 2019 Net Profit for the Accounting Period 19 539 Average Tier 1 Equity for Accounting Period 8,466 8,022 Return On Average Tier 1 Equity (ROAE) 0.22% 6.72%
67 17. Alternative Performance Indicators Sberbank CZ Annual Report 2020
Assets per Employee This indicator represents the total volume of the Bank’s property (assets) reported in the Bank’s Statement of Financial Standing (balance sheet) presented in the financial statements per employee. The num- ber of employees is the recalculated average registered number of employees.
in CZK million 2020 2019 Asset volume 89,404 83,710 Number of employees 701 746 Assets Per Employee 128 112
Administrative expenses per employee This indicator represents the total volume of the Bank’s adminis- trative expenses reported in the Bank’s Statement of Comprehensive Income presented in the financial statements per employee. The num- ber of employees is the recalculated average registered number of employees.
in CZK million 2020 2019 Administrative expenses 1,376 1,486 Number of employees 701 746 Administrative expenses per employee 2,0 2.0
Net Profit per Employee This indicator represents the total net profit for the accounting period reported in the Bank’s Statement of Comprehensive Income presented in the financial statements per employee. The number of employees is the recalculated average registered number of employ- ees.
in CZK million 2020 2019 Net Profit 19 539 Number of employees 701 746 Net Profit per Employee 0.027 0.723
68 Sberbank CZ Annual Report 2020
Financial Statement for the year ended 31 December 2020
Prepared in accordance with International Financial Reporting Standards as adopted by the European Union. Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
70 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Statement of Comprehensive Income for the Year Ended 31 December 2020
Prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
Year ended 31 December
in CZK million Note 2020 2019
Interest revenue calculated using the effective interest method 3 1,989 2,223
Other interest revenue and similar income 3 2 75
Interest expense calculated using the effective interest method 3 (463) (504)
Other interest expense and similar charges 3 (5) (7)
Net interest income 3 1,523 1,787
Fee and commission income 516 529
Fee and commission expense (192) (103)
Net fee and commission income 4 324 426
Net gains from financial instruments at fair value through profit or loss and foreign exchange 5 163 174
Net income from other financial investments 6 0 14
Net gains on derecognition of financial instruments measured at amortised cost 7 35 170
Credit loss expense on financial assets 17 (517) (314)
Provisions (21) (6)
Administrative expenses 8 (1,376) (1,486)
Other operating income 9 2 7
Other operating expenses 10 (111) (96)
Operating profit 22 676
Profit before income tax 22 676
Income tax expense 11 (3) (137)
Profit for the year 19 539
Other comprehensive income to be reclassified subsequently to profit or loss
Net gains/(losses) on investments in debt instruments measured at FVOCI (22) 2
Other comprehensive income/(expense) for the period, net of tax (22) 2
Total comprehensive income/(expense) (3) 541
71 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Statement of Financial Position as at 31 December 2020
Prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
Year ended 31 December
in CZK million Note 2019 2018 ASSETS Cash and balances with central banks 12 20,559 15,077 Loans and advances to banks 13 3,168 3,033 Derivative financial instruments held for trading 14 182 180 Debt securities at fair value through other comprehensive income 15 1,464 60 Debt securities at amortised cost 15 612 361 Loans and advances to customers 16 61,360 63,059 Changes in the fair value of the portfolio of hedged instruments 14 135 (179) Derivative financial instruments to hedge interest rate risk 14 0 164 Prepaid expenses and accrued income 18 43 38 Other assets 18 389 448 Current tax assets 36 0 Deferred tax assets 19 256 197 Property, plant and equipment 20 438 515 Intangible assets 21 762 757 Total assets 89,404 83,710 LIABILITIES Deposits from banks 22 467 2,397 Due to customers 23 78,131 69,568 Derivative financial instruments held for trading 14 320 98 Derivative financial instruments to hedge interest rate risk 14 217 0 Debt securities in issue 24 0 995 Current income tax liabilities 0 27 Other liabilities 25 749 1,132 Deferred income and accrued charges 6 10 Provisions 26 85 62 Subordinated debt 27 184 178 Total liabilities 80,159 74,467 EQUITY Share capital 28 2,806 2,806 Share premium 4,015 4,015 Statutory reserve 233 206 Other capital funds 5 0 Revaluation reserve (20) 2 Retained earnings 2,206 2,214 Total equity 9,245 9,243 Total equity and liabilities 89,404 83,710
72 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Statement of Changes in Equity for the Year Ended 31 December 2020
Prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
Share Other Share premium Statutory capital Revaluation Retained in CZK million capital account reserve funds reserve earnings Total As at 1 January 2019 2,806 4,015 187 0 0 1,694 8,702 Other comprehensive income (recognized directly in equity) 0 0 0 0 2 0 2 Net profit for the period 0 0 0 0 0 539 539 Total comprehensive income for 2019 0 0 0 0 2 539 541 Transfer to reserves 0 0 19 0 0 (19) 0 As at 31 December 2019 2,806 4,015 206 0 2 2,214 9,243 Other comprehensive expense (recognized directly in equity) 0 0 0 0 (22) 0 (22) Net profit for the period 0 0 0 0 0 19 19 Total comprehensive expense for 2020 0 0 0 0 (22) 19 (3) Contribution to other capital funds 0 0 0 5 0 0 5 Transfer to reserves 0 0 27 0 0 (27) 0 As at 31 December 2020 2,806 4,015 233 5 (20) 2,206 9,245
73 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Statement of Cash Flow for the Year Ended 31 December 2020
Prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
2019 in CZK million Note 2020 (reclassified)
Cash flow from / (used in) operating activities
Profit before income tax 22 676
Adjustments for:
Credit losses on financial assets 17 517 314
Sales and write offs of financial assets 7 (35) (170)
Provisions 26 21 6
Depreciation and amortization of fixed assets 8 227 238
Loss on disposal of fixed assets 10 20 0
Gain on disposal of securities 0 (10)
Net interest income 3 (1,523) (1,787)
Other non-cash transactions 10 (2)
(Increase) / decrease in operating assets:
Due from banks, non-demand, over 3 months maturity 13 311 (1,580)
Financial assets at fair value through profit or loss 162 9
Loans and advances to customers 1,537 (381)
Changes in the fair value of the portfolio of hedged instruments (314) 25
Other assets 59 (138)
Prepayments and accrued income (5) 32
Increase / (decrease) in operating liabilities
Due to banks 262 (514)
Financial liabilities at fair value through profit and loss 439 (53)
Due to customers 23 8,598 3,434
Promissory notes and certificates of deposits 0 (7)
Other liabilities (313) 263
Accruals and deferred income (4) (12)
Interest received 1,673 2,391
Interest paid (503) (465)
Net income tax paid (120) (128)
Net cash flow from (used in) operating activities 11,041 2,141
74 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
2019 in CZK million Note 2020 (reclassified)
Cash flow from / (used in) investing activities
Purchase of securities (1,680) (160)
Sale and maturity of securities 0 867
Purchase of property, equipment and intangible assets (153) (202)
Sale of property, equipment and intangible assets 0 1
Net cash flow from / (used in) investing activities (1,833) 506
Cash flow from / (used in) financing activities
Repayment of mortgage bonds 24 (995) (11)
Payment of principal portion of lease liabilities (89) (94)
Net cash flow used in financing activities (1,084) (105)
Net increase / (decrease) in cash and cash equivalents 8,124 2,542
Cash and cash equivalents at the beginning of the year 31 14,015 11,473
Impact of the changes in the foreign exchange rates on cash and cash equivalents (27) 20
Net increase / (decrease) in cash and cash equivalents 8,151 2,522
Cash and cash equivalents at the end of the year 31 22,139 14,015
These financial statements were approved for issue by the Management Board on 16 March 2021 and signed on its behalf by:
Signature of the Statutory representatives Person responsible Person responsible for accounting for the preparation of the financial statements
Dušan Baran Jindřich Horníček Martin Breyl Martin Breyl Vice-chairman of the Member of the Management Board Management Board
75 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
1 General Information
Sberbank CZ, a.s. (hereinafter referred to as “the Bank”) was incorporated on 31 October 1996. The Bank had 24 domestic regional branches in the Czech Republic as at 31 December 2020 (as at 31 December 2019: 24 branches) and employed 707 people as at 31 December 2020 (as at 31 December 2019: 755 people).
As at 31 December 2020 and 31 December 2019, the ultimate holding company was Sberbank, which is incorporated in Russia and whose registered office is located at 117997 Moscow, 19 Vavilova St. (hereinafter referred to as “Sberbank RU”), more than 50% of which is owned by the Russian Federation represented by the Ministry of Finance of the Russia Federation (31 December 2019: more than 50% was owned by the Central Bank of the Russian Federation). The direct holding company was Sberbank Europe AG (hereinafter referred to as “Sberbank EU”), which is incorporated in Austria. The financial statements of the Bank were included in both the consolidated financial statements of Sberbank RU and Sberbank EU.
The Bank’s operations primarily consist of the following: • Providing Czech and foreign currency loans and guarantees • Accepting and placing deposits in Czech and foreign currencies • Accepting current and term accounts denominated in Czech and foreign currencies • Rendering of general banking services through a network of branches and agencies • Providing foreign exchange transactions on the inter-bank money market • Providing foreign trade finance and related banking services • Trading in securities and portfolio management • Issuing mortgage bonds
Explanation Added for Translation into English These financial statements have been prepared in the Czech language and in English. In all matters of interpretation of information, views or opinions, the Czech version of the financial statements takes precedence over the English version.
2 Accounting Policies
(a) Statement of compliance and basis of preparation of financial statements The statutory financial statements, comprising the statement of financial position, statement of comprehensive income and statement of changes in equity, a statement of the cash flow and accompanying notes, of the Bank have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”). The policies set out below have been consistently applied to all the reporting periods presented if not stated otherwise.
The financial statements have been prepared under the historical cost convention as modified by the initial recognition of financial instru- ments at fair value and by the revaluation of financial assets at fair value through other comprehensive income, financial assets and liabilities at fair value through profit or loss and all derivative contracts. The carrying values of recognised assets that are hedged items in fair value hedges, and otherwise carried at amortised cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.
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The preparation of financial statements to comply with EU IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Bank’s accounting policies.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2 (gg).
The financial statements are rounded to millions of Czech Crowns (“CZK million” or “CZKm”) unless otherwise stated.
(b) Changes in accounting policies Functional and presentation currency Items included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the Bank operates (“the functional currency”).
The financial statements are presented in CZK, which is the Bank’s functional and presentation currency.
Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the trans- actions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates quoted by the Czech National Bank are recognized in “Net gains from financial instruments at fair value through profit or loss and foreign exchange“.
Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of “Net gains from financial instruments at fair value through profit or loss and foreign exchange“. Translation differences on non-monetary items, such as equities classified as financial assets at fair value through other comprehensive income, are included in other comprehensive income in the “Revaluation reserve” in equity.
(c) Financial assets and their valuation The Bank classifies its financial assets in the following measurement categories: • Fair value through profit or loss (“FVPL”); • Fair value through other comprehensive income (“FVOCI”); or • Amortised cost.
The Bank does not have any equity instruments.
The classification requirements of debt instruments depends on: • The Bank’s business model for managing the asset; and • Whether the characteristics of the asset pass so-called SPPI test (future contractual cash-flows are solely payments of principal and interest).
77 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
The business model reflects how the Bank manages the assets in order to generate cash flow. That is, whether the Bank’s objective is solely to collect the contractual cash flows from the assets, from the sale of assets or both. Factors considered by the Bank in determining the business model for a group of assets include part experience on how the cash flows for these assets were collected, how the asset’s perfor- mance is evaluated and reported to key management personnel, how risks are assessed and managed and how managers are compensated.
Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Bank assesses whether the financial instruments cash flows represent solely payments of principal and interest. In making this assessment, the Bank considers whether the contractual cash flows are consistent with a basic lending arrangement - i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset fails to pass the SPPI test and is classified and measured at FVPL.
Based on these factors, the Bank classifies its debt instruments into one of the following three measurement categories:
(i) Financial assets measured at amortised cost This category includes assets that are held for collection of contractual cash flows representing solely payments of principal and interest and that are not designated at FVLP. These assets are measured at amortised cost adjusted by any expected credit loss allowance recognized.
Interest income from these financial assets is included in “Interest revenue calculated using the effective interest method”. Interest income from financial assets classified in Stages 1 and 2 (see Note 2(n) for definitions) is calculated on the gross carrying amount while under Stage 3, interest revenue is calculated on the net carrying amount (i.e. the gross carrying amount after deducting the impairment allowance).
(ii) Financial assets at fair value through other comprehensive income (FVOCI) This category includes assets that are held for collection of contractual cash flows representing solely payments of principal and interest and for selling the assets and that are not designated at FVLP. These assets are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from other comprehensive income to profit or loss and recognized in “Net income from other financial investments”. Interest income from these financial assets is included in “Interest revenue calculated using the effective interest method”.
(iii) Financial assets at fair value through profit or loss (FVPL) Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is sub- sequently measured at FVPL is recognized in profit or loss within “Net gains from financial instruments at fair value through profit or loss and foreign exchange“. Interest income and expense from hedging derivatives is reported as “Other interest revenue and similar income” or “Other interest expense and similar charges”.
(iv) Reclassification of financial assets The Bank reclassifies debt investments when and only when its business model for managing those assets changes. Such changes are expected to be very infrequent.
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(d) Financial liabilities and their valuation The Bank classifies its financial liabilities in the following categories: financial liabilities at fair value through profit or loss and other financial liabilities. The classification of financial assets and liabilities is based on management’s intention at initial recognition and the relevant criteria for classification have to be met.
(i) Financial liabilities at fair value through profit or loss The category of financial liabilities at fair value through profit or loss had two sub-categories: financial liabilities held for trading, and those designated at fair value through profit or loss at inception.
A financial liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments which are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorized as held for trading unless they are designated as hedging instruments.
Financial liabilities are designated at initial recognition at fair value through profit or loss when: • Doing so significantly reduced measurement inconsistencies that would arise if the related derivatives were treated as held for trading and the underlying financial instruments were carried at amortized cost for loans and advances to customers or banks and debt securities in issue; • The group of financial liabilities, such as debt securities, are managed and evaluated on a fair value basis in accordance with a docu- mented risk management or investment strategy and reported to key management personnel, and on that basis are designated at fair value through profit and loss; or • Financial instruments, such as debt securities held, containing one or more embedded derivatives significantly modifying the cash flows, are designated at fair value through profit and loss.
Gains and losses arising from the sale and changes in the fair value through profit or loss are recorded in “Net gains from financial -in struments at fair value through profit or loss and foreign exchange“.
(ii) Other financial liabilities The Bank classifies all financial liabilities in this category, except for those classified in the category of financial liabilities at fair value through profit or loss in accordance with those rules for classification in that category. Other financial liabilities are carried at amortized cost.
The Bank issues mortgage bonds. Re-purchased mortgage bonds directly decrease the liabilities from issued securities.
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(e) Recognition and derecognition of financial assets and liabilities Regular-way purchases and sales of financial assets and liabilities are recognized on the settlement date.
Financial assets and liabilities are initially recognized at fair value plus transaction costs for all financial assets and liabilities not measured at fair value through profit or loss. Financial assets and liabilities measured at fair value through profit or loss are initially recognized at fair value, and transaction costs are recognized in the statement of comprehensive income under “Fee and commission expense”. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Bank has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when they are extinguished − that is, when the obli- gation is discharged, cancelled or expires.
When during the term of a financial asset there is a change in the terms and conditions, the Bank assesses whether the modification of contractual cash flows is substantial considering, among other, the following factors: any new contractual terms that substantially affect the risk profile of the asset, significant change in interest rate, change in the currency denomination or a significant extension of a loan when the borrower is not in financial difficulties. If the borrower is in financial difficulty, the Bank considers whether the modification reduces contractual cash flows to amounts the borrower is able to pay.
If the modified terms are substantially different, the Bank derecognises the original financial asset and recognises a new asset. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss in Net gains on derecognition of financial instruments measured at amortised cost or Net income from other financial investments.
If the modified terms are not substantially different, the Bank recalculates the gross carrying amount of the asset by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss in profit or loss in Interest revenue calculated using the effective interest method.
A postponement of loan instalments under Act. No. 177/2020 Col. On some measures in the area of loan repayment in connection with the COVID-19 pandemic (“loan moratorium”) is not considered as a significant modification and the modification gain or loss is also recog- nized in Interest revenue calculated using the effective interest method.
(f) Determination of fair value 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 par- ticipants at the measurable date in the principal, or in its absence, the most advantageous market to which the Bank has access at that date.
The fair values of quoted investments in active markets are based on current bid prices. 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 active market for a financial asset, the Bank establishes the fair value using valuation techniques that maximize the use of relevant observable inputs. These include for example the use of a discounted cash flow analysis and other valuation techniques commonly used by market participants.
The Bank`s accounting methods on fair value are disclosed in Note 32.
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(g) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally -en forceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
(h) Derivative financial instruments and hedge accounting Derivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Sources for fair value measurement of the derivatives are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and option pricing models, as appropriate. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative . The methodology for the credit value adjustment (“CVA”) and the debit value adjustments (“DVA”) for derivatives is based on Sberbank Europe Group methodology. The basic principle of the CVA and DVA calculation is to estimate the expected loss during the lifetime of the derivative.
The Bank occasionally purchases or issues financial instruments containing embedded derivatives. Certain derivatives, such as the conversion option in a convertible bond, are embedded in hybrid contracts. If the hybrid contract contains a host that is a financial asset, then the Bank assesses the entire contract as described in the financial assets section above for classification and measurement purposes.
The accounting for derivatives embedded in financial liabilities and in non-financial host contracts has not changed under IFRS 9. The embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the host contract is not carried at fair value through profit or loss and the separate instrument with the same terms would meet the definition of a derivative. These embedded derivatives are measured at fair value with changes in fair value recognized in the profit for the period unless the Bank chooses to designate the entire hybrid contract at fair value through profit or loss.
The Bank chose to apply the hedge accounting requirements according to IFRS 9 from 1 January 2020 with the exception of applying IAS 39 to portfolio fair value hedges of interest rate risk.
The Bank has prepared a methodology for hedge accounting for interest rate risk management. This methodology is applied when it is decided by the responsible unit of the Bank. On the initial designation of the hedge, the Bank formally documents the relationship between the hedging instrument and hedged item, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. The Bank makes an assessment, both at inception and on an ongoing basis, of whether the hedging instrument is expected to be highly effective in offsetting the changes in the fair value due to the change of interest rates of the respective hedged item during the period for which the hedge is designated.
For interest risk management of certain assets or liabilities, the Bank designates the fair value hedge relationship. The objective of such a hedge relationship is to protect the Bank from the effect of the fair value fluctuation of the hedged asset or liability which affects the profit and loss. Changes in the fair value of the hedging derivative are recognized immediately in profit or loss together with changes in the fair value of the hedged item that are attributable to the hedged risk, in the same line item. Related interest income / expense from the hedging instrument is reported within “Other interest and similar income” or “Other interest expense and similar charges”, revaluation of the hedging instrument is recognized in “Net gains from financial instruments at fair value through profit or loss and foreign exchange”. The
81 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
change in fair value of the hedged item attributable to the risk hedged measured at amortised cost is recorded on a separate line “Changes in the fair value of the portfolio of hedged instruments” in the Statement of financial position. The change in fair value of the hedged item is also recognized in “Net gains from financial instruments at fair value through profit or loss and foreign exchange”.
If the derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for fair value hedge accounting, then hedge accounting is discontinued prospectively. For fair value hedges relating to items carried at amortised cost, any adjustment to the carrying value is amortised through the profit or loss on a straight line basis. Amortization begins as soon as an adjustment exists but no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in the profit or loss.
The Bank designates certain derivatives as hedging instruments in a fair value hedge when the responsible organizational unit of the Bank decides to hedge such risk. The Bank does not apply a cash flow hedge or net investment hedge accounting as risks that can be covered with this type of hedge accounting are not important for the Bank.
(i) Recognition of deferred day one profit and loss The best evidence of fair value at initial recognition is the transaction price (i.e. the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique for which the variables include only data from observable markets.
When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Bank immediately recognizes the difference between the transaction price and fair value (a Day 1 profit or loss) in “Net gains from financial instruments at fair value through profit or loss and -for eign exchange”. In cases where the fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the income statement when the inputs become observable, or when the instrument is derecognized.
(j) Interest income and expense Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading and hedging derivatives, are recognized in the statement of comprehensive income under “Interest revenue calculated using the effective interest method” and “Interest expense calculated using the effective interest method”.
Interest income and expense for interest-bearing financial instruments classified as held for trading, are recognized in the statement of comprehensive income under “Net gains from financial instruments at fair value through profit or loss and foreign exchange”. Interest income and expense from hedging derivatives is reported as “Other interest revenue and similar income” or “Other interest expense and similar charges”.
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the gross carrying amount of a financial assets or amortized cost of a financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective
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interest rate, transaction costs and all other premiums or discounts. The effective interest rate is established when the financial asset or liability is first recognized and it is revised at the time of the change of the estimated future cash flows arising from the financial instruments with floating interest rate or with non-fixed payments.
The Bank calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. When a financial asset becomes credit-impaired and is, therefore, regarded as ‘Stage 3’ (refer to Note 2(n)), the Bank calculates interest income by applying the effective interest rate to the net amortised cost of the financial asset.
For purchased or originated credit-impaired (POCI) financial assets, the Bank calculates interest income by calculating the credit-ad- justed EIR and applying that rate to the amortised cost of the asset. The credit-adjusted EIR is the interest rate that, at original recognition, discounts the estimated future cash flows (including credit losses) to the amortised cost of the POCI assets.
(k) Fee and commission income The Bank earns fee and commission income from a diverse range of services that it provides to its customers. The determination of the timing and amount of income recognition follows the five step model of IFRS 15. Fee and commission income is measured based on the consideration specified in the contract with a customer. The Bank recognises revenue when it transfers control over a service to a customer.
Fees earned for the provision of services over a period of time are accrued over that period. These fees include commitment fees, guarantee fees and other fees from lending business, commission income from asset management, custody and other management and advisory fees as well as intermediary fees from foreign exchange transactions. Payment services partly include fees for services satisfied over a period of time like periodic card fees.
Fee income earned from providing transaction services, such as arranging the acquisition and sale of shares or other securities on behalf of customers or foreign exchange transactions, as well as commission income earned from services such as the sale of collective investments and insurance products, are recognised upon completion of the underlying transaction. Payment services partly include transaction-based fees like withdrawal fees.
Fees and commission income that are integral to the effective interest rate of a financial instrument are in the scope of IFRS 9 and are included in the net interest income.
(n) Dividend income Dividends are recognized in the profit for the period when the Bank’s right to receive payment is established.
(m) Sale and repurchase agreements Securities sold subject to repurchase agreements (“repos”) are not derecognized and remains to be reported in the statement of financial position. The counterparty liability is included in “deposits from banks” or “due to customers”, as appropriate. Securities purchased under agreements to resell (“reverse repos”) are recorded as “Loans and advances to banks”, “Loans and advances to customers” or “Cash and balances with central banks”, as appropriate. The difference between the sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.
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(n) Credit loss expense on financial assets The Bank assesses on a forward-looking basis the expected credit losses (”ECL“) associated with its debt instrument assets carried at amortised cost and FVOCI and with exposure arising from irrevocable loan commitments and financial guarantee contracts. The Bank recognizes a loss allowance for such losses at each reporting date, except for purchased or originated credit impaired assets (“POCI”), where the loss allowance reflects only changes in the ECL since initial recognition. The measurement of ECL reflects: • An unbiased and probability-based amounts; • The time value of money; and • Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
Within the measurement of expected credit losses the Bank determines whether there is an increase in the credit risk of a financial instrument and assesses the changes in the credit quality since the initial recognition in order to determine the approach for expected credit loss measurement. The Bank uses both quantitative criteria (quantitative input) and qualitative criteria to identify an increased credit risk, and does not rely solely on the objective evidence, but also takes into account forward looking types of information. By that, the Bank implements the staging concept to divide financial instruments into 3 stages according to their change in the credit quality since the initial recognition: • If the financial instrument is credit-impaired, then the financial instrument is moved to Stage 3 and the ECL is measured as lifetime expected credit losses. • If a significant increase in the credit risk (“SICR”) since the initial recognition is identified, then the financial instrument is moved to Stage 2 and the ECL is measured as lifetime expected credit losses. • If the financial instrument is not credit-impaired on the initial recognition and does not meet criteria for Stage 2 or 3 classification, then it is (moved to) Stage 1. For Stage 1, the 12-month ECL is measured, i.e. only default events within the next 12 months are considered when assessing the 12-month ECL. • POCI financial assets are treated as credit-impaired on their initial recognition and their ECL is measured as lifetime expected credit losses. • The credit risk of financial instruments is continuously monitored by the Bank.
The relation of the Stage determination to the ECL approach is summarized in the table below:
Stage 1 Stage 2 STAGE 3 (Initial recognition unless classified (Significant increase in credit risk since (Credit-Impaired) as POCI) initial recognition)
12-month ECL Lifetime ECL Lifetime ECL
More details of how the ECL allowance is measured are described in Note 33(b).
