Survey of key data

Survey of key data

Raiffeisen Group (IFRS compliant)  Monetary values in HRK milions

2011 Change 2010 2009 Income statement Net interest income 1,341 2.37% 1,310 1,165 Net commission income 413 (6.35%) 441 385 Trading profit (loss) (64) (146.38%) 138 329 Administrative expenses (1,287) (12.75%) (1,475) (1,373) Profit before tax 387 (26.98%) 530 500 Profit after tax 305 (29.07%) 430 390 Consolidated profit 302 (28.94%) 425 379

Balance Sheet Loans and advances to banks 1,851 (49.86%) 3,692 2,273 Loans and advances to customers 27,049 1.86% 26,556 25,715 Deposits from banks 766 0.66% 761 588 Deposits from customers 23,245 3.70% 22,415 21,192 Borrowings 9,562 (20.14%) 11,974 13,943 Equity 5,743 (1.24%) 5,815 5,538 Balance-sheet total 41,184 (4.24%) 43,009 42,621

Regulatory own funds Total own funds 5,420 (2.69%) 5,570 5,269 Own funds requirement 3,887 (2.90%) 4,003 3,784 Excess cover 39.45% 0.30p.p. 39.15% 40.25% Core capital ratio 16.92% 0.06p.p. 16.86% 14.03% Own funds ratio 16.73% 0.03p.p. 16.70% 13.92%

Performance Return on equity (ROE) before tax 7.01% (2.69p.p.) 9.70% 9.31% Cost/income ratio 61.85% 1.82p.p. 60.03% 57.47% Earnings per share (HRK) 83 (29.06%) 117 102 Return on assets (ROA) before tax 0.92% (0.32p.p.) 1.24% 1.16% Provisions for possible loan losses/risk  weighted assets 5.30% 1.66p.p. 3.64% 2.19%

Resources Number of stuff on balance-sheet date on December, 31 2,393 (4.96%) 2,518 2,502 Banking outlets on balance-sheet date on December, 31 73 (2.67%) 75 75

2 www.rba.hr Contents

Contents

Introduction 4 Letter from the Management Board Chairman 4 Statement by the Supervisory Board Chairman 7 Macroeconomic climate 9

2011 Business Developments 17 Officers of the Bank 18 Market position 20 Bank operations 23 Group operations 26 Raiffeisen Bank International Group 29

Glossary 34

Financial Statements 35 Statement of the Management and Supervisory Board’s responsibilities 36 Independent auditors’ report 37 Consolidated statement of financial position 39 Consolidated statement of comprehensive income 41 Consolidated statement of changes in equity 42 Consolidated statement of cash flow 43 Unconsolidated statement of financial position 45 Unconsolidated statement of comprehensive income 47 Unconsolidated statement of changes in equity 48 Unconsolidated statement of cash flow 49 Notes to the financial statements 51 Appendix I  Regulatory forms requested by the Croatian National Bank 151

Supplementary financial statements 162

Contacts 169 Branch network in Croatia 170 Addresses and contacts for Raiffeisen Bank International Group members 174

www.rba.hr 3 Letter of the Management Board Chairman

Letter of the Management Board Chairman

It is my pleasure, on behalf of the Management Board of Raiffeisenbank Austria d.d., to present the key figures from the 2011 Annual Report, which has been audited by Deloitte international auditors.

The results achieved by the Bank and the local Raiffeisen Group are a statement of the business policy adjustment to changes in market conditions. Specifically, the business results of financial institutions largely reflect the difficulties faced by the economy. At the end of yet another year without economic growth, we find that a difficult environment is becoming a somewhat permanent feature of business in the Croatian financial market. Demand for financial products and services has weakened while the share of non-performing loans in the banks' total loan volume has increased. However, the results achieved in the first half of the year gave no indication of a new deterioration of business conditions that was to follow in the second half.

Financial markets in the region were stable in the first half of 2011, with an unhampered movement of capital across borders. In June, Croatia successfully ended its long negotiations on accession to the European Union. The accession treaty was signed late in the year, and July 2013 confirmed as the definite membership date to follow a ratification of the accession treaty by all member states. The completion of negotiations at the end the first half led to a surge of optimism among entrepreneurs, previously reinforced by a stabilisation of risk premiums on Croatian debt instruments. The entrepreneurial optimism reflected itself in the confidence of foreign investors. The terms of financing of the central government and the financial sector in international markets improved, as did the supply and cost of capital in the domestic financial market. As a result, lending rates declined, enabling a slight increase in production and employment in the economy after two years of recession. The second half of the year was marked by growing instability in international financial markets. The debt crisis in the peripheral eurozone member states fuelled renewed fears among investors, who seek "safe havens" for their capital these days instead of investing in high-risk markets. Greater risk aversion widened the gap between the risk premium of the countries with lower credit ratings and those of first-rate borrowers. Croatia's risk premium doubled compared to the average level in the first half of the year. An increase in the cost of external funding scattered any signs of recovery seen in the summer and pushed the economy back towards a new wave of recession. Therefore, positive effects of the government subsidies for working capital loans to businesses were erased by the negative trends spilling over from international financial markets to the local market.

In 2011, Raiffeisenbank maintained its position as one of the leading banks in the Croatian market. Together with the local Group, we provide a complete range of financial products and services to our clients. Through an extensive distribution network, consisting of 73 outlets and alternative electronic distribution channels, we enable access to competitive products and services to clients of all profiles. In the corporate segment, state incentives to the financing of working capital were relaunched and modified

4 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Letter of the Management Board Chairman

under the so-called Model A+. Their modifications were aimed at further reducing the credit risk of enterprises while boosting their demand for bank loans. The year's first half saw a decline in average interest rates on corporate loans. However, small and medium-sized enterprises found it increasingly difficult to meet the banks' credit criteria. Therefore, we sought ways to boost their financing within the local Raiffeisen Group  via factoring for working capital purposes and via leasing for investments in fixed assets.

A contraction of household sector demand for loans continued to plague last year. It stems from an increasing aversion to borrowing in that segment. As demand shrank, Raiffeisenbank invested additional efforts into business process improvements and enhancing the service quality while at the same time maintaining the stability of its loan portfolio by intensifying collection activities with regard to non- performing loans. Client fear of further borrowing is based on recent experiences. As currency risks materialised, borrowers faced an increasing burden of loan repayments. A continued employment decline coupled with an expected drop of real wages to reinforce fears among potential borrowers. Following the summer appreciation of the Swiss franc against the kuna, the Swiss central bank intervened in September to halt the franc exchange rate advance against the euro, therefore also halting its advance against the kuna. However, this only helped reduce the level of uncertainty of the borrowers exposed to the franc exchange rate rather than actually easing the burden of loan repayment. Thanks to the persistent efforts of the Croatian National Bank to maintain the kuna stable against the euro, the burden of repaying the loans indexed to the euro did not worsen significantly, but long-term loan demand in this segment did not recover either. Prevailing fears among already indebted citizens of a further decline in living standards and the potential inability to make loan repayments in the future leads to a postponement of durable goods purchases.

The operations of other members of the Raiffeisen Group depend on the potential of the market segment in which they operate to absorb specific financial products or services. The leasing business is affected by demand for fixed assets. The absence of demand growth in the goods and services market has prompted companies to postpone planned investment in capital goods. Therefore, the demand for long-term financial products, and leasing products in particular, has also weakened. The performance of investment and pension funds is related to developments in capital markets. Most of the portfolio of pension funds is invested in debt instruments of the Republic of Croatia. Rising sovereign risk premiums in the second half of 2011 resulted in a reduction in the price of government debt. This reduced the funds' net asset value. The dominant share of sovereign risk in the overall portfolio of pension funds has led to negative returns at the end of the year. A decline in the value of financial assets has heightened investor uncertainty, reducing the assets value of investment funds too.

The Raiffeisen Group's 2011 profit after tax was 305 million kuna. Smaller trading profit and other non- interest income had the greatest impact on the business results in the reporting period. Declining market prices of financial assets contributed to a profit fall of 125 million kuna compared to the previous year. The fee income of non-bank members of the Group depends on the movements of assets under management. In 2011, the value of assets of investment funds managed by Raiffeisen Invest shrank 24.9 per cent, and the value of Raiffeisen voluntary pension funds declined 6.2 per cent, leading to a decrease in the net income from asset management fees. Raiffeisen mandatory pension fund assets were the only ones to record an increase, namely by 11.9 per cent thanks to new contribution payments. Harsh conditions for growth were used by the Group to focus on achieving positive business results by improving process efficiency and enhancing debt collection.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 5 Letter of the Management Board Chairman

The Raiffeisen Group's operating expenses stood at 1,287 million kuna, or 188 million lower compared to the previous year. The Group continued to streamline its business processes while also seeing some positive effects of investments into the improvement of technological support to business made in previous years. Overdue receivables from clients rose during the crisis, and the Group responded by stepping up its debt collection activities and developing a debt management and loan restructuring process. Impairment losses on investments and liabilities amounted to 407 million kuna, which is 9.6 per cent lower than in the previous year. Smaller losses are a result of more moderate growth of credit risks and improvements in the debt collection process.

The Bank's assets decreased 4.9 per cent to 38,460 million kuna in 2011. Raiffeisenbank reduced its liquid assets amid adjustments in the amount of liquidity reserves to the money market supply. Its total loan volume stood at 25,624 million kuna. Loan growth was achieved in the segment of large and medium- sized enterprises, where loans secured by government guarantees and those granted under Model A+ of the HBOR programme provided a positive impetus for loan increases. The small enterprise and retail segment saw no recovery in loan demand due to prevailing negative expectations of the labour market and in private sector consumption.

Market confidence in Raiffeisenbank is evident from the increase in retail deposits. Unfortunately, reduced liquidity in the corporate sector also affected the deposit balance. However, total customer deposits at the Bank rose to 23,355 million kuna, or 2.4 per cent over the previous year. Due to permanent excess liquidity in the banking system, deposit interest rates have been on a gradual decline. The risk premium on Raiffeisenbank's borrowing rose in the second half of the year, reducing the attractiveness of on-lending from the loans taken out. The amount of loans was reduced by 2,255 million kuna compared to the previous year to 7,200 million in total. The Bank's capital amounted to 5,632 million kuna.

We responded to the market challenges over the past year by improving our business processes. By adjusting our operations continually to market conditions and client requirements, we are striving to use resources more rationally so as to improve productivity and business efficiency. The main objective is increased satisfaction of our clients. Relying on the effort of all employees of the local Raiffeisen Group, we are pressing on with the development of a comprehensive financial service, aimed at satisfying all client needs for financial products and services.

Zdenko Adrović Chairman of the Management Board

6 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Statement by the Supervisory Board Chairman

Statement by the Supervisory Board Chairman

Ladies and gentlemen,

2011 was once again a fairly eventful year. The developments in Europe, and particularly in the peripheral states of the eurozone, left their mark on the group headed by Raiffeisen Bank International AG (RBI), the parent company of Raiffeisenbank Austria d.d. Zagreb. While our exposure to these states was traditionally low and we were not directly affected, we too were unable to escape the effects of the market environment following the sovereign debt crisis.

RBI and banks in general are facing a lot of new rules. From our point of view, however, they are introduced at an unfortunate time and in too much haste. The regulations published by the European Banking Authority (EBA) at the end of October which call for a core tier 1 capital ratio of 9 per cent by the end of June 2012 put pressure on many banks in Europe. However, we  to be more exact, the RZB Group  are well-equipped to handle this. We have put together a comprehensive bundle of measures, consisting of numerous individual measures. We are also in the fortunate position of making profits which are strengthening our equity. As a result, we can meet the new requirements from our own resources.

By meeting the EBA ratio, RBI is also reaching the Basel III ratio of 7 per cent, which the Austrian regulators have set as mandatory earlier than previously planned, namely from the start of 2013. Moreover, the Austrian regulators implemented a ratio system for banks operating in Central and Eastern Europe to bring funding from other sources than the shareholder and loans into balance. We do not regard the guideline that only 110 euro should be lent for every 100 euro of deposits (including certain other forms of funding) as a major restriction. As growth in lending is tied to economic growth, it is likely to be moderate in the next few years. Looking at growth rates, we have to distinguish between markets. While in the eurozone we are facing a real systemic and political crisis, in Central and Eastern Europe the economic uptrend is largely continuing. This region is and will continue to be the growth driver for Europe. Even if economic growth in the CEE region slows from 3.7 per cent in 2011 to 2.6 per cent in 2012, this is still higher than in the eurozone. This is not a bad outlook for us.

In this difficult environment, the RBI Group generated a profit before tax of 1,37 billion euro, which is a solid result we can rightly be proud of. One thing that made this possible is that the markets in Central and Eastern Europe continued to show comparatively high economic growth, which also resulted in a significant improvement in our risk situation. Our result confirms our sustainable business model, which will continue to keep us very competitive!

The Croatian economy has been slower in moving towards a recovery in comparison to the growth pace in Central and Eastern Europe as a whole. On its way to recovery, it has to overcome pronounced structural imbalances while also developing a recognisable offering of competitive products and services. Administrative obstacles to the development of entrepreneurship in the year under review were still strong, stifling positive

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 7 Statement by the Supervisory Board Chairman

impulses from the region. They also proved too overpowering for growth incentives, implemented through government measures to stimulate lending to businesses. However, the completion of negotiations for the accession to full membership of the European Union gives us reason for optimism. Consequently, we expect the local market to become more attractive to new investments, which could help set the economy on a path of sustainable growth in the coming period.

The common market entry will bring new challenges for business operations of our local Group. Further business process development, excellence of the offering and familiarity with the needs and requirements of our customers are crucial to making progress in challenging integration processes. The focus on client needs was the idea that steered Raiffeisenbank in the period of rapid sales growth, and the same vision has given rise to the activities aimed at improving the internal efficiency and generating a higher added value, not only in the period of stagnation but also in our future recovery. Timely preparations for a rapid adjustment of our products and services to growing client needs in a highly competitive market may be achieved only by implementing the highest operating standards and through synergy within the RBI Group. This has to be accompanied by efforts at strengthening business support so as to enable simultaneous compliance with increasingly more demanding regulatory and business requirements, as well as risk assessment and monitoring in the common market. The experience RBI has gathered by doing business in the countries which have already gone through the EU accession process is an exceptional advantage in this respect which we shall use in Croatia as well.

Despite operating in adverse conditions, Raiffeisenbank and the Raiffeisen Group in Croatia contributed to the results achieved by RBI. Profit after tax of the local Group in the amount of 305 million kuna was generated in conditions of weaker demand for financial products and services. Due to reduced possibilities of boosting sales, the Bank's Management Board strived to improve business processes and risk management methods. An adjustment to volatile operating conditions is essential to achieving positive operating results. Rapidly changing market conditions may suddenly present new opportunities for business development. If favourable opportunities are recognised in time, they will pave the way for new types of financial products and services, aimed at satisfying the needs of our clients and stimulating the financial market development in general.