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(o) Restructured and forborne loans and advances From the date of renegotiation, such loans are treated as individually impaired for a period of twelve months. If a loan performs according to the forbearance schedule, it becomes treated as a loan in default during the subsequent twelve months, and as standard starting the third year from the renegotiation. The impairment of forborne receivables is discounted using the original effective interest rate (or credit adjusted effective interest rate for POCI). Management continuously reviews the performance of the agreed conditions of forborne loans and the probability of future instalments.
The Bank monitors loans and advances with forbearance status. The Bank identifies all contracts with clients where contractual con- ditions were modified in order to relieve existing financial difficulties or in cases where a client might get into financial difficulties if such relief was not granted. Loans and advances with forbearance status can be designated loans and advances in the non-defaulted portfolio and also in portfolio with default. In accordance with regulatory requirements, the Bank regularly evaluates all exposures in the portfolio – on-balance and off-balance exposures in terms of forbearance. Testing is performed at the level of individual loans (contract). The Bank treats the forbearance status as a SICR indicator.
Postponement of loan instalments under Act. No. 177/2020 Col. On some measures in the area of loan repayment in connection with the COVID-19 pandemic (“loan moratorium”) is not treated as a forbearance measure.
(p) Write offs When a financial asset is uncollectible, it is written off against the related allowance for credit losses. Such loans are written off after all the necessary procedures had been completed and the amount of the loss had been determined. These procedures mainly included: (i) cession of a loan (if the debt was ceded at a lower price than the face value); (ii) report from the executor that there was no other property of the debtor that might be punished by execution of the loan; and (iii) the final termination of the insolvency proceedings with the debtor.
(q) Intangible assets The amortization of intangible assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: • Software – definite period under the contract, or according to the estimated useful life, or 36 months (if there is no agreement for a definite period or estimation of useful life) • Other – 72 months
Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring the specific software to use. These costs are amortized on the basis of the expected useful lives.
Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Bank, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include software development em- ployee costs and an appropriate portion of relevant overheads.
Computer software development costs recognized as assets are amortized using the straight-line method over their useful lives.
The cost of depreciation of intangible assets is recognized in the statement of comprehensive income under "Administrative expenses”.
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(r) Property, plant and equipment Land and buildings comprise mainly branches and offices. All property, plant and equipment, other than those acquired from shareholders for a price lower that the market value, are stated at historical cost less depreciation. Historical costs of property, plant and equipment and intangible assets include: • The cost (expenditures that are directly attributable to the acquisition of the items) • Directly attributable costs necessary to bring the asset into operation • The estimated costs of dismantling and removing the asset and restoring the place where the property is located.
Tangible and intangible assets with acquisition costs up to CZK 10,000, furniture and hardware up to CZK 2,000, are expensed as acquired.
If the purchase price of tangible assets acquired from shareholders is lower than the market value, tangible assets are measured at fair value at the initial recognition and the difference between the fair value and the acquisition cost is recognized as a capital contribution in Other capital funds. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is prob- able that the future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to “other general administrative expenses” during the financial period in which they are incurred. Land, assets under construction and works of art are not depreciated. Depreciation on other long-term assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows (in years):
Buildings and construction (including Administrative buildings) 30 Hardware and equipment 4 Fixtures and fitting 6 Safes 12 Motor vehicles 4
Leasehold improvements are depreciated over the term of the lease.
When classifying new assets into depreciation groups, the Bank uses the component approach, i.e. the major components of assets with different useful lives are depreciated separately.
The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, as at each reporting date.
The cost of depreciation of property, plant and equipment are recognized in the statement of comprehensive income under "Administrative expenses". Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in “Other operating income” or “Other operating expenses” in the profit for the period.
The Bank does not hold any assets for which it would use the revaluation model. All property under Notes 2(q) and 2(r) is depreciated using the cost model. The Bank currently does not own the building, to which IAS 40 Investment property would be applied, i.e. property held primarily to earn rental income or for capital appreciation.
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(s) Impairment of non-financial assets Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indicators of impairment can be external (decrease in market prices) or internal (information obtained from a review of useful lives and residual book values) carried out once a year. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that have suffered impairment are reviewed for the possible reversal of the impairment at each reporting date.
(t) Leases The Bank assessed at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Bank does not act as a lessor in any lease or sublease contract.
When the Bank acts as a lessee, the leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Bank. The Bank presents its ‘Right-of-use assets’ within Property, plant and equipment and the related lease liabilities are presented in the line item Other liabilities.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • fixed payments (including in-substance fixed payments), less any lease incentives receivable; • variable lease payment that are based on an index or a rate; • amounts expected to be payable by the lessee under residual value guarantees; • the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and • payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments from lease contracts concluded after 1 January 2019 are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability; • any lease payments made at or before the commencement date less any lease incentives received; • any initial direct costs; and • restoration costs.
After the commencement date the Bank measures leasing liabilities as follows: The carrying amount is increased by accrued interests and decreased by lease payments and/or remeasured due to the change in the lease payments. The finance expense is calculated and charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The right-of-use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.
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Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. An assets is treated as low-value assets if its acquisition costs are up to EUR 4,000.
(u) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 3 months maturity from the date of acquisition including: cash and balances with central banks (including Mandatory Minimum Reserves), due from banks and due to banks.
(v) Provisions Provisions for legal claims, restructuring and other contingent liabilities are recognized when the Bank has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.
The method of the calculation of provision for financial guarantee is described in Note 2(n).
Other provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as an interest expense.
(w) Financial guarantee contracts The Bank issues financial guarantees, i.e. guarantees and letters of credit. Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.
Financial guarantees contracts are initially measured at fair value on the date the guarantee was given and they are subsequently measured at the higher of the amount of the loss allowance (calculated as described in Note 2(n)) and the premium received on initial recognition less amortization of the premium recognized as an income on straight line basis over the duration of the guarantee. The loss allowance is recognized within “Provisions”.
The movements in provisions other than foreign exchange translations are recognized in “Provisions” in the statement of comprehensive income.
(x) Staff costs Staff costs are included in “Administrative expenses” and also include remuneration of the members of the Managing and Supervisory Board.
Employee benefits The Bank does not provide any employee benefits that are the subject of creating and valuing reserves using actuarial methods in ac- cordance with IAS 19 Employee benefits.
88 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Pensions The Bank currently contributes to a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
For defined contribution plans, the Bank pays contributions to privately administered pension insurance plans on a contractual or voluntary basis. The Bank has no further payment obligations once the contributions have been paid. The contributions are recognized as an employee benefit expense when they are due.
Social fund The Bank creates a social fund to finance the social needs of its employees and employee benefit programs. The social fund is reported within “Other liabilities” and the allocation to the social fund in the “Administrative expenses”.
(y) Taxation and deferred income tax Income tax Income tax payable on profits, based on Czech tax law, is recognized as an expense in the period in which profits arise.
Deferred tax Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabili- ties and their carrying amounts in the financial statements. Deferred tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.
The principal temporary differences arise from the depreciation of property, plant and equipment, revaluation of certain financial assets and liabilities including derivative contracts, provisions and tax losses carried forward. However, deferred tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognized where it is probable that future taxable profit will be available against which the temporary differ- ences can be utilized.
The tax effects of income tax losses available for carry-forward are recognized as an asset when it is probable that future taxable profits will be available against which these losses can be utilized.
Deferred tax related to the fair value re-measurement of financial assets at fair value through other comprehensive income, which is charged or credited directly to equity, is also credited or charged to other comprehensive income.
(z) Value added tax The Bank is registered for value added tax (“VAT”). Intangible and tangible fixed assets are stated at acquisition cost including the appropriate VAT. The Bank does not claim a reduced deduction of input VAT as the ratio of the taxable income to the total income of the Bank is such that it is not economical for the Bank to claim the input VAT.
89 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
(aa) Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds net of transaction costs and the redemption value is recognized in the profit for the period over the period of the borrowings using the effective interest method.
(bb) Share capital and reserves Share issue costs Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Dividends on shares Dividends on shares are recognized in equity in the period in which they are approved by the Bank’s shareholders.
Dividends for the year that are declared after the balance sheet date are described in the subsequent events note if relevant.
Reserve In accordance with the Articles of Incorporation, the Bank is required to set aside a reserve in equity.
The reserve represents accumulated transfers from retained earnings. A minimum of 5% of net profit should be allocated annually to the reserve until the amount of a minimum of 20% of share capital is achieved. This reserve is not distributable and can be used exclusively to cover losses.
(cc) Fiduciary activities The Bank acts as a trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, and other institutions. These assets and income arising thereof are excluded from these financial statements, as they do not belong to the Bank.
(dd) Collateral valuation The fair value of the collateral is determined using market data, valuation models and independent expert estimations. The dominant type of collateral is residential and non-residential property, where an expert estimation of the market value is conservatively reduced by a factor for the type of collateral. The amounts of reduction factor are based on conservative expert estimations, until the frequency of the realization of collaterals does not allow the determination of these factors on the basis of statistically significant observations. The reported financial effect of collateral is limited up to the carrying amount of the related financial asset.
(ee) Changes in presentation of Statement of Cash flows In 2020, the Bank changed the presentation of interest received and interest paid in the Statement of Cash flows. These items, previ- ously reported within a separate table below the statement, have been incorporated into the statement of cash flows as part of the net cash flows from operating activities. Such a presentation provides more reliable and more relevant information about the nature of cash flows of the Bank.
In 2020, the Bank reclassified the amount of CZK 17 million presented in the financial statements for the year ended 31 December 2019 on a separate line of the Statement of Cash flows “Other changes in mortgage bonds” to the line “Repayment of mortgage bonds”. Such a presentation provides more reliable and more relevant information about the nature of cash flows of the Bank.
90 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
(ff) IFRS /IAS accounting and reporting developments a. The accounting policies adopted are consistent with those of the previous financial year except for the following amended IFRSs which have been adopted by the Bank as of 1 January 2020: • Conceptual Framework in IFRS standards The IASB issued the revised Conceptual Framework for Financial Reporting on 29 March 2018. The Conceptual Framework sets out a comprehensive set of concepts for financial reporting, standard setting, guidance for preparers in developing consistent accounting policies and assistance to others in their efforts to understand and interpret the standards. IASB also issued a separate accompanying document, Amendments to References to the Conceptual Framework in IFRS Standards, which sets out the amendments to affected standards in order to update references to the revised Conceptual Framework. Its objective is to support transition to the revised Con- ceptual Framework for companies that develop accounting policies using the Conceptual Framework when no IFRS Standard applies to a particular transaction. These Amendments did not have a significant impact on the Bank’s financial statements. • IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of ‘material’ (Amendments) The amendments are effective for annual periods beginning on or after 1 January 2020 with earlier application permitted. The Amend- ments clarify the definition of material and how it should be applied. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity’. In addition, the explanations accompanying the definition have been improved. The Amendments also ensure that the definition of material is consistent across all IFRS Standards. These Amendments did not have a significant impact on the Bank’s financial statements. • Interest Rate Benchmark Reform – IFRS 9, IAS 39 and IFRS 7 (Amendments) In September 2019, the IASB issued amendments to IFRS 9, IAS 39 and IFRS 7, which concludes phase one of its work to respond to the effects of Interbank Offered Rates (IBOR) reform on financial reporting. Phase two will focus on issues that could affect financial reporting when an existing interest rate benchmark is replaced with a risk-free interest rate (an RFR). The amendments published, deal with issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate and address the implications for specific hedge accounting requirements in IFRS 9 Financial Instruments and IAS 39 Finan- cial Instruments: Recognition and Measurement, which require forward-looking analysis. The amendments provided temporary reliefs, applicable to all hedging relationships that are directly affected by the interest rate benchmark reform, which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest rate. There are also Amendments to IFRS 7 Financial Instruments: Disclosures regarding additional disclosures around uncertainty arising from the interest rate benchmark reform. These Amendments did not have a significant impact on the Bank’s financial statements. • IFRS 3: Business Combinations (Amendments) The IASB issued amendments in Definition of a Business (Amendments to IFRS 3) aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. These Amendments did not have any impact on the Bank’s financial statements. • IFRS 16: Leases (Amendment) – COVID-19 Related Rent Concessions IASB issued an Amendment in May 2020, which provided lessees (but not lessors) with relief in the form of an optional exemption from assessing whether a rent concession related to COVID-19 is a lease modification. This Amendment had no impact on the Bank’s financial statements because it did not obtain any rent concession meeting the definition in this Amendment in 2020.
91 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
b. Standards issued but not yet effective and not early adopted. • IFRS 17: Insurance contracts This standard was issued on 18 May 2017 and is effective for annual periods beginning on or after 1 January 2021. It replaces IFRS 4 and establishes principles for the recognition, measurement, presentation and disclosure of insurance and reinsurance contracts, life and non-life. This standard has not yet been endorsed by the EU. This standard is not expected to have a significant impact on the Bank’s financial statements. • IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current (Amendments) The Amendments are effective for annual reporting periods beginning on or after, January 2022 with earlier application permitted. The Amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current. The Amendments affect the presentation of liabilities in the statement of financial position and do not change existing requirements around measurement or timing of recognition of any asset, liability, income or expenses, nor the information that entities disclose about those items. Also, the amendments clarify the classification requirements for debt which may be settled by the company issuing own equity instruments. These Amendments have not yet been endorsed by the EU. The Bank is analysing the impact of these Amendments on its financial statements. • Proceeds before intended use, Onerous contracts – cost of fulfilling a contract, Reference to the Conceptual Framework – narrow scope amendments to IAS 16, IAS 37 and IFRS 3, and Annual Improvements to IFRSs 2018-2020 – amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 These amendments were issued in May 2020 and are effective for annual periods beginning on or after 1 January 2022). The amendment to IAS 16 prohibits an entity from deducting from the cost of an item of PPE any proceeds received from selling items produced while the entity is preparing the asset for its intended use. The proceeds from selling such items, together with the costs of producing them, are now recognised in profit or loss. The amendment to IAS 37 clarifies the meaning of ‘costs to fulfil a contract’. IFRS 3 was amended to refer to the 2018 Conceptual Framework for Financial Reporting, in order to determine what constitutes an asset or a liability in a busi- ness combination. In addition, a new exception in IFRS 3 was added for liabilities and contingent liabilities. The amendment to IFRS 9 addresses which fees should be included in the 10% test for derecognition of financial liabilities. Costs or fees could be paid to either third parties or the lender. Under the amendment, costs or fees paid to third parties will not be included in the 10% test. Illustrative Example 13 that accompanies IFRS 16 was amended to remove the illustration of payments from the lessor relating to leasehold improvements. The reason for the amendment is to remove any potential confusion about the treatment of lease incentives. IFRS 1 allows an exemption if a subsidiary adopts IFRS at a later date than its parent. The requirement for entities to exclude cash flows for taxation when measuring fair value under IAS 41 was removed. This amendment is intended to align with the requirement in the standard to discount cash flows on a post-tax basis. The EU has not yet endorsed the amendment. The Bank is currently assessing the impact of the amendments on its financial statements. • IFRS 17 and IFRS 4 (Amendments) These amendments were issued on 25 June 2020 and effective for annual periods beginning on or after 1 January 2023. The amendments include a number of clarifications intended to ease implementation of IFRS 17, simplify some requirements of the standard and transition. The amendments relate to eight areas of IFRS 17, and they are not intended to change the fundamental principles of the standard. These Amendments have not yet been endorsed by the EU. These amendments are not expected to have a significant impact on the Bank’s financial statements.
92 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
• IAS 1 – Classification of liabilities as current or non-current, deferral of effective date (Amendment) This amendment issued on 15 July 2020 and postpones the effective date of the amendment to IAS 1. In response to the Covid-19 pandemic, the effective date was deferred by one year i.e. to 1 January 2023 to provide companies with more time to implement classification changes resulting from the amended guidance. The EU has not yet endorsed the amendment. The Bank is currently assessing the impact of the amendments on its financial statements. • Interest rate benchmark (IBOR) reform – phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 These amendments were issued on 27 August 2020 and are effective for annual periods beginning on or after 1 January 2021. The Phase 2 amendments address issues that arise from the implementation of the reforms, including the replacement of one benchmark with an alternative one. The EU has not yet endorsed the amendment. These amendments are not expected to have a significant impact on the Bank’s financial statements.
(gg) Critical accounting estimates and judgments The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Expected credit losses The measurement of ECL requires to use models, assumptions and estimates, applied in various stages of ECL measurement process. Explanation of inputs, assumptions and estimation techniques used in measuring ECL is further described in Note 33(b). Critical accounting estimates and judgements are applied in following areas: • Determination of SICR criteria; • Choice of modelling approach and assumptions made within model development; • Selection of forward-looking macroeconomic scenarios and their probability weightings; • Development and application of internal models used to estimate exposure at default ; • Assessment of loss given default, including the judgements made in valuation of collaterals: • Segmentation/grouping of portfolio with similar characteristics for the purpose of ECL easurement; • Application of forecast of macroeconomic variables; • Determination of weights of scenarios; • Determination of fair value of collaterals.
Characteristics of cash flows from financial assets The assessment, of whether the contractual cash flows from a financial asset represent solely payments of principal and interest requires a judgement. The Bank considers whether the contractual terms introduce exposure to risks or volatility in the contractual cash flows that is unrelated to a basic lending arrangement give rise to contractual cash flows which are not solely payments or principal and interest or not.
93 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
3 Net Interest Income
Interest revenue calculated using the effective interest method (CZKm) 2020 2019 Financial instruments at amortised cost Loans and advances to customers 1,836 1,999 Due from banks 128 209 Debt securities 18 12 Due to banks 2 2 Total financial instruments at amortised cost 1,984 2,222 Financial instruments at FVOCI 5 1 Total interest revenue calculated using the effective interest method 1,989 2,223
Other interest revenue and similar income (CZKm) 2020 2019 Interests from hedging derivatives 2 75 Total other interest revenue and similar income 2 75
Interest expense calculated using the effective interest method (CZKm) 2020 2019 Financial liabilities at amortised cost Due to customers 435 465 Debt securities in issue 11 15 Due to banks 9 18 Due from banks 8 6 Total interest expense calculated using the effective interest method 463 504
Other interest expense and similar charges (CZKm) 2019 2018 Interest expense from lease liability (Note 30) 5 7 Other interest expense and similar charges 5 7
Interest revenue calculated using the effective interest method includes net modification loss from financial assets subject to loan moratorium of CZK 12 million.
94 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
4 Net Fee and Commission Income
Net fee and commission income (CZKm) 2020 2019 Fee and commission income 516 529 Fee and commission expense (192) (103) Total net fee and commission income 324 426
Fee and commission income (CZKm) 2020 2019 International payment transactions 140 169 Domestic payment transactions 60 63 Lending business (those which are not regarded as part of the effective interest rate) 58 84 Foreign exchange, foreign notes and coins transactions 178 123 Securities and custody business 24 27 Cards 19 29 Other 37 34 Total fee and commission income 516 529
Fee and commission income from securities and custody business includes CZK 3 million in fee income from custody activities in 2020 (2019: CZK 3 million).
Fee and commission expense (CZKm) 2020 2019 International payment transactions (4) (4) Domestic payment transactions (1) (2) Lending business (those which are not part of the effective interest rate) (6) (5) Foreign exchange, foreign notes and coins transactions (128) (52) Securities and custody business (2) (1) Cards (46) (31) Other (5) (8) Total fee and commission expense (192) (103)
Fee and commission expense from securities and custody business includes CZK 1 million in fee expense from custody activities in 2020 (2019: CZK 1 million).
95 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
5 Net Gains from Financial Instruments at Fair Value through Profit or Loss and Foreign Exchange
(CZKm) 2020 2019 Interest rate trading derivatives 16 (6) Foreign exchange trading derivatives 160 139 Hedging derivatives (312) 35 Hedged items 314 (25) Net foreign exchange gains / (losses) (15) 31 Total net gains from financial instruments at fair value through profit or loss and foreign exchange 163 174
6 Net Income from Other Financial Investments
(CZKm) 2020 2019 Net gains from the sale of financial assets at FVOCI (recycled from OCI) 0 10 Net gains from financial liabilities measured at amortised cost 0 4 Total net income from other financial investments 0 14
7 Net Gains from the Derecognition of Financial Assets Measured at Amortised Cost
(CZKm) 2020 2019 Gains from sales of financial assets measured at amortised cost 35 166 Write-offs of financial assets measured at amortised cost 0 4 Total net gains from the derecognition of financial assets measured at amortised cost 35 170
In 2020 and 2019, the Bank sold some loans and advances measured at amortised cost due to their increase in credit risk since initial recognition.
In August 2019, a loan with a nominal value of CZK 2,071 million (EUR 80 million) and net carrying amount of CZK 1,973 million was transferred to Sberbank Russia to reduce the concentration risk of the loan portfolio. The consideration received approximates to the fair value of the loan transferred. The difference between the fair value and the net carrying amount of the transferred loan of CZK 97 million is reported within “Gains from sale of financial assets measured at amortized cost.”
96 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Carrying amount, provisions for credit losses derecognized and gain from derecognition from financial assets measured at amortised cost sold was as follows:
2020 Gross carrying Provisions for Net carrying Gain from (CZKm) amount credit losses amount derecognition Sold due to increase in credit risk 375 (105) 270 35
2019 Gross carrying Provisions for Net carrying Gain from (CZKm) amount credit losses amount derecognition Sold to reduce concentration risk 2,100 (127) 1,973 97 Sold due to increase in credit risk 370 (270) 100 69 Total sales of financial assets measured at amortised cost 2,470 (397) 2,073 166
8 Administrative Expenses
(CZKm) 2020 2019 Personnel expenses 763 885 Depreciation and amortization of fixed assets owned by the Bank 138 142 Depreciation of the right-of-use assets (Note 30) 88 96 Other general administrative expenses 387 363 Total administrative expenses 1,376 1,486
Personnel expenses (CZKm) 2020 2019 Salaries and bonuses of Management Board members 48 56 Remuneration of the Supervisory Board members 1 1 Salaries and bonuses of senior management 62 71 Salaries and bonuses of the employees 454 529 Social security costs 172 197 Other personnel costs 26 31 Total personnel expenses 763 885
Management bonus scheme Salaries and remuneration of the Members of the Management Board, as well as the remuneration principles and structure, are subject to approval by the Supervisory Board.
Key performance indicators of the annual performance bonus are based on the financial results of the Group (Sberbank Europe AG), the Bank (Sberbank CZ, a.s.), profit centre / segment and the strategic and individual objectives. An annual performance bonus is paid if the requirements set out in the Group guidelines on remuneration and in the Bank internal guidelines General principles of the remuneration are fulfilled. The annual performance bonus can also be reduced or unpaid in relation to the achievement of the performance objectives.
97 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Retirement benefits The Bank provides its employees with a defined contribution retirement scheme in accordance with Act No. 42/1994 Coll. The Bank’s total expense for the retirement scheme in 2020 was CZK 2.1 million (2019: CZK 1.5 million). The expenses for the retirement scheme are recognized as ”Other personnel costs“ in the table above.
Other general administrative expenses (CZKm) 2020 2019 Rent and leasing 32 40 Information technology 207 146 Marketing and public relations 45 50 Material consumption 21 28 Audit, tax, legal and other consultancy 36 43 Tax and fees 2 3 Other 44 53 Total other general administrative expenses 387 363
9 Other Operating Income
(CZKm) 2020 2019 Income from the services provided within the group 1 6 Other 1 1 Total other operating income 2 7
10 Other Operating Expenses
(CZKm) 2020 2019 Deposit insurance 13 13 Resolution fund contribution 69 67 Loss on disposals of intangible and tangible assets 20 0 Other 9 16 Total other operating expenses 111 96
Based on the EU Directive and the related binding Delegated Act and their transposition in Czech law, the bank contributes to the Single Resolution Mechanism. The “Resolution fund contribution” in the preceding table represents the final contributions paid to Resolution fund during the year.
98 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
11 Income Tax Expense
(CZKm) 2020 2019 Current tax expense 57 134 Deferred tax expense/(income) (Note 19) (54) 3 Total income tax expense 3 137
The following table shows how the tax on the Bank's profit before tax differs from the theoretical amount that would arise using the basic tax rate:
(CZKm) 2020 2019 Profit before taxation 22 676 Applicable rate 19% 19% Taxation at applicable tax rate 4 128 Tax effect of non-deductible expenses 3 7 Other* (4) 2 Total income tax expense 3 137 * including the difference between the income tax for the previous year actually paid and its estimate
In 2020, the effective tax rate adjusted for the effect of the negative difference between the actual tax due for 2019 and the calculated estimation of the tax for 2019 of CZK 2.5 million was 26.96% (2019: 20.09%).
12 Cash and Balances with Central Banks
The Bank classifies its balances with central banks as financial assets measured at amortised cost.
(CZKm) 31.12.2020 31.12.2019 Loans and deposits to central bank 18,701 13,224 Mandatory minimum reserves with central banks 1,435 1,340 Cash in hand 375 483 Current accounts with central banks 48 30 Total cash and balances with central banks 20,559 15,077
Mandatory minimum reserves with the Czech National Bank (“CNB”) are generally available for use by the Bank, however it is not actively used for the day-to-day banking business. The limit of the mandatory minimum reserves is fulfilled according to the average balance in reference period. These deposits bear interest at the CZK repo rate, which was 0.25% as at 31 December 2020 (31 December 2019: 2.00%).
99 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
13 Loans and Advances to Banks
The Bank classifies its loans and advances to banks as financial assets measured at amortised cost.
(CZKm) 31.12.2020 31.12.2019 Analyzed by product and bank domicile Current accounts Domestic 0 45 Foreign 1,039 1,277 Total current accounts 1,039 1,322 Term deposits Foreign 2,141 1,719 Total term deposits 2,141 1,719 Total gross loans and advances to banks 3,180 3,041 Allowances for credit losses (12) (8) Total loans and advances to banks 3,168 3,033
Following the presentation in the Cash flow statement, the change in the gross loans and advances to banks can be analysed as follows:
Total gross loans Cash With maturity and advances (CZKm) equivalents over 3 months to banks As at 1 January 2019 1,765 126 1,891 Change during the period (430) 1,580 1,150 As at 31 December 2019 1,335 1,706 3,041 Change during the period 450 (311) 139 As at 31 December 2020 1,785 1,395 3,180
For an analysis of loans and advances to banks according to their credit quality see Note 33 (b).
Changes in the allowances for credit losses may be analyzed as follows:
(CZKm) Stage 1 As at 1 January 2019 1 Creation of allowances for credit losses 7 As at 31 December 2019 8 Creation of allowances for credit losses 4 As at 31 December 2020 12
100 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
14 Derivative Financial Instruments
Trading derivative financial instruments The Bank’s trading activities primarily involve providing various derivative products to its customers and managing positions for its own account. The trading derivatives also include those derivatives which are used for asset and liability management (ALM) purposes to manage the interest rate position and which do not meet the criteria of hedge accounting.
The contract or nominal amounts and positive and negative fair values of the Bank’s outstanding derivative trading positions as at 31 De- cember 2020 and 31 December 2019 are set out in the table below. The contract or nominal amounts represent the volume of outstanding transactions at a point in time; they do not represent the potential for gain or loss associated with market risk or credit risk of such transactions.
31.12.2020 31.12.2019 Contract/ Contract/ Fair Fair Contract/ Contract/ Fair Fair Nominal Nominal value value Nominal Nominal value value (CZKm) Assets Liabilities positive negative Assets Liabilities positive negative Interest rate derivatives Swaps 10,304 10,312 136 104 9,263 9,271 94 51 Options 223 0 7 0 230 0 5 0 Total interest rate derivatives 10,527 10,312 143 104 9,493 9,271 99 51 Foreign exchange derivatives Swaps 6,701 6,854 29 193 6,963 6,886 80 28 Forwards 1,582 1,600 10 23 1,261 1,297 1 19 Total foreign exchange derivatives 8,283 8,454 39 216 8,224 8,183 81 47 Total 18,810 18,766 182 320 17,717 17,454 180 98
Fair value gains less losses from trading derivatives are recognized within the “Net gains from financial instruments at fair value through profit or loss and foreign exchange”.
Derivative financial instruments to hedge interest rate risk An interest rate risk arises when interest-sensitive assets have different maturities or revaluation characteristics than the corresponding interest-sensitive liabilities. The Bank's objective for the management of interest rate risk in the Banking Book is to reduce the structural interest rate risk and thus the volatility of net interest margins.
The Bank is exposed to interest rate risk arising from an increase in long-term interest rates which would result in a decrease in fair value of fixed-rate loans and uses interest rate swaps to hedge this risk.
The Bank establishes the hedging ratio by matching the nominal value of the hedging derivatives with the principal of the fixed-rate loan portfolio being hedged.
101 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Financial derivatives designated as hedging instruments are as follows:
31.12.2020 31.12.2019 Contract/ Fair Fair Contract/ Fair Fair Nominal value value Nominal value value (CZKm) amount positive negative amount positive negative Derivative financial instruments to hedge interest rate risk Interest rate swaps 10,100 0 217 11,800 164 0 Total derivative financial instruments to hedge interest rate risk 10,100 0 217 11,800 164 0
The following table shows the nominal amounts of hedging derivatives by remaining contractual maturity:
(CZKm) 31.12.2020 31.12.2019 Up to 1 month 200 0 1 – 3 months 500 0 3 – 12 months 2,250 1,700 1 – 5 years 7,150 10,100 Total nominal amounts 10,100 11,800
The average fixed rate from hedging interest rate swaps was 1.5% as at 31 December 2020 and 2019.
The total result from hedging derivatives is as follows:
(CZKm) 2020 2019 Changes in the fair value of hedging derivatives (Note 5) (312) 35 Net interest income (Note 3) 2 75 Total result from hedging derivatives (310) 110
102 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
The following table summarizes the information on hedged items:
Carrying amount – assets Line within the Statement (CZKm) of financial position 31.12.2020 31.12.2019 Loans designated as hedged items Loans and advances to customers 10,100 11,800 Changes in the fair value of the Accumulated fair value adjustment on hedged items portfolio of hedged instruments 135 (179) from which: amount relating to hedged items no more being adjusted for hedging gains and losses 0 0
The hedge ineffectiveness may be analyzed as follows:
(CZKm) 2020 2019 Change in value used for calculation of hedge ineffectiveness of – hedging instruments (312) 35 – hedged items 313 (25) Hedge ineffectiveness recognized in profit or loss* 1 10 *The hedge ineffectiveness is reported within “Net gains from financial instruments at fair value through profit or loss and foreign exchange”.
The main sources of ineffectiveness in the hedge relationships are: – CVA, DVA and close out adjustment reflected in the valuation of hedging derivatives; – Differences in the payment dates of the interest rate swaps and the loans.
103 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
15 Debt Securities
(CZKm) 31.12.2020 31. 12.2019 Measured at amortised cost Unlisted debt securities – stage 1 354 269 Unlisted debt securities – stage 2 267 101 Allowance for credit losses (9) (9) Total measured at amortised cost 612 361 Measured at FVOCI Listed debt securities – stage 1 1,464 60 Total investment securities 2,076 421
Movements in debt securities can be analyzed as follows:
Measured Measured at amortised Total debt (CZKm) FVOCI cost securities As at 1 January 2019 811 311 1,122 Additions 58 102 160 Disposals (811) (46) (857) Revaluation to fair value 2 0 2 Change in the allowance for credit losses 0 (6) (6) As at 31 December 2019 60 361 421 Additions 1,431 251 1,682 Revaluation to fair value (27) 0 (27) Change in the allowance for credit losses 0 0 0 As at 31 December 2020 1,464 612 2,076
Additions and disposals of debt securities measured at amortised cost in the amount of CZK 46 million in 2019 represents the exchange of bonds with the maturity in 2020 for newly issued bonds of the same issuer with a maturity in 2024.
The Bank pledged no securities as at 31 December 2020 and 2019.
104 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
16 Loans and Advances to Customers
The Bank classifies its loans and advances to customers as financial assets measured at amortised cost.
31.12.2020 31.12.2019 Allowance Allowance Gross for credit Net Gross for credit Net (CZKm) amount losses amount amount losses amount Retail Mortgages 26,736 (157) 26,579 28,658 (76) 28,582 Consumer loans 6,415 (333) 6,082 5,253 (263) 4,990 Investment loans 3,544 (140) 3,404 6,627 (247) 6,380 Working capital financing 273 (28) 245 2,101 (252) 1,849 Total retail 36,968 (658) 36,310 42,639 (838) 41,801 Corporate Investment loans 20,915 (855) 20,060 18,411 (537) 17,874 Working capital loans 5,384 (399) 4,985 3,495 (182) 3,313 Mortgages 5 0 5 71 0 71 Total corporate 26,304 (1,254) 25,050 21,977 (719) 21,258 Total loans and advances to customers 63,272 (1,912) 61,360 64,616 (1,557) 63,059
In 2020 and 2019, the Bank pledged no loans and advances to customers as collateral for received loans and advances.
For an analysis of individual categories of loans and advances to customers according to their credit quality see Note 33(b). The contractual amount outstanding on financial assets that were written off during 2020 and are still subject to enforcement activity was CZK 1 million as at 31 December 2020 (2019: CZK 58 million).
Changes in the gross carrying amount and allowances for credit losses of the loans and advances to customers per classes of assets are analyzed in following tables. Only the gross carrying amount, allowances for credit losses and stage at the beginning and at the end of the reporting period on individual loan basis were considered during the preparation of this table. Other changes, which might occur during the reporting period, were not taken into consideration. E.g. a financial assets originated during the period and subsequently transferred from Stage 1 to Stage 2 is reported in the line „New financial assets originated“ and in the column „Stage 2“.
Due to the changes in the ECL measurement model assumptions, the total level of ECL provisions increased by CZK 136 million in 2020. In 2019, there were no changes in model assumptions.
The decrease in loans and advances to customers in 2020 was primarily caused by a significant outflow from the portfolio of mort- gage loans. The volume of new mortgage loans was also quite higher in 2020, however lower than the repayments. The global COVID-19 pandemic negatively affected the granting of new retail loans, especially in the second quarter. The pandemic also affected the corporate financing: both new and existing loan portfolio dropped due to stricter criteria for clients creditworthiness and risk-oriented optimalisation of the Bank’s loan portfolio.
105 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Retail – Mortgages Gross carrying amount Allowances for credit losses (CZKm) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total As at 1 January 2019 24,840 3,821 221 28,882 (17) (34) (33) (84) Transfers: , Transfer from Stage 1 to Stage 2 (1,150) 1,150 0 0 1 (1) 0 0 Transfer from Stage 1 to Stage 3 (68) 0 68 0 0 0 0 0 Transfer from Stage 2 to Stage 1 2,418 (2,418) 0 0 (22) 22 0 0 Transfer from Stage 2 to Stage 3 0 (25) 25 0 0 0 0 0 Transfer from Stage 3 to Stage 1 1 0 (1) 0 0 0 0 0 Transfer from Stage 3 to Stage 2 0 52 (52) 0 0 (1) 1 0 New financial assets originated 2,789 130 6 2,925 (3) (1) 0 (4) Financial assets derecognized 0 0 (3) (3) 0 0 3 3 Repayments, drawdowns, accrued interest (2,546) (537) (63) (3,146) 35 9 (35) 9 As at 31 December 2019 26,284 2,173 201 28,658 (6) (6) (64) (76) Changes in segmentation (928) (100) (23) (1,051) (10) (9) 3 (16) Transfers: , Transfer from Stage 1 to Stage 2 (2,796) 2,796 0 0 2 (2) 0 0 Transfer from Stage 1 to Stage 3 (38) 0 38 0 0 0 0 0 Transfer from Stage 2 to Stage 1 709 (709) 0 0 (5) 5 0 0 Transfer from Stage 2 to Stage 3 0 (45) 45 0 0 1 (1) 0 Transfer from Stage 3 to Stage 1 2 0 (2) 0 (2) 0 2 0 Transfer from Stage 3 to Stage 2 0 29 (29) 0 0 (2) 2 0 New financial assets originated 2,843 196 5 3,044 (8) (5) 0 (13) Financial assets derecognized 0 0 (4) (4) 0 0 4 4 Repayments, drawdowns, accrued interest (3,545) (313) (53) (3,911) (4) (59) 7 (56) As at 31 December 2020 22,531 4,027 178 26,736 (33) (77) (47) (157)
106 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Retail – Consumer Loans Gross carrying amount Allowances for credit losses (CZKm) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total As at 1 January 2019 4,156 573 110 4,839 (133) (56) (76) (265) Transfers: , Transfer from Stage 1 to Stage 2 (113) 113 0 0 5 (5) 0 0 Transfer from Stage 1 to Stage 3 (34) 0 34 0 2 0 (2) 0 Transfer from Stage 2 to Stage 1 301 (301) 0 0 (24) 24 0 0 Transfer from Stage 2 to Stage 3 0 (22) 22 0 0 5 (5) 0 Transfer from Stage 3 to Stage 1 1 0 (1) 0 (1) 0 1 0 Transfer from Stage 3 to Stage 2 0 15 (15) 0 0 (8) 8 0 New financial assets originated 2,147 36 4 2,187 (66) (5) (2) (73) Financial assets derecognized (11) (8) (31) (50) 11 8 31 50 Repayments, drawdowns, accrued interest (1,527) (160) (36) (1,723) 55 (4) (26) 25 As at 31 December 2019 4,920 246 87 5,253 (151) (41) (71) (263) Segmentation reclassifications 1,022 139 29 1,190 (4) 8 (5) (1) Transfers: , Transfer from Stage 1 to Stage 2 (823) 823 0 0 23 (23) 0 0 Transfer from Stage 1 to Stage 3 (34) 0 34 0 2 0 (2) 0 Transfer from Stage 2 to Stage 1 77 (77) 0 0 (5) 5 0 0 Transfer from Stage 2 to Stage 3 0 (26) 26 0 0 5 (5) 0 Transfer from Stage 3 to Stage 2 0 16 (16) 0 0 (7) 7 0 New financial assets originated 1,672 75 5 1,752 (46) (10) (3) (59) Repayments, drawdowns, accrued interest (1,590) (127) (63) (1,780) 42 (65) 13 (10) As at 31 December 2020 5,244 1,069 102 6,415 (139) (128) (66) (333)
107 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Retail – Investment Loans Gross carrying amount Allowances for credit losses (CZKm) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total As at 1 January 2019 5,589 652 344 6,585 (52) (48) (179) (279) Transfers: Transfer from Stage 1 to Stage 2 (460) 460 0 0 7 (7) 0 0 Transfer from Stage 1 to Stage 3 (19) 0 19 0 0 0 0 0 Transfer from Stage 2 to Stage 1 181 (181) 0 0 (10) 10 0 0 Transfer from Stage 2 to Stage 3 0 (25) 25 0 0 2 (2) 0 Transfer from Stage 3 to Stage 2 0 39 (39) 0 0 (25) 25 0 New financial assets originated 1,520 53 26 1,599 (17) (4) (19) (40) Financial assets derecognized 0 0 (19) (19) 0 0 19 19 Repayments, drawdowns, accrued interest (1,192) (237) (105) (1,534) 46 29 (22) 53 Other changes (4) 0 0 (4) 0 0 0 0 As at 31 December 2019 5,615 761 251 6,627 (26) (43) (178) (247) Segmentation reclassifications (2,494) (501) (141) (3,136) 5 36 102 143 Transfers: Transfer from Stage 1 to Stage 2 (509) 509 0 0 3 (3) 0 0 Transfer from Stage 1 to Stage 3 (11) 0 11 0 0 0 0 0 Transfer from Stage 2 to Stage 1 25 (25) 0 0 0 0 0 0 Transfer from Stage 2 to Stage 3 0 (20) 20 0 0 0 0 0 Transfer from Stage 3 to Stage 2 0 3 (3) 0 0 (1) 1 0 New financial assets originated 631 48 12 691 (10) (2) (6) (18) Financial assets derecognized 0 0 (5) (5) 0 0 5 5 Repayments, drawdowns (504) (104) (26) (634) (8) (17) 2 (23) Other changes 1 0 0 1 0 0 0 0 As at 31 December 2020 2,754 671 119 3,544 (36) (30) (74) (140)
108 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Retail – Working Capital Financing Gross carrying amount Allowances for credit losses (CZKm) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total As at 1 January 2019 1,591 238 190 2,019 (27) (26) (157) (210) Transfers: , Transfer from Stage 1 to Stage 2 (195) 195 0 0 5 (5) 0 0 Transfer from Stage 1 to Stage 3 (25) 0 25 0 0 0 0 0 Transfer from Stage 2 to Stage 1 46 (46) 0 0 (5) 5 0 0 Transfer from Stage 2 to Stage 3 0 (6) 6 0 0 0 0 0 New financial assets originated 516 33 24 573 (8) (2) (20) (30) Financial assets derecognized 0 0 (39) (39) 0 0 39 39 Repayments, drawdowns, accrued interest (322) (97) (30) (449) (28) (8) (15) (51) Other changes (2) (1) 0 (3) 0 0 0 0 As at 31 December 2019 1,609 316 176 2,101 (63) (36) (153) (252) Segmentation reclassifications (1,381) (269) (140) (1,790) 61 34 127 222 Transfers: Transfer from Stage 1 to Stage 2 (18) 18 0 0 0 0 0 0 Transfer from Stage 1 to Stage 3 (3) 0 3 0 0 0 0 0 Transfer from Stage 2 to Stage 1 7 (7) 0 0 0 0 0 0 Transfer from Stage 2 to Stage 3 0 (2) 2 0 0 0 0 0 New financial assets originated or purchased 29 3 1 33 (1) 0 (1) (2) Financial assets derecognized 0 0 (7) (7) 0 0 6 6 Repayments, drawdowns (46) (7) (11) (64) (1) (3) 2 (2) As at 31 December 2020 197 52 24 273 (4) (5) (19) (28)
109 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Corporate – Investment Loans Gross carrying amount Allowances for credit losses (CZKm) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total As at 1 January 2019 15,595 3,541 762 19,898 (187) (262) (500) (949) Transfers: , Transfer from Stage 1 to Stage 2 (791) 791 0 0 7 (7) 0 0 Transfer from Stage 1 to Stage 3 (61) 0 61 0 5 0 (5) 0 Transfer from Stage 2 to Stage 1 189 (189) 0 0 (32) 32 0 0 Transfer from Stage 3 to Stage 2 0 44 (44) 0 0 (10) 10 0 New financial assets originated 6,683 229 0 6,912 (141) (17) 0 (158) Financial assets derecognized 0 0 (333) (333) 0 0 333 333 Repayments, drawdowns, accrued interest (5,158) (2,583) (226) (7,967) 109 130 (5) 234 Foreign exchange differences (71) (28) 0 (99) 1 2 0 3 As at 31 December 2019 16,386 1,805 220 18,411 (238) (132) (167) (537) Segmentation reclassifications 3,037 455 159 3,651 (40) (38) (127) (205) Transfers: , Transfer from Stage 1 to Stage 2 (1,440) 1,440 0 0 17 (17) 0 0 Transfer from Stage 1 to Stage 3 (236) 0 236 0 6 0 (6) 0 Transfer from Stage 2 to Stage 1 369 (369) 0 0 (14) 14 0 0 Transfer from Stage 2 to Stage 3 0 (205) 205 0 0 19 (19) 0 Transfer from Stage 3 to Stage 2 0 9 (9) 0 0 0 0 0 New financial assets originated 5,599 407 148 6,154 (105) (45) (71) (221) Financial assets derecognized (1) (2) (59) (62) 1 2 59 62 Repayments, drawdowns, accrued interest (6,528) (818) (149) (7,495) 93 8 (50) 51 Foreign exchange differences 243 11 2 256 (2) (1) (2) (5) As at 31 December 2020 17,429 2,733 753 20,915 (282) (190) (383) (855)
110 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Corporate – Working Capital Loans Gross carrying amount Allowances for credit losses (CZKm) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total As at 1 January 2019 2,011 439 77 2,527 (42) (41) (38) (121) Transfers: , Transfer from Stage 1 to Stage 2 (381) 381 0 0 14 (14) 0 0 Transfer from Stage 1 to Stage 3 (70) 0 70 0 6 0 (6) 0 Transfer from Stage 2 to Stage 1 73 (73) 0 0 (10) 10 0 0 Transfer from Stage 3 to Stage 2 0 14 (14) 0 0 0 0 0 New financial assets originated 1,509 91 0 1,600 (11) (8) 0 (19) Financial assets derecognized 0 0 (13) (13) 0 0 13 13 Repayments, drawdowns, accrued interest (364) (185) (61) (610) (6) (37) (12) (55) Foreign exchange differences (8) (1) 0 (9) 0 0 0 0 As at 31 December 2019 2,770 666 59 3,495 (49) (90) (43) (182) Segmentation reclassifications 792 290 116 1,198 (12) (32) (99) (143) Transfers: Transfer from Stage 1 to Stage 2 (559) 559 0 0 14 (14) 0 0 Transfer from Stage 1 to Stage 3 (42) 0 42 0 1 0 (1) 0 Transfer from Stage 2 to Stage 1 20 (20) 0 0 (3) 3 0 0 Transfer from Stage 2 to Stage 3 0 (12) 12 0 0 1 (1) 0 New financial assets originated 2,542 18 28 2,588 (29) (2) (13) (44) Financial assets derecognized 0 0 (6) (6) 0 0 5 5 Repayments, drawdowns, accrued interest (1,306) (556) (70) (1,932) 9 (35) (8) (34) Foreign exchange differences 33 8 0 41 (1) 0 0 (1) As at 31 December 2020 4,250 953 181 5,384 (70) (169) (160) (399)
Corporate – Mortgages Gross carrying amount Allowances for credit losses (CZKm) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total As at 1 January 2019 60 0 0 60 0 0 0 0 Transfers: New financial assets originated 20 0 0 20 0 0 0 0 Repayments, drawdowns, accrued interest (28) 19 0 (9) 0 0 0 0 As at 31 December 2019 52 19 0 71 0 0 0 0 Segmentation reclassifications (49) (15) 0 (64) 0 0 0 0 Transfers: Transfer from Stage 2 to Stage 1 2 (2) 0 0 0 0 0 0 Repayments, drawdowns, accrued interest (2) 0 0 (2) 0 0 0 0 As at 31 December 2020 3 2 0 5 0 0 0 0
111 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
17 Credit Loss Expense on Financial Assets
Credit loss expense on financial assets can be analysed as follows:
(CZKm) 2020 2019 Creation/release of provisions for credit losses 528 314 Income from receivables previously written off (11) 0 Total credit loss expense on financial assets 517 314
Credit loss expense on financial assets can be analysed as follows:
Loans Loans and advances and advances (CZKm) to banks Securities to customers Total As at 1 January 2019 1 3 1,908 1,912 Creation/release of provisions for credit losses 7 6 301 314 Utilisation of provisions – write offs 0 0 (255) (255) Utilisation of provisions – sales of assets 0 0 (397) (397) As at 31 December 2019 8 9 1,557 1,574 Creation/release of provisions for credit losses 4 0 524 528 Utilisation of provisions – write offs 0 0 (67) (67) Utilisation of provisions – sales of assets 0 0 (105) (105) Foreign exchange differences 0 0 3 3 As at 31 December 2020 12 9 1,912 1,933
The movement in allowances for credit losses to loans and advances to customers per classes is analyzed in Note 16.
The total amount of undiscounted expected credit losses from POCI financial assets initially recognized in 2020 at their initial recognition was CZK 0 million (2019: CZK 0 million).
112 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
18 Other Assets, Prepaid Expenses and Accrued Income
(CZKm) 31.12.2020 31.12.2019 Financial assets – stage 1 Cash in transfer 307 353 Other debtors 44 45 Other financial assets 31 42 Total financial assets 382 440 Non-financial assets 7 8 Total other assets 389 448 Financial assets – Accrued income 7 9 Non-financial assets – Prepaid expenses 36 29 Total prepaid expenses and accrued income 43 38
113 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
19 Deferred Tax Assets
Deferred tax was calculated on all temporary differences under the liability method using the 19% income tax rate, which is the expected applicable rate at recognition.
The movement on the deferred tax account is as follows:
(CZKm) Total As at 1 January 2019 200 Deferred tax income/(expense) (Note 11) (3) As at 31 December 2019 197 Deferred tax income/(expense) (Note 11) 54 Deferred tax recognized in Revaluation reserve 5 As at 31 December 2020 256
Deferred tax asset and liability are attributable to the following items:
(CZKm) 31.12.2020 31.12.2019 Allowances for credit losses 225 171 Fixed assets (13) (18) Provisions 39 44 Securities at FVOCI 5 0 Total deferred tax asset 256 197
The deferred tax credit / (debit) in the profit or loss comprises of the following temporary differences:
(CZKm) 31.12.2020 31.12.2019 Allowances for credit losses 54 (6) Depreciation of fixed assets 5 (4) Provisions (5) 7 Total (Note 11) 54 (3)
The Bank's management believes it is probable that the Bank will fully realize its gross deferred income tax assets based upon the Bank's current and expected future level of taxable profits and the expected offset from gross deferred income tax liabilities.
114 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
20 Property and Equipment
(CZKm) 2020 2019 Property and equipment owned by the Bank 194 197 Right-of-use assets (Note 30) 244 318 Total property and equipment 438 515
The change in property and equipment owned by the Bank can be analyzed as follows:
Land and Leasehold Office and IT Construction (CZKm) buildings improvement Equipment Other* in progress Total Costs As at 1 January 2019 162 188 187 136 6 679 Additions 0 1 7 3 4 15 Disposal 0 (10) (9) (10) 0 (29) As at 31 December 2019 162 179 185 129 10 665 Additions 1 4 42 7 0 54 Disposal 0 (4) (4) (8) (5) (21) As at 31 December 2020 163 179 223 128 5 698 Accumulated depreciation As at 1 January 2019 (111) (104) (126) (95) 0 (436) Depreciation charge (11) (16) (21) (14) 0 (62) Disposals (accumulated depreciation) 6 5 9 10 0 30 As at 31 December 2019 (116) (115) (138) (99) 0 (468) Depreciation charge (5) (14) (21) (10) 0 (50) Disposals (accumulated depreciation) 0 4 3 7 0 14 As at 31 December 2020 (121) (125) (156) (102) 0 (504) Net book value As at 1 January 2019 51 84 61 41 6 243 As at 31 December 2019 46 64 47 30 10 197 As at 31 December 2020 42 54 67 26 5 194 *It represents primarily furniture and safes owned by the Bank.