The modernisation of the business structure in accordance with volatile market conditions is a prerequisite for a financial institution's business success, which Raiffeisen in Croatia has been achieving constantly and also plans to achieve in the period ahead, which is brimming with new challenges. Thanks to their dedication and hard work, both the employees and the management of the Bank and the Group have responded successfully to market demands so far, resulting in a sound development and positive business results.

On behalf of the Supervisory Board, I would like to thank and congratulate all Raiffeisenbank employees and its Management Board on their excellent business results. Our thanks also go to all our clients for choosing us and other members of the Raiffeisen Group as their financial partners. I firmly believe in the continued success of our business operations in the Croatian financial market.

Peter Lennkh Chairman of the Supervisory Board

8 www.rba.hr Introduction 2010 Bussines Developments RBI Group Financial Statements Suplementary Financial Statements Contacts

Macroeconomic climate

Macroeconomic climate

Economic overview

In 2011, Europe saw a continued deepening of the gap between developed Western and Northern countries and so-called peripheral member states (Italy, Spain, Portugal, Greece). Sentiment in international markets was positive in the first half, with economic growth both in the eurozone and the United States. However, fiscal crisis in the eurozone, particularly in Greece, came into focus again late in the second quarter, giving rise to uncertainty which marked the rest of the year with the economic slowdown in developed economies. This increased demand for safe havens, such as U.S. bonds and German bonds while also sending the cost of debt of the peripheral EU member states soaring. Toward the end of the year, the initiative to establish a stronger fiscal union within the euro strengthened, with discussions on the restructuring of the Greek debt on the agenda as well. The fiscal crisis also intensified in Spain and in Italy, where the election of a new technical government contributed to the adoption of an austerity package. The U.S. economic slowdown was somewhat less pronounced than in the eurozone, thanks primarily to the quantitative easing implemented by the FED in order to provide cheap and sufficient sources of funding to the American economy. Throughout most of the year, the attention was focused on the Middle East and North Africa where political turmoil led to a global destabilisation and oil price growth.

Central and Eastern European countries have strong economic links with the developed European countries (especially Germany)  on the one hand, through their export orientation and through the banking sector on the other; therefore, developments in Western Europe have an impact on developments in the region. In addition, there were differences in the dynamics of recovery within the CEE region itself, so the Czech Republic and Poland for example, imposed a slightly more restrictive monetary policy at the beginning of the second quarter. By contrast, Hungary and Russia were oriented on stimulating growth. Almost all countries in the region recorded economic growth last year, with the poorest performance by Slovenia and Croatia. Slovenia's gross domestic product (GDP) contracted 0.2 per cent in real terms while Croatia posted a 0 growth rate.

Gross domestic product, real year-on-year growth rates

7, 0 %

5,0%

3,0% 4,1 % 3,5 % 3,3 %

1,0% 1,4 % 0,4 % 0,3 % 0,7 % 0,0% 0,0 %

-0,6 % -0,4 % -1,0% -1,0 %

-2,3 % -2,3 % -3,0%

-4,6 % -5,0% -5,7 %

- 7, 0 % -6,7 % -6,9 %

12/07 03/08 06/08 09/08 12/08 03/09 06/09 09/09 12/09 03/10 06/10 09/10 12/10 0 3/11 0 6/11 0 9/11 12/11

Source: CBS

10 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Macroeconomic climate

Macroeconomic indicators

The Croatian economy failed to generate growth for the third consecutive year, reflecting deep internal structural weaknesses which were further exacerbated by the situation in its immediate vicinity. Last year, the economy stagnated in real terms, with a mild positive contribution by personal consumption growth (+0.2 per cent) and a slightly stronger growth of goods and services exports than the import growth (+2.2 per cent vs. 1.0 per cent). Mild personal consumption growth rates are a result of an exceptionally low comparison basis and, quite probably, a spillover effect of solid performance in tourism. On the other hand, the positive contribution of net exports weakened considerably compared to 2010, primarily due to deteriorating merchandise trade developments while services exports (more precisely, a rise of tourism income) had a mitigating effect. The most significant negative contribution came from gross capital formation, which dropped strongly (-7.2 per cent) for the third year in a row, whereas a slight negative contribution came from the government consumption as well (-0.2 per cent). Gross added value also stagnated in 2011 in real terms. As expected, with an annual decline rate of 9.3 per cent, construction provided the largest negative contribution.

In the absence of pressure by domestic demand throughout 2011, the inflationary pressures continued to be moderate, as they were in 2010. The prices of crude oil and related products and services (such as transport and housing) as well as higher food prices, reflected in domestic prices through imports, were their main source. On the other hand, the gap between producer and consumer prices remained large, testifying to weak demand. Consumer prices rose 2.3 per cent on average in 2011.

Consumer price index (inflation rate), in percentage terms, year-on-year

9.0

8.0

7. 0

6.0

5.0

4.0

3.0

2.0

1.0

0 12/06 04/07 08/07 12/07 04/08 08/08 12/08 04/09 08/09 12/09 04/10 08/10 12/10 0 4/11 08/11 12/11 Source: CBS

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 11 Macroeconomic climate

Number of unemployed persons and unemployment rate

340 ■  Unemployed persons (’000) 20% ■  Unemployment rate, official 320 ■  Unemployment rate (ILO methodology) 18%

300 16%

280 14%

260 12%

240 10%

220 8%

200 6%

Sources: CBS, CES

Unemployment continued to rise, with the usual seasonal oscillations. After an unemployment shrinkage in the course of the tourist pre-season and high season, the registered number of unemployed vaulted over the 300,000-mark again by the end of the year with the return of seasonal workers in the jobless count. The average unemployment rate ended at 18 per cent, or 0.6 percentage point higher than in 2010. The annual change in the number of unemployed was on the rise throughout most of the year but it declined slightly in the last four months. However, such developments were largely brought about by a deletion from the register for other reasons, such as irregular reporting, retirement, further education etc. rather than by an increase in employment. In line with rising unemployment, the 2011 real average wage dropped 1.1 per cent year-on-year. Apart from a large number of jobless, the labour market also continues to be plagued by other crucial problems, such as the participation of working-age population and employment rate, which are among the lowest in Europe. According to the labour force survey, the employment rate stands at just 39.1 per cent while the number of employed has declined by more than 137,000 over the past three years. The activity rate is also very low at 45.3 per cent.

External relations

Mainly due to declining domestic demand through 2011, the current account deficit narrowed to 5.5 per cent from 2010 so its share in GDP also shrank as the economy stagnated. At just 1 per cent of GDP, it touched a historic trough, largely as a result of cyclical developments, more specifically, a retraction of imports to below pre-crisis levels amid weak domestic demand. Goods exports continued to grow but their limited structure and poor competitiveness failed to provide a greater impetus to the economy. Both the goods imports and exports grew last year but the pace of exports growth lagged behind that recorded in 2010. Therefore, the deficit on the goods account widened slightly in 2011. However, a positive contribution of the services account (due to an almost 6 per cent increase in tourism receipts on an annual basis) managed to offset a deterioration on the goods account. Higher financing costs widened the gap on the income account further.

12 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Macroeconomic climate

Foreign debt

50 ■  Foreign debt (EUR bn) ■  Share in GDP, % 110

46,5 % 45 45,7 % 45,2 % 100

40 40,6 %

90

35

33,7 %

30 80

29,7 %

25 26,0 %

70

22,9 % 20

60 19,9 % 15 15,1 %

13,6 %

10 50

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: CNB

Foreign direct investment (FDI) in Croatia amounted to slightly more than one billion euro in 2011 rising more than threefold over 2010 but they still remained well below pre-crisis levels. The FDI growth was helped mostly by an increase in equity capital, with a reduction of other investments providing a negative impetus. Most FDIs came from the Netherlands, Germany and Austria (two thirds). With regards to the business activity, financial intermediation, with the exception of insurance and pension funds, along with real estate and manufacturing of chemicals and chemical products attracted most foreign direct investment.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 13 Macroeconomic climate

The year was marked by a weaker EUR/HRK exchange rate compared to 2010. Due to a slow inflow of foreign capital as a result of a decline in international borrowing and weaker FDIs in the last three years, the kuna exchange rate against the euro was under almost constant depreciation pressure. It was unusually pronounced even during the summer's tourist season. In a bid to mitigate the depreciation pressure on the kuna, the Croatian National Bank reduced the ratio of minimum required foreign currency claims for banks against their foreign currency liabilities in the first quarter, curbing the kuna retreat against the euro in the period in which foreign currency outflows are typically stronger than their inflows. Subsequently, it intervened in the foreign exchange market twice, in July and September, and raised the mandatory reserve ratio again to sterilise excess kuna liquidity. The 2011 average EUR/HRK exchange rate was 7.43 kuna to the euro.

The external debt balance at the close of the year stood 750 million kuna lower than at the end of 2010. Due to deteriorating financing conditions in international markets, public companies reduced their foreign debt and were followed by private companies in the second half. By contrast, the banking sector and the government increased their external borrowings. With the real GDP at an unchanged level from 2010, the share of the external debt in GDP fell below the level of 100 per cent.

Fiscal and monetary developments

A prolonged recession in 2011 had a negative impact on the fiscal policy as revenues continued to fall and debt servicing costs rose, leaving limited room for fiscal adjustment to new circumstances. Still, expenditures also declined slightly in nominal terms. The 2011 consolidated general government revenues were 0.6 per cent lower than a year earlier, with consolidated general government expenditures falling 0.4 per cent. According to the ESA 95 methodology, the consolidated general government deficit was estimated to have grown to 5.5 per cent of GDP. Such a deficit deterioration stemmed mainly from poorer tax revenue collection (-2.1 per cent), predominantly from excise, but the revenues from social contributions also recorded a nominal drop of -0.3 per cent compared to 2010. In line with a slight increase in private consumption, VAT revenues  as the most important source  rose 0.1 per cent compared to 2010. Personal income tax recorded an annual growth rate of 0.5 per cent, with corporate income (profit) tax revenue rising 13.7 per cent. The revenue from excise duty on petroleum products declined 13.8 per cent despite a 38.2 per cent rise in average crude prices in global markets. The nominal fiscal expenditure reduction was helped by lower subsidies and assistance (-3.5 and -20.9 per cent, respectively) as well as by a cut by 9.7 per cent in social expenditures, as the largest single expenditure item of the general government. On the other hand, interest expenditures rose at a strong rate of 13.8 per cent, with expenditures for foreign interest payments soaring 44.8 per cent. Such figures result partly from the instability and uncertainty in global financial markets but their underlying causes should be sought in the insufficient strength and depth of structural reforms implemented in the economy. The Ministry of Finance data for 2011 show a nominal reduction in budgetary expenditures by 0.3 per cent compared to 2010.

Public debt, without HBOR and guarantees, expanded to 45.3 per cent of GDP (estimate). By adding guarantees, some of which will certainly debit the budget in 2012, the public debt rose to almost 60 per cent of GDP. The government tapped capital markets as many as four times in the course of the year  twice the local and twice the international market. In the local market, it issued 1.5 billion kuna in kuna-denominated bonds and 600 million euro worth of bonds indexed to the euro in July while raising another 1.8 billion euro via two eurobond issues in March and July.

14 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Macroeconomic climate

Last year witnessed high liquidity in the financial system again, stemming largely from weak loan demand and more restrictive credit criteria but also from scarce opportunities for attractive investment. While total loans recorded a slightly higher annual growth than in 2010, it still does not constitute a significant recovery as growth rates remained moderate. At the end of 2011, the overall loan volume stood 6.1 per cent higher compared to the previous year mostly on the back of stronger lending to the corporate sector while adverse labour market developments, more precisely high unemployment and real income stagnation, depressed household loan demand. After slowing down in 2010, the pace of lending to the government intensified in the first half of 2011, only to weaken again later in the year. Meanwhile, deposits maintained their moderate growth trend but high rates of foreign currency deposit growth and a simultaneous shrinkage in kuna deposits came to a halt so foreign currency deposits began to show negative annual growth rates at the end of the year.

The Croatian National Bank pressed on with its monetary policy, true to the goal of preserving the price stability by maintaining the kuna exchange rate stable against the euro. For that purpose, the CNB intervened by purchasing kuna in the foreign exchange market in January and July. In order to ease the depreciation pressures on the kuna, it cut the minimum foreign currency claims that banks are required to maintain in relation to their foreign currency liabilities from 20 to 17 per cent. This helped boost the supply of euros in the system by 850 million, and the reserve requirement ratio was raised again from 13 to 14 per cent late in the year.

In the course of 2011, banking sector assets continued to rise slightly, reaching 409 billion kuna. Even though their growth rate exceeds that recorded in the previous year by 4.3 per cent, the pace of asset growth still remains much slower than it was before the crisis. The share of banks in total financial system assets was almost unchanged (75.5 per cent) from 2010.