The Bank tested its property and equipment for impairment. No impairment was identified or booked.
115 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
21 Intangible Assets
Purchased Internally Software not (CZKm) software developed software yet activated Total Costs As at 1 January 2019 855 1 306 1,162 Additions 96 3 88 187 As at 31 December 2019 951 4 394 1,349 Additions 445 0 0 445 Disposals (4) 0 (349) (353) As at 31 December 2020 1,392 4 45 1,441 Accumulated amortization As at 1 January 2019 (512) 0 0 (512) Amortization charge (79) (1) 0 (80) As at 31 December 2019 (591) (1) 0 (592) Amortization charge (86) (2) 0 (88) Disposals (accumulated amortization) 1 0 0 1 As at 31 December 2020 (676) (3) 0 (679) Net book value As at 1 January 2019 343 1 306 650 As at 31 December 2019 360 3 394 757 As at 31 December 2020 716 1 45 762
Software not yet activated as at 31 December 2019 represents primarily previously incurred cost for the development of new software applications especially a new multi-channel banking application, an application supporting the issuance of payment cards and or a unified platform for credit administration. These applications have been activated in 2020.
The Bank tested its intangible assets for impairment. No impairment was identified or booked.
116 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
22 Deposits from Banks
The Bank classifies its deposits from banks in the category of financial liabilities measured at amortized cost.
(CZKm) 31.12.2020 31.12.2019 Analyzed by product and bank domicile Foreign banks 188 256 Total current accounts 188 256 Domestic banks 0 97 Foreign banks 263 1,781 Total term deposits and loans 263 1,878 Foreign banks 16 263 Total other deposits from banks 16 263 Total deposits from banks 467 2,397
Deposits from banks with less than 3 months maturity from the date of acquisition in the amount of CZK 205 million (2019: CZK 2,397 million) are included in the item cash and cash equivalents (Note 31).
117 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
23 Due to Customers
In 2020 and 2019, the Bank did not measure any due to customers measured at fair value through profit or loss. The Bank classifies its due to customers in the category of financial liabilities measured at amortized cost.
Due to customers measured at amortized cost (CZKm) 31.12.2020 31.12.2019 Analyzed by product Current accounts 28,584 24,253 Term deposits 17,017 16,385 Savings accounts with notice period 1,045 1,393 Savings accounts 31,485 27,537 Total due to customers 78,131 69,568 Analyzed by customer type Private companies 27,958 24,675 Individual – households 30,868 28,395 Individual – entrepreneurs 2,522 2,495 Government bodies 11,592 10,178 Non-profit institutions 725 684 Insurance companies and pension funds 436 1,098 Other financial institutions 4,030 2,043 Total due to customers 78,131 69,568
The Bank has not provided any collateral for its liabilities.
24 Debt Securities in Issue
The Bank classifies its debt securities in issue in the category of financial liabilities “measured at amortized cost”.
Maturity (CZKm) Issue date Currency date 31.12.2020 31.12.2019 Issue HZL 2,00/20 26 June 2014 CZK 26 June 2020 0 995 Total issued mortgage bonds 0 995 Total debt securities in issue 0 995
118 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
The changes in the debt securities in issue can be analyzed as follows:
Promissory notes and Mortgage certificates of (CZKm) bonds deposits Total As at 1 January 2019 1,006 7 1,013 Repayments (11) (7) (18) As at 31 December 2019 995 0 995 Repayments (995) 0 (995) As at 31 December 2020 0 0 0
In 2020, The Bank did not issue any mortgage bonds in 2020 and 2019.
Issued mortgage bonds were collateralized by the Bank’s receivables arising from the granted mortgages in line with Czech regulatory requirements.
25 Other Liabilities
(CZKm) 31.12.2020 31.12.2019 Financial liabilities Lease liability (Note 30) 246 316 Payments in transit 71 235 Other clearing accounts 102 245 Other creditors 107 84 Accruals for administrative expenses 163 228 Other financial liabilities 51 14 Total financial liabilities 740 1,122 Non-financial liabilities VAT and other tax payables 9 10 Total other liabilities 749 1,132
119 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
26 Provisions
(CZKm) 31.12.2020 31.12.2019 Provisions for financial guarantees and other contingent liabilities 70 44 Provisions for legal cases 0 3 Other operating provisions 15 15 Total provisions 85 62
The change in provisions for financial guarantees, credit commitments and other contingent liabilities can be summarised as follows:
(CZKm) Stage 1 Stage 2 Stage 3 Total As at 1 January 2019 30 4 1 35 Transfers: Transfer from Stage 1 to Stage 2 (2) 2 0 0 Transfer from Stage 2 to Stage 1 1 (1) 0 0 New contingent liabilities originated 5 3 15 23 Changes not resulting in the change of Stage (2) 0 0 (2) Changes at the transfer to this stage (1) 2 1 2 Derecognition (11) (2) (1) (14) As at 31 December 2019 20 8 16 44 Transfers: Transfer from Stage 1 to Stage 2 (1) 1 0 0 New contingent liabilities originated 21 11 5 37 Changes not resulting in the change of Stage 0 (1) 0 (1) Changes at the transfer to this stage 0 13 0 13 Derecognition (5) (3) (15) (23) As at 31 December 2020 35 29 6 70
120 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Changes in the provisions for legal cases and other operating provisions can be analyzed as follows:
Other Provisions for operating (CZKm) legal cases provisions As at 1 January 2019 0 19 Release 0 (1) Cover of costs 0 (8) Additions 3 5 As at 31 December 2019 3 15 Release 0 (2) Cover of costs (3) (7) Additions 0 9 As at 31 December 2020 0 15
Other operating provisions includes also provisions for the removal of technical improvements for the property of third parties, the Bank performed mainly in connection with the lease contracts to the premises in which the Bank operates its banking business.
27 Subordinated Debt
(CZKm) Total As at 1 January 2019 180 Foreign exchange differences (2) As at 31 December 2019 178 Foreign exchange differences 6 As at 31 December 2020 184
The Bank classifies its subordinated debt in the category of financial liabilities “measured at amortized cost”.
The Bank received the subordinated debt of EUR 7 million from its parent company Sberbank Europe AG, the sole shareholder, on 29 December 2016. The annual interest rate of the subordinated debt is 3M EURIBOR plus 4.05% (3.508% p.a. as at 31 December 2020 and 3.652% p.a. as at 31 December 2019) and its maturity is 29 December 2023. The Bank has drawn this subordinated debt to cover the capital buffer internally defined by the Bank. The purpose of this buffer is to ensure the fulfilment of requirement for the total capital adequacy ratio. The subordinated debt was drawn under standard market conditions.
121 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
28 Equity
There was no change in issued shares in 2020 and 2019.
Issued shares carry standard shareholder’s rights. Shares do not carry any special rights that would, for example, restrict or prioritize dividend payment or allow repayment equity back to shareholders.
Share capital (CZKm) 31.12.2020 31.12.2019 Voting shares 2,806 2,806 Issued, paid and registered by the Commercial register 2,806 2,806
Issues of shares Nominal value Number of ISIN Date of issue of share shares Nominal value CZK CZKm CZ0008040201 23.10.1998 5,000 30,000 150 CZ0008040201 23.10.1998 5,000 100,000 500 CZ0008040201 7.8.2002 5,000 4,600 23 CZ0008040201 7.8.2002 5,000 15,400 77 CZ0008040201 23.11.2005 5,000 3,165 16 CZ0008040201 23.11.2005 5,000 10,555 53 CZ0008040201 31.7.2006 5,000 6,565 33 CZ0008040201 31.7.2006 5,000 21,895 109 CZ0008040201 20.12.2006 5,000 8,479 42 CZ0008040201 20.12.2006 5,000 28,281 142 CZ0008040201 16.5.2007 5,000 8,336 42 CZ0008040201 16.5.2007 5,000 27,804 139 CZ0008040201 21.12.2007 5,000 16,488 82 CZ0008040201 21.12.2007 5,000 54,992 275 CZ0008040201 30.7.2008 5,000 14,882 74 CZ0008040201 30.7.2008 5,000 49,634 248 CZ0008040201 18.4.2014 5,000 160,122 801 561,198 2,806
As at 31 December 2020 and 2019, the nominal value of ordinary securities was CZK 5,000.
In 2020, SBCZ purchased ATMs from Sberbank Russia for a price lower than the market price. The contribution to other capital funds in 2020 of CZ 5 million represents the difference between the fair value of these ATMs and their purchase price.
122 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
29 Contingent Liabilities and Commitments
(a) Commitments, guarantees and documentary credits Commitments to provide a loan, loan guarantees to third parties and guarantees from the acceptance of letters of credit expose the Bank to credit risk and to loss in the event of a client’s inability to meet his obligations. Various commitments and contingent liabilities arise in the normal course of business involving elements of credit, interest rate and liquidity risk.
Contingent liabilities include:
31.12.2020 31.12.2019 Contractual Contractual (CZKm) amount amount Documentary credits 122 167 Provision for documentary credits (1) (1) Net documentary credits 121 166 Financial guarantees 1,596 1,581 Provision for guarantees (Note 26) (24) (14) Net financial guarantees 1 572 1,567 Undrawn formal standby facilities, credit lines 4,016 4,594 Provision for un-drawn credit lines (Note 26) (45) (29) Net un-drawn formal standby facilities, credit lines 3,971 4,565 Total in net amount 5,664 6,298
Undrawn credit lines are irrevocable.
Provisions for financial guarantees and other contingent liabilities are calculated as described in Notes 2(n), 2(w) and 33 (b). The Bank’s credit risk exposure on loan commitments and financial guarantee contracts is analyzed in Note 33(b).
(b) Other contingent liabilities Litigation There was no litigation, which is expected to have a significant impact on the financial position of the Bank as at 31 December 2020 and 2019.
Taxation Czech tax legislation, interpretation and guidance are still evolving. Consequently, under the current taxation environment, it is difficult to predict the interpretations the respective tax authorities may apply in a number of areas. As a result, the Bank has used its current un- derstanding of the tax legislation in the design of its planning and accounting policies. The effect of the uncertainty cannot be quantified.
Czech tax authorities are authorized to perform tax inspections for three years retrospectively. The last tax inspection was for the year 2007.
123 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Assets under management and custody (CZKm) 31.12.2020 31.12.2019 Assets held under custody 0 0
Assets held under custody are shown at nominal value.
(CZKm) 31.12.2020 31.12.2019 Assets held under management 4,218 3,667
Assets held under management are shown at fair value.
Management considers that no present obligations were associated with these fiduciary duties as at 31 December 2020 and 2019.
30 Leases
The Bank does not act as a lessor in any lease or sublease contract.
The Bank as lessee The change in the right-of-use assets can be analyzed as follows:
Personal (CZKm) Properties IT equipment vehicles Total As at 1 January 2019 413 15 8 436 Additions 14 0 0 14 Remeasurement of lease liability (35) 1 0 (34) Depreciation charge (86) (5) (5) (96) Disposals (2) 0 0 (2) As at 31 December 2019 304 11 3 318 Additions 0 0 7 7 Remeasurement of lease liability 4 1 2 7 Depreciation charge (77) (6) (5) (88) As at 31 December 2020 231 6 7 244
124 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
The change in the lease liabilities can be analysed as follows:
(CZKm) 2020 2019 As at 1 January 316 432 Interest expense 5 7 New contracts 7 14 Repayments (93) (103) Changes due to remeasurements 7 (34) Foreign exchange translations 4 (0) As at 31 December 246 316
Remeasurement of lease liabilities represents primarily change in the expected lease term or change in the future instalments (e.g. due to the indexation of rental payments or change in the rented area). The right-of-use asset was changed accordingly.
The weighted average of incremental borrowing rates (or interest rate implicit in the lease if appropriate) as at 31 December 2020 was 1.8% (31 December 2019: 1.8% and 1 January 2019: 2.1%).
The maturity analysis of lease liabilities is disclosed in Note 33(e).
The total expenses for lease contracts were as follows:
(CZKm) 2020 2019 Depreciation expense 88 96 Interest expense 5 7 Value added tax (not included in the lease liability) 11 10 Expenses for short-term leases longer than 1 month 3 10 Expenses for leases of low value assets 1 1 Total expenses for lease contracts 108 124
Cash flows relating to leases were as follows:
(CZKm) 2020 2019 Lease liabilities (93) (103) Value added tax (not included in the lease liability) (11) (10) Expenses for short-term leases longer than 1 month (3) (10) Expenses for leases of low value assets (1) (1) Total cash flows relating to leases (108) (124)
125 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
On 14 February 2020, the Bank utilised the option to terminate the lease of a portion of the office premises in its headquarters. As a result, the future lease payments and lease liability decreased by CZK 16 million.
The impact of extension or other termination options incorporated in Bank’s lease contracts valid as at 31 December 2020 and 2019 on the Bank’s future cash flows is not significant.
31 Cash and Cash Equivalents
Analysis of the balances of cash and cash equivalents as shown in the balance sheet:
(CZKm) 31.12.2020 31.12.2019 1.1.2019 Cash and balances with central banks (Note 12) 20,559 15,077 12,165 Loans and advances to banks due up to 3 months (Note 13) 1,785 1,335 1,765 Deposits from banks due up to 3 months (Note 22) (205) (2,397) (2,457) Total cash and cash equivalents 22,139 14,015 11,473
32 Fair Value of Financial Assets and Liabilities
The following table summarizes the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value.
Fair value of financial assets and liabilities As at 31.12.2020 Fair value Carrying (CZKm) Level 1 Level 2 Level 3 total amount Financial assets Cash and balances with central banks 375 20,184 0 20,559 20,559 Loans and advances to banks 0 0 3,205 3,205 3,168 Securities at amortised cost 0 0 604 604 612 Loans and advances to customers 0 0 60,865 60,865 61,360 Financial liabilities Deposits from banks 0 467 0 467 467 Due to customers 0 61,113 17,074 78,187 78,131 Subordinated debt 0 0 233 233 184
126 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Fair value of financial assets and liabilities As at 31.12.2019 Fair value Carrying (CZKm) Level 1 Level 2 Level 3 total amount Financial assets Cash and balances with central banks 483 14,594 0 15,077 15,077 Loans and advances to banks 0 0 3,036 3,036 3,033 Securities at amortised cost 0 0 359 359 361 Loans and advances to customers 0 0 61,375 61,375 63,059 Financial liabilities Deposits from banks 0 2,398 0 2,398 2,397 Due to customers 0 53,184 16,425 69,609 69,568 Debt securities in issue 0 0 988 988 995 Subordinated debt 0 0 226 226 178
The following methods and assumptions were used in estimating the fair values of the Bank’s financial assets and liabilities:
Loans and advances to banks The carrying amounts of current account balances and loans with maturity less than one month are, by definition, equal to their fair values. The fair values of term placements with banks are estimated by discounting their future cash flows using current inter-bank market rates irrespective of credit spread. A majority of the loans and advances re-price within relatively short time spans; therefore, it is assumed their carrying amounts approximate their fair values.
Loans and advances to customers The fair value of loans to customers with defined future contractual cash-flows are estimated by discounting their future cash flows using current market rates adjusted for appropriate risk premium that is actually valid for the respective loan at the date of the fair value calculation. The discount rate does not contain business margin for the simplification of the calculation. For loans with floating interest rates simplified calculation method is used by fixing current rate for future cash-flows and discount factors prediction. For loans without explicitly defined future contractual cash-flows (e.g. overdrafts) the Bank assumes that fair-value is close to the carrying amount. For loans impaired with individual loan loss provision calculated according discounted estimated cash-flows the Bank assumes that fair-value is close to carrying amount decreased by the loan loss provision created.
Investment securities For investment securities measured at amortised cost the Bank assumes that the fair-value approximates their carrying amount.
Deposits from banks The fair values of current account balances and deposits with maturity less than one month are, by definition, equal to their carrying amounts. The fair values of other amounts due to banks are estimated by discounting their future cash flows using current inter-bank market rates irrespective of own credit spread.
127 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Due to customers The fair values of current accounts as well as term deposits with equal to or less than one year remaining maturity approximate their carrying amounts. The fair values of other term deposits are estimated by discounting their future cash flows using rates currently offered for deposits of similar remaining maturities irrespective of their own credit spread.
Debt securities in issue Mortgage bonds issued are not publicly traded and their fair values are based upon the quoted market prices of the debt securities with similar characteristics. The carrying amounts of promissory notes and certificates of deposit approximate their fair values. Their own credit spread is not considered.
Fair value hierarchy The table below analyses financial instruments measured at fair value at the end of the reporting period. Information about fair value measurements are disclosed using a hierarchy that reflects the significance of inputs used in measuring the fair values of financial instru- ments (they are categorized into three levels): • Level 1 – fair value measurements using quoted prices (unadjusted) in active markets for identical assets and liabilities. • Level 2 – fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability 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 significant inputs are directly or indirectly observable from market data. • Level 3 – fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e., unobservable inputs) and these data have significant influence on the measurement. 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 Bank hs an established control framework with respect to the measurement of fair values of assets and liabilities. These controls include the verification of observable pricing, re-performance of model valuations, a review and approval process for new models and changes to models, quarterly calibration and back-testing of models against observed market transactions, analysis and investigation of significant daily valuation movements and review of significant unobservable inputs, valuation adjustments and significant changes to the fair value measurement of Level 3 instruments.
128 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
As at 31 December 2020 (CZKm) Level 1 Level 2 Level 3 Total Financial assets Debt securities at fair value 1,464 0 0 1,464 Derivative financial instruments 0 182 0 182 Financial liabilities Derivative financial instruments 0 320 0 320 Derivative financial instruments to hedge interest rate risk 0 217 0 217
As at 31 December 2019 (CZKm) Level 1 Level 2 Level 3 Total Financial assets Debt securities at fair value 60 0 0 60 Derivative financial instruments 0 180 0 180 Derivative financial instruments to hedge interest rate risk 0 164 0 164 Financial liabilities Derivative financial instruments 0 98 0 98
The fair value of derivatives and financial investments is calculated by discounting the future cash flows, if they are not traded in an active market. They are discounted with corresponding yield curves. Options are valued using the Black-Scholes model.
In 2020 and 2019, there were no transfers of financial assets or liabilities between Level 1 and 2.
129 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
33 Financial Risks
(a) Strategy in using financial instruments The Bank’s activities are principally related to the use of financial instruments. The Bank accepts deposits from customers at both fixed and floating interest rates and for various periods and seeks to earn above-average interest margins by investing these funds in high quality assets. The Bank seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might become due.
The Bank seeks to raise its interest margins by obtaining above-average margins, net of provisions, through lending to commercial and retail borrowers with a range of credit standings. Such exposures involve not just on-balance sheet receivables and advances but the Bank also enters into guarantees and other commitments such as letters of credit and other similar contingent liabilities.
(b) Credit risk The Bank defines credit risk as the risk that counterparty will cause a financial loss for the Bank by failing to discharge a contractual obligation.
Credit risk management is performed in close co-operation with the Bank’s parent company and together with the Bank’s strategy and risk appetite, the risk strategy and risk-appetite of shareholders is reflected.
A conservative strategy for credit risk management is applied. Considered within the general context of the overall business relations existing with each respective customer, every transaction for which the Bank knowingly undertakes risk should yield a contribution margin that is commensurate with the specific risk incurred.
The Bank structures the levels of accepted credit risk by regular measurement of the risk exposure, monitoring of the limits and taking appropriate measures leading to a decrease in the accepted level of credit risk. The process of credit risk management is performed on both individual borrower level and whole loan portfolio level. When deciding about the acceptance of a new exposure, an analysis of the customer’s cash flow and the overall financial situation is a key factor, as well as the existing experience with the customer together with the quality of received collateral. The decision-making is performed independently from the sales units.
The capital requirement for credit risk in the investment portfolio is calculated using the standardized approach.
The table below summarizes the maximum exposure to credit risk before collateral held or other credit risk mitigation techniques, the financial effect of collateral held and other credit risk mitigation techniques and the maximum exposure to credit risk less the effect of collateral held or other credit risk mitigation techniques. Included in the table are the Bank’s assets at net carrying amounts.
130 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
As at 31.12.2020 Financial Exposure to Exposure to effect of credit risk less credit risk before collateral the effect of collateral held held and collateral held or other credit other credit or other credit (CZKm) enhancements enhancements enhancements Balance sheet credit risk exposures Cash and balances with central banks 20,559 18,001 2,558 Loans and advances to banks 3,168 0 3,168 Loans and advances to customers: Corporate loans: Investment loans 20,060 10,937 9,123 Working capital financing 4,985 1,285 3,700 Mortgages 5 5 0 Total corporate loans 25,050 12,227 12,823 Retail loans: Investment loans 3,404 1,790 1,614 Working capital financing 245 38 207 Mortgages 26,579 23,290 3,289 Consumer loans 6,082 1,135 4,947 Total retail loans 36,310 26,253 10,057 Total loans and advances to customers 61,360 38,480 22,880 Derivative financial instruments 182 0 182 Securities at FVOCI 1,464 0 1,464 Securities at amortised cost 612 0 612 Other exposures 389 0 389 Total balance sheet credit risk exposures 87,734 56,481 31,253 Off-balance sheet credit risk exposures (nominal amount) Documentary credits 121 0 121 Financial guarantees 1,572 0 1,572 Loan commitments 3,971 0 3,971 Total off-balance sheet credit exposures 5,664 0 5,664 Total credit exposures 93,398 56,481 36,917
131 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
As at 31.12.2019 Financial Exposure to Exposure to effect of credit risk less credit risk before collateral the effect of collateral held held and collateral held or other credit other credit or other credit (CZKm) enhancements enhancements enhancements Balance sheet credit risk exposures Cash and balances with central banks 15,077 10,774 4,303 Loans and advances to banks 3,033 0 3,033 Loans and advances to customers: Corporate loans: Investment loans 17,874 9,243 8,631 Working capital financing 3,313 131 3,182 Mortgages 71 46 25 Total corporate loans 21,258 9,420 11,838 Retail loans: Investment loans 6,380 4,495 1,885 Working capital financing 1,849 77 1,772 Mortgages 28,582 25,320 3,262 Consumer loans 4,990 0 4,990 Total retail loans 41,801 29,892 11,909 Total loans and advances to customers 63,059 39,312 23,747 Derivative financial instruments 344 0 344 Securities at FVOCI 60 0 60 Securities at amortised cost 361 0 361 Other exposures 449 0 449 Total balance sheet credit risk exposures 82,383 50,086 32,297 Off-balance sheet credit risk exposures (nominal amount) Documentary credits 166 0 166 Financial guarantees 1,567 0 1,567 Loan commitments 4,565 0 4,565 Total off-balance sheet credit exposures 6,298 0 6,298 Total credit exposures 88,681 50,086 38,595
Financial effect of collateral represents a fair value of collateral received by the Bank against a credit exposure limited to the outstanding amount of the exposure.
132 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Collateral held and other credit enhancements Collateral held and other credit enhancements may be summarized by the collateral type as follows:
(CZKm) 31.12.2020 31.12.2019 Financial effect of collateral held and other credit enhancements Treasury bills 18,001 10,774 Bank and similar guarantees 1,024 964 Mortgage right on real estate 34,905 35,766 Financial collateral 1,346 998 Other 1,205 1,584 Total financial effect of collateral held and other credit enhancements 56,481 50,086
Accounting policies for collateral are presented in Note 2(dd).
Loans and advances The Bank uses internal rating models for the purposes of managing and monitoring the quality of the loan portfolio. Each borrower is based on its credit quality assigned to specific rating grade. This rating grade represents the probability of client default within one year (“PD”). The current rating scale consists of 26 rating grades, where the 26th grade is reserved for customers in default (for Corporate banking the 25th grade also indicates default). The internal rating has to be periodically updated. Validation of the internal rating models and respective parameter changes are carried out in cooperation with the parent company.
Loans and advances are classified as follows in accordance with the CNB’s regulations: • Performing exposures (exposures without default) are allocated to the rating grades 1-25 and can be classified as follows: – Standard category – principal and interest payments are regularly paid and none of them are overdue for more than 30 days and there is no reason to doubt the full repayment without the usage of collateral for collecting the receivable, – Watched category – when there has been an identified deterioration of the debtor’s financial situation since the recognition of the receivable or principal or interest payments are paid with problems, but none of them is overdue more than 90 days and a full col- lection of the receivable without the usage collateral for collecting the receivable is probable considering the financial and economic situation of the debtor. • Non-performing exposures (exposures in default) are allocated to the rating grade 26 (or rating grade 25 for Corporate banking). A part of the receivable is overdue for more than 90 days or the full repayment of the receivable is not probable without the realization of the collateral because of the financial and economic situation of the debtor.