Loan growth in %, annual level

■  Loans to households ■  Corporate loans ■  Housing loans 40%

35%

30%

25%

20%

15%

10%

5%

0%

-5% 12/06 03/07 06/07 09/07 12/07 03/08 06/08 09/08 12/08 03/09 06/09 09/09 12/09 03/10 06/10 09/10 12/10 0 3/11 0 6/11 0 9/11 12/11 Source: CNB

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 15 Macroeconomic climate

Macroeconomic indicators for the 2007  2011 period

2007 2008 2009 2010 2011 GDP & Production GDP, % (constant prices) 5.1 2.1 -6.9 -1.2 0.0 GDP at current prices, EUR millions 43,390 47,766 45,667 45,920 45,923 GDP per capita at current prices, in EUR 9,781 10,773 10,311 10,380 10,702 Retail trade, % real annual changes 5.3 -0.5 -15.3 -1.8 0.9 Industrial production, % annual changes 5.6 1.6 -9.2 -1.5 -1.2 Prices, Employment and Budget Consumer Prices, %, eop 5.8 2.9 1.9 1.8 2.1 %, avg 2.9 6.1 2.4 1.1 2.3 Producer Prices, %, eop 5.8 4.7 1.6 5.7 5.8 %, avg 3.4 8.4 -0.4 4.3 6.4 Unemployment rate (official rate, avg), % 14.8 13.2 14.9 17.4 18.0 Unemployment rate (ILO, avg), % 9.6 8.4 9.1 11.8 13.5 Average net wage, in HRK 4,840 5,177 5,311 5,342 5,441 General Government Balance, % of GDP, ESA 95 -2.5 -1.4 -4.1 -4.9 -5.5 General Government Balance, % of BDP -3.1 -2.1 -4.5 -5.3 -5.7 Balance of Payment and External Debt Goods and Services Exports, EUR million 18,271 19,843 16,315 17,713 18,801 % change 7.8 8.6 -17.8 8.6 6.1 Goods and Services Imports, EUR million 21,375 23,624 17,845 17,717 18,751 % change 9.4 10.5 -24.5 -0.7 5.8 Current Account Balance, % of GDP1 -7.3 -8.9 -5.0 -1.0 -1.0 Official International Reserves, EUR million, eop 9,307 9,121 10,376 10,660 11,195 Official International Reserves, in terms of months of imports of 5.2 4.6 7.0 7.2 7.2 goods and services, eop Foreign Direct Investment, EUR million 3,651 4,219 2,415 295 1,048 Tourism  nightstays, % change 5.7 2.0 -1.3 2.6 7.0 External debt, EUR billion 33.7 40.6 45.2 46.5 45.7 External debt, as % of GDP1 77.7 85.0 99.1 101.2 99.5 External debt, as % export of goods and services1 179.9 199.8 266.8 260.2 243.1 Monetary and Financial Data Exchange rate, eop, USD/HRK 4.99 5.16 5.09 5.57 5.82 avg, USD/HRK 5.37 4.93 5.28 5.50 5.34 Exchange rate, eop, EUR/HRK 7.33 7.32 7.31 7.39 7.53 avg, EUR/HRK 7.34 7.22 7.34 7.29 7.43 Money (M1), HRK billion, eop 57.9 55.2 47.2 49.2 52.9 % change 19.3 -4.6 -14.6 4.2 7.5 Broadest money (M4), HRK billion, eop 215.8 225.0 223.1 232.9 241.1 % change 18.3 4.3 -0.9 4.4 3.5 Credits, HRK billion 210.8 233.0 231.7 247.5 261.0 % change 15.0 10.5 -0.6 6.9 5.5 ZIBOR 3m, %, avg 5.7 7.2 8.9 2.4 3.2 Treasury bills rate 12m, %, avg 4.2 6.0 6.7 4.0 4.0

1 in euro terms e  estimate; f  forecast; eop  end of period; avg  average Source: Croatian National Bank, Ministry of Finance, Croatian Bureau of Statistics Forecasts: Economic Research Department, Raiffeisenbank Austria d.d. Zagreb

16 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts

Officers of the Bank

Officers of the Bank

The Supervisory Board controls and monitors Bank operations while the Management Board steers and manages its business. The officers of the Bank serving during 2010 were as follows:

Members of the Supervisory Board

Mag. Peter Lennkh (Chairman) Mag. Razvan Muntenau (Member from 22nd April 2011) Mag. Franz Rogi (Member) Aris Bogdaneris (Member until 22nd April 2011) Lovorka Penavić (Member) Mag. Paul Alan Kocher (Member) Mag. Joseph Eberle (Member until 10th January 2011) Mag. Peter Bazil (Member from 10th January 2011) František Ježek (Member)

Members of the Management Board

Zdenko Adrović Chairman

Vlasta ŽubrinićPick Jasna Širola Zoran Košćak Vesna Mario Žižek Member Member Member CiganekVuković Member Member

18 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Officers of the Bank

Chief Executives

Vesna Muratović Financial Institutions Division and Transaction Services Division Ivan Žižić Treasury and Investment Banking Division Ivan Jandrić Corporate and SME Sales Division DubravkoAnte Mlikotić Credit Risk Management Division Ivan Vidaković Retail Banking Division Robert Kuzmanić Accounting and Tax Finance Division Mladen Gregović IT Division Zoran Vučićević Legal Division Zorica VujčićPredovan Human Resource Division (until 1st October 2011) Irena BašićŠtefanić Human Resource Division (from 1st October 2011) Gordana Šaban Internal Audit Division Boris Vuksan Financial Control Division Vesna Ćebetarević Support Division Srđan Šverko Corporate and SME Products and Development Division Toni Jurčić Corporate and SME Network Division

These core divisions are supported by service divisions and independent units.

Vision

Raiffeisenbank Austria d.d. Zagreb (RBA) strives to be the most innovative bank, the most complete in the range of products and services it offers, and when it comes to client satisfaction  the leading bank on the Croatian market. Together with members of Raiffeisen Group in Croatia we would like to be recognized as a financial supermarket.

Mission

The RBA mission is to build long-term customer relations and offer a full, highest quality service on the Croatian market.

As a member of Raiffeisen family in Croatia and of the international Raiffeisen family, RBA provides fast and efficient business service to its clients in all segments, both within the country and internationally.

We believe that clients will continue to recognize us as an ideal blend of innovativeness, expertise, quality and safety and that in the future RBA will become their first and best choice.

Organisational processes

Since its establishment in 1994, RBA has continually monitored market changes and business require- ments, prompting its management board to introduce changes and adjustments to the organisational structure. The Bank has gone through several types of organisation models; nowadays, it boasts an efficient process organisation, characterised by productive and profitable operating and management business processes.

Since 2010, RBA has implemented Lean  the globally recognised corporate culture of business pro- cess improvement, which enables achieving maximum service excellence and value for clients while also increasing internal efficiency at the same time. The transformation encompassed 75 per cent of the Bank by the end of 2011, with lean principles expected to be applied in all organisational units of the Bank and the Group in Croatia in the course of 2012. A dynamic organisational development, along with a continuous product and service quality assessment, team work and staff motivation are only a few of the activities implemented by RBA on its path to business success and stable business growth.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 19 Market position

Market position

RBA has operated in the Croatian market since 1994. Since the moment it was founded, the vision of a complete range of financial products and services has steered its development in two directions  towards boosting the sale of banking products and services on the one hand and, on the other, towards the establishment of subordinate specialist companies offering other financial services. Aspirations to attaining the vision of providing a comprehensive financial services offer to the market has often meant taking a pioneer role in the process of financial market development. Thanks exclusively to organic growth, the local Raiffeisen Group has won a 9.5 per cent share of the Croatian financial market.

Its reputation of an excellent business partner has enabled the business advance of all Group members. Differences in the market performance among Group members stem from very specific market characteristics; the members founded at the time in which a particular financial segment was being developed, such as pension funds, have achieved a more significant market position. Other members which began operating in a market segment established earlier, such as leasing or factoring, are building their market shares gradually.

The position of Raiffeisen Group in Croatia, from the aspect of ownership and market, is determined by three basic characteristics:

• the Bank's founder is RBI international financial group • the Bank has founded the local financial services Group • Group operations take place in the Croatian market.

Market shares of particular Raiffeisen individuals Raiffeisen Banking International (RBI) is the Austrian banking group, which operates a network of banks and 35% 30% associated financial institutions in Central 30% and Eastern Europe (CEE). Being a part of a strong international banking group 20% 23% with a developed financial service offer 19% as well as a years-long experience

10% 13% in developed financial markets, is a

9% 9% major advantage in the establishment of financial institutions in emerging 0% markets. The association with RBI has Voluntary Compulsory Investment Building Leasing Factoring Bank Pension Pension Fund Society had a positive impact on the Group Fund Fund development in Croatia, as reflected by setting high quality standards in client service and the variety of its offering  both of which provide a competitive edge in the long run. The transfer of experiences and expertise from other RBI Group members to the members of the local Group occurs in line with the legislation which regulates the operations of financial institutions in Croatia. All local Group members are registered in Croatia and operate in accordance with Croatian regulations.

Business results of the local Group depend on financial market developments, business conditions and performance of local enterprises as well as on the size and sustainability of household incomes. The operating conditions of financial institutions in the Croatian financial market in 2011 have changed throughout the year, which was marked by stagnant demand for financial products and services. Processes in external financial markets did not hinder the supply of capital in the domestic market in the first half of the reporting year. Lending rates declined as a result, enabling the economy to post slight production and employment growth after two years of recession.

20 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Market position

The second half of the year was marked by growing market instability. Debt crisis in the peripheral members of the eurozone led to increased fears among investors. Greater risk aversion widened the gap between the risk premium of the countries with lower credit ratings and those of first-rate borrowers. Croatia's risk premium doubled compared to the average level in the year's first half. The resulting increase in financing costs stifled any signs of recovery seen in the preceding half of 2011. A tentative recovery of private consumption in the summer came to a halt as households grew more averse to borrowing. The impairment of fixed assets, which are mostly financed by loans, maintained its negative trend. Consequently, demand for housing loans shrank and in turn exacerbated the real estate market situation further. A decline in real estate sales halted business investments in fixed assets, reducing demand for investment loans. Therefore, positive effects of government subsidies for working capital loans to enterprises were erased by the negative trends spilling over from international financial markets to the local market.

Due to a continued decline in real estate demand and market prices, Croatia failed to benefit from the recovery of core European economies in the first half of the year to reverse its negative economic trends. The local economy felt the negative impulses of the European Union slip back onto a recession path in the last quarter of 2011, adding to the pessimism of local entrepreneurs at the turn of the year. The demand for working capital financing weakened, with no signs of recovery of the investment loan demand either, despite the government efforts to participate in the credit risk.

Loan collection problems continued to undermine the recovery of business activities while exacerbating loan approval by banks, as the credit risk remained at an elevated level. Government measures aimed at stimulating lending to companies under the A+ Model for working capital capped the credit risk of companies in a bid to boost demand for bank loans. Thanks to the government's participation in the credit risk, the implemented support model helped reduce the average interest rate charged on corporate loans. A further interest decline was hampered by a higher loan collection risk, mirrored by a steady rise in the volume of banks' problem loans. At the end of 2011, the share of problem loans in the total corporate loan portfolio rose to 20.1 per cent. Growing credit risk prevented both the revival of banks' credit activity and greater sales of alternative financial products, such as leasing.

Reduced household sector demand for loans stems from a growing aversion to borrowing in that segment. As currency risks related to the loans indexed to the Swiss franc actually materialised, caution among borrowers heightened further. Negative labour market developments are calling for extra caution. The summer appreciation of the franc against the kuna added to the financial burden of loan repayment by the clients with outstanding loans indexed to the franc. This prompted banks, the government and debtors to agree a special model aimed at curbing the damage suffered by debtors due to the franc exchange rate advance. However, the Swiss central bank imposed a cap on the franc appreciation to the euro at 1.20 in September, indirectly stabilising the franc exchange rate against the kuna as well. Therefore, the model aimed at easing the burden of repayment of franc-indexed loans lost its purpose so it has not been implemented. Coupled with negative labour market developments, the franc appreciation led to increased delays in the repayment of loan arrears by bank borrowers. The share of problem loans in total retail loans rose to 8.6 per cent. While the retail loan portfolio quality remains considerably better than that of the corporate loan portfolio, adverse economic developments contribute to an increase in the retail default risk, preventing a reduction in the price of loans.

Leasing business hinges on demand for fixed asset formation. The absence of demand growth in the goods and services market has prompted companies to postpone planned investment in capital goods. In such a manner, the absence of consumer optimism contributes through interrupted and delayed investments to a weakening of demand for long-term financial products, so demand for leasing

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 21 Market position

products also declined. As the Croatian economy is highly sensitive to oscillations in the investment activity, along with tourism receipts, the government focus on starting a new investment cycle as the main driver of the economic revival is easily understandable.

The performance of investment and pension funds is related to developments in capital markets. Pension funds are major investors in debt instruments of the Republic of Croatia. A spike of the risk premium on Croatian debt led to an increase in government bond yields, reducing the asset value of the portfolio valued at market prices. Investment funds recorded a decrease in total assets while the assets of mandatory pension funds increased thanks only to the obligation by members to pay a quarter of the pension contributions into the pension fund. Adverse market developments reduced the net asset value of government bonds held by the Bank and Group members exposed to the Croatian sovereign risk.

The country's local market is characterised by a relatively high exposure to the risk of the Republic of Croatia. In the course of 2011, the net direct and indirect exposure to the sovereign risk fell to 25 per cent of total assets and potential liabilities of the Group, and to 26 per cent for the Bank. Monetary regulations by which the central bank maintains financial stability while also regulating government borrowings in the domestic financial market, directly or indirectly, are the main reason for a high level of sovereign risk in the Bank assets. Additional factors contributing to the sovereign risk exposure are temporary excess liquidity in the money market, investment activity in Croatian debt instruments, direct government borrowing from banks and other financial institutions as well as the government guarantees issued for loans to public or private companies. The total 2011 sovereign risk in the market rose primarily due to an increase in lending to public enterprises secured by state guarantees.

The Bank is required to maintain a portion of its assets as mandatory reserves in accounts with the Croatian National Bank (CNB). At the end of 2011, the reserve ratio for banks stood at 14 per cent, after being raised 1 percentage point in October as part of the measures to stabilise the kuna exchange rate to the euro. There was no change in the basis used for calculating the minimum reserve requirement or the minimum required to be maintained in reserve accounts at the CNB but the CNB stopped paying interest on the allocated reserves by banks. In the periods when liquidity in the money market is strong, the Bank also deposits its excess liquidity in the CNB account. The Bank has a significant relationship with the central government whereas other Group members are active investing in sovereign debt instruments  bonds and treasury bills. When it comes to the loans issued to large and medium-sized enterprises, more of them were secured by state guarantees, leading to a higher overall exposure of the Bank and the Group to the sovereign risk.

22 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Bank operations

Bank operations

Bank assets shrank 4.8 per cent through 2011 to end the year at 38,460 million kuna. Looking at total assets, loans to banks and investment into securities declined while loans to customers rose 0.7 per cent to 25,624 million kuna. Loan growth was achieved in the segment of large and medium-sized enterprises. Apart from lower credit risk, increased lending to large enterprisess was also helped by the loans secured by government guarantees and those granted under Model A+ of the HBOR programme. The small enterprise and retail segment saw no recovery in loan demand as negative labour market expectations and stagnant private consumption prevailed. The share of corporate, retail and lending to the government grew to 66.6 per cent of total assets. Loans to banks and securities investments shrank amid adjustments of the funding structure and liquidity reserves to changed market conditions. As the yield on the financial assets of higher rating dropped to its historic minimum in international markets, investment into securities was reduced to the level of required liquid reserves. A decline in the value of lower-rated assets in international markets promped a reduction in investments made for trading profit so total liquid assets also shrank. On the other hand, the amount of loans taken as a source of Bank funding dropped to 2,255 million kuna. Higher Croatian risk premiums boosted the price of external funding so the second part of the year saw, reducing the attractiveness of borrowings for on-lending purposes compared to earlier in the year. Therefore, the Bank reduced its borrowings as well as securities investments. At the same time, the share of own funds in total customer deposits at the Bank grew 2.4 per cent to 23,355 million kuna.

Bank financial highlights for the 2007  2011 period Bank Bank Bank Bank Bank 2011 2010 2009 2008 2007 HRK millions HRK millions HRK millions HRK millions HRK millions

From Balance sheet at 31 December Total assets 38,460 40,422 39,499 40,370 38,696 Shareholders’ equity 5,632 5,671 5,444 5,407 3,622 Customer accounts 23,355 22,817 21,500 23,215 23,574 Loans to customers 25,624 25,437 24,117 25,855 22,774 From Income statement for the year ended 31 December Operating income 1,688 1,803 1,847 1,526 1,353 Operating expenses 897 920 872 856 707 Profit before tax 383 450 498 600 487 Net profit for the year 327 376 408 500 388

Ratios % % % % % Return on average shareholders’ funds 6.17 7.12 7.89 10.80 12.00 Return on average assets 0.83 0.94 1.02 1.26 1.07 Capital adequacy ratio (in accordance with the Croatian National Bank methodology) 17.41 17.84 15.01 12.59 11.30

HRK HRK HRK HRK HRK Earnings per share 90 104 110 145 174

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 23 Bank operations

Retail deposits recorded an increase of 828 million kuna, or 6.2 per cent. The retail deposit growth was achieved despite stagnating household incomes and stems from lower return on alternative investment in the local capital market and investment funds as well as adverse real estate price developments. This in turn raised the attractivenss of bank savings again, brining about a 6.8 per cent increase in fixed-term deposits at RBA. The failure and bankruptcy of Credo Bank had no negative impact on client confidence so deposit growth at RBA continued uninterrupted in the last quarter of the year too. Total corporate and government deposits declined 3.1 per cent. The main reason for adverse corporate liquidity developments may be found in the continued economic stagnation and a further decrease of business activity in the corporate sector in the last quarter.

The volume of loans received and deposits from other banks shrank by 2,250 million kuna in 2011; at the year end, received loans taken stood at 7,200 million kuna and deposits from other banks at 766 million kuna. The attraction of external funding sources was reduced by rising risk premiums. The share of received loans in the funding shrank to 21.9 per cent, which is still higher than the banking sector average and stems exclusively from the Bank's organic growth and a relatively late distribution network expansion. Continuous excess liquidity in the banking system brought about a gradual decline of interest rates. In the second half of the year, the Bank capital stood at 5,632 million kuna, or 0.7 per cent lower than at the year start.

The Bank profit after tax ended 2011 at 327 million kuna, representing a 13 per cent drop over the previous year. Operating income came in at 1,688 million kuna, or 6.4 per cent less than in 2010. The income structure featured interest income as the most important element with a 78.1 per cent share. Fee income accounted for the next 18.4 per cent and all other income for the remaining 3.5 per cent. Net interest income rose by 58 million kuna at an annual level thanks to a decline in interest expenses and stagnating interest income. Net fee income shrank by 31 million kuna. The total income decrease was 115 million kuna, with trading and other income contributing to a drop by 142 million kuna. This means that a decline of other non-interest income overshot that of total income.

Interest expenses on retail deposits at 90 million kuna were lower than a year earlier, exceeding the positive balance of net interest income. A rise in total retail deposits was not reflected by interest expenses. To be precise, retail deposits differ from the deposits of other client segments not only by their currency and term structure but also from interest rate arrangements so they respond to a change in market conditions with a delay. Long-term deposits denominated in the euro at fixed interest rates dominate the retail deposit structure. Due to a longer deposit period, retail deposit rates are slower to adjust to market changes. The second half of 2011 saw a spike in market interest rates due to higher risk premiums but since retail deposits are mostly agreed at fixed interest rates, it did not translate into higher interest expenses. By contrast, despite a decline in the deposit volume of other client segments, interest expenses increased. Liabilities to other client segments are predominantly short-term. Interest rates payable on short- term deposits mirrored market trends, rising in the second half of the year as a result of an increase in the Croatian risk premium.

Total operating expenses stood at 897 million kuna and were 2.5 per cent lower than in the previous comparable accounting period. Total expenses shrank thanks to the implementation of the measures aimed at improving the cost management. Staff expenses were 5 million kuna lower while material expenses were cut by 18 million kuna. Long-term asset amortisation costs remained unchange as the Bank continued to invest in the development of technology and its service quality. Operating profit before adjustment for impairment losses on assets and liabilities amounted to 791 million kuna, or 10.4 per cent less than in 2010. A reduction of impairment losses did not fully offset the decline in operating income, depressing profit before tax by 14.9 per cent or 67 million on the annual basis.

24 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Bank operations

The profit decline was caused by lower trading income, with the fee income generation also lagging behind that in the previous year. A positive contribution to profit came from the net interest income, operating expenses and impairment losses, that is, from risk provisioning expenses. Lower risk provisions are a result of intensified activities performed by the Bank in a bid to collect due unpaid receivables, and debt collection from the collateral taken. The Bank developed a comprehensive monitoring, early warning and debt collection process in the phase of early, late and forcible collection. Market developments did not help with the reduction of loss provisions. The overall economic decline slowed down while banks' bad loans grew.

Apart from the risk management process development, the bank also implemented a project aimed at improving business processes in 2011. The crisis environment reduced the opportunities for an increase in operating income so development focused on improving work productivity and safety standards as well as on technological improvements and business process management. The existing human, organisational and technological resources were deployed on the development of internal processes in order to improve service quality and achieve lower unit transaction costs. Investments into technology and business process development are the foundation of an innovative offering and the development of financial products tailored to meet client demands.

Despite growing competition in the local banking sector, the Bank remains among the leading financial institutions with regard to the implementation of modern technologies in the approach to its clients. Innovative electronic distribution channels enable clients to conduct financial transactions efficiently and at lower costs.

Total income growth in HRK millions and structure

■  % Non-interest income ■  % Interest income ■  Total income in HRK mil.

100 2.000

80 1.500

60

1.000

40

500 20

0 0 2 0 0 7. 2008. 2009. 2010. 2011.

Changes in market conditions led to a shift in the focus of Bank activities, away from increasing its loan portfolio onto improving risk management and enhancing productivity. Due to protracted economic recession, the demand for traditional banking products weakened so the Bank redirected its development resources from product innovation to process improvement, and from structured transactions to simplified sales. Aware of the changes in the demand structure, the Bank adjusted the use of its product development resources to client requirements in order to maintain the superior quality of its services.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 25 Group operations

Group operations

RBA began its operations in the Croatian financial market in December 1994, when the universal bank was established. The local Group, adding other financial services to exapnd and enrich the offer of commercial banking products, has developed since 1999. The Group development is aimed at providing a comprehensive financial service to clients. In addition to the Bank, as a pivotal institution of the local financial Group, the following affiliates have been founded: Raiffeisen Leasing d.o.o., in which the Bank has a 50 per cent holding Raiffeisen Invest d.o.o. (investment fund management company) Raiffeisen Mandatory Pension Fund Management Company d.d. (Inc.) Raiffeisen Voluntary Pension Fund Management Company d.o.o. Raiffeisen Pension Insurance Company d.o.o. Raiffeisen Consulting d.o.o. and Raiffeisen Factoring d.o.o., all 100 per cent owned by the Bank. Building society Raiffeisen Stambena Štedionica d.d. is not affiliated with the Group in terms of ownership and neither is Uniqa osiguranje d.d., an insurance company. The Group collaborates with both in joint Croatian market operations to complement the range of financial products and services.

Group financial highlights for the 2007  2011 period Group Group Group Group Group 2011 2010 2009 2008 2007 HRK millions HRK millions HRK millions HRK millions HRK millions From Balance sheet at 31 December Total assets 41,184 43,009 42,621 43,573 40,946 Shareholders’ equity 5,743 5,815 5,626 5,610 3,847 Customer accounts 23,245 22,415 21,192 23,213 23,456 Loans to customers 27,049 26,556 25,715 27,768 23,955 From Income statement for the year ended 31 December Operating income 2,081 2,457 2,389 1,834 1,791 Operating expenses 1,287 1,475 1,373 1,160 989 Profit before tax 387 530 500 601 631 Net profit for the year 305 430 390 481 504

Ratios % % % % % Return on average shareholders’ funds 5.52 7.87 7.26 9.91 15.35 Return on average assets 0.72 1.00 0.90 1.14 1.32 Capital adequacy ratio (in accordance with the Croatian Natinal Bank methodology) 16.73 16.70 13.92 11.85 12.09

HRK HRK HRK HRK HRK Earnings per share 83 117 102 136 221

26 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Group operations

At the end of 2011, Group assets totalled 41,184 million kuna, or 1,825 million kuna less than at the previous year's close. The asset structure saw a 493-million kuna rise in customer loans, and a drop in investment into financial assets valued at market prices and loans to other banks. On the funding side, the amount of loans received from other banks shrank by 2,412 million kuna as a result of an adjustment to changed financial market conditions. A higher Croatian risk brought about an increase in the prices of borrowings in international markets while also diminishing the appeal of investment into financial assets at the same time. The year close saw better liquidity in international financial markets thanks to a special European Central Bank long-term refinancing operation (LTRO) aimed at bolstering the loan the potential of commercial banks. Additional liquidity is expected to lead to a decline in financial asset yields and bank lending rates in the period ahead.

The Group capital shrank by 1.2 per cent to close 2011 at 5,743 million kuna. Meanwhile, customer deposits rose to 23,245 million kuna, representing an increase of 3.7 per cent or 830 million kuna. After funding via loans from banks and other financial institutions provided for the Group's credit growth in the period of expansion amid insufficient rise in customer deposits, the 2011 slowdown in total loans coupled with the deposit growth led to a shrinkage in the Group loan liabilities. At the end of 2011, loans taken stood at 9,562 million kuna, down 20.1 per cent year-on-year. Their share in total liabilities, capital and reserves shrank to 23.2 per cent, with the share of customer deposits growing to 56.4 per cent.

The 2011 Group profit after tax was 305 million kuna, having declined by 125 million kuna compared to the previous year as the companies dependent on the market price of financial assets recorded a drop in profit. The business result of the Group was capped by weaker trading profit generation, with a trading loss of 64 million kuna loss, representing a decline in the result by as much as 202 million kuna compared to a year earlier. Financial asset prices dropped in the second half of 2011 amid protracted investor risk aversion, which in turn reduced the potential for trading profit generation. Moreover, the kuna exchange rate against the euro weakened relentlessly in the second half, with the Group hedging its exposure in other currencies so their fluctuations had no impact on the result.

Net interest income came in at 1,341 million kuna thanks to an increase by 2.4 per cent over the previous year. Despite a 0.5 per cent decline in interest income, the positive net result was achieved thanks to a reduction in interest expenses by 4.1 per cent. The second half of the year saw an escalation of the debt crisis in peripheral eurozone members which fuelled growth in interest rates on loans taken. However, the Group’s changed funding structure diminished the dependence on external sources. This was possible thanks to an increase in customer deposits, on which interest expenses did not rise in tandem with market movements. Also, changes in financial market conditions prompted Group members to reduce their investment into other financial assets to the level of liquid reserves, in turn reducing the need for external sources of funding.

Fee and commission income for the reporting year amounted to 413 million kuna, falling 6.4 per cent from the previous year. Since the fee income is the main source of income of non-bank Group members, a decline in the assets of investment and voluntary pension funds resulted in a drop of asset management fees, and also in lower net fee and commission income. In 2011, the value of assets of investment funds managed by Raiffeisen Invest shrank 24.9 per cent and of Raiffeisen voluntary pension funds 6.2 per cent, leading to a decrease in net income from asset management fees. Raiffeisen mandatory pension fund was the only ones to record an increase of 11.9 per cent thanks to new contribution payments.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 27 Group operations

Other non-interest income ended the year at 327 million kuna, plummeting 53.7 per cent over the previous year. The fall in trading profit stems from a decline in the value of financial assets valued at market prices. Other income also dropped 177 million kuna. The total Group income of 2,081 million kuna was 15.3 per cent lower compared to a year earlier.

Group operating expenses stood at 1,287 million kuna, down 188 million compared to the previous year. The Group continued to streamline its business processes while also seeing some positive effects of investments into the improvement of technological support to business made in previous years. Overdue receivables from clients rose during the crisis, and the Group responded by heightening its debt collection activities while also developing a debt management and loan restructuring process. Improved risk management processes within the Group, along with continued monitoring of the portfolio quality and debt collection, contributed to a loss reduction. Compared to the previous year, the impairment losses of loans and off-balance credit risk shrank 10.0 per cent to 407 million kuna. A decrease in the Group operating income as a result of the impairment losses equalled 19.6 per cent in 2010, against a slightly higher 18.4 per cent a year earlier. While declining over the previous crisis year, the losses caused by deterioration in the quality of loans eroded the Group's operating income significantly. Smaller year-on-year impairment losses stem from more moderate credit risk growth and improvements in the debt collection process.

28 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts

RBI Group

Raiffeisen Bank International at a glance

A leading bank in Central and Eastern Europe, including Austria

Raiffeisenbank Austria d.d. Zagreb is a subsidiary of Raiffeisen Bank International AG (RBI), which regards Central and Eastern Europe (including Austria), as its home market. For nearly 25 years, RBI has been operating in the Central and Eastern Europe (CEE) region, where today it maintains a closely knit network of subsidiary banks, leasing companies and numerous specialized financial service providers in 17 markets. As a universal bank, RBI ranks among the leading banks in the region. The powerful role played by the bank is supported by the Raiffeisen brand, which is one of the most widely recognized brands in the region. Following its strategic realignment in 2010, RBI has positioned itself as a fully integrated corporate and retail banking group in CEE. The bank not only has good access to retail and corporate customers, but also a comprehensive product offering. At the end of 2011 around 56,000 staff served approximately 13.8 million customers in around 2,915 business outlets in CEE.

In Austria, RBI is one of the top corporate and investment banks. It primarily serves Austrian customers but also international as well as major multinational clients operating in CEE. Moreover, RBI is represented in the world's financial centers and operates branches and representative offices in Asia. All in all, RBI employs about 59,000 staff and has total assets of approximately 147 billion euro.

RBI operates subsidiary banks in the following CEE markets:

• Albania Raiffeisen Bank Sh.a. • Belarus Priorbank, OAO • Bosnia and Herzegovina Raiffeisen Bank d.d. Bosna i Hercegovina • Bulgaria Raiffeisenbank (Bulgaria) EAD • Croatia Raiffeisenbank Austria d.d. • Czech Republic Raiffeisenbank a.s. • Hungary Raiffeisen Bank Zrt. • Kosovo Raiffeisen Bank Kosovo J.S.C. • Poland Raiffeisen Bank Polska S.A. • Romania Raiffeisen Bank S.A. • Russia ZAO Raiffeisenbank • Serbia Raiffeisen banka a.d. • Slovakia Tatra banka, a.s. • Slovenia Raiffeisen Banka d.d. • Ukraine VAT Raiffeisen Bank Aval

As the parent company of these banks, RBI's shareholding in them is at or near to 100 per cent in most cases.

RBI's development

RBI was established in October 2010 through the merger of Raiffeisen International with the principal business areas of Raiffeisen Zentralbank Österreich AG (RZB). RBI's position as one of the leading banks in CEE (including Austria) was further reinforced by the merger. RBI has been listed on the Vienna stock exchange since 25 April 2005 (until 12 October 2010 as Raiffeisen International). It is represented in several leading national and international indices, including the ATX and EURO STOXX Banks. RZB remained the majority shareholder following the merger, holding approximately 78.5 per cent of the shares. The remaining 21.5 per cent of RBI's shares are in free float.