133 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Rating scale (valid since 1 January 2015):
Rating Grade Risk Min PD Average PD Max PD 1 Low 0.00% 0.02% 0.03% 2 Low 0.03% 0.04% 0.04% 3 Low 0.04% 0.05% 0.06% 4 Low 0.06% 0.07% 0.08% 5 Low 0.08% 0.10% 0.11% 6 Low 0.11% 0.13% 0.16% 7 Low 0.16% 0.18% 0.22% 8 Low 0.22% 0.25% 0.30% 9 Low 0.30% 0.35% 0.41% 10 Low 0.41% 0.48% 0.56% 11 Low 0.56% 0.66% 0.78% 12 Low 0.78% 0.91% 1.07% 13 Medium 1.07% 1.25% 1.47% 14 Medium 1.47% 1.73% 2.02% 15 Medium 2.02% 2.38% 2.79% 16 Medium 2.79% 3.27% 3.84% 17 Medium 3.84% 4.51% 5.29% 18 Medium 5.29% 6.20% 7.28% 19 High 7.28% 8.54% 10.03% 20 High 10.03% 11.77% 13.81% 21 High 13.81% 16.20% 19.01% 22 High 19.01% 22.31% 26.19% 23 High 26.19% 30.73% 36.06% 24 High 36.06% 42.32% 49.66% 25 High/Default* 49.66% 58.28% 100.00% 26 Default 100.00% 100.00% 100.00% * for Corporate banking
134 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Table of external ratings converted to the internal rating:
Rating Grade Risk PD (for 1 year) Rating S&P Rating Fitch Rating Moody's 1 Low 0.02% AAA AAA Aaa 1 Low 0.02% AA+ AA+ Aa1 1 Low 0.02% AA AA Aa2 1 Low 0.02% AA- AA- Aa3 1 Low 0.02% A+ A+ A1 2 Low 0.04% A A A2 3 Low 0.05% A- A- A3 4 Low 0.07% A- A- A3 5 Low 0.10% BBB+ BBB+ Baa1 6 Low 0.13% BBB+ BBB+ Baa1 7 Low 0.18% BBB BBB Baa2 8 Low 0.25% BBB- BBB- Baa3 9 Low 0.35% BBB- BBB- Baa3 10 Low 0.48% BB+ BB+ Ba1 11 Low 0.66% BB+ BB+ Ba1 12 Low 0.91% BB BB Ba2 13 Medium 1.25% BB- BB- Ba3 14 Medium 1.73% BB- BB- Ba3 15 Medium 2.38% B+ B+ B1 16 Medium 3.27% B B B2 17 Medium 4.51% B B B2 18 Medium 6.20% B- B- B3 19 High 8.54% CCC+ CCC+ Caa1 20 High 11.77% CCC+ CCC+ Caa1 21 High 16.20% CCC CCC Caa2 22 High 22.31% CCC- CCC- Caa3 23 High 30.73% CC CC Ca 24 High 42.32% C C C 25 High 58.28% C C C 26 Default 100.00% C C C
135 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Expected credit loss measurement As described in Note 2 (p), the Bank uses a “three-stage“ model for impairment based on changes in credit quality since initial recognition as required by IFRS 9. The key estimates and assumptions adopted by the Bank are described below:
Significant increase in credit risk (“SICR”) Within the IFRS 9 methodology, the SICR is based on both quantitative and qualitative criteria.
Quantitative criteria for a SICR is presented by an absolute threshold for the rating change since the initial recognition. A change in the internal rating by 7 notches (worsening) from the initial recognition is considered as a SICR factor in the staging process. An exception to this rule is applied when the internal rating at reporting month is lower or equal to 8. Moreover, when there is an evidence of past due more than 30 days on contractual payments of a financial instrument, then it is always assumed that the SICR is automatically triggered (backstop).
Qualitative criteria are represented by a Forbearance flag and a Monitoring status. The forbearance flag aims to identify those transac- tions where the credit risk might by affected by contractual modifications taken by the Bank in order to prevent a default. The Bank assumes that such modifications represent a significant increase in the credit risk and a forborne flag is assumed as a SICR factor. The monitoring status is the result of a regular and ongoing credit review of non-retail customers combined with the Early warning system of the Bank. The objective of the credit review, in short, is to assess the credit quality of the debtor and its ability to pay for the debt and meet the contrac- tual conditions. The result of the monitoring with the Red zone colour is assumed as a SICR factor. The Bank additionally implements the Watch list flag as a SICR factor. The Watch list enables to capture an increased credit risk whenever it is identified by the Bank, regardless of timelines of regular and ongoing credit reviews.
The Low credit risk exemption is not applied for low risk portfolios by the Bank.
Amendments to SICR criteria with respect to Covid-19 pandemic During the year 2020 the Covid-19 pandemic was impacting the economic performance of many countries. Czech Republic, in particular, was affected similarly to other European countries. The Bank expected that drop of economic performance will inevitably impact the credit risk of financial instruments, namely loans and advances. Within the reconsideration of existing SICR criteria, the Bank had realized that under Covid-19 situation new triggers could emerge, to predict the increased level of credit risk. For the basis of further decisions, the portfolio analysis of industries and sub segments was performed. After that, the Bank has followed the existing principles of credit risk management and applied individual approach to corporate clients and portfolio approach to retail clients. For corporate clients, the triggers for SICR were amended by Orange monitoring status, which is 1 step below Red zone. For retail clients, the Bank has decided to assume the SICR for exposures, which were until repayment moratoria until end of October 2020, and to measure their loss allowance by lifetime expected credit losses, until the sufficient probation period will pass over. The total gross carrying amount of loans and advances to customers trans- ferred to stage 2 due to the moratorium or Orange monitoring status was CZK 5,076 million and additional ECL provisions created as at the transfer to stage 2 was CZK 111 million. After the end of loan moratorium the Bank took appropriate actions to identify borrowers, which met qualitative criteria of default before the reporting date. The Bank proactively identified borrowers which required restructuring due to financial difficulties. Borrowers which required full postponements of payments were reclassified to Stage 3 with the respect to qualitative criteria of default "Distressed restructuring".
136 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Credit-impaired assets and definition of default The Bank has a methodology for the classification of financial assets in place (i.e. default policy), which defines when a financial instru- ment is in default, which is aligned to the definition of credit-impaired. In order to classify an asset as in default, one or more predefined criteria have to be met.
Quantitative criteria: the objective evidence of the impairment is represented by the fact that the borrower is more than 90 days past due on its contractual payments.
Qualitative criteria are set to represent the unlikeliness to pay the debt in full by borrower, without realization of collateral (if any). The main criteria are: • Insolvency proceeding of the borrower; • Distressed restructuring (granted concession by lender to borrower in financial difficulties); • Borrower is deceased; • Significant breach of terms/conditions from borrower, including financial covenant(s); • Frauds; • Material execution on borrower exists; • Internal credit Monitoring results in Black zone colour; • Borrower defaults in other banks from Sberbank Europe group.
Some default criteria are assessed on an asset level (days past due, forbearance/concessions), others on a borrower’s level (rating, financial health, insolvency, bankruptcy). The Bank recognizes the defaults on a client level and all financial assets of the borrower are then classified as in default.
The definition of a default is not only used for the determination of Stage 3, but consistently for credit risk management purposes, including the credit risk models development.
Reversal from Stage 2 and 3 to Stage 1 A reversal from the Stage 3(2) to the lower stages is only possible when none of stage 3(2) criteria are present for one full subsequent month. Moreover, the modifications of assets in terms of forbearance measures and distressed restructuring have specified periods to be passed before it is assumed that the increased credit risk (or impairment) has ceased to exist and the flags/triggers are not removed before that time passes and at the same time no other trigger occurs in the meantime.
Inputs, assumptions and estimation techniques used when measuring ECL The Bank measures the ECL on either a 12-month or lifetime basis, according to the Stage of financial instruments, as shown in the table in the Note 2(p). The expected credit losses are calculated by a multiplication of the Probability of default (PD), the Exposure at default (EAD) and the Loss given default (LGD). The definitions are as follows: • PD is the probability of a borrower defaulting (as per paragraph Credit-impaired assets and definition of default) within a specified period. The period is either a 12-month or lifetime, based on the type of loss allowance to be measured. Lifetime is determined as time to the contractual maturity of the financial instrument being measured. • EAD represents the amount that is expected to be owed at the time of default. The time of default is linked to the period of PD, which is used for calculation, i.e. 12-month PD is associated with EAD after 12 months from the reporting date. In the case of lifetime estimates,
137 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
the EAD is determined for each consecutive year based on contractual repayments. For contracts with an undefined maturity, a simplified assumption on the application of average maturity length instead of contractual cash flows is used. When the exposure is secured by collateral, then the EAD is further broken-down separately for an unsecured amount and for secured amounts segmented by collateral type segments. This is done in order to be able to apply the LGD values defined per collateral type segments. Within the EAD estimates, the amount of undrawn credit lines (typically for revolving products and off-balance sheet exposures) are taken into account via a Credit Conversion Factor (CCF), which determines the percentage of the undrawn credit to be drawn-down at the time of default. The Bank applies regulatory CCF values used within Risk weighted assets calculation under Pillar I. • LGD is defined as an expected relative level of loss on defaulted exposure. LGD is estimated separately for unsecured part of exposures and for collateralized part of an exposures, based on collateral type segments. LGD values are defined regardless of the period and loss allowance type and are applied to EAD segments, hence overall LGD on exposure level is changing over the time, dependent on the structure of collateralization of the exposure.
PD and EAD values are projected over future years and applied to individual exposures. When the lifetime ECL is calculated, the product of the PD, the EAD and the LGD is discounted back to the reporting date by each future year using the effective interest rate, to obtain a present value of the future loss.
Estimation techniques used for PD estimates are Markov chains and regression analysis. For LGD, the method of weighted averages on historically observed data among segments is used. The methodology of the ECL calculation was developed on a unified basis across the Sberbank Europe group and enables the Bank to adjust it according to its own availability of data and level of detail and quality of data. This means that the level of sophistication is dependent on the number of observations available within each predefined segment. The Bank applies Markov chains to estimate the PD both for 12-month and lifetime ECL as a basis, driven by the historical data of Bank. Two major segments are defined, retail and non-retail segments. For these segments the transition matrices are constructed differently – using different periods and weights for averaging of matrices. By multiplication of one-year transition matrices, the projection of the PD profile into the future is performed and incremental (one-year) matrices are calculated. Over the one-year matrices the macroeconomic overlay is applied, with the use of regression analysis, which provides the sensitivity rates of default rates on macroeconomic projections. If regression analysis does not provide statistically significant estimates of dependency between observed default rates and macroeconomic data, then as an alternative, the sensitivities from higher grouped segments is used, in order to provide macro-sensitive results.
Models for estimating the parameters used for ECL calculation are updated once a year and then parameters are consistently applied at each reporting date during the whole calendar year.
Covid-19 pandemic impacted models estimating future PD profiles, due to rapidly changing macroeconomic projections. Besides new macroeconomic projections entering the PD macro overlay calculation, adjustments to PD modeling methodology were done with the support of Sberbank Europe group, in order to capture the Covid-19 impacts and expectations adequately. The key adjustments are: • Reduction of number of lags in regression analysis, so the negative macroeconomic forecast is quickly projected into estimates of future PD profiles • Enabling the grouping of segments, so alternative sensitivities from regression analysis could be used. As a result, all modeled segments respond to changes in macroeconomic forecast. • Reduction of number of macroeconomic scenarios from 5 to 3, to reflect the fact that number of alternative macroeconomic scenarios of future development is limited, due to general uncertainty of the upcoming development of Covid-19 pandemic.
138 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Forward looking information incorporated in the ECL models The forward looking information is considered both in the SICR assessment and the lifetime PD estimation. Within the SICR, the qualitative criteria of the monitoring result and the calculated zone colour from the Bank’s early warning system captures forward looking information with respect to increased probability of financial difficulties of the borrower in future.
The lifetime PD estimation is associated with the testing of a dependency of observed default rates on macroeconomic variables. Fol- lowing macroeconomic variables form basis for analysis of statistical significance: • GDP Y-o-Y; • Industrial production Y-o-Y; • Unemployment rate; • Retail sales Y-o-Y; • Net average wages Y-o-Y; • Construction output Y-o-Y; • CPI.
When there is no statistically sufficient result of such an analysis for a given portfolio segment, grouping of portfolio segments takes place, so dependency that is more general can be used instead, while retaining the sensitivity of PD estimates to macroeconomic forecast.
Covid-19 pandemic changed dramatically economic outlook for the Czech economy and for the Bank as well. New (covid-19) eco- nomic reality has also translated into adverse macroeconomic development. These forward looking expectations were incorporated into macroeconomic scenarios used for PD parameters estimation. The Bank decided to describe the future macroeconomic scenarios by GDP and Unemployment development only, because the relations between other macroeconomic variables were hard to predict due to lack of historical experience with similarly sudden changes in macroeconomic environment.
In order to cover possible scenarios of future development caused by Covid-19 and according to requirement of IFRS9, the Bank has defined three scenarios and used weighted average scenario approach for loss allowance calculation. This approach with three main macro scenarios (optimistic, base and adverse) enabled the Bank to set the weights adequately according to the latest information about impact of Covid-19 on future macroeconomic development of Czech economy. Scenarios of future development were defined as follows:
Optimistic scenario: Scenario is based on assumption that the Czech economy is within economic cycle already behind its peak point and is moving closer to contraction phase. However, GDP is still in positive territory fluctuating around 1.2% annual growth. Unemployment rate stays at low levels and under 5% threshold over the whole projected horizon. Other macro aggregates are stable with low volatility (FX rate, inflation).
Base scenario: In this scenario the negative impact of covid-19 has only limited duration and economic activity starts to quickly recover. GDP path is expected to have “V-shape” recovery trajectory and other macroeconomic aggregates follow this development. GDP is expected to drop only in the first year of the projected horizon (with the worse QoQ decrease of 8.7% in 2Q 2020) and since then GDP stars to improve leading to economic growth near 2.3% in 2022. In this scenario unemployment rate rise continuously in the first half of projected horizon (peak level is 6.6%), but with fast economic recovery the unemployment rate goes quickly down (to 3.8% level YE 2022).
139 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Adverse scenario: The worse economic scenario is based on assumption of continued and prolonged Covid-19 pandemic situation (in- creasing number of Covid positive patients, collapsing health system, lockdowns, etc.). All macroeconomic aggregates worsen very quickly with GDP hitting minus 16% level (in 2Q 2020) and even in 2022 negative economic growth is expected. Unemployment rate raising to 10 % level in 2021 when negative impacts of covid-19 crisis are fully translated into real economy.
Final decision of the Bank was to use weights 5%–75%–20% for respective above mentioned scenarios. Compared to the expectations from 2019, when Bank expected mildly but steadily growing Czech economy with most indicators to be stable, the newly adopted and weighted forward looking scenario is significant change in measurement of expected credit losses.
Grouping of instruments for losses measured on a collective basis In order to estimate the parameters used for measurement of the ECL, the financial instruments are segmented into portfolios with similar risk characteristics. The main objective is to obtain a sufficient amount of observations within one group, which is reasonably ho- mogenous, therefore statistical methods can be applied on such a group of instruments. Selected segments reflects the reporting structure of the Bank too.
The table below shows groupings for the collective measurement and overview of final approach to PD and LGD parameters:
Borrower’s LGD Further Key segment segment Product group PD model basis Macro-overlay uncollateralized segmentation Non-retail Corporate N/A Historical data No 100% Rating grades SME N/A Historical data Yes 90% Rating grades Financial N/A Synthetic No 100% Rating grades institutions, migration matrix Sovereigns and Central Banks Retail Micro N/A Historical data Yes Model based DPD buckets Private Mortgage Loans Historical data Yes Model based DPD buckets individuals Consumer Loans Historical data Yes Model based DPD buckets Revolving and Historical data No Model based DPD buckets Other Loans
Financial instruments in Stage 3 with a current exposure above CZK 5 million are treated individually, until their exposure declines below CZK 1 million or they migrate into a different stage. Bank utilizes 2 calculation tools for ECL calculations, one for individual assessment of credit impaired financial instruments (above CZK 5 million), and another one for the collective assessment of ECL.
140 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
The following tables analyses Loans and advances to banks according to their credit quality:
As at 31.12.2020 (CZKm) Stage 1 Stage 2 Stage 3 Total Retail Mortgages Low risk 20,974 2,873 0 23,847 Medium risk 1,506 851 0 2,357 High risk 51 303 0 354 Default 0 0 178 178 Total gross carrying amount 22,531 4,027 178 26,736 Allowance for credit losses (33) (77) (47) (157) Total net carrying amount 22,498 3,950 131 26,579 Consumer loans Low risk 3,770 701 0 4,471 Medium risk 1,407 264 0 1,671 High risk 67 104 0 171 Default 0 0 102 102 Total gross carrying amount 5,244 1,069 102 6,415 Allowance for credit losses (139) (128) (66) (333) Total net carrying amount 5,105 941 36 6,082 Investment loans Low risk 955 64 0 1,019 Medium risk 1,623 456 0 2,079 High risk 176 151 0 327 Default 0 0 119 119 Total gross carrying amount 2,754 671 119 3,544 Allowance for credit losses (36) (30) (74) (140) Total net carrying amount 2,718 641 45 3,404 Working capital financing Low risk 43 6 0 49 Medium risk 124 27 0 151 High risk 30 20 0 50 Default 0 0 23 23 Total gross carrying amount 197 53 23 273 Allowance for credit losses (3) (5) (20) (28) Total net carrying amount 194 48 3 245 Total retail 30,515 5,580 215 36,310
141 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
As at 31.12.2020 (CZKm) Stage 1 Stage 2 Stage 3 Total Corporate Investment loans Low risk 2,489 304 0 2,793 Medium risk 12,893 1,486 0 14,379 High risk 2,047 943 0 2,990 Default 0 0 753 753 Total gross carrying amount 17,429 2,733 753 20,915 Allowance for credit losses (282) (190) (383) (855) Total net carrying amount 17,147 2,543 370 20,060 Working capital financing Low risk 785 0 0 785 Medium risk 3,312 437 0 3,749 High risk 153 516 0 669 Default 0 0 181 181 Total gross carrying amount 4,250 953 181 5,384 Allowance for credit losses (70) (169) (160) (399) Total net carrying amount 4,180 784 21 4,985 Mortgages Medium risk 2 3 0 5 Total gross carrying amount 2 3 0 5 Allowance for credit losses 0 0 0 0 Total net carrying amount 2 3 0 5 Total corporate 21,329 3,330 391 25,050 Total loans and advances to customers 51,844 8,910 606 61,360
142 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
As at 31.12.2019 (CZKm) Stage 1 Stage 2 Stage 3 Total Retail Mortgages Low risk 24,746 867 0 25,613 Medium risk 1,477 955 0 2,432 High risk 61 351 0 412 Default 0 0 201 201 Total gross carrying amount 26,284 2,173 201 28,658 Allowance for credit losses (6) (6) (64) (76) Total net carrying amount 26,278 2,167 137 28,582 Consumer loans Low risk 956 7 0 963 Medium risk 3,833 89 0 3,922 High risk 131 150 0 281 Default 0 0 87 87 Total gross carrying amount 4,920 246 87 5,253 Allowance for credit losses (151) (41) (71) (263) Total net carrying amount 4,769 205 16 4,990 Investment loans Low risk 1,285 30 0 1,315 Medium risk 3,986 443 0 4,429 High risk 344 287 0 631 Default 0 1 251 252 Total gross carrying amount 5,615 761 251 6,627 Allowance for credit losses (26) (43) (178) (247) Total net carrying amount 5,589 718 73 6,380 Working capital financing Low risk 97 12 0 109 Medium risk 1,462 180 0 1,642 High risk 50 124 0 174 Default 0 0 176 176 Total gross carrying amount 1,609 316 176 2,101 Allowance for credit losses (63) (36) (153) (252) Total net carrying amount 1,546 280 23 1,849 Total retail 38,182 3,370 249 41,801
143 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
As at 31.12.2019 (CZKm) Stage 1 Stage 2 Stage 3 Total Corporate Investment loans Low risk 3,078 20 0 3,098 Medium risk 12,124 813 0 12,937 High risk 1,184 972 0 2,156 Default 0 0 220 220 Total gross carrying amount 16,386 1,805 220 18,411 Allowance for credit losses (238) (132) (167) (537) Total net carrying amount 16,148 1,673 53 17,874 Working capital financing Low risk 559 0 0 559 Medium risk 2,170 506 0 2,676 High risk 41 160 0 201 Default 0 0 59 59 Total gross carrying amount 2,770 666 59 3,495 Allowance for credit losses (49) (90) (43) (182) Total net carrying amount 2,721 576 16 3,313 Mortgages Low risk 32 0 0 32 Medium risk 20 19 0 39 Total gross carrying amount 52 19 0 71 Allowance for credit losses 0 0 0 0 Total net carrying amount 52 19 0 71 Total corporate 18,921 2,268 69 21,258 Total loans and advances to customers 57,103 5,638 318 63,059
Sensitivity analysis Set out below are the changes to the ECL that would result from changes in the expected cash flows (loans in the stage 3), from changes in the Rating Grade (Corporate loans in the stages 1 and 2) or changes in the probability of default comparable with the change in the average Rating Grades by the number of Rating Grades set out below (Retail loans in the stages 1 and 2) according to the following, internally defined, sensitivity scenarios: • Scenario 1: a change in the ECL if the Rating Grades change by 1 or if the expected cash flows change by 5%; • Scenario 2: a change in the ECL if the Rating Grades change by 2 or if the expected cash flows change by 10%.
144 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
As at 31.12.2020 Scenario 1 Scenario 2 (CZKm) Negative Positive Negative Positive Retail Change in the ECL for the Stage 1 64.8 (43.7) 159.6 (75.5) from which: change from the Stage 1 to the Stage 2 5.1 0 19.5 0 Change in the ECL for the Stage 2 40.9 (29.7) 97.3 (51.4) from which: change from the Stage 2 to the Stage 3 0.7 0 2.3 0 Change in the ECL for the Stage 3 9.4 (4.1) 18.9 (8.2) Total change in the ECL 115.1 (77.5) 275.8 (135.1) Corporate Change in the ECL for the Stage 1 159.7 (112.3) 389.3 (194.6) from which: change from the Stage 1 to the Stage 2 6.9 0 31.7 0 Change in the ECL for the Stage 2 177.6 (68.8) 266.3 (133.6) from which: change from the Stage 2 to the Stage 3 109.5 0 122.1 0 Change in the ECL for the Stage 3 12.6 (11.7) 25.2 (23.2) Total change in the ECL 349.9 (192.8) 680.8 (351.4)
As at 31.12.2019 Scenario 1 Scenario 2 (CZKm) Negative Positive Negative Positive Retail Change in the ECL for the Stage 1 101.9 (52.4) 239.8 (90.6) from which: change from the Stage 1 to the Stage 2 31.3 0 77.3 0 Change in the ECL for the Stage 2 20.7 (15.1) 49.2 (26.0) from which: change from the Stage 2 to the Stage 3 4.1 0 12.9 0 Change in the ECL for the Stage 3 7.0 (3.1) 14.1 (6.3) Total change in the ECL 129.6 (70.6) 303.1 (122.9) Corporate Change in the ECL for the Stage 1 142.8 (97.5) 355.9 (168.1) from which: change from the Stage 1 to the Stage 2 9.7 0 50.6 0 Change in the ECL for the Stage 2 97.9 (49.7) 157.1 (89.1) from which: change from the Stage 2 to the Stage 3 55.1 0 65.5 0 Change in the ECL for the Stage 3 6.6 (6.0) 13.4 (11.8) Total change in the ECL 247.3 (153.2) 526.4 (269.0)
The change in the Rating Grade of financial instruments in Stage 1 may result in a SICR and the transfer to the Stage 2. The change in the Rating Grade of financial instruments in the Stage 2 may result in the impairment of the financial instrument and transfer to the Stage 3. These effects are disclosed on separate rows for information purposes and cannot be counted in the sum of total change in the ECL rows.
145 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Loans and advances under forbearance measures and modified loans The Bank performs the restructuring of loans and advances in cases where according to he assessment of the current legal and financial situation of the client it would probably suffer a loss if the restructuring was not performed. The restructuring mainly includes a modifica- tion of the repayment schedule, adjustment of interest rates, forgiveness of past due interest or extending the payment of the principal or accessory amounts or transformation of an overdraft current account to a loan.
The allowance for impairment of loans under forbearance measures is calculated using the same methodology as for other loans and receivables.
The Bank maintains the evidence of loans and advances under forbearance measures and evaluates their status on a quarterly basis. Restructured loans and receivables are rated with grade 26 according to current rating scale.
Changes of contracts due to Covid-19 are part of the evidence of the Bank. These changes were evaluated according to the CNB recom- mendations and EBA recommendations on treatment of Covid-19 related reliefs and adequately assessed for the forbearance recognition.