30 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts RBI Group

RZB was formed in 1927 as “Genossenschaftliche Zentralbank” (GZB). Raiffeisen gained its first foothold in Central and Eastern Europe back in 1987, when it established its first subsidiary bank in Hungary. Other own subsidiaries have since been established; from 2000 onwards, Raiffeisen's expansion in the CEE countries has mainly been achieved by acquiring existing banks, which were combined into a holding company that from 2003 until October 2010 operated under the name Raiffeisen International. Raiffeisen International was listed on the stock exchange in April 2005 in order to finance its future growth as efficiently as possible. RBI was subsequently established in 2010 through the merger of Raiffeisen International with the principal business areas of RZB.

125 years of Raiffeisen in Austria

Raiffeisen's strong roots in Austria date back more than 125 years. Raiffeisen's first Austrian credit cooperative was founded in Mühldorf, a village in Lower Austria, in 1886. Local cooperatives soon started working together and, in turn, founded regional cooperatives marking the beginning of the multi-tiered structure of the Raiffeisen organization. This not only helped to strengthen their position in the market, but also enabled better management and risk control. Numerous product and service cooperatives were founded on the back of increasing specialization and market integration. In mid- 2011, the Raiffeisen Banking Group Austria (RBG), the country's largest banking group, managed 83.8 billion euro in Austrian customer deposits (excluding building society savings), of which around 50.3 billion euro was held in savings deposits; with a market share of 32.2 per cent, RBG has continued to expand its role as market leader among Austria's banks. RBG has achieved its strong market position through healthy organic growth.

For more information please refer to www.rbinternational.com and www.rzb.at.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 31 Russia

Russia

Belarus

Poland

Ukraine

Czech Republic

Slovakia Moldova

Austria Hungary

Romania

Slovenia Croatia

Bosnia and Serbia Herzegovina Bulgaria

Kosovo

Albania

Branches and representative offices

= CE EUROPE: France: Paris; Germany: Frankfurt/Main; Italy: Milan; Malta: Sliema; Russia: Moscow; = SEE Sweden: Stockholm; Spain: Madrid; UK: London; = CIS Other ASIA And AMERICA: China: Beijing, Hong Kong, Xiamen; India: Mumbai; Kazakhstan: Almaty (leasing company); = Russia Korea: Seoul; Malaysia: Johor Bahru; Singapore: Singapore; USA: New York; Vietnam: Ho Chi Minh City. Russia

Russia

Belarus

Poland

Ukraine

Czech Republic

Slovakia Moldova

Austria Hungary

Romania

Slovenia Croatia

Bosnia and Serbia Herzegovina Bulgaria

Kosovo

Albania

Branches and representative offices

= CE EUROPE: France: Paris; Germany: Frankfurt/Main; Italy: Milan; Malta: Sliema; Russia: Moscow; = SEE Sweden: Stockholm; Spain: Madrid; UK: London; = CIS Other ASIA And AMERICA: China: Beijing, Hong Kong, Xiamen; India: Mumbai; Kazakhstan: Almaty (leasing company); = Russia Korea: Seoul; Malaysia: Johor Bahru; Singapore: Singapore; USA: New York; Vietnam: Ho Chi Minh City. RBI Group

Raiffeisen Glossary

ees. RBG consists of Raiffeisen Banks tria, RBI is one of the top corporate on the local level, Regional Raiffeisen and investment banks. Moreover, RBI Banks on the provincial level and RZB is represented in the world's financial as central institution. RZB also acts as centers and operates branches and the link between the international oper- representative offices in Asia. All in all, ations of its group and RBG. Raiffeisen RBI employs about 59,000 staff and Banks are private cooperative credit in- has total assets of approximately 147 stitutions, operating as general service billion euro. retail banks. Each province's Raiffeisen Banks are owners of the respective Re- RBI has been listed on the Vienna stock gional Raiffeisen Bank, which in their exchange since 25 April 2005 (until entirety own approximately 89 per 12 October 2010 as Raiffeisen Interna- cent of RZB's ordinary shares. tional). It is represented in several lead- Gable Cross ing national and international indices, The Raiffeisen Banks go back to an including the ATX and EURO STOXX The gable cross is part of the trade- initiative of the German social reformer Banks. RZB is the majority shareholder mark used by almost every company Friedrich Wilhelm Raiffeisen (1818  holding approximately 78.5 per cent in the Raiffeisen Banking Group and 1888), who, by founding the first coop- of the shares. The remaining 21.5 per RZB Group in CEE. It represents two erative banking association in 1862, cent of RBI's shares are in free float. stylized horse’s heads, crossed and has laid the cornerstone of the global With its long-term "A" (S&P, Fitch) and attached to the gable of a house. It is organization of Raiffeisen cooperative "A1" (Moody's) ratings, RBI is also a a symbol of protection rooted in old societies. Only 10 years after the foun- regular issuer of debt securities. European folk tradition: a gable cross dation of the first Austrian Raiffeisen on the roof was believed to protect the banking cooperative in 1886, already RZB house and its occupants from outside 600 savings and loan banks were op- dangers and to ward off evil. It sym- erating according to the Raiffeisen sys- Founded in 1927, Raiffeisen Zentral- bolizes the protection and security that tem throughout the country. According bank Österreich AG (RZB) is the cen- the members of the Raiffeisen banks to Raiffeisen's fundamental principle of tral institution of the Austrian Raiffeisen enjoy through their self-determined self-help, the promotion of their mem- Banking Group (RBG) and acts as collaboration. Today, the gable cross bers' interests is a key objective of their group centre for the entire RZB Group, is one of Austria’s best-known trade- business policies. including RBI. RZB functions as the key marks and a well recognized brand link between the Austrian Raiffeisen in CEE. Raiffeisen Bank International Banking Group and RBI, with its bank- ing network in Central and Eastern Raiffeisen Banking Group Raiffeisen Bank International AG (RBI) Europe (CEE) and numerous other in- regards Central and Eastern Europe ternational operations. The Raiffeisen Banking Group (RBG) (CEE), including Austria, as its home is Austria's largest banking group by market. In CEE, RBI operates as a RZB Group total assets. As per year-end 2010, universal bank through a closely knit RBG's consolidated balance-sheet to- network of subsidiary banks, leasing The Group owned and steered by tal amounted to more than 255 billion companies and numerous special- RZB. Raiffeisen Bank International is euro. It represents about a quarter of ized financial service providers in 17 the Group's largest unit. all banking business in Austria and markets. At the end of 2011 around comprises the country's largest bank- 56,000 staff served approximately ing network with more than 2,200 13.8 million customers in around business outlets and 24,000 employ- 2,915 business outlets in CEE. In Aus-

34 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts

Financial Statements

Responsibilities of the Management and Supervisory Boards for the preparation and approval of the annual financial statements

The Management Board of the Bank is required to prepare consolidated and unconsolidated financial statements for each financial year which give a true and fair view of the financial position of the Bank and Group and of the results of their operations and cash flows, in accordance with applicable accounting standards, and is responsible for maintaining proper accounting records to enable the preparation of such financial statements at any time. It has a general responsibility for taking such steps as are reasonably available to it to safeguard the assets of the Bank and the Group and to prevent and detect fraud and other irregularities.

The Management Board is responsible for selecting suitable accounting policies to conform with applicable accounting standards and then apply them consistently; making judgements and estimates that are reasonable and prudent; and pre- paring the financial statements on a going concern basis unless it is inappropriate to presume that the Bank and the Group will continue in business.

The Management Board is responsible for the submission of its annual report on the Bank and the Group to the Supervisory Board together with the annual financial statements, following which the Supervisory Board is required to approve the an- nual financial statements for submission to the General Assembly of Shareholders for adoption.

The consolidated and unconsolidated financial statements set out on pages 39 to 150 were authorised by the Management Board on 29 March 2012 for submission to the Supervisory Board and are signed below to signify this.

Signed on behalf of the Raiffeisenbank Austria d.d. Zagreb

Zdenko Adrović President of the Management Board ______

Vesna Ciganek Vuković Member of the Management Board ______

Vlasta ŽubrinićPick Member of the Management Board ______

Jasna Širola Member of the Management Board ______

Zoran Košćak Member of the Management Board ______

Mario Žižek Member of the Management Board ______

36 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Deloitte d.o.o. ZagrebTower Deloitte Radnička cesta 80 10 000 Zagreb TAX ID 0700851

Tel: +385 (0) 1 2351 900 Fax: +385 (0) 1 2351 999 www.deloitte.com/hr

Independent Auditor’s Report

To the Shareholders of Raiffeisenbank Austria d.d. Zagreb

We have audited the accompanying unconsolidated and consolidated financial statements of Raiffeisenbank Austria d.d. Zagreb (“the Bank”) and its subsidiaries (together “the Group”) which comprise unconsolidated and consolidated state- ments of financial position as at 31 December 2011 and unconsolidated and consolidated statements of comprehensive income, unconsolidated and consolidated changes in equity and unconsolidated and consolidated cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of consolidated and unconsolidated financial state- ments in accordance with statutory accounting requirements for banks in Croatia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in ac- cordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonable- ness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 37 Opinion

In our opinion the unconsolidated and consolidated financial statements, set out on pages 39 to 150, give a true and fair view of the financial position of the Bank and the Group, respectively as at 31 December 2011 and of their financial performance and their cash flows for the year then ended in accordance with statutory accounting requirements for banks in Croatia.

Emphasis of the Matter

Other legal and regulatory requirements

Pursuant to the Decision of the Croatian National Bank on the Form and Content of the Bank Annual Financial Statements (Official Gazette No. 62/08, hereinafter: “the Decision”), the Bank’s management has prepared the forms, as presented in the Appendix to these financial statements on pages 151 to 161, which comprise the consolidated balance sheet as of 31 December 2011, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated statement of cash flow for the year then ended, as well as the reconciliation to the consolidated financial statements. These forms and the accompanying reconciliation to the consolidated financial statements are the responsibil- ity of the Bank’s management, and do not represent components of the financial statements prepared in accordance with statutory accounting requirements for banks in Croatia, which are set out on pages 39 to 150, but rather a requirement specified by the Decision. The financial information provided in those forms has been derived from the financial state- ments of the Group.

Deloitte d.o.o. Branislav Vrtačnik, Certified Auditor

Zagreb, 29 March 2012

38 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Financial Statements

Consolidated statement of financial position as of 31 December 2011

Group 2011 Group 2010 Assets Notes HRK millions HRK millions Cash and amounts due from banks 5 2,320 1,169 Obligatory reserve with the Croatian National Bank 6 2,819 2,544 Financial assets at fair value through profit or loss 7 3,806 5,709 Placements with and loans to other banks 8 1,851 3,692 Financial assets available for sale 9 140 118 Loans and advances to customers 10 27,049 26,556 Financial investments held to maturity 11 736 729 Property, plant and equipment 13 1,592 1,622 Intangible assets 14 206 230 Deferred tax assets 15 206 189 Other assets 16 459 451 Total assets 41,184 43,009

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 39 Financial Statements

Consolidated statement of financial position as of 31 December 2011 (continued)

Group 2011 Group 2010 Liabilities Notes HRK millions HRK millions Financial liabilities at fair value through profit or loss 17 743 686 Deposits from banks 18 766 761 Deposits from companies and other similar entities 19 8,960 8,958 Deposits from individuals 20 14,285 13,457 Borrowings 21 9,562 11,974 Debt securities issued 22  124 Provisions for liabilities and charges 23 160 170 Current tax liability  78 Other liabilities 24 888 897 Total liabilities 35,364 37,105

Equity Share capital 34 3,621 3,699 Treasury shares  (10) Share premium 35 12 15 Capital reserve 1 1 Legal reserve 35 178 178 Reserve for general banking risks 35  288 Treasury shares reserve  10 Fair value reserve 35 10 14 Retained earnings 1,921 1,620 Total equity attributable to equity holders of the parent 5,743 5,815 Non controlling interest 37 77 89 Total equity 5,820 5,904 Total liabilities and equity 41,184 43,009

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

40 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Consolidated statement of comprehensive income for the year ended 31 December 2011

Group 2011 Group 2010 Notes HRK millions HRK millions Interest and similar income 25 2,379 2,392 Interest expense and similar charges 26 (1,038) (1,082) Net interest income 1,341 1,310 Fee and commission income 27 587 568 Fee and commission expense 28 (174) (127) Net fee and commission income 413 441 Net trading (expense)/income 29 (64) 138 Other operating income 30 391 568 Dealing and other income 327 706 Operating income 2,081 2,457 Operating expenses 31 (1,287) (1,475) Impairment losses on loans and advances to customers and other assets 32 (417) (398) Impairment gains/(losses) on provisions for liabilities and charges 23 10 (54) Profit before tax 387 530 Income tax expense 33 (82) (100) Profit for the year 305 430 Other comprehensive income Net revaluation gain on available for sale financial instruments (4) 7 Other comprehensive income for the year, net of tax (4) 7 Total comprehensive income for the year 301 437 Profit attributable to:  Equity holders of the parent 302 425  Non-controlling interest 37 3 5 Earnings per share attributable to the equity holders of the parent 38 HRK 83 HRK 117

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 41 Financial Statements

Consolidated statement of changes in equity for the year ended 31 December 2011

Attributable to equity holders of the parent Reserve for Non general Treasury Fair Reta- con- Share Treasury Share Capital Legal banking shares value ined trolling capital shares premium reserve reserve risks reserve reserve earnings Total interest Total HRK HRK HRK HRK HRK HRK HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions millions millions millions millions millions millions At 1 January 2011 3,699 (10) 15 1 178 288 10 14 1,620 5,815 89 5,904 Other comprehensive income for the year, net of tax        (4)  (4)  (4) Profit for the year         302 302 3 305 Transfer of reserves for general banking risks to retained earnings      (288)   288    Cancelation of preference shares (78) 10 (3)    (10)  13 (68)  (68) Dividend paid for 2010         (302) (302) (15) (317) At 31 December 2011 3,621  12 1 178   10 1,921 5,743 77 5,820

Consolidated statement of changes in equity for the year ended 31 December 2010 Attributable to equity holders of the parent Reserve for Non general Treasury Fair Reta- con- Share Treasury Share Capital Legal banking shares value ined trolling capital shares premium reserve reserve risks reserve reserve earnings Total interest Total HRK HRK HRK HRK HRK HRK HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions millions millions millions millions millions millions At 1 January 2010 3,699 (9) 15 1 178 361 9 7 1,277 5,538 88 5,626 Other comprehensive income for the year, net of tax        7  7  7 Profit for the year         425 425 5 430 Share premium       1  (1)    Transfer of reserves for general banking risks to retained earnings      (73)   73    Acquisition of preference shares  (1)        (1)  (1) Dividend paid for 2009         (154) (154) (4) (158) At 31 December 2010 3,699 (10) 15 1 178 288 10 14 1,620 5,815 89 5,904

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

42 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Consolidated statement of cash flow for the year ended 31 December 2011

Group 2011 Group 2010 Notes HRK millions HRK millions Cash flows from operating activities Profit before tax 387 530 Adjustments for:  Amortisation and depreciation 31 290 300  Foreign exchange differences 29 (91) (879)  Impairment losses 23, 32 407 452  Loss on disposal of assets under operating leases 8 8  Net interest income on trading and non trading financial instruments 25, 26 (265) (257) Changes in operating assets and liabilities Net decrease in financial assets at fair value through profit or loss 1,974 1,524 Net increase in placements with banks, with original maturity more than three months (123) (225) Net (increase)/decrease in obligatory reserve with the Croatian National bank (247) 321 Net increase in loans and advances to customers (383) (184) Net decrease in other assets 152 367 Net (increase)/decrease in financial investments held to maturity (20) 164 Net increase in financial liabilities at fair value through profit or loss 57 519 Net (decrease)/increase in deposits from banks (7) 180 Net (decrease)/increase in deposits from companies and other similar entities (93) 1,027 Net increase/(decrease) in deposits from individuals 538 (137) Net (decrease)/increase in other liabilities (28) 34 Net cash from operating activities before tax 2,556 3,744 Income tax paid (264) (61) Net cash from operating activities 2,292 3,683

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 43 Financial Statements

Consolidated statement of cash flow for the year ended 31 December 2011 (continued)

Group 2011 Group 2010 Notes HRK millions HRK millions Cash flows from investing activities Interest received from non-trading financial instruments 191 183 Acquisition of financial assets available for sale  (62) Purchase of property, plant and equipment and intangible assets (110) (125) Purchase of assets under operating leases (275) (557) Proceeds from disposal of assets under operating leases 141 99 Net cash used from investing activities (53) (462) Cash flows from financing activities Increase in borrowings 21 5,833 7,588 Decrease in borrowings 21 (8,412) (9,613) Increase of debt securities issued  20 Repurchase of debt securities issued (124) (15) Decrease in share capital (68)  Dividend paid (317) (158) Net cash used in financing activities (3,088) (2,178) Effects of foreign exchange differences on cash and cash equivalents 40 68 Net (decrease)/increase in cash and cash equivalents (809) 1,111 Cash and cash equivalents at beginning of the year 39 4,579 3,468 Cash and cash equivalents at end of the year 39 3,770 4,579

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

44 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Unconsolidated statement of financial position as of 31 December 2011

Bank 2011 Bank 2010 Assets Notes HRK millions HRK millions Cash and amounts due from banks 5 2,320 1,154 Obligatory reserve with the Croatian National Bank 6 2,819 2,544 Financial assets at fair value through profit or loss 7 3,781 5,676 Placements with and loans to other banks 8 1,797 3,627 Financial assets available for sale 9 20 16 Loans and advances to customers 10 25,624 25,437 Financial investments held to maturity 11 604 593 Investments in subsidiaries and associates 12 211 211 Property, plant and equipment 13 474 378 Intangible assets 14 201 226 Deferred tax assets 15 203 187 Other assets 16 406 373 Total assets 38,460 40,422

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 45 Financial Statements

Unconsolidated statement of financial position as of 31 December 2011 (continued)

Bank 2011 Bank 2010 Liabilities Notes HRK millions HRK millions Financial liabilities at fair value through profit or loss 17 744 689 Deposits from banks 18 766 761 Deposits from companies and other similar entities 19 9,070 9,360 Deposits from individuals 20 14,285 13,457 Borrowings 21 7,200 9,455 Debt securities issued 22  124 Provisions for liabilities and charges 23 147 164 Current tax liability  72 Other liabilities 24 616 669 Total liabilities 32,828 34,751

Equity Share capital 34 3,621 3,699 Treasury shares  (10) Share premium 35 12 15 Capital reserve 1 1 Legal reserve 35 173 173 Reserve for general banking risks 35  288 Treasury shares reserve  10 Fair value reserve 35 17 13 Retained earnings 1,808 1,482 Total equity 5,632 5,671 Total liabilities and equity 38,460 40,422

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

46 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Unconsolidated statement of comprehensive income for the year ended 31 December 2011

Bank 2011 Bank 2010 Notes HRK millions HRK millions Interest and similar income 25 2,262 2,259 Interest expense and similar charges 26 (944) (999) Net interest income 1,318 1,260 Fee and commission income 27 471 458 Fee and commission expense 28 (161) (117) Net fee and commission income 310 341 Net trading (expense)/income 29 (62) 126 Other operating income 30 122 76 Dealing and other income 60 202 Operating income 1,688 1,803 Operating expenses 31 (897) (920) Impairment losses on loans and advances to customers and other assets 32 (425) (380) Impairment gains/(losses) on provisions for liabilities and charges 23 17 (53) Profit before tax 383 450 Income tax expense 33 (56) (74) Profit for the year 327 376 Other comprehensive income Net revaluation available for sale financial instruments 4 6 Other comprehensive income for the year, net of tax 4 6 Total comprehensive income for the year 331 382 Earnings per share attributable to the equity holders of the parent 38 HRK 90 HRK 104

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 47 Financial Statements

Unconsolidated statement of changes in equity for the year ended 31 December 2011

Reserve for general Treasury Share Treasury Share Capital Legal banking shares Fair value Retained capital shares premium reserve reserve risks reserve reserve earnings Total HRK HRK HRK HRK HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions millions millions millions millions

At 1 January 2010 3,699 (9) 15 1 173 361 9 7 1,188 5,444 Other comprehensive income for the year, net of tax        6  6 Profit for the year         376 376 Acquisition of preference shares  (1)        (1) Transfer of reserve for general banking risks to retained earnings      (73)   73  Share premium       1  (1)  Dividend paid for 2009         (154) (154) At 31 December 2010 3,699 (10) 15 1 173 288 10 13 1,482 5,671 Other comprehensive income for the year, net of tax        4  4 Profit for the year         327 327 Cancelation of preference shares (78) 10 (3)    (10)  13 (68) Transfer of reserve for general banking risks to retained earnings      (288)   288  Dividend paid for 2010         (302) (302) At 31 December 2011 3,621  12 1 173   17 1,808 5,632

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

48 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Unconsolidated statement of cash flow for the year ended 31 December 2011 Bank 2011 Bank 2010 Notes HRK millions HRK millions Cash flows from operating activities Profit before tax 383 450 Adjustments for:  Amortisation and depreciation 31 127 127  Foreign exchange differences 29 (93) (871)  Impairment losses 23, 32 408 433  Net interest income on trading and non-trading financial instruments 25, 26 (245) (227)  Dividend income from investment in subsidiaries (114) (53) Changes in operating assets and liabilities Net decrease in financial assets at fair value through profit or loss 1,965 1,498 Net increase in placements with banks, with original maturity more than three months (119) (231) Net (increase)/decrease in obligatory reserve with the Croatian National bank (247) 321 Net increase in loans and advances to customers (148) (657) Net decrease in financial investments held to maturity  195 Net decrease in other assets 90 202 Net increase in financial liabilities at fair value through profit or loss 55 521 Net (decrease)/increase in deposits from banks (7) 180 Net (decrease)/increase in deposits from companies and other similar entities (378) 1,109 Net increase/(decrease) in deposits from individuals 538 (126) Net decrease in other liabilities (71) (57) Net cash from operating activities before tax 2,144 2,814 Income tax paid (208) (34) Net cash from operating activities 1,936 2,780

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 49 Financial Statements

Unconsolidated statement of cash flow for the year ended 31 December 2011 (continued)

Bank 2011 Bank 2010 Notes HRK millions HRK millions Cash flows from investing activities Interest received from trading and non-trading financial instruments 187 157 Dividend received 114 53 Proceeds from selling of property, plant and equipment and intangible asset  2 Purchase of property, plant and equipment and intangible assets (198) (123) Net cash from investing activities 103 89 Cash flows from financing activities Increase of borrowings 21 4,645 6,254 Repayment of borrowings 21 (7,009) (7,685) Increase of debt securities issued  20 Repayment of debt securities issued (124) (15) Decrease in share capital (68)  Dividend paid (302) (154) Net cash used in financing activities (2,858) (1,580) Effects of foreign exchange differences on cash and cash equivalents 40 70 Net (decrease)/increase in cash and cash equivalents (779) 1,359 Cash and cash equivalents at beginning of the year 39 4,549 3,190 Cash and cash equivalents at end of the year 39 3,770 4,549

The accounting policies and other notes on pages 51 to 150 form an integral part of these financial statements.

50 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Notes to the financial statements

1. General information

Raiffeisenbank Austria d.d. Zagreb (“the Bank” or “the Parent”) is a joint stock company incorporated and domiciled in Croatia. The Bank is the parent of the Raiffeisenbank Austria Zagreb d.d. Group (“the Group”). These financial statements are the financial statements of the Bank and the Group as defined in International Accounting Standard 27: “Consoli- dated and Separate Financial Statements”.

These financial statements were authorised by the Management Board on 29 March 2012 for issue to the Supervisory Board.

The principal accounting policies applied in the preparation of these financial statements are summarised below. Where specific accounting policies are aligned with accounting principles set out in International Financial Reporting Standards, reference may be made to certain Standards in describing the accounting policies of the Group; unless otherwise stated, these references are to Standards applicable at 31 December 2011.

Statement of compliance

The financial statements have been prepared in accordance with statutory accounting requirements for banks in Republic of Croatia. The Bank’s operations are subject to the Credit Institutions Act, in accordance with which the Bank’s financial reporting is regulated by the Croatian National Bank (“CNB”) which is the central monitoring institution of the banking system in Croatia. These financial statements have been prepared in accordance with these regulations.

The accounting regulations of the CNB are based on International Financial Reporting Standards. The principal differ- ences between the accounting regulations of the CNB and recognition and measurement requirements of International Financial Reporting Standards are as follows:

• The CNB requires banks to recognise impairment losses, in statement of comprehensive income, on assets not identi- fied as impaired (including sovereign risk assets) at prescribed rates (excluding assets carried at fair value). The Bank has made portfolio based provisions of HRK 402 million (2010: HRK 408 million) carried in the statement of financial position in compliance with these regulations, and has recognised income of HRK 12 million in relation to these provi- sions within the amounts reversed during the year (2010: expense of HRK 63 million). The Bank is in the process of compiling the observable historical data in respect of the unidentified losses existing in its various credit risk portfolios at date of reporting, determining the appropriate emergence period over which these losses come to light, and identify- ing, for each portfolio, the relevant current economic conditions with which the historical data should be adjusted, as a basis for estimating the extent of unidentified losses existing at date of reporting on the basis required by International Financial Reporting Standards.

• Although the Bank calculates impairment losses on corporate lending as the present value of the expected future cash flows, discounted at the instrument’s original effective interest rate, in accordance with International Financial Reporting Standards, the CNB requires the amortisation of the discount calculated to be presented in the statement of comprehen- sive income within the movement on impairment losses on loans and advances to customers and other assets, rather than as interest income, as required by International Financial Reporting Standards.

• In accordance with CNB requirements the Group and the Bank have classified leasehold improvements in total amount of HRK 92 million (2010: HRK 106 million) as intangible assets rather than tangible assets as prescribed by Interna- tional Financial Reporting Standards.

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Notes to the financial statements (continued)

Basis of preparation

The financial statements are prepared on the fair value basis for derivative financial instruments, trading assets and li- abilities, other financial assets and liabilities at fair value through profit or loss, and financial and non-financial assets available for sale, except those for which a reliable measure of fair value is not available. Other financial assets and liabilities, and non-financial assets and liabilities, are stated at amortised or historical cost.

The financial statements have been prepared in a format generally adopted and internationally recognised by banks.

In preparing the financial statements, management has made judgements, estimates and assumptions that affect the ap- plication of policies and reported amounts of assets and liabilities, and disclosure of commitments and contingencies at date of reporting, as well as amounts of income and expenses for the period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances and information available at the date of the preparation of the financial statements, the results of which form the basis of making judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources. Ac- tual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of applicable standards that have significant effects on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3.

The accounting policies have been consistently applied to all periods presented in these financial statements.

The Bank also expects that, in the ordinary course of updating its accounting regulations, the CNB will take into account the following Standards and Interpretations issued by the International Accounting Standards Board and its International Financial Reporting Interpretations Committee, which were in issue as of the date on which these financial statements have been authorised for issue, but which are applicable to entities reporting under IFRS in periods commencing after 31 December 2011, and which may have an impact on the Group.

Standards and Interpretations effective in the current period

The following amendments to the existing standards issued by the International Accounting Standards Board and inter- pretations issued by the International Financial Reporting Interpretations Committee are effective for the current period:

• Amendments to IFRS 1 “First-time Adoption of IFRS”  Limited Exemption from Comparative IFRS 7 Disclosures for First- time Adopters (effective for annual periods beginning on or after 1 July 2010),

• Amendments to IAS 24 “Related Party Disclosures”  Simplifying the disclosure requirements for government-related en- tities and clarifying the definition of a related party (effective for annual periods beginning on or after 1 January 2011),

• Amendments to IAS 32 “Financial Instruments: Presentation”  Accounting for rights issues (effective for annual periods beginning on or after 1 February 2010),

• Amendments to various standards and interpretations “Improvements to IFRSs (2010)” resulting from the annual im- provement project of IFRS published on 6 May 2010 (IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13) primar- ily with a view to removing inconsistencies and clarifying wording (amendments are to be applied for annual periods beginning on or after 1 July 2010 or 1 January 2011 depending on standard/interpretation),

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Notes to the financial statements (continued)

• Amendments to IFRIC 14 “IAS 19  The Limit on a defined benefit Asset, Minimum Funding Requirements and their Interaction” - Prepayments of a Minimum Funding Requirement (effective for annual periods beginning on or after 1 January 2011),

• IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments” (effective for annual periods beginning on or after 1 July 2010).

The Management Board has assessed the impact of these standards and has concluded that these changes do not have impact on the Group’s financial statements.