Forborne loans and receivables according to their credit risk:
As at 31 December 2020 Total loans and Forborne loans Received receivables to Received (CZKm) and receivables collateral customers collateral Stage 1 228 228 52,408 31,349 Stage 2 681 520 9,507 6,491 Stage 3 442 207 1,357 640 Gross loans and receivables 1,351 955 63,272 38,480 Allowances for credit losses (250) 0 (1,912) 0 Net loans and receivables 1,101 955 61,360 38,480
As at 31 December 2019 Total loans and Forborne loans Received receivables to Received (CZKm) and receivables collateral customers collateral Stage 1 10 9 57,636 34,378 Stage 2 154 88 5,986 4,483 Stage 3 191 102 994 451 Gross loans and receivables 355 199 64,616 39,312 Allowances for credit losses (147) 0 (1,557) 0 Net loans and receivables 208 199 63,059 39,312
146 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
The reconciliation from the opening balances to the closing balances of the forborne loans and receivables:
(CZKm) Retail Corporate Total As at 1 January 2019 130 2,767 2,897 New forborne receivables 40 46 86 Change in forborne receivables (repayments, increase) (13) (62) (75) Forborne receivables written off (1) (192) (193) Sale of forborne receivables (6) (2,241) (2,247) Healed forborne receivables (26) (87) (113) As at 31 December 2019 124 231 355 New forborne receivables 173 954 1,127 Change in forborne receivables (repayments, increase) (17) (63) (80) Forborne receivables written off (2) 0 (2) Sale of forborne receivables (4) (11) (15) Healed forborne receivables (15) (19) (34) As at 31 December 2020 259 1,092 1,351
The following table includes summary information for loans and advances to customers with a lifetime ECL as at the date of modification whose cash flows were modified during the period.
(CZKm) 31.12.2020 31.12.2019 Amortised cost before modification 821 41 Net modification gain (1) 0 Amortised cost after modification 820 41
As at 31 December 2020, the gross carrying amount of loans and advances to customers that have been modified at a time when the loss allowance was measured at an amount equal to lifetime ECL and for which the loss allowance has changed to an amount equal to 12-month ECL was CZK 0 million (2019: CZK 0 million).
Loans and advances to banks The table below presents an analysis of loans and advances to banks by rating agency designation as at 31 December 2020 and 31 De- cember 2019, based on Moody’s external ratings.
(CZKm) 31.12.2020 31.12.2019 Aaa to Ba2 (Low risk) 2,994 2,959 Ba3 to B2 (Medium risk) 186 82 Gross loans and advances to banks 3,180 3,041 Allowances for credit losses (12) (8) Net loans and receivables to banks 3,168 3,033
147 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Debt securities The table below presents an analysis of debt securities by rating agency designation as at 31 December 2020 and 31 December 2019, based on Moody’s external ratings.
As at 31 December 2020 At amortised (CZKm) At FVOCI cost Total Aaa to A3 – stage 1 1,405 354 1,759 Aaa to A3 – stage 2 0 267 267 Baa1 to Baa3 – stage 1 59 0 59 Total debt securities 1,464 621 2,085
As at 31 December 2019 At amortised (CZKm) At FVOCI cost Total Aaa to A3 – stage 1 0 269 269 Aaa to A3 – stage 2 0 101 101 Baa1 to Baa3 – stage 1 60 0 60 Total debt securities 60 370 430
148 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Concentration of risks of financial assets with credit risk exposure Diversification is one of the key principles in managing credit risk. The Bank fully adheres to regulatory limits for an exposure to single economically-linked groups of customers. The Bank applies a limit of EUR 150 million (CZK 3,937 million as of 31 December 2020) for Sberbank group entities. The Bank applies a limit of 25% of regulatory capital for other economically linked groups of customers (CZK 2,146 million as of 31 December 2020). The Bank had receivables to four economically linked groups with exposure exceeding 10% of regulatory capital as of 31 December 2020 (four as of 31 December 2019).
Additionally, the Bank places and monitors limits on the amount of risk accepted in relation to both geographical and industry sector.
Geographical sectors As at 31 December 2020 European Other (CZKm) Domestic Union Europe Other Total Assets Cash and balances with central banks 20,559 0 0 0 20,559 Loans and advances to banks 1 2,219 856 92 3,168 Derivative financial instruments 135 25 22 0 182 Debt securities 2,017 59 0 0 2,076 Loans and advances to customers 56,015 3,932 1,214 199 61,360 Other financial assets 389 0 0 0 389 Total financial assets 79,116 6,235 2,092 291 87,734
As at 31 December 2019 European Other (CZKm) Domestic Union Europe Other Total Assets Cash and balances with central banks 15,077 0 0 0 15,077 Loans and advances to banks 45 2,442 478 68 3,033 Derivative financial instruments 43 296 5 0 344 Debt securities 361 60 0 0 421 Loans and advances to customers 57,312 4,695 818 234 63,059 Other financial assets 449 0 0 0 449 Total financial assets 73,287 7,493 1,301 302 82,383
149 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Concentration of risks of financial assets with credit risk exposure Industry sectors As at 31 December 2020 Trade Financial Other Real and Manu- House- institu- Public indus- (CZKm) estate services facturing holds tions sector tries Total Assets Cash and balances with central banks 0 0 0 0 20,559 0 0 20,559 Loans and advances to banks 0 0 0 0 3,168 0 0 3,168 Derivative financial instruments 0 0 0 0 182 0 0 182 Debt securities 0 59 264 0 349 1,404 0 2,076 Loans and advances to customers 8,746 7,647 10,027 32,735 1,803 310 92 61,360 Other financial assets 1 27 0 4 357 0 0 389 Total financial assets 8,747 7,733 10,291 32,739 26,418 1,714 92 87,734
As at 31 December 2019 Trade Financial Other Real and Manu- House- institu- Public indus- (CZKm) estate services facturing holds tions sector tries Total Assets Cash and balances with central banks 0 0 0 0 15,077 0 0 15,077 Loans and advances to banks 0 0 0 0 3,033 0 0 3,033 Derivative financial instruments 0 0 0 0 344 0 0 344 Debt securities 0 60 267 0 94 0 0 421 Loans and advances to customers 9,069 8,481 10,025 33,797 1,257 354 76 63,059 Other financial assets 1 28 0 2 418 0 0 449 Total financial assets 9,070 8,569 10,292 33,799 20,223 354 76 82,383
150 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Derivatives The Bank maintains strict control limits on credit risk from derivative positions, by both amount and term. Credit risk exposure is expressed by a credit equivalent, which in relation to derivatives is only a small fraction of the derivative’s notional amount outstanding. This 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 which is required for credit transactions is obtained for credit risk exposures on these instruments.
Financial instruments subject to offsetting, enforceable master netting arrangements and similar arrangements.
The following table sets out the analysis of possible impact of enforceable master netting agreements to the Bank’s financial position.
As at 31 December 2020 Gross amounts – enforceable master netting agreements Gross Gross amount Net amount Financial Financial (CZKm) amount netting reported Securities instruments collateral Net amount Assets Reverse repo deals 18,001 0 18,001 (18,001) 0 0 0 Derivatives 43 0 43 0 (24) (16) 3 Total Assets 18,044 0 18,044 (18,001) (24) (16) 3 Liabilities Derivatives 509 0 509 0 (24) (473) 12 Total liabilities 509 0 509 0 (24) (473) 12
As at 31 December 2019 Gross amounts – enforceable master netting agreements Gross Gross amount Net amount Financial Financial (CZKm) amount netting reported Securities instruments collateral Net amount Assets Reverse repo deals 10,774 0 10,774 (10,774) 0 0 0 Derivatives 294 0 294 0 (48) (240) 6 Total Assets 11,068 0 11,068 (10,774) (48) (240) 6 Liabilities Derivatives 49 0 49 0 (48) 0 1 Total Liabilities 49 0 49 0 (48) 0 1
151 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Credit-related commitments and issued guarantees The primary purpose of these instruments is to ensure that funds are available to a customer as required. Payment guarantees and standby letters of credit with the characteristics of credit substitutes carry the same credit risk as loans. Documents and commercial letters of credit – which are written undertakings by the Bank 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 and therefore carry less risk than a direct loan.
Commitments 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 Bank is potentially exposed to losses 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 Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
The credit risk exposure from the off-balance sheet items can be analyzed as follows:
As at 31 December 2020 12-month ECL Lifetime ECL (CZKm) Stage 1 Stage 2 Stage 3 Total Financial guarantees issued – contractual amount Low risk 45 27 0 72 Medium risk 1,307 128 0 1,435 High risk 10 68 0 78 Default 0 0 11 11 Total financial guarantees issued 1,362 223 11 1,596 Provision for guarantees (12) (12) 0 (24) Net financial guarantees issued 1,350 211 11 1,572 Undrawn formal standby facilities, credit lines – contractual amount Low risk 2,037 169 0 2,206 Medium risk 1,577 171 0 1,748 High risk 139 35 0 174 Default 0 0 10 10 Total undrawn formal standby facilities, credit lines 3,753 375 10 4,138 Provision for un-drawn credit lines (23) (18) (5) (46) Net un-drawn formal standby facilities, credit lines 3,730 357 5 4,092
152 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
As at 31 December 2019 12-month ECL Lifetime ECL (CZKm) Stage 1 Stage 2 Stage 3 Total Financial guarantees issued – contractual amount Low risk 395 8 0 403 Medium risk 848 159 0 1,007 High risk 78 93 0 171 Default 0 0 0 0 Total financial guarantees issued 1,321 260 0 1,581 Provision for guarantees (10) (4) 0 (14) Net financial guarantees issued 1,311 256 0 1,567 Undrawn formal standby facilities, credit lines – contractual amount Low risk 2,545 6 0 2,551 Medium risk 1,465 36 0 1,501 High risk 705 3 0 708 Default 0 0 1 1 Total undrawn formal standby facilities, credit lines 4,715 45 1 4,761 Provision for un-drawn credit lines (24) (4) (1) (29) Net un-drawn formal standby facilities, credit lines 4,691 41 0 4,732
(c) Market risk The Bank defines market risk as a risk of loss resulting from changes in market prices, foreign exchange rates and rates on financial markets. The Bank manages its trading an investment portfolio separately.
(i) Trading book risk Trading book risks result from fluctuations of the fair value of instruments in this portfolio. The Bank monitors general, specific and foreign currency risk from its business activities. The risks are monitored using various reports and measures (e.g. volume of exposures and gains/losses resulting from these exposures). The trading activities are restricted by set limits.
The Bank uses a conservative trading strategy primarily based on searching for arbitrary opportunities. The most frequently traded instruments are especially interest rate swaps, foreign currency forwards and swaps.
Revaluation of derivatives to fair value is done on a daily basis to comply with market and regulatory standards.
153 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Analysis of positions The following tables summarizes the total exposure in the Bank’s trading book. This disclosure is based on nominal amount of individual instruments.
As at 31 December 2020 (CZKm) CZK EUR USD Others Total Interest rate instruments 8,395 2,133 0 0 10,528 Foreign currency instruments – assets (1,960) (1,655) (20) 0 (3,635) – liabilities 1,553 1,708 319 61 3,641
As at 31 December 2019 (CZKm) CZK EUR USD Others Total Interest rate instruments 7,470 2,023 0 0 9,493 Foreign currency instruments – assets (2,617) (1,483) (5) (8) (4,113) – liabilities 1,518 2,283 226 86 4,113
The tables below summarizes the remaining contractual maturity of trading book instruments. This disclosure is based on nominal amount of individual instruments.
As at 31 December 2020 (CZKm) Within 1 year 1–4 years Over 4 years Total Interest rate instruments 568 3,915 6,045 10,528 Foreign currency instruments – assets (3,022) (613) 0 (3,635) – liabilities 3,034 607 0 3,641
As at 31 December 2019 (CZKm) Within 1 year 1–4 years Over 4 years Total Interest rate instruments 119 3,136 6,238 9,493 Foreign currency instruments – assets (3,827) (286) 0 (4,113) – liabilities 3,839 274 0 4,113
154 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
(ii) Currency risk The Bank defines currency risk as a risk of financial loss from changes in foreign exchange rates.
The Bank’s financial position and its cash flows are exposed to fluctuations in the prevailing foreign currency exchange rates. The Bank manages its open foreign currency position using foreign exchange deals (spots, forwards and swaps). The total open foreign currency position and foreign exchange derivatives on behalf of clients are included in the trading portfolio. The Bank sets limits on the level of its open currency position by currency and in total for all currencies. Open foreign currency positions are monitored on a daily basis and stress testing over the foreign exchange rates fluctuations is done and reported on a regular basis.
Sensitivity analysis The tables below summarize the Bank’s exposure to currency risk. It is expressed by the sensitivity analysis demonstrating the impact of the change in the CZK foreign exchange rate against significant currencies on the balance sheet, on the Bank’s annual net profit and other equity components.
In 2020 and 2019, the impact of an appreciation / (depreciation) of the CZK foreign exchange rate against the EUR and USD by 20% was tested. These thresholds are derived from historical data. The table below summarizes the impact of the valuation of assets and liabilities denominated in these currencies on the Bank’s annual net profit and other components of its equity.
The Bank has set limits on open currency positions in each currency. Within these limits, the Bank maintains currency position so that it is balanced in all currencies. The impact of foreign exchange rate changes on net profit in the individual currencies, as well as in the aggregate for all currencies, is not significant.
As at 31 December 2020 EUR USD (CZKm) 20% (20%) 20% (20%) Assets Cash and balances with central banks (7) 7 (4) 4 Loans and advances to banks (557) 557 (10) 10 Loans and advances to customers (2,068) 2,068 (1) 1 Debt securities (12) 12 0 0 Other assets (22) 22 (9) 9 Unsettled transactions with currency instruments (380) 380 (651) 651 (3,046) 3,046 (675) 675 Liabilities Deposits from banks 56 (56) 0 0 Due to customers 1,599 (1,599) 633 (633) Subordinated debt 37 (37) 0 0 Other liabilities 66 (66) 34 (34) Unsettled transactions with currency instruments 1,277 (1,277) 35 (35) 3,035 (3,035) 702 (702) Total (annual net profit) (11) 11 27 (27)
155 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
As at 31 December 2019 EUR USD (CZKm) 20% (20%) 20% (20%) Assets Cash and balances with central banks (12) 12 (6) 6 Loans and advances to banks (489) 489 (51) 51 Loans and advances to customers (1,858) 1,858 (50) 50 Debt securities (12) 12 0 0 Other assets (21) 21 (9) 9 Unsettled transactions with currency instruments (597) 597 (465) 465 (2,989) 2,989 (581) 581 Liabilities Deposits from banks 408 (408) 0 0 Due to customers 1,454 (1,454) 554 (554) Subordinated debt 36 (36) 0 0 Other liabilities 130 (130) 9 (9) Unsettled transactions with currency instruments 964 (964) 12 (12) 2,992 (2,992) 575 (575) Total (annual net profit) 3 (3) (6) 6
Changes in the CZK foreign exchange rate against EUR and USD had a negligible impact on the Bank’s equity components other than the annual net profit.
156 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Currency position The tables below summarize the Bank’s exposure to currency risk expressed by an open currency position. Included in the table are the Bank’s assets, liabilities and equity at carrying amounts, categorized by currency.
As at 31 December 2020 (CZKm) CZK EUR USD Other Total Assets Cash and balances with central banks 20,481 37 18 23 20,559 Loans and advances to banks 0 2,787 49 332 3,168 Debt securities 2,017 59 0 0 2,076 Loans and advances to customers 51,020 10,337 3 0 61,360 Other assets 2,045 110 43 43 2,241 Total assets 75,563 13,330 113 398 89,404 Liabilities and equity Deposits from banks 49 279 0 139 467 Due to customers 65,116 7,997 3,165 1,853 78,131 Provisions 55 26 1 3 85 Subordinated debt 0 184 0 0 184 Other liabilities 756 329 170 37 1,292 Equity 9,244 1 0 0 9,245 Total liabilities and equity 75,220 8,816 3,336 2,032 89,404 Net assets/(liabilities and equity) 343 4,514 (3,223) (1,634) 0 Net assets/(liabilities) from unsettled transactions with currency instruments including derivatives (405) (4,486) 3,085 1,634 (172) Net open currency position (62) 28 (138) 0 (172)
As at 31 December 2020 (CZKm) CZK EUR USD Other Total Off-balance sheet items Financial guarantees 1,009 248 7 308 1,572 Loan commitments and other credit related liabilities 2,992 1,101 (1) 0 4,092 Currency position from off-balance sheet items 4,001 1,349 6 308 5,664
157 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
As at 31 December 2019 (CZKm) CZK EUR USD Other Total Assets Cash and balances with central banks 14,948 58 32 39 15,077 Loans and advances to banks 49 2,446 256 282 3,033 Debt securities 361 60 0 0 421 Loans and advances to customers 53,521 9,289 248 1 63,059 Other assets 1,903 104 46 67 2,120 Total assets 70,782 11,957 582 389 83,710 Liabilities and equity Deposits from banks 65 2,042 0 290 2,397 Due to customers 58,114 7,267 2,768 1,419 69,568 Debt securities in issue 995 0 0 0 995 Provisions 57 5 0 0 62 Subordinated debt 0 178 0 0 178 Other liabilities 563 650 46 8 1,267 Equity 9,241 2 0 0 9,243 Total liabilities and equity 69,035 10,144 2,814 1,717 83,710 Net assets/(liabilities and equity) 1,747 1,813 (2,232) (1,328) 0 Net assets/(liabilities) from unsettled transactions with currency instruments including derivatives (1,778) (1,838) 2,262 1,395 41 Net open currency position (31) (25) 30 67 41
As at 31 December 2019 (CZKm) CZK EUR USD Other Total Off-balance sheet items Financial guarantees 1,055 477 13 22 1,567 Loan commitments and other credit related liabilities 3,322 1,410 0 0 4,732 Currency position from off-balance sheet items 4,377 1,887 13 22 6,299
158 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
(d) Interest rate risk The Bank defines interest rate risk as the risk of financial loss because of changes in market interest rates.
The Bank takes on exposure resulting from fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The Bank’s exposure to interest rate risk is monitored daily using gap analysis in each foreign currency and is aggregated for all cur- rencies. Sensitivity to changes in the market interest rate is regularly measured via a simulated change of the present value of the interest cash flows from individual interest rate instruments where the interest rate is increased by a standardized value of interest rate shock of 200 basis points (b.p.) based on predefined non-linear scenarios. The testing of the impact of assumptions on prepayments of assets and behaviour of assets and liabilities on the output of the sensitivity analysis is tested on a regular basis. Interest rate swaps or other fixed-rate instruments are used to manage interest rate positions.
Sensitivity analysis The table below summarizes the Bank’s exposure to interest rate risks. It is expressed by the sensitivity analysis showing the effect of a change in market interest rates by 100 b.p. on the Bank’s annual net profit and other movements in equity. The impact on the Bank’s annual net profit and other movements in equity is presented in the following table.
As at 31 December 2020 Annual net profit / loss (CZKm) 100 b.p. (100) b.p. Assets Cash and balances with central banks 197 (197) Loans and advances to banks 23 (23) Securities at amortised cost 3 (3) Loans and advances to customers 233 (233) 456 (456) Liabilities Deposits from banks (5) 5 Due to customers (349) 349 Subordinated debt (1) 1 (355) 355 Derivative financial instruments 68 (68) Total 169 (169)
159 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
As at 31 December 2019 Annual net profit / loss (CZKm) 100 b.p. (100) b.p. Assets Cash and balances with central banks 144 (144) Loans and advances to banks 21 (21) Securities at amortised cost 3 (3) Loans and advances to customers 228 (228) 396 (396) Liabilities Deposits from banks (24) 24 Due to customers (329) 329 Debt securities in issue (5) 5 Subordinated debt (1) 1 (359) 359 Derivative financial instruments 94 (94) Total 131 (131)
Changes in the market interest rates do not have a material effect on the Bank’s movements in equity other than annual net profit.
160 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
(e) Liquidity risk The Bank defines liquidity risk as the risk that difficulties in meeting obligations associated with financial liabilities are encountered, or the risk of losing the ability to finance assets.
The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from the settlement of derivatives. Liquidity risk management is based on both the planning of the cash inflows and cash outflows based on the remaining maturity of the assets and liabilities, and on the experience gained from progress analysis of the previous years. The Bank prepares a liquidity plan which is approved by the Management Board together with the business plan, and both these plans are closely interconnected.
Cash flows from balance sheet financial instruments The table below presents the contractual undiscounted cash flows from the Bank’s non-derivative financial liabilities as compared with non-derivative financial assets based on the remaining contractual period as at the statement of financial position date to the contractual maturity date.
As at 31 December 2020 Total Within 3 – 12 1 – 5 Over undiscounted Carrying (CZKm) 3 months months years 5 years cash flows amount Total non-derivative financial assets Deposits from banks 20,867 0 0 0 20,867 20,559 Due to customers 1,792 721 287 417 3,217 3,168 Debt securities in issue 4 0 58 1,516 1,578 1,464 Subordinated debt 6 1 681 0 688 612 Lease liabilities 6,678 5,625 27,676 34,639 74,618 61,360 Total non-derivative financial assets (remaining contractual maturities) 29,347 6,347 28,702 36,572 100,968 87,163 Non-derivatives financial liabilities Deposits from banks 467 0 0 0 467 467 Due to customers 74,811 2,901 522 0 78,234 78,131 Subordinated debt 0 0 203 0 203 184 Lease liabilities 23 60 170 1 254 246 Total non-derivatives financial liabilities (remaining contractual maturities) 75,301 2,961 895 1 79,158 79,028 Net financial assets/(liabilities) (45,954) 3,386 27,807 36,571 21,810 8,135
161 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
As at 31 December 2019 Total Within 3 – 12 1 – 5 Over undiscounted Carrying (CZKm) 3 months months years 5 years cash flows amount Non-derivative financial assets Cash and balances with central banks 15,435 0 0 0 15,435 15,077 Loans and advances to banks 1,987 356 713 0 3,056 3,033 Securities at FVOCI 1 0 58 0 59 60 Securities at amortised cost 4 1 412 0 417 361 Loans and advances to customers 6,913 6,746 26,354 37,365 77,378 63,059 Total non-derivative financial assets (remaining contractual maturities) 24,340 7,103 27,537 37,365 96,345 81,590 Non-derivatives financial liabilities Deposits from banks 2,397 0 0 0 2,397 2,397 Due to customers 66,627 2,214 846 0 69,687 69,568 Debt securities in issue 0 1,004 0 0 1,004 995 Subordinated debt 0 0 204 0 204 178 Lease liabilities 23 66 218 19 326 316 Total non-derivatives financial liabilities (remaining contractual maturities) 69,047 3,284 1,268 19 73,618 73,454 Net financial assets/(liabilities) (44,707) 3,819 26,269 37,346 22,727 8,136
The negative net financial liability with a remaining maturity of less than three months is influenced by the fact that customers are strictly divided into maturity time bands according to their remaining contractual maturities (e.g. current accounts are contained within the "Within 3 months" column). However, as statistical evidence shows it is unlikely that a majority of those customers will actually withdraw their deposits from the Bank at contractual maturity.
162 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
Cash flows from derivative financial instruments Derivatives settled on a net basis The Bank’s derivatives to be settled on a net basis include interest rate swaps, interest rate options and foreign exchange non-deliverable forwards (“NDFs”). The table below analyses contractual undiscounted cash flows from the Bank’s derivative financial liabilities settled on a net basis according to the remaining period as at the balance sheet date to the contractual maturity date.
As at 31 December 2020 Total Within 3 – 12 1 – 5 Over undiscounted Nominal (CZKm) 3 months months years 5 years cash flows amount Trading derivatives Interest derivatives: Interest rate swaps: assets 20 60 264 67 411 10,304 Interest rate swaps: liabilities (17) (48) (234) (58) (357) (10,312) Interest rate options: assets 0 1 4 2 7 223 Hedging derivatives Interest derivatives: Interest rate swaps: assets 14 24 73 0 111 10,100 Interest rate swaps: liabilities (61) (91) (177) 0 (329) (10,100) Net financial assets/(liabilities) (44) (54) (70) 11 (157) 215
As at 31 December 2019 Total Within 3 – 12 1 – 5 Over undiscounted Nominal (CZKm) 3 months months years 5 years cash flows amount Trading derivatives Interest derivatives: Interest rate swaps: assets 37 108 377 101 623 9,263 Interest rate swaps: liabilities (34) (98) (346) (96) (574) (9,271) Interest rate options: assets 0 1 3 2 6 230 Foreign exchange derivatives: NDFs: assets 0 3 0 0 3 3 NDFs: liabilities 0 (3) 0 0 (3) (3) Hedging derivatives Interest derivatives: Interest rate swaps: assets 99 169 402 0 670 11,800 Interest rate swaps: liabilities (61) (111) (330) 0 (502) (11,800) Net financial assets/(liabilities) 41 69 106 7 223 222
163 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
Derivatives settled on a gross basis The Bank’s derivatives to be settled on a gross basis include foreign exchange forwards, foreign exchange swaps and foreign exchange options. The table below analyses contractual undiscounted cash flows from the Bank’s derivative financial instruments settled on a gross basis according to the remaining period as at the statement of financial position date to the contractual maturity date.