Standards and Interpretations in issue not yet adopted

At the date of authorisation of these financial statements the following standards, revisions and interpretations were in issue but not yet effective:

• IFRS 9 “Financial Instruments” (effective for annual periods beginning on or after 1 January 2015),

• IFRS 10 “Consolidated Financial Statements” (effective for annual periods beginning on or after 1 January 2013),

• IFRS 11 “Joint Arrangements” (effective for annual periods beginning on or after 1 January 2013),

• IFRS 12 “Disclosures of Involvement with Other Entities” (effective for annual periods beginning on or after 1 January 2013),

• IFRS 13 “Fair Value Measurement” (effective for annual periods beginning on or after 1 January 2013),

• IAS 27 (revised in 2011) “Separate Financial Statements” (effective for annual periods beginning on or after 1 January 2013),

• IAS 28 (revised in 2011) “Investments in Associates and Joint Ventures” (effective for annual periods beginning on or af- ter 1 January 2013),

• Amendments to IFRS 1 “First-time Adoption of IFRS”  Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (effective for annual periods beginning on or after 1 July 2011),

• Amendments to IFRS 7 “Financial Instruments: Disclosures”  Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011),

• Amendments to IFRS 7 “Financial Instruments: Disclosures”  Offsetting Financial Assets and Financial Liabilities (effec- tive for annual periods beginning on or after 1 January 2013),

• Amendments to IFRS 9 “Financial Instruments” and IFRS 7 “Financial Instruments: Disclosures”  Mandatory Effective Date and Transition Disclosures,

• Amendments to IAS 1 “Presentation of financial statements”  Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012),

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Notes to the financial statements (continued)

• Amendments to IAS 12 “Income Taxes”  Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after 1 January 2012),

• Amendments to IAS 19 “Employee Benefits”  Improvements to the Accounting for Post-employment Benefits (effective for annual periods beginning on or after 1 January 2013),

• Amendments to IAS 32 “Financial instruments: presentation”  Offsetting Financial Assets and Financial Liabilities (ef- fective for annual periods beginning on or after 1 January 2014),

• IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine” (effective for annual periods beginning on or after 1 January 2013).

The Management has elected not to adopt these standards, revisions and interpretations in advance of their effective dates. The Management anticipates that the adoption of standards 7 and 9 will have significant impact on financial statements mostly in respect of financial instruments classification, while acceptation of other standards, revisions and interpretations will have no material impact on the financial statements of the Group in the period of initial application.

Functional and presentation currency

These financial statements are presented in Croatian kuna (HRK), which is the functional currency. Amounts are rounded to the nearest million (unless otherwise stated).

The effective exchange rate as at 31 December 2011 was HRK 7.530420 to EUR 1 (2010: HRK 7.385173); HRK 5.819940 to USD 1 (2010: HRK 5.568252) and HRK 6.194817 to CHF 1 (2010: HRK 5.929961).

Changes in presentation or classification of the items in the financial statements

Where necessary, comparative information has been reclassified to achieve consistency with current financial year amounts and other disclosures.

Basis of consolidation

a) Consolidated and separate financial statements

Financial statements are presented for the Bank and the Group. The Group financial statements comprise the consolidated financial statements of the Bank and its subsidiary entities (disclosed in note 12). The separate, unconsolidated financial statements of the Bank are also presented. As set out in note 12 “Investment in subsidiaries” the Parent has classified its 50% investment in Raiffeisen Leasing d.o.o. as a subsidiary, whose financial statements are included in the consolidated financial statements of the Group, even though the Parent does not have a majority of the equity of the investee, in ac- cordance with CNB regulations.

b) Subsidiaries

Subsidiaries are those enterprises controlled by the Bank. Control exists when the Bank has the power, directly or indirect- ly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

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Notes to the financial statements (continued)

c) Transactions with non controlling interest

The Group applies a policy of treating transactions with non controlling interests as transactions with parties external to the Group. Disposals to non controlling interests result in gains and losses for the Group that are recorded in the statement of comprehensive income. Purchases from non controlling interests may result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. d) Associates

Associates are all entities over which the Group has significant influence but not control. In the Group financial statements investments in associates are accounted for using the equity method. The Group’s investment in associates includes good- will (net of any accumulated impairment loss) identified on acquisition.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of comprehensive income, and its share of their post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition move- ments are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the assets transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. e) Transactions eliminated on consolidation

Intra-group balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associ- ates are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

2. Significant accounting policies

Interest income and expense

Interest income and expense are recognised in the statement of comprehensive income as they accrue, for all interest bearing financial instruments including those measured at amortised cost, at fair value through profit or loss, available for sale, and the interest income component of finance lease receivables, using the effective interest rate method except for financial instruments at fair value through profit or loss, where interest is accrued at the coupon rate. Such income and expense is presented as interest and similar income or interest expense and similar charges in the statement of compre- hensive income. Interest expense also includes deposit insurance costs. Interest income and expense also includes fee and commission income and expense in respect of loans provided to customers or borrowings from other banks, premium or discount amortisation, and other differences between the initial carrying amount of an interest bearing financial instrument and its value at maturity, recognised on an effective interest basis. Interest income and expense on all trading assets and liabilities are presented as interest income or expense.

The effective interest method is a method of calculating the amortised 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 discounts estimated future cash payments or receipts over the expected life of the financial instrument or, when appropriate, a shorter

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Notes to the financial statements (continued)

period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group does not consider future credit losses. The calculation includes all fees and percentage points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Fee and commission income and expense

Fee and commission income and expense arises on financial services provided by the Group and received by the Group, and mainly comprises fees related to domestic and foreign payments, the issue of guarantees and letters of credit, credit card business and other services provided by and to the Group including asset management and custodial services. Fee and commission income and expense are recognised in the statement of comprehensive income when the related service is performed.

Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Commitment fees in relation to facilities where draw down is not probable are recognised over the term of the commitment. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group has retained no part for itself, or has retained a part at the same effective interest rate as the other participants. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts. Asset management fees related to investment fund management are recognised on an accruals basis over the period in which the service is provided. The same principle is applied for custody services that are continuously provided over an extended period of time.

Dividend income

Dividend income from equity securities or, in the case of the Parent’s separate financial statements, investments in subsidi- aries, is recognised in the statement of comprehensive income when the rights to receive the dividend are established.

Gains less losses from dealing and investment financial instruments

Gains less losses from dealing securities include unrealised and realised gains and losses arising from derivative financial instruments, trading debt securities and other financial instruments designated at fair value through profit or loss.

Gains less losses arising from investment securities comprise realised gains and losses from financial instruments available for sale.

Gains less losses arising from dealing in foreign currencies

Gains less losses from dealing in foreign currencies include unrealised and realised gains and losses arising from spot dealings in foreign currencies.

Foreign currencies

Transactions in foreign currencies are translated into HRK at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at date of reporting are translated into HRK at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the state- ment of comprehensive income. Non-monetary assets and items that are measured in terms of historical cost in foreign currency are translated using the exchange rate at the date of the transaction and are not retranslated at date of reporting.

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Notes to the financial statements (continued)

Changes in the fair value of financial assets denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. The translation differences are recognised in the statement of comprehensive income as part of the foreign exchange gains or losses on the revaluation of monetary assets and liabilities presented within net trading income in the statement of comprehensive income. Translation differences on non-monetary financial assets, such as equity instruments classified as available for sale, are included in the fair value reserve in equity.

Financial instruments: classification

The Group classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, available for sale, held to maturity or financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. The management determines the classification of financial instruments upon initial recognition. a) Financial assets and financial liabilities at fair value through profit or loss

This category comprises: financial instruments held for trading (including derivatives), and those designated by manage- ment as at fair value through profit or loss at inception. The Group designates financial assets and liabilities at fair value through profit or loss when:

• the assets or liabilities are managed, evaluated and reported internally on a fair value basis; or • the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise.

b) Loans and receivables

This category comprises non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money to a debtor with no intention of trading with the receivable and include loans to and receivables from banks, loans to and receivables from customers, and the obligatory reserve with the CNB. c) Financial instruments held to maturity

This category comprises non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intention and ability to hold to maturity. These include purchased loans and receivables and some debt securities. d) Financial assets available for sale

This category comprises non-derivative financial assets which are designated as available for sale or are not designated as loans and receivables, held-to-maturity investments, or financial assets at fair value through profit or loss. Financial as- sets designated as available for sale are intended to be held for an indefinite period of time, but may be sold in response to needs for liquidity or changes in interest rates, foreign exchange rates, or equity prices. Available-for-sale financial assets include certain debt and equity securities. e) Other financial liabilities

Other financial liabilities comprise all financial liabilities which are not designated at fair value through profit or loss.

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Notes to the financial statements (continued)

Financial instruments: recognition and derecognition

Purchases and sales of financial assets and financial liabilities at fair value through profit or loss, and financial assets held to maturity and available for sale, are recognised on the settlement date. Loans and receivables and financial liabilities at amortised cost are recognised when advanced to borrowers or received from lenders.

The Group derecognises financial instruments (in full or part) when the rights to receive cash flows from the financial in- strument have expired or when it loses control over the contractual rights over financial assets. It occurs when the Group transfers substantially all the risks and rewards of ownership to another business entity or when the rights are realised, surrendered or have expired.

The Group derecognises financial liabilities only when the financial liability ceases to exist, i.e. when it is discharged, cancelled or has expired. If the terms of a financial liability change, the Group will cease recognising that liability and will instantaneously recognise a new financial liability, with new terms and conditions.

Realised gains and losses from the disposal of financial instruments are calculated by using the weighted average cost method.

Financial instruments: initial and subsequent measurement

Financial assets and liabilities are recognised initially at their fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

After initial recognition, the Group measures financial instruments at fair value through profit or loss and available for sale at their fair value, without any deduction for selling costs. Equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost, less impairment if needed.

Loans and receivables and held-to-maturity investments and financial liabilities not designated at fair value through profit or loss are measured at amortised cost using the effective interest method.

Financial instruments: gains and losses

Gains or losses arising from a change in the fair value of financial assets or financial liabilities at fair value through profit or loss are recognised in the statement of comprehensive income.

Gains or losses from a change in the fair value of available-for-sale monetary assets are recognised directly in a fair value reserve within equity and are disclosed in the statement of changes in equity. Impairment losses, foreign exchange gains and losses, interest income and amortisation of premium or discount using the effective interest method on available-for- sale monetary assets are recognised in the statement of comprehensive income. Foreign exchange differences on equity instruments are part of the fair value of these instruments and are recognised in equity. Dividend income is recognised in the statement of comprehensive income. Upon sale or other derecognition of available-for-sale assets, any cumulative gains or losses on the instrument are transferred to the statement of comprehensive income.

Gains or losses arising from financial assets and financial liabilities carried at amortised cost are recognised as interest in the statement of comprehensive income over the period of amortisation. Gains or losses may also be recognised in the statement of comprehensive income when a financial instrument is derecognised or when its value is impaired.

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Notes to the financial statements (continued)

Fair value measurement principles

The fair value of quoted financial instruments in an active market is based on their closing bid prices. If there is no ac- tive market for the financial instrument, or if, due to any other reason, the fair value cannot be reliably measured by the market price, the Group uses an internal evaluation model for fair value estimation. Such models include the use of prices achieved in recent transactions, reference to similar financial instruments, and discounted cash flow analysis, mak- ing maximum use of market inputs and relying as little as possible on entity-specific inputs. Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimate and the discount rate is a market rate.

The fair value of non-exchange-traded derivatives is estimated at the amount that the Group would receive or pay to terminate the contract on date of reporting taking into account current market conditions and the current creditworthiness of the counterparties.

Impairment of financial assets a) Impairment of assets identified as impaired

Financial assets are reviewed at each reporting date to determine whether there is objective evidence of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

The Group estimates and performs impairment of all financial assets, except financial assets at fair value through profit or loss.

If any evidence of impairment exists for available-for- sale financial assets, the cumulative loss  measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss  is removed from equity and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through the statement of com- prehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the statement of comprehensive income.

The recoverable amount of financial instruments measured at amortised cost is calculated as the present value of the expect- ed future cash flows, discounted at the instrument’s original effective interest rate. Short-term balances are not discounted.

Allowances for uncollectibility are made against the carrying amount of loans and advances that are identified as being im- paired based on regular reviews of outstanding balances to reduce these loans and advances to their recoverable amounts (or lower amount if required by applicable CNB regulations). The expected cash flows for portfolios of similar assets are estimated based on previous experience and considering the credit rating of the underlying customers and late payments of interest or penalties. Increases in the impairment losses account are recognised in the statement of comprehensive income. When a loan is known to be uncollectable, all the necessary legal procedures have been completed, and the final loss has been determined, the loan is written off directly. If in a subsequent period the amount of impairment loss decreases and the decrease can be linked objectively to an event occurring after the write-down, the write-down or impairment loss is reversed through the statement of comprehensive income.

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Notes to the financial statements (continued)

b) Impairment of assets not identified as impaired

In addition to the above described impairment losses on assets identified as impaired, the Bank recognises impairment losses, in income statement, on on- and off-balance-sheet credit risk exposures not identified as impaired at rates from 0.85-1.20%, in accordance with the accounting regulations of the CNB.

Debt securities carried at fair value were excluded from the basis of such calculation at date of reporting.

Raiffeisen Leasing (“the Leasing”) reviews its portfolios of non-current loans and receivables to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the statement of comprehensive income, the Leasing makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans and receivables before the decrease can be identified with an individual loan or receivable in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with parameters relevant to assets in the group. Receivables from finance lease and loans that are individually assessed for impairment and found not to be impaired are included in groups of similar financial assets that are assessed for impairment on portfolio basis.

Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce differ- ences between loss estimates and actual loss experience.

Specific financial instruments

a) Cash and cash equivalents

Cash and cash equivalents comprise cash balances on hand, cash deposited with central banks, placements with other banks with original maturities of three months or less and items in course of collection.

b) Derivative financial instruments

The Group uses derivative financial instruments to hedge economically its exposure to currency risk and interest rate risk arising from operating, financing and investing activities. In accordance with its investment policies, the Group holds or issues a limited number of derivative financial instruments for the purpose of trading. Hedge accounting has not been ap- plied and consequently, all derivative agreements are classified as financial instruments at fair value through profit or loss.

Derivative financial instruments include foreign currency agreements, forward and forward rate agreements, futures, in- terest rate swaps, cross currency swaps, options and other financial derivatives and are initially recognised at fair value which is the value of consideration paid to acquire the instrument less transaction costs. Subsequent to initial recognition, derivatives are measured at fair value. The fair value is determined based on the quoted market price or, if more appro- priate, based on discounted cash flow calculations. All derivative instruments are presented as assets if their fair value is positive and as liabilities if their fair value is negative.

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Notes to the financial statements (continued)

Some hybrid contracts contain both a derivative and a non-derivative component. In such cases, the derivative component is termed an embedded derivative. Except as required to the contrary by the CNB, when the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract and when the hybrid contract is not itself carried at fair value through profit or loss, the embedded derivative is treated as a separate derivative and classified at fair value through profit or loss with all unrealised gains and losses recognised in the statement of comprehensive income, unless there is no reliable measure of their fair value.

Changes in the fair value of derivatives are included in net trading income. c) Treasury bills and debt securities

Treasury bills and debt securities that the Group holds for the purpose of short-term profit taking are classified as trading financial instruments, included as financial instruments at fair value through profit or loss at inception. Treasury bills that the Group has the intent and ability to hold to maturity are classified as held-to-maturity assets. Other treasury bills and debt securities are classified as available for sale. d) Equity securities and investments in open ended investment funds

Equity securities and investments in open ended investment funds are classified as at fair value through profit or loss or available for sale. e) Placements with banks

Placements with banks are classified as loans and receivables and are carried at amortised cost less impairment losses. f) Loans and advances to customers

Loans and advances are presented net of impairment losses.

In accordance with CNB requirements, the amortisation of any discounts included within impairment losses is included in impairment losses. g) Investments in subsidiaries

In the Bank’s separate financial statements investments in subsidiaries are accounted for at cost less impairment losses.

Other equity securities are classified as at fair value through profit and loss or available-for-sale financial assets and measured at fair value. h) Borrowings

Interest-bearing borrowings are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between proceeds (net of trans- action costs) and redemption value being recognised in the statement of comprehensive income over the period of the borrowings on an effective interest basis.

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Notes to the financial statements (continued)

i) Repurchase and sale buy-back agreements

The Group enters into purchases/(sales) of investments under agreements to resell (repurchase) substantially identical in- vestments at a certain date in the future at a fixed price. Investments purchased subject to such commitments to resell them at future dates are not recognised. The amounts paid are recognised in loans and advances to either banks or customers. The receivables are shown as collateralised by the underlying security. Investments sold under repurchase agreements continue to be recognised in the statement of financial position and are measured in accordance with the accounting policy for the relevant financial asset at amortised cost or at fair value as appropriate. The proceeds from the sale of the investments are reported as liabilities to either banks or customers.

The difference between the sale and repurchase consideration is recognised on an accrual basis over the period of the transaction and is included in interest income or expense.

The Group also enters into linked sale and buy-back transactions. In accordance with their substance, these are similarly accounted for as transactions under repurchase or resale agreements, as described above.

j) Bonds issued

Bonds issued by the Bank are classified as other liabilities and are initially recorded at the fair value of the consideration received, net of transaction costs. Subsequent to initial recognition bonds issued by the Bank are stated at amortised cost, net of the nominal value of any repurchased bonds. Any premium or discount on issue is debited or credited to interest expense on an effective interest rate basis.

Income tax

The income tax charge is based on taxable profit for the year and comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted or substantially enacted at date of reporting, and any adjustments to tax payable in respect of previous years.

Deferred taxes are calculated by using the balance sheet liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured by using the tax rates expected to apply to taxable profit in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at date of reporting.

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the enterprise expects, at date of reporting, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are not discounted and are classified as non-current assets and/or liabilities in the state- ment of financial position. Deferred tax assets are recognised when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilised. At each statement of financial position date, the Group reassesses unrecognised potential deferred tax assets and the carrying amount of recognised deferred tax assets.

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Notes to the financial statements (continued)

Property, plant and equipment

Items of property, plant and equipment are stated at historical cost or deemed cost, less accumulated depreciation and, if any, impairment losses.

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other expenditure on repairs and maintenance is expensed as incurred.

Leases in terms of which the Group as a lessor assumes substantially all the risks and rewards of ownership are classified as operating leases. Plant and equipment acquired in connection with such leases are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the leases, less accumulated depreciation and impairment losses. Assets under operating leases are depreciated on a straight line basis so as to write down the cost of the assets over the estimated lease period to their recoverable residual values.

Depreciation is provided on a straight-line basis to allocate the costs of assets to their residual values over their estimated economic useful life. Land and assets under construction or developed are not depreciated.

The estimated useful lives are as follows:

2011 2010 Buildings 30 years 30 years Equipment 4 years 4 years Office furniture 4 years 4 years Assets under operating leases 2  20 years 2  20 years

The assets’ residual values, depreciation method and useful lives are reviewed, and adjusted if appropriate, at each state- ment of financial position date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount, and are included in the statement of comprehensive income.

Intangible assets

Intangible assets are stated at cost less accumulated amortisation and impairment losses. Expenditure on development activities are capitalised if all of the features required by IAS 38 “Intangible assets” are satisfied. Amortisation is provided on a straight-line basis over the estimated useful lives of intangible assets. Costs associated with developing or maintain- ing intangible assets are recognised as an expense as incurred. In accordance with CNB regulations, intangible assets include leasehold improvements.

Intangible assets are amortised on a linear basis over their estimated useful economic lives as follows:

2011 2010 Leasehold improvements 1  20 years 1  20 years Software 5 years 5 years

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Notes to the financial statements (continued)

Non-current assets held for sale

Initially, non-current assets held for sale are recognised at the lower of carrying amount and fair value less costs to sell.

The Group discontinues to classify an asset as held for sale if its sale is no longer highly probable. The Group measures non-current assets that cease to be classified as held for sale at the lower of the asset’s carrying amount before the asset was classified as held for sale, adjusted for any depreciation, amortisation or revaluations and its recoverable amount at the date of subsequent decision not to sell. Any gain or loss from disposal or reclassification of non-current assets held for sale is recognised in the statement of comprehensive income as incurred.

Non-current assets held for sale include foreclosed assets acquired in settlement of impaired collateralized receivables.

Impairment of non-financial assets

The recoverable amount of property, plant and equipment and intangible assets is the higher of the asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. Non-financial assets that have suffered impair- ment are reviewed for possible reversal of the impairment at each date of reporting. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised.

Provisions for liabilities and charges

The Group recognises a provision when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the obligation.

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. The management determines the adequacy of the provision based upon reviews of individual items, recent loss experience, current economic conditions, the risk characteristics of the various categories of transactions and other pertinent factors.

Provisions are released only for such expenditure in respect of which provision are recognised at inception. If the outflow of economic benefits to settle the obligations is no longer probable, the provision is reversed.

Leases  Group as lessor

a) Finance leases

Leases where the Group as lessor transfers substantially all the risks and rewards incidental to ownership to the lessee are classified as finance leases. A receivable at an amount equal to the present value of the lease payments, including any guaranteed residual value, is recognised. The difference between the gross receivable and the present value of the receiv- able is unearned finance income and is recognised over the term of the lease using the effective interest rate method. Finance lease receivables are included in loans and advances to customers.

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Notes to the financial statements (continued)

b) Operating leases

Leases where the Group as lessor retains substantially all the risks and rewards incidental to ownership are included in tangible and intangible assets at cost net of accumulated depreciation. Rental income under operating leases is recog- nised in the statement of comprehensive income on a straight-line basis over the term of the lease.

Employee benefits a) Defined pension contributions

The Group pays contributions to mandatory pension plans on a mandatory, contractual basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit ex- pense when they are due. b) Share based compensation

The Bank operates share-based compensation plan allowing the Bank’s employees to purchase its preference shares, at the market price at the date of the purchase. As the shares are sold to the employees at a price equalling the fair value of the shares at the grant date, the fair value of the service equals zero and the Bank has not recognised any expense in respect of the share based payments. c) Long-term service benefits

The Bank provides employees with jubilee and one-off retirement awards. The obligation and costs of these benefits are determined by using a projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. The obligation is measured at the present value of estimated future cash flows using a discount rate that is similar to the interest rate on government bonds where the currency and terms of the government bonds are consistent with the currency and estimated terms of the benefit obligation. d) Pension insurance

Pension insurance provisions have been computed by the Group’s licensed actuary, in accordance with the method pre- scribed by the Law on Pension Insurance Companies and Payment of Pensions based on Individual Capitalised Savings.

Dividends

Dividends are recognised when declared by shareholders in general meeting.

Share capital

Share capital represents the nominal value of paid-in ordinary and non-redeemable non-cumulative preference shares classified as equity, on which dividends are payable at the discretion of the ordinary shareholders, and are stated in HRK at nominal value.

Treasury shares

When the Bank repurchases ordinary or preference shares, the consideration paid is deducted from equity attributable to the Bank’s equity holders until the shares are cancelled, reissued or disposed of. When such shares, which are classified

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Notes to the financial statements (continued)

as treasury shares, are subsequently sold or reissued, any consideration received, net of transaction costs, is included in equity attributable to the Bank’s equity holders.

Retained earnings

Any profit for the year after appropriations is transferred to reserves, in accordance with General Assembly decisions.

Earnings per share

The Bank presents earnings per share (EPS) data for its ordinary shares. EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.

Reserve for general banking risks

The Bank recognises within equity, a reserve for general banking risks, which represents a reserve for potential losses from the loan portfolio that are in excess of those expected and provided for through impairment losses. The reserve is calculated in accordance with the regulations of the CNB which require a certain percentage of net profit for the year to be set aside if the growth of risk assets (as defined by the CNB) on an annual basis exceeds a specific level. The reserve for general banking risks is created as a transfer within equity from retained earnings, and cannot be transferred back to retain earnings or other reserves or be otherwise distributed until the expiry of a consecutive three year period in which the Bank has recorded annual growth not exceeding 15%.

Off-balance-sheet commitments and contingent liabilities

In the ordinary course of business, the Group enters into credit related commitments which are recorded in off-balance- sheet accounts and primarily include guarantees, letters of credit and undrawn loan commitments. Such financial commit- ments are recorded in the Group’s statement of financial position if and when they become payable.

Managed funds for and on behalf of third parties

The Group manages assets on behalf of other companies and individuals for which a fee is charged. As these assets do not represent assets of the Group, they are excluded from the statement of financial position.

Offsetting

Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when the Group has a legally enforceable right to set off the recognised amount and the transactions are intended to be settled on a net basis, or to release the assets and settle the liabilities simultaneously.

Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group has identified five primary seg- ments: corporate banking (including leasing activities), retail banking, treasury, asset management and shared services.

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Notes to the financial statements (continued)

3. Significant accounting estimates and judgements

The Group makes estimates and assumptions about uncertain events, including estimates and assumptions about the future. Such accounting assumptions and estimates are regularly evaluated, and are based on historical experience and other factors such as the expected flow of future events that can be rationally assumed in existing circumstances, but nev- ertheless necessarily represent sources of estimation uncertainty. The estimation of impairment losses in the Bank’s credit risk portfolio represents the major source of estimation uncertainty. This and other key sources of estimation uncertainty, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. Significant judgements made in determining the most appropriate methodology for estimating the fair value of financial instruments carried at fair value, and other significant judgements affecting how items and transactions are accounted for, are also described below.

Impairment losses on loans and receivables

The Bank monitors the creditworthiness of its customers on an ongoing basis. In accordance with CNB regulations, the need for impairment of the Bank’s on- and off-balance-sheet credit risk exposure is assessed at least quarterly. Impairment losses are made mainly against the carrying value of loans and advances to corporate and retail customers (summarised in note 10), and as provisions for liabilities and charges arising from off-balance-sheet risk exposure to customers, mainly in the form of guarantees and documentary letters of credits (summarised in notes 23 and 42). Impairment losses are also considered for credit risk exposures to banks, and for other assets not carried at fair value, where the primary risk of impairment is not credit risk.

Summary of impairment losses for Group 2011 Group 2010 Bank 2011 Bank 2010 customers Notes HRK millions HRK millions HRK millions HRK millions Impairment losses on balance sheet exposure 10(a), 16 1,716 1,329 1,659 1,254 Provision for off-balance-sheet exposure 23 115 148 115 148 1,831 1,477 1,774 1,402

Financial assets carried at amortised cost

The Group first assesses whether objective evidence of impairment exists individually for assets that are individually significant (mainly corporate exposures) and collectively for assets that are not individually significant (mainly retail expo- sures). However, assets assessed individually as unimpaired are then included in groups of assets with similar credit risk characteristics. These portfolios are then assessed collectively for impairment.

The Group estimates impairment losses in cases where it judges that the observable data indicates the likelihood of a measurable decrease in the estimated future cash flows of the asset or portfolio of assets. Such evidence includes delin- quency in payments or other indications of financial difficulty of borrowers; and adverse changes in the economic condi- tions in which borrowers operate or in the value or enforceability of security, where these changes can be correlated with defaults.

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Notes to the financial statements (continued)

The Group takes into consideration the combined effect of several events when assessing impairment and uses its experi- enced judgement in cases where the observable data required to estimate impairment is limited. In estimating impairment losses on items individually or collectively assessed as impaired, the Group uses a flow rate model for retail loan portfolio developed by the Bank’s parent bank in Austria, and also has regard to the ranges of impairment loss prescribed by the CNB based on the age of overdue amounts. In estimating impairment losses on items individually assessed as impaired for non retail portfolio the Group uses discounted cash flow model.

At the year end, the gross value of specifically impaired loans and advances, and the rate of impairment loss recognised, was as follows:

2011 2010 Corporate Retail Total Corporate Retail Total The Group Gross value of exposure (in HRK millions) 2,613 877 3,490 2,160 824 2,984 Impairment rate (in %) 36% 56% 41% 30% 49% 35%

The Bank Gross value of exposure (in HRK millions) 2,452 877 3,329 2,060 824 2,884 Impairment rate (in %) 36% 56% 41% 29% 49% 34%

Each additional increase of one percentage point in the impairment rate on the gross portfolio of specifically identified impaired loans at 31 December 2011 would lead to the recognition of an additional impairment loss of HRK 33 million (2010: HRK 28.8 million) at the Bank level and an additional impairment loss of HRK 34.9 million (2010: HRK 29.8 million) at the Group level.

The Bank also seeks to recognise impairment losses which are known to exist at date of reporting, but which have not yet been specifically identified. In estimating unidentified impairment losses existing in collectively assessed portfolios, and in the absence of reliable data on historical loss rates and the emergence period for the identification of these impairment losses, the Bank also has regard to the range of impairment loss rates of 0.85% to 1.20% prescribed by the CNB to be calculated on all credit risk exposures except those carried at fair value, including off- balance-sheet amounts (including undrawn lending commitments including credit card limits) and Croatian sovereign risk. Amounts assessed as impaired on an individual basis are excluded from this calculation.

The amount of impairment losses at 31 December 2011 estimated on a portfolio basis amounted to HRK 402 million (2010: HRK 408 million) of the relevant on- and off-balance-sheet exposure. The total of these portfolio based impair- ment losses amounted to 1.01% (2010: 0.99%) of loans and advances to customers and to 0.97% (2010: 1.19%) on off-balance-sheet exposure, in both cases net of amounts individually assessed as impaired.

Fair value of derivatives

The fair value of OTC derivatives are determined by using valuation techniques. Where valuation techniques (for ex- ample, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices.

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Notes to the financial statements (continued)

Fair value of treasury bills

The Bank determines the fair value of treasury bills issued by the Ministry of Finance of the Republic of Croatia, using an internal model which considers their remaining maturity and the latest available auction prices of equivalent instruments. As at 31 December 2011, the carrying amount of treasury bills classified as financial assets at fair value through profit or loss was HRK 980 million (2010: HRK 741 million).

Provisions for severance payments and jubilee awards

In calculating provisions for severance payments and jubilee awards