As at 31 December 2020 Total Within 3 – 12 1 – 5 Over undiscounted Nominal (CZKm) 3 months months years 5 years cash flows amount Trading derivatives Foreign exchange derivatives: Outflow (6,265) (1,576) (613) 0 (8,454) (8,454) Inflow 6,087 1,589 607 0 8,283 8,283 Total (178) 13 (6) 0 (171) (171)
As at 31 December 2019 Total Within 3 – 12 1 – 5 Over undiscounted Nominal (CZKm) 3 months months years 5 years cash flows amount Trading derivatives Foreign exchange derivatives: Outflow (5,675) (2,222) (286) 0 (8,183) (8,183) Inflow 5,698 2,252 274 0 8,224 8,224 Total 23 30 (12) 0 41 41
Off-balance sheet items The table below analyses the off-balance sheet items of the Bank exposed to a liquidity risk into relevant maturity bands based on the remaining period as at the balance sheet date to the contractual maturity date.
2020 2019 (CZKm) Within 3 months Within 3 months Loan commitments and other credit related liabilities 4,138 4,761 Financial guarantees 1,596 1,581 Total 5,734 6,342
Deposits concentration The following table presents the concentration of depositors with the 10 largest deposits from non-financial clients. The ratio represents the share of deposits volume collected with such clients and the volume of total deposits from non-financial clients:
As at 31 December 2020 12.98% As at 31 December 2019 13.67%
164 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
(f) Operational risk The Bank defines Operational risk as follows: “Operational risk means the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events; also includes legal risk. This definition excludes strategic risk.” To have a better understanding and perception of the specific risks, the Bank defines sub-categories of operational risk as follows: legal risk, compliance risk including conduct risk, IT-related operational risk and cyber risk, outsourcing risk, political and regulatory risk, model risk, and reputational risk.
General Principles of Operational Risk Management In general, the Bank`s Risk Management process considers the following activities: • Identifying risks; • Measuring exposures to those risks aligned with the business strategy and its goals; • Ensuring that an effective capital monitoring and planning is in place; • Monitoring exposures and corresponding capital needs on a regular basis by defining risk appetite and limits; • Taking appropriate measures to control or mitigate risks; and • Reporting to Senior management and the Management Board on the Bank's risk profile.
As all business lines are exposed to operational risk, all organizational units, branches and employees of the Bank are responsible for managing Operational Risk in the performance of their main functions.
Operational Risk Management Environment The operational risk management process involves: • Identification and Assessment – For the purpose of identifying and assessing Operational Risk the Bank uses the following instruments in particular: Internal Loss Data Collection and Analysis, Risk and Control Self-Assessment (RCSA), Audit findings, Key Risk Indicators (KRI) and Scenario Analysis. • Monitoring and reporting – The Bank has set up a system of regular monitoring and reporting and outputs are submitted to the Risk Committee and the Supervisory Board. It includes reports on identified operational risk events, results of RCSA, measures and the de- velopment of their implementation, development of KRI and internal control system. For the purpose of expressing the Risk Appetite, the Bank also monitors the risk indicators defined by the document “Risk Appetite Statement” for the Operational Risk area. • Control and Mitigation – The methods used to control and reduce the risks are: avoidance, mitigation, transfer, and risk acceptance. The individual methods are used depending on the type and degree of risk incurred. Mitigation is mainly achieved through internal control and monitoring measures within the internal control system. The Bank applies a three-line defence system in accordance with an internal regulation within the internal control system, while Operational Risk Management is to be understood as part of the second line of defence. Proactive risk management also focuses on business continuity management and security management.
The Operational Risk Management process takes place at the level of actual events as well as the level of hypothetical risks. That is, the process of Operational Risk management is also applied when introducing new products / processes or establishing outsourcing relationships.
The Bank works closely with the parent company to manage Operational Risk. When calculating the capital requirement for Operational Risk, the Bank applies a Standardized Approach (TSA).
165 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
(g) Regulatory capital management The regulatory capital management process is coordinated within the Sberbank Group in close communication with the Bank’s share- holder. It is aimed at: • ensuring the Bank’s long-term stability in relation to existing risks; • compliance with the supervisory capital requirements (capital adequacy); and • maintaining a strong capital base to support business expansion
SBCZ capital management is based on two pillars: the Normative and the Economic perspective. Both perspectives complement and inform each other. Under the Normative perspective the bank‘s capital position is based on Pillar 1 figures fulfilling all prudential requirements maintaining at least regulatory minimum requirements and a managerial buffer. The Economic perspective supplements the Normative perspective. Under the Economic perspective all material risks that may cause economic losses and deplete internal capital are identified and quantified. The aim of the Economic perspective processes is to enhance the link between SBCZ risk profile, its risk management and risk mitigation systems, and its capital planning.
The framework for capital management within SBCZ defines the sources and drivers of capital demand in the future. Through the budget and planning cycle, through stress testing, SBCZ balances the capital demand and supply, taking into account the impact on capital arising from business and macroeconomic development.
SBCZ Management Board is ultimately responsible for preserving the capital in line with the risk management philosophy of the bank and maintains active engagement in setting approved capital targets and triggers and ensures sound processes in place for monitoring capital ratios, capital maintenance and capital restoration measures.
In terms of Normative perspective, the Bank fulfils the requirement of CNB Decree No. 163/2014 (“the Decree“), the European Parliament and European Commission Regulation No.575/2013 and Act No.21/1992 on banks for ongoing compliance with the capital adequacy limit by daily monitoring of risk-weighted assets. Required regulatory capital adequacy reports are filed with the CNB on a monthly basis and the management of the Bank is informed about capital position as well. The Bank also informs the parent company on the level of compliance with the regulatory capital requirements with the same frequency.
The methodology for the calculation of regulatory capital is defined by the Decree. The Bank ensures that the capital level exceeds regulatory capital requirements in coordination with the parent company.
The Bank estimates capital requirements for coverage of individual risks in compliance with the valid regulatory legislation.
In terms of Economic perspective, the Bank calculates its internal capital need (based on risk identifications and assessment) and ensures that internally determined capital resources exceed the internally assessed capital required.
The Bank has complied with all external regulatory capital requirements as at 31 December 2020 and 2019.
166 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
The table below summarizes the composition of the Bank’s regulatory capital and risk-weighted assets. During both years, the Bank complied with minimum regulatory capital requirement (including capital buffers) of 13.7% as at 31 December 2020 and 15.1% as at 31 De- cember 2019.
(CZKm) 31.12.2020 31.12.2019 Tier 1 Share capital registered in the Commercial register 2,806 2,806 Share premium account 4,015 4,015 Obligatory reserve funds 233 206 Retained earnings from previous period 2,187 1,675 Usable interim profit 0 491 Less: Intangible assets other than goodwill (762) (757) Other deductible items (1) (3) Tier 1 capital 8,478 8,433 Tier 2 Subordinated debt A 110 142 Tier 2 capital 110 142 Total regulatory capital 8,588 8,575 Risk-weighted assets Credit risk in investment/banking portfolio 45,288 47,476 Credit risk in trading portfolio 273 318 General interest rate risk 276 297 Operational risk 3,966 3,611 Total risk-weighted assets 49,803 51,702 Capital adequacy – Tier 1 17.02% 16.31% Capital adequacy 17.24% 16.59%
167 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
(h) Maturity analysis of assets and liabilities The table below analyses assets and liabilities according to when they are expected to be settled or recovered:
As at 31 December 2020 Within After (CZKm) 12 months 12 months Total ASSETS Cash and balances with central banks 20,559 0 20,559 Loans and advances to banks 2,496 672 3,168 Derivative financial instruments 182 0 182 Debt securities 1,413 663 2,076 Loans and advances to customers 13,932 47,428 61,360 Changes in the fair value of the portfolio of hedged instruments 135 0 135 Prepaid expenses and accrued income 43 0 43 Other assets 389 0 389 Current tax assets 36 0 36 Deferred tax assets 152 104 256 Property and equipment 0 438 438 Intangible assets 0 762 762 Total assets 39,337 50,067 89,404 LIABILITIES Deposits from banks 467 0 467 Due to customers 33,362 44,769 78,131 Derivative financial instruments 320 0 320 Derivative financial instruments to hedge interest rate risk 217 0 217 Lease liabilities 80 166 246 Other liabilities 503 0 503 Deferred items 6 0 6 Provisions 10 75 85 Subordinated debt 0 184 184 Total liabilities 34,965 45,194 80,159
168 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
As at 31 December 2019 Within After (CZKm) 12 months 12 months Total ASSETS Cash and balances with central banks 15,077 0 15,077 Loans and advances to banks 2,326 707 3,033 Derivative financial instruments 180 0 180 Debt securities 7 414 421 Loans and advances to customers 15,070 47,989 63,059 Changes in the fair value of the portfolio of hedged instruments (179) 0 (179) Derivative financial instruments to hedge interest rate risk 164 0 164 Deferred items 38 0 38 Other assets 448 0 448 Deferred tax assets 112 85 197 Property and equipment 0 515 515 Intangible assets 0 757 757 Total assets 33,243 50,467 83,710 LIABILITIES Deposits from banks 2,397 0 2,397 Due to customers 30,902 38,666 69,568 Derivative financial instruments 98 0 98 Derivative financial instruments to hedge interest rate risk 0 0 0 Debt securities in issue 995 0 995 Current income tax liability 27 0 27 Lease liabilities 85 231 316 Other liabilities 819 0 819 Deferred items 7 0 7 Provisions 8 54 62 Subordinated debt 0 178 178 Total liabilities 35,338 39,129 74,467
169 18. Financial Statement Sberbank CZ Annual Report 2020 for the Year Ended 31 December 2020
34 Dividends
Final dividends are not accounted for until they have been ratified at the Annual General Meeting. No dividends were paid for the years 2013 to 2019. At the Annual General Meeting held on 30 April 2020 it was approved to transfer the profit for 2019 to allocate retained earnings without dividend payments, the profit was allocated to the reserve fund and retained earnings. The following table discloses the distribution of profit for 2019 and proposed distribution of profit for 2020, which does not assume any dividend payments either.
(CZKm) 2020 2019 Transfer to reserve fund 1 27 Transfer to retained earnings 18 512 19 539
35 Shareholders
The shareholder structure of the Bank as at 31 December 2020 and 2019 was as follows:
Voting shareholders Name and registered office Share in % Sberbank Europe AG, Schwarzenbergplatz 3, Vienna 100.00 100.00
170 Sberbank CZ Annual Report 2020 18. Financial Statement for the Year Ended 31 December 2020
36 Related Parties
The ultimate parent company is Sberbank Russia. The parent company Sberbank Europe AG (formerly Volksbank International AG) and companies within Sberbank Group other than the parent company are part of Other related parties.
The amounts of the income, expense and assets and liabilities balances regarding related parties were as follows:
As at 31 December 2020 and year then ended Other Ultimate Parent Manage- related (CZKm) Note Parent company ment parties Total Interest income 3 1 1 1 6 9 Commission and fee income 4 0 0 0 4 4 Interest expense 3 0 7 0 1 8 Commission and fee expense 4 1 1 0 2 4 Net losses from financial instruments at fair value through profit or loss 5 0 133 0 0 133 Administrative expense 8 8 32 111 0 151 Due from banks 13 155 138 0 969 1,262 Derivative financial instruments 14 7 1 0 0 8 Loans and advances 16 0 0 32 0 32 Due to banks 22 46 3 0 145 194 Due to customers 23 0 0 10 0 10 Other liabilities 0 9 0 0 9 Derivative financial instruments 14 1 133 0 0 134 Subordinated debt 27 0 184 0 0 184 Guarantees and commitments given 29 64 10 13 314 401 Guarantees and commitments received 0 613 0 0 613
171 Sberbank CZ Annual Report 2020
As at 31 December 2019 and year then ended Other Ultimate Parent Manage- related (CZKm) Note Parent company ment parties Total Interest income 3 2 1 0 1 4 Commission and fee income 4 0 0 0 4 4 Net gains from financial instruments at fair value through profit or loss 5 5 31 0 0 36 Other operating income 9 0 7 0 0 7 Interest expense 3 0 7 0 2 9 Commission and fee expense 4 1 2 0 3 6 Administrative expense 8 2 41 128 0 171 Due from banks 13 126 2 0 1,023 1,151 Derivative financial instruments 14 5 13 0 0 18 Loans and advances 16 0 0 33 0 33 Other assets 18 0 2 0 1 3 Due to banks 22 3 1,786 0 193 1,982 Due to customers 23 0 0 6 0 6 Derivative financial instruments 14 1 14 0 0 15 Subordinated debt 27 0 178 0 0 178 Guarantees and commitments given 29 20 0 7 385 412 Guarantees and commitments received 29 0 593 0 0 593
Loans and advances to customers and individuals include the following receivables from related parties (Note 16):
Receivables from related parties (CZKm) 31.12.2020 31.12.2019 Management of the Bank 32 31 Members of the Management Board 0 2 Total receivables from related parties 32 33
Receivables from related parties have been made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collaterals, as those prevailing at the same time for comparable transactions with other customers, and did not involve more than the normal credit risk or present other unfavourable features.
172 Sberbank CZ Annual Report 2020
Due to customers includes the following position with related parties:
Deposits from related parties (CZKm) 31.12.2020 31.12.2019 Management of the Bank 7 1 Members of the Management Board 3 5 Deposits from related parties 10 6
Deposits from related parties were accepted on substantially the same terms and conditions, including interest rates, as those prevailing at the same time for comparable transactions with other customers, and did not involve more than the normal interest rate and liquidity risk or present other unfavourable features (Note 22 and 23).
37 Subsequent Events
Edin Karabeg was acting as a Chairman of Management Board until 31 January 2021 when he resigned. Jozefína Trnavská was acting as a member of the Supervisory Board until 31 December 2020 when she resigned. Vratislava Šestáková was acting as a member of the Supervisory Board until 31 January 2021 when she resigned.
There were no other important events which have occurred subsequent to the year-end until the date of preparation of the financial statements and which would have other material impact on the financial statements of the Bank as at 31 December 2020 or would have to be presented in the notes to the financial statements of the Bank as at 31 December 2020.
173 Sberbank CZ Annual Report 2020
19. Quantitative Indicators
The method used for the calculation of quantitative indicators is described and explained in Chapter 17 Alternative Performance Indicators.
CZK thousand 2020 2019 2018 2017 2016 Return on Average Assets ROAA 0.02% 0.67% 0.47% 0.54% 0.37% Return On Average Equity ROAE 0.2% 6.72% 4.80% 5.31% 3.47% Assets Per Employee 127,538 112,212 96,322 89,129 85,673 Administrative Expenses per Employee 1,963 1,992 1,905 1,591 1,664 Net Profit per Employee 17 723 455 464 324 Capital Structure Tier 1 8,478,191 8,433,463 7,927,609 8,142,938 7,790,782 Paid-up Registered capital 2,805,990 2,805,990 2,805,990 2,805,990 2,805,990 Paid-up Share Premium 4,015,635 4,015,635 4,015,635 4,015,635 4,015,635 Legal Reserve Funds 232,724 205,783 186,923 165,735 152,134 Retained Profit from Previous Years 2,187,008 1,675,124 1,316,785 1,343,477 1,085,053 Usable Interim Profit 0 491,400 260,600 290,000 0 Tier 2 109,967 142,118 179,862 178,780 189,140 Deductible Items (763,166) (760,469) (658,322) (477,899) (268,030) Capital 8,588,158 8,575,581 8,107,472 8,321,718 7,979,922 Own Fund Requirements Total own fund requirements relating to credit risk 3,623,035 3,798,100 3,675,458 3,769,348 3,595,457 Total own fund requirements relating to operational risk 317,262 288,906 269,522 266,461 260,390 Total own fund requirements relating to position risk 22,106 23,747 23,317 0 0 Total own fund requirements relating to currency risk 21,809 25,421 41,513 14,745 0 Capital Adequacy Ratio 17.24% 16.59% 16.18% 16.44% 16.55%
174 Sberbank CZ Annual Report 2020
20. Capital Requirements for credit risk
2020 2019 Own Fund Own Fund CZK thousand Exposure Requirement Exposure Requirement Exposure to regional governments and local authorities 169,839 13,587 181,208 14,497 Exposure to public sector 291,612 23,329 0 0 Exposure to institutions 1,440,571 115,246 1,043,319 83,466 Exposure to corporates 19,899,980 1,591,998 23,123,829 1,849,906 Exposure to retail 11,034,471 882,758 10,714,156 857,133 Exposure secured by mortgages on immovable property 8,032,020 642,562 8,445,725 675,658 Exposure in default 653,335 52,267 310,000 24,800 High-risk exposure 1,959,806 156,784 2,207,771 176,622 Other items 1,582,380 126,590 1,216,898 97,352 Total exposure for credit valuation adjustment 223,927 17,914 233,341 18,666 Total 45,287,941 3,623,035 47,476,247 3,798,100
175 Sberbank CZ Annual Report 2020
21. Report on Relationships
The Bank’s Management Board submits, for the accounting period from 1 January 2020 to 31 December 2020, the following Report on Relationships between the Related Entities in accordance with Section 82 et seq. of Act No. 90/2012 Sb. on business corporations, as amended (the “Business Corporations Act”).
1) Controlled Entity Sberbank CZ, a.s., ID No.: 250 83 325, with its registered office at U Trezorky 921/2, Jinonice, 158 00 Prague 5, Czech Republic, entered in the Commercial Register maintained by the Municipal Court in Prague, Section B, Insert 4353 (the “Bank”)
2) Controlling Entity The sole shareholder of the Bank is the company Sberbank Europe AG with its registered office at Schwarzenbergplatz 3, 1010 Vienna, Austria (also “Sberbank Europe”).
Sberbank Europe is an entity directly controlling the Bank.
Sberbank of Russia, with its registered office at 19 Vavilova St., 117997 Moscow, Russian Federation (“Sberbank of Russia”) is an entity indirectly controlling the Bank through Sberbank Europe.
More than 50% of Sberbank of Russia is owned by the Russian Federation represented by the Ministry of Finance of the Russian Federation, the rest is owned by other persons, and none of them, even together with other persons in concert, owns more than 25% of voting rights, owns a share in its registered capital of more than 25%, is the beneficiary of at least 25% of profit, and controls Sberbank of Russia pursuant to provisions of Section 4(4)(a) points 1, 2, 3 of Act No. 253/2008 Sb., on selected measures against legitimisation of proceeds of crime and financing of terrorism (the “AML Act”). Pursuant to Section 4(4)(a) point 4 of the AML Act, natural persons who are factually or legally able to exercise directly or indirectly a controlling influence in the Bank are members of the governing body of the Bank.
3) The structure of relationships between the controlling entity and the controlled entity and between the controlled entity and the entities controlled by the same controlling entity, the role of the controlled entity The Bank is a joint-stock company incorporated under Czech law that operates on the Czech market as an independent bank pursuant to Act No. 21/1992 Sb. on banks, as amended. The Bank provides financial services in accordance with its line of business.
The Bank is part of the international financial group Sberbank. The group is headed by Sberbank of Russia, which owns a number of companies, a list of which is available on the website as well as in the annual report of Sberbank of Russia. Sberbank of Russia operates primarily in the Russian Federation, Central and Eastern Europe (Sberbank Europe), the Republic of Kazakhstan (Subsidiary Bank Sberbank JSC), Ukraine (SBERBANK PJSC), the Republic of Belarus (BPS-Sberbank OJSC), and the Swiss Confederation (Sberbank Switzerland AG). It also has representatives in the Federal Republic of Germany and the People's Republic of China and also owns a branch in the Republic of India.
The structure of relationships between the related entities within the Sberbank Group is listed in Annex 1 to this Report. This structure shows the mutual relationships between individual related entities within the Group. The structure shows the status as of 31 December 2020.
176 Sberbank CZ Annual Report 2020 21. Report on Relationships
Other entities controlled by the same (directly and indirectly) controlling entity with which the Bank maintains regular mutual relation- ships are, in particular, the following entities: Sberbank banka d.d. (Slovenia), Sberbank Magyarország Ztr. (Hungary), Sberbank a.d. BL (Bosnia and Herzegovina), Sberbank Srbija a.d. (Serbia), Sberbank BH d.d. (Bosnia and Herzegovina), Sberbank d.d. (Croatia)
The Bank does not control or mediate the control of another entity.
4) Method and means of controlling The control is exercised mainly through decisions of the sole shareholder exercising the powers of the General Meeting (e.g. through an amendment to the Bank’s Articles of Association) and through members in the bodies of the Bank, i.e. the Supervisory Board and the Audit Committee (e.g. the Supervisory Board appoints and dismisses members of the Management Board of the Bank).
Sberbank Europe AG exercises its shareholder rights in accordance with the Articles of Association of the Bank and the applicable laws and regulations.
5) Overview of acts performed at the initiative or in the interest of the controlling entity or the entities controlled by it if such acts related to assets exceeding 10% of the equity of the controlled entity established according to the last financial statements Unless otherwise stated below, in 2020 the Bank neither adopted nor performed any legal acts relating to assets exceeding 10% of the equity of the controlled entity identified by the last financial statements, at the initiative or in the interest of the related entities.
In 2020, the Bank repeatedly entered into transactions with Sberbank Europe AG in the area of short-term money market deposits, the value of which exceeded 10% of the Bank's equity. These transactions arose under comparable conditions (including interest rates and collateral) as transactions with third parties, and the Bank did not suffer any loss as a result of the fulfillment of these obligations.
6) Overview of mutual agreements between the controlled entity and the controlling entity or between the controlled entities Below is the list of the most important contracts and agreements concluded between the related entities and effective in 2020:
Performance Performance Market Name of the contract Subject matter of the contract provider recipient conditions Contract “Sublicensing QRIC – Provision of the sub-licence for the Sberbank of Russia Sberbank CZ Standard Order + Acceptance” QRIC software Contract “Licence Order (ORACLE)” Provision of licence and support for the Sberbank of Russia Sberbank CZ Standard Oracle software Annexes 1 to 8 and 10 to 13 to the Specific conditions for the provision of Sberbank of Russia Sberbank CZ Standard contract “Licence Order (ORACLE)” and support for the Oracle software Agreement – “Non-Disclosure Arrangement on the obligation Sberbank of Russia Sberbank CZ Standard Agreement” to maintain confidentiality of the confidential information under the cooperation Agreement “Data Transfer Determination of the conditions for Sberbank of Russia Sberbank CZ Standard Agreement” processing of the personal data of data subjects
177 21. Report on Relationships Sberbank CZ Annual Report 2020
Performance Performance Market Name of the contract Subject matter of the contract provider recipient conditions Agreement “Sublicensing Provision of the sub-licence for the Sberbank of Russia Sberbank CZ Standard Agreement” Oracle software Agreement for the Provision Provision of services of the data centre Sberbank of Russia Sberbank CZ Standard of Services (the use and operation of technical equipment server + software) Contract “Sublicensing Mercury – Provision of the sub-licence for the Sberbank of Russia Sberbank CZ Standard Order + Acceptance” Mercury software Contract “Sublicensing Zeus – Order Provision of the sub-licence for the Sberbank of Russia Sberbank CZ Standard + Acceptance” Zeus software Agreement “Connection Agreement Provision of services – secure VPN Sberbank of Russia Sberbank CZ Standard No. 40 (FPSU Tokens)” network Contract “Microsoft Unlimited Provision of the sub-licence for the Sberbank of Russia Sberbank CZ Standard Contract” Microsoft software Agreement “Connection Agreement Provision of services – secure VPN Sberbank of Russia Sberbank CZ Standard No. 30 (FPSU Unit)” network Annexes 1 to 2 to the contract Acknowledgement of receipt of Sberbank of Russia Sberbank CZ Standard “Connection Agreement No. 30 equipment for the implementation (FPSU Unit)” of the provision of services Agreement “Computer Programme Provision of the sub-licence and Sberbank of Russia Sberbank CZ Standard Sublicensing Agreement” support for the software (computer programs) Master Agreement “ISDA – Determination of the framework Sberbank of Russia Sberbank CZ Standard Master Agreement, Schedule, CSA” conditions for OTC derivative Sberbank CZ Sberbank of Russia transactions Annex to the master agreement Specification of the framework Sberbank of Russia Sberbank CZ Standard entitled “ISDA – Master Agreement – conditions for OTC derivative Sberbank CZ Sberbank of Russia Credit Support Annex” transactions Amendment “ISDA VM Credit Changing the conditions for OTC Sberbank of Russia Sberbank CZ Standard Support Annex” derivative transactions Sberbank CZ Sberbank of Russia Master Agreement “GMRA Master Determination of the framework Sberbank of Russia Sberbank CZ Standard Agreement” conditions for repo transactions Sberbank CZ Sberbank of Russia Master Agreement “ISDA – Determination of the framework Sberbank Europe Sberbank CZ Standard Master Agreement, Schedule, CSA” conditions for OTC derivative Sberbank CZ Sberbank Europe transactions Amendment “ISDA VM Credit Changing the conditions for OTC Sberbank Europe Sberbank CZ Standard Support Annex” derivative transactions Sberbank CZ Sberbank Europe Contract “Service Level Agreement Development of a model for the Sberbank Europe Sberbank CZ Standard for Development of IFRS 9 Models” estimation of risk parameters, probability of default and loss given default according to International Financial Reporting Standards, 9 impairment models Agreement “Agreement on the Adjusting conditions for the provision Sberbank Europe Sberbank CZ Standard Provision of Services” of IT services Master Agreement “Master Determination of the master conditions Sberbank Europe Sberbank CZ Standard Agreement – Granting SW Licences for the provision of the licence and and Services” support for software (individual software listed in the appendices to the Master Agreement)
178 Sberbank CZ Annual Report 2020 21. Report on Relationships
Performance Performance Market Name of the contract Subject matter of the contract provider recipient conditions Annexes 1 to 2 to the Master Provision of licence and support for the Sberbank Europe Sberbank CZ Standard Agreement “Granting of Licence – Midas software Midas” Master Agreement “Master Determination of the master conditions Sberbank Europe Sberbank CZ Standard Agreement for Granting of Software for the provision of licence and support Licences and Services” for software (Thomson Reuters – software for trading on markets) Agreement “Services Agreement – Provision of services (designing credit Sberbank CZ Sberbank Europe Standard Strategy Reporting Center” strategies and policies for the approval process of retail products) Annexes 1 to 7 to the Master Specific conditions for underwriting Sberbank CZ Sberbank Europe Standard Agreement “Master Services HUB Agreement” Contract “Contract on Arrangement on the obligation Sberbank Europe Sberbank CZ Standard Confidentiality of Protected to maintain confidentiality of the Information” confidential information Master agreement “Master Determination of the master conditions Sberbank Europe Sberbank CZ Standard Participation Agreement” for mutual cooperation in the provision of financial transactions Contract “Audit Group Contract” Group audit regulation Sberbank Europe Sberbank CZ Standard Master Agreement “ISDA – Determination of the framework Sberbank banka Sberbank CZ Standard Master Agreement, Schedule, CSA – conditions for OTC derivative d.d. Slovenia” transactions Sberbank CZ Sberbank banka d.d. Amendment “ISDA VM Credit Changing the conditions for OTC Sberbank banka Sberbank CZ Standard Support Annex” derivative transactions d.d. Sberbank CZ Sberbank banka d.d. Master Agreement “ISDA – Determination of the framework Sberbank a.d. Banja Sberbank CZ Standard Master Agreement, Schedule, CSA – conditions for OTC derivative Luka Banja Luka” transactions Sberbank CZ Sberbank a.d. Banja Luka Amendment “ISDA VM Credit Changing the conditions for OTC Sberbank a.d. Banja Sberbank CZ Standard Support Annex” derivative transactions Luka Sberbank CZ Sberbank a.d. Banja Luka Master Agreement “ISDA – Determination of the framework Sberbank Srbija a.d. Sberbank CZ Standard Master Agreement, Schedule, CSA – conditions for OTC derivative Sberbank CZ Sberbank Srbija a.d. Serbia” transactions Amendment “ISDA VM Credit Changing the conditions for OTC Sberbank Srbija a.d. Sberbank CZ Standard Support Annex” derivative transactions Sberbank CZ Sberbank Srbija a.d. Master Agreement “ISDA – Determination of the framework Sberbank BH d.d., Sberbank CZ Standard Master Agreement, Schedule, CSA – conditions for OTC derivative Sarajevo Bosnia and Herzegovina” transactions Sberbank CZ Sberbank BH d.d., Sarajevo Amendment “ISDA VM Credit Changing the conditions for OTC Sberbank BH d.d., Sberbank CZ Standard Support Annex” derivative transactions Sarajevo Sberbank CZ Sberbank BH d.d., Sarajevo
179 21. Report on Relationships Sberbank CZ Annual Report 2020
Performance Performance Market Name of the contract Subject matter of the contract provider recipient conditions Master Agreement “ISDA – Determination of the framework Sberbank Sberbank CZ Standard Master Agreement, Schedule, CSA – conditions for OTC derivative Magyarország Zrt. Hungary” transactions Sberbank CZ Sberbank Magyarország Zrt. Amendment “ISDA VM Credit Changing the conditions for OTC Sberbank Sberbank CZ Standard Support Annex” derivative transactions Magyarország Zrt. Sberbank CZ Sberbank Magyarország Zrt. Master Agreement “ISDA – Determination of the framework Sberbank d.d. Sberbank CZ Standard Master Agreement, Schedule, CSA – conditions for OTC derivative Sberbank CZ Sberbank d.d. Croatia” transactions Amendment “ISDA VM Credit Changing the conditions for OTC Sberbank d.d. Sberbank CZ Standard Support Annex” derivative transactions Sberbank CZ Sberbank d.d. Master Agreement “Master Determination of the master conditions Sberbank Sberbank CZ Standard Agreement No. 01-1.12/2/2015” for the provision of technological Technologies Minsk support (Controlled entity Sberbank of Russia) Agreement “Non-Disclosure Arrangement on the obligation Sberbank Sberbank CZ Standard Agreement No. NDA-01-1-12/2/2015” to maintain confidentiality of the Technologies Minsk confidential information under the (Controlled entity cooperation Sberbank of Russia) Agreement “Guarantee and Guarantee to cover potential losses Sberbank Europe Sberbank CZ Standard Indemnity” as a result of what is known as the “haircut” in the real property value for the selected loan transactions Agreement for the Provision of IT adjusting conditions for the provision of ALB-EDV GmbH Sberbank CZ Standard Services IT services Licence Agreement Provision of a software sub-licence ALB-EDV GmbH Sberbank CZ Standard Annex to the Master Agreement License and maintenance cost – zeb. Sberbank Europe Sberbank CZ Standard control.accounting Annex to the Master Agreement Maintenance cost – REDIS – internal Sberbank Europe Sberbank CZ Standard audit system Annex to the Master Agreement VisionR – maintenance cost Sberbank Europe Sberbank CZ Standard Annex 4 to the Master Agreement Framework agreement on the level Sberbank Europe Sberbank CZ Standard of IT services provided by Sberbank Europe Annex 1 to the Master Agreement Local regulations and requirements Sberbank Europe Sberbank CZ Standard Annex to the Master Agreement License (APA, ARM, RHUB, systematic Sberbank Europe Sberbank CZ Standard internaliser) and maintenance (Murex) cost Master Agreement “Master Determination of conditions for the Sberbank Europe Sberbank CZ Standard Agreement for Granting of Software provision of services licences and Service” Agreement “Service Level Determination of conditions for the Sberbank Europe Sberbank CZ Standard Agreement for Application zeb. provision of the application control.accounting” Annex to the Master Agreement MIDAS – the cost of development, Sberbank Europe Sberbank CZ Standard maintenance and license
180 Sberbank CZ Annual Report 2020 21. Report on Relationships
Performance Performance Market Name of the contract Subject matter of the contract provider recipient conditions Annex to the Master Agreement Misys S1/FES, Midas FRA/IRS – Sberbank Europe Sberbank CZ Standard license and maintenance cost Annex to the Master agreement Change of Service Provider for Group Sberbank Europe Sberbank CZ Standard for granting of Software licences EMIR/MIFIR reporting and services Annex to the master agreement Blue Prism License Sberbank Europe Sberbank CZ Standard for granting of software licences and services Master Data Protection and Master Data protection and data Sberbank Europe Sberbank CZ Standard Processing Agreement processing – GDPR Service Level Agreement for Provision of a centralised SBEU group Sberbank EUROPE Sberbank CZ Standard application Forbearance tool solution for forbearance exposures SLA for MS Reporting Services Provision of MS reporting Sberbank Europe Sberbank CZ Standard SLA for BART Provision of BART Sberbank Europe Sberbank CZ Standard SLA Annex for Abraxas Annex for Abraxas provision Sberbank Europe Sberbank CZ Standard SLA Annex for Multicash Annex for Provision of Milticash Sberbank Europe Sberbank CZ Standard Telebanking Telebanking SLA Annex for Apello – Annex for SLA – Collateral Sberbank Europe Sberbank CZ Standard Collateral Management System Management system SLA Annex for BART – Annex to the SLA for provision of BART Sberbank Europe Sberbank CZ Standard Operational Risk System app SLA for SAP BOFC Provision of SAP BOFC Sberbank Europe Sberbank CZ Standard Sberbank Markets System User Sberbank Markets System Sberbank of Russia Sberbank CZ Standard Agreement Term Loan Agreement Term loan facility Sberbank CZ Sberbank Europe Standard Correspondent Account Agreement Correspondent Account Sberbank Europe Sberbank CZ Standard Agreement on the opening and Correspondent Account Sberbank CZ Sberbank a.d. Banja Standard management of the correspondent Luka account Agreement on the opening and Correspondent Account Sberbank CZ Sberbank BH Standard management of the correspondent account Agreement on the opening and Correspondent Account Sberbank CZ Sberbank Hungary Standard management of the correspondent account Nostro Account Agreement Nostro Account Sberbank Hungary Sberbank CZ Standard Agreement on the opening and Correspondent Account Sberbank CZ Sberbank Slovenia Standard management of the correspondent account Agreement on the opening and Correspondent Account Sberbank Slovenia Sberbank CZ Standard management of the correspondent account Agreement on the opening and Correspondent Account Sberbank CZ Sberbank Serbia Standard management of the correspondent account Agreement on the opening and Correspondent Account Sberbank CZ Sberbank Croatia Standard management of the correspondent account
181 21. Report on Relationships Sberbank CZ Annual Report 2020
The legal predecessor of the Bank is Volksbank CZ, a.s. (“Volksbank CZ”). As a result of the acquisition, the Bank as the legal successor acquired all the rights and obligations of Volksbank CZ, including the contractual relationships arising from validly concluded contracts. And, therefore, the list of contracts above does not distinguish between the Bank and Volksbank CZ.
One-off contracts and agreements with insignificant performance concluded with Sberbank Europe AG, Sberbank of Russia, as well as other related parties are not mentioned.
The Bank and Sberbank of Russia enter, on a continuous basis and under standard market conditions, into other relationships as follows: a) relationships regarding interbank deposits, for which the Bank paid or received interest under standard market conditions, b) relationships regarding the maintenance of a current account for which the Bank paid or received fees and paid or received interest under standard market conditions, c) credit transactions in trade finance, for which the Bank received a fee or interest under standard market conditions, d) operations in the foreign exchange market under standard market conditions, e) relationships regarding the maintenance of nostro and loro accounts.
The Bank and Sberbank Europe AG enter, on a continuous basis and under standard market conditions, into other relationships as follows: a) relationships regarding interbank deposits, for which the Bank paid or received interest under standard market conditions, b) relationships regarding the maintenance of a current account for which the Bank paid or received fees and paid or received interest under standard market conditions, c) credit transactions in corporate financing, for which the Bank paid or received a fee or interest under standard market conditions, d) operations in the foreign exchange market under standard market conditions, e) relationships regarding the maintenance of loro accounts.
The Bank, together with other controlled entities, enter, on a continuous basis and under standard market conditions, into other rela- tionships as follows: a) money market operations, b) foreign exchange market operations, c) maintenance of loro and nostro accounts, d) maintenance of current accounts for which the Bank paid or received fees and paid or received interest under standard market conditions,
Within the Sberbank Group, the Bank cooperates in group projects, the overall objective of which is to fully exploit the business potential of Central European markets in all segments. The governing body concluded that the relationships are fully comparable with similar contractual relationships, which the Bank enters in the field of interbank transactions.
7) Assessment of the potential damage to the controlled entity In 2020, the Bank did not suffer any damage/loss as a result of relationships between related entities.
182 Sberbank CZ Annual Report 2020 21. Report on Relationships
8) The assessment of relationships between the controlling entity and the controlled entity and between the controlled entity and the entities controlled by the same controlling entity The Bank operates on the Czech market as a universal and an independent bank in accordance with the applicable laws and regulations, providing financial services to its clients in accordance with its line of business and banking licence. In 2020, the Bank duly observed and complied with the legal and regulatory requirements.
The Bank confirms that in 2020 the controlling entity did not abuse the influence (whether directly or indirectly) of a controlling entity to force the adoption of any measure or to conclude any contract that could result in any damage to the Bank.
The relationships between the Bank and other related entities in 2020 corresponded to standard market conditions and the contracts and agreements concluded with these related entities can be regarded as mutually beneficial. The mutual cooperation between the related entities within the Sberbank Group brings benefits for the Bank, among other things also in the form of strengthening the position of the Bank in the market and expanding the range of financial services to its clients.
The Bank is not aware that the above-mentioned relationships within the Sberbank Group create any disadvantages for the Bank.
9) Statement of the Management Board The Management Board hereby declares that this Report has been prepared in accordance with Section 82 et seq. of the Business Cor- porations Act. This Report has been prepared with due care and to the best knowledge of the Management Board so as to fulfil the purpose of the Business Corporations Act and provide a credible Report on relationships between the related entities within the Sberbank Group.
In Prague on 16 March 2021
On behalf of Sberbank CZ, a.s.
…………………………………………….. …………………………………………….. Dušan Baran Jindřich Horníček Deputy Chairman of the Management Board Member of the Management Board
183 21. Report on Relationships Sberbank CZ Annual Report 2020 Structure of Relationships between Related Entities Valid as of 31 December 2020
ANNEX NO. 1 TO THE REPORT ON RELATIONSHIPS
Structure of Relationships between Related Entities Valid as of 31. December 2020 Sberbank of Russia
Ukraine Switzerland Kazakhstan Sberbank Russia Belarus Sberbank PJSC Sberbank AG Subsidiary Bank Sberbank JSC Europe AG Cetelem Bank LLC BPS-Sberbank OJSC (100%) (99.82%) (100%) (100%) (79.20%) (98.43%)
Other companies Other companies Other companies Branch Other companies Sberbank Direkt (Sberbank Europe AG, Zweigniederlassung Deutschland) (100%)
Sberbank SBAG Sberbank CZ, a.s. Sberbank d.d. Sberbank banka d.d. Sberbank Srbija a.d. Sberbank a.d. BL (0.3601%) Sberbank BH d.d. SA CoopEst Magyarország Zrt. IT Services GmbH (100%) (100%) (99.9909%) (100%) (99.6399%) (100%) (9.7153%) (98.9268%) (100%)
V-Dat Informatikai Hrvatski registar obveza Privatinvest d.o.o. Centralni registar HOV a.d. Registar vrijednosnih ALB EDV-Service GmbH Kapsch IT Services 1) Szolgaltato es Kereskedlmi Kft. po kreditima drustvo (100%) Banka Luka papira u FBiH, d.d. (100%) for finance and (0.0000%) s organicenom (4.0000%) Sarajevo industries GmbH odgovornoscu (0.6870%) (1.0000%) za poslovne usluge BANKART d.o.o. Pronam Nekretnine d.o.o. East Site Ingatlanforgalmazo (1.0444%) (0.3937%) Society of Worldwide (100%) es Ingatlanhasznosito Korlatolt Interbank Financial Fiducia Mailing Felelossegu Tarsasag Telecommunication SCRL Services eG (100%) Sklad za reševanje bank (0.0055%) (0.0654%) (8.5566%) (19.99%) Károlyi Ingatlan 2011 Korlatolt ARZ-Volksbanken Felelossegu Tarsasag KRKA, d.d. Superkartica d.o.o. (13.0100%) Holding Gmbh (100%) (0.0122%) (33%) (0.0284%)
Fundamenta-Lakaskassza Society of Worldwide Einlagensicherung d. Lakastakarekpenztar Interbank Financial Banken und Zartkoruen Mukodo Telecommunication Bankiers GmbH 2) SCRL Reszvenytarsasag (0.0000%) (1.3900%) (0.0018%)
Einlagensicherung Garantiqa Hitelgarancia Austria GmbH Zartkoruen (0.1942%) Mukodo Reszvenytarsasag (0.1036%)
Society of Worldwide Interbank Financial Telecommunication SCRL (UK) (0.0027%)
Visa Inc.3) (0.0000%)
184 Sberbank CZ Annual Report 2020 21. Report on Relationships Structure of Relationships between Related Entities Valid as of 31 December 2020
Sberbank of Russia
Ukraine Switzerland Kazakhstan Sberbank Russia Belarus Sberbank PJSC Sberbank AG Subsidiary Bank Sberbank JSC Europe AG Cetelem Bank LLC BPS-Sberbank OJSC (100%) (99.82%) (100%) (100%) (79.20%) (98.43%)
Other companies Other companies Other companies Branch Other companies Sberbank Direkt (Sberbank Europe AG, Zweigniederlassung Deutschland) (100%)
Sberbank SBAG Sberbank CZ, a.s. Sberbank d.d. Sberbank banka d.d. Sberbank Srbija a.d. Sberbank a.d. BL (0.3601%) Sberbank BH d.d. SA CoopEst Magyarország Zrt. IT Services GmbH (100%) (100%) (99.9909%) (100%) (99.6399%) (100%) (9.7153%) (98.9268%) (100%)
V-Dat Informatikai Hrvatski registar obveza Privatinvest d.o.o. Centralni registar HOV a.d. Registar vrijednosnih ALB EDV-Service GmbH Kapsch IT Services 1) Szolgaltato es Kereskedlmi Kft. po kreditima drustvo (100%) Banka Luka papira u FBiH, d.d. (100%) for finance and (0.0000%) s organicenom (4.0000%) Sarajevo industries GmbH odgovornoscu (0.6870%) (1.0000%) za poslovne usluge BANKART d.o.o. Pronam Nekretnine d.o.o. East Site Ingatlanforgalmazo (1.0444%) (0.3937%) Society of Worldwide (100%) es Ingatlanhasznosito Korlatolt Interbank Financial Fiducia Mailing Felelossegu Tarsasag Telecommunication SCRL Services eG (100%) Sklad za reševanje bank (0.0055%) (0.0654%) (8.5566%) (19.99%) Károlyi Ingatlan 2011 Korlatolt ARZ-Volksbanken Felelossegu Tarsasag KRKA, d.d. Superkartica d.o.o. (13.0100%) Holding Gmbh (100%) (0.0122%) (33%) (0.0284%)
Fundamenta-Lakaskassza Society of Worldwide Einlagensicherung d. Lakastakarekpenztar Interbank Financial Banken und Zartkoruen Mukodo Telecommunication Bankiers GmbH 2) SCRL Reszvenytarsasag (0.0000%) (1.3900%) (0.0018%)
Einlagensicherung Garantiqa Hitelgarancia Austria GmbH Zartkoruen (0.1942%) Mukodo Reszvenytarsasag (0.1036%)
Society of Worldwide Interbank Financial Telecommunication SCRL (UK) (0.0027%) Note: 1) liquidated 2) Visa Inc.3) in liquidation 3) (0.0000%) share – stand alone 0,00000001907%
185 Sberbank CZ Annual Report 2020
22. Affidavit
We, the undersigned, hereby declare that the Annual Report for the year 2020 provides, to the best of our knowledge, a true and accurate picture of the financial position, business activities and profit and loss of the Bank for the previous fiscal period and of the outlook of the future financial situation, business activities and profit and loss.
In Prague on 16 March 2021
On behalf of Sberbank CZ, a.s.
…………………………………………….. …………………………………………….. Dušan Baran Jindřich Horníček Deputy Chairman of the Management Board Member of the Management Board
186 Sberbank CZ Annual Report 2020
23. Independent Auditor’S Report
This version of the annual report has been prepared for marketing purposes and has not been audited.
The audited version is published https://www.sberbank.cz/en/povinne-uverejnovane-informace
187 Sberbank CZ Annual Report 2020
24. Our Network
Head office Branches Prague Brno Liberec Prague 5 U Trezorky 921/2 M-Palác, Heršpická 5 Soukenné náměstí 26 Karla Engliše 1 (Anděl) 158 00 Prague 5 658 26 Brno 460 01 Liberec 150 00 Prague 5 Tel.: +420 800 133 444 Brno Olomouc Prague 7 Corporate centres Panská 2/4 Horní náměstí 17 Strossmayerovo náměstí 967/12 602 00 Brno 772 00 Olomouc 170 00 Prague 7 Brno M-Palác, Heršpická 5 658 26 Brno Brno Ostrava Prague 9 Tel.: +420 543 525 219 Galerie Vaňkovka, Nádražní 643/11 Centrum Černý Most, Ve Vaňkovce 1 702 00 Ostrava Chlumecká 765/6 602 00 Brno 198 19 Prague 9 Hradec Králové Gočárova třída 718/13 Pardubice 500 02 Hradec Králové České Budějovice 17. listopadu 408 Teplice Tel.: +420 495 000 362 nám. Přemysla Otakara II. č. 27 530 02 Pardubice OC Galerie, 370 01 České Budějovice Náměstí Svobody 3316 415 01 Teplice Jihlava Plzeň Matky Boží 1 Frýdek-Místek Americká 1981/24 586 01 Jihlava OC Frýda, Na Příkopě 3727 301 00 Plzeň Ústí nad Labem Tel.: +420 567 584 530 738 01 Frýdek-Místek Mírové náměstí 3428/5A 400 01 Ústí nad Labem
Ostrava Hradec Králové Prague 1 Nádražní 643/11 Gočárova třída 718/13 Na Příkopě 860/24 Zlín 702 00 Ostrava 500 02 Hradec Králové 110 00 Prague 1 Štefánikova 5293 Tel.: +420 595 133 415 760 01 Zlín Jihlava Prague 2 Plzeň Matky Boží 1 Lazarská 8/13 Znojmo Americká 1981/24 586 01 Jihlava 120 00 Prague 2 Jana Palacha 1262/11 301 00 Plzeň 669 02 Znojmo Tel.: +420 377 350 225 Karlovy Vary Prague 2 T. G. Masaryka 854/25 Náměstí I. P. Pavlova 3 Prague 5 360 01 Karlovy Vary 120 00 Prague 2 U Trezorky 921/2 158 00 Prague 5 Prague 4 Tel.: +420 221 584 042 Na Pankráci 1724/129, P.O.Box 74 Ústí nad Labem 140 00 Prague 4 Mírové náměstí 3428/5A 400 01 Ústí nad Labem Tel.: +420 475 667 009
Zlín Štefánikova 5293 760 01 Zlín Tel.: +420 577 002 112
188 Sberbank CZ Annual Report 2020 24. Our Network
ATMs Brno Jihlava Plzeň Prague 5 Panská 2/4 Matky Boží 1 Americká 1981/24 U Trezorky 921/2 602 00 Brno 586 01 Jihlava 301 00 Plzeň 158 00 Prague 5 Open 24 hours Open 24 hours Open 24 hours Open 24 hours
Brno Karlovy Vary Prague 1 Prague 7 M-Palác, Heršpická 5 T. G. Masaryka 854/25 Na Příkopě 860/24 Strossmayerovo náměstí 967/12 658 26 Brno 360 01 Karlovy Vary 110 00 Prague 1 170 00 Prague 7 Open 24 hours Open 24 hours Open 24 hours Open 24 hours
Brno Liberec Prague 2 Prague 9 Galerie Vaňkovka, Soukenné náměstí 26 Lazarská 8/13 Centrum Černý Most, Ve Vaňkovce 1 460 01 Liberec 120 00 Prague 2 Chlumecká 765/6 602 00 Brno Open 24 hours 0-24 hodin 198 19 Prague 9 Open 7 a.m. – 10 p.m. Open Mon – Sun: 8 a.m. – 10 p.m. Olomouc Prague 2 České Budějovice Horní náměstí 14/17 Náměstí I. P. Pavlova 3 nám. Přemysla Otakara II. č. 772 00 Olomouc 120 00 Prague 2 Teplice 89/27 Open 24 hours Open 24 hours OC Galerie, 370 01 České Budějovice Náměstí Svobody 3316 Open 24 hours 415 01 Teplice Ostrava Prague 4 Nádražní 643/11 Na Pankráci 1724/129 Open 24 hours Frýdek-Místek 702 00 Ostrava 140 00 Prague 4 OC Frýda, Na Příkopě 3727 Open 24 hours Open 24 hours Ústí nad Labem 738 01 Frýdek-Místek Mírové náměstí 3428/5A Open Mon – Sat: 7 a.m. – 8 p.m. 400 01 Ústí nad Labem Pardubice Prague 5 Sun: 8 a.m. – 8 p.m. 17. listopadu 408 Karla Engliše 1 Open 24 hours 530 02 Pardubice 150 00 Prague 5 Hradec Králové Open 24 hours Open 24 hours Zlín Gočárova třída 718/13 Štefánikova 5293 500 02 Hradec Králové 760 01 Zlín Open 24 hours Open 24 hours
Znojmo Ústí nad Jana Palacha 1262/11 Labem 669 02 Znojmo Liberec Open 24 hours Teplice Hradec Králové
Karlovy Vary
Pardubice Praha Ostrava
Plzeň Frýdek-Místek Olomouc
Jihlava České Budějovice Zlín Brno
Znojmo
189 Sberbank CZ, a.s. U Trezorky 921/2 158 00 Praha 5, Česká republika Tel.: +420 221 969 911, Fax: +420 221 969 951 [email protected], www.sberbank.cz
Sberbank Europe AG Schwarzenbergplatz 3 1010 Vienna, Austria Tel.: +43 1 22732-0 [email protected], www.sberbank.at
The annual report is published on the Sberbank CZ website (section Annual Reports and Financial Results) at: https://www.sberbank.cz/en/povinne-uverejnovane-informace
© 2019 Sberbank CZ, a.s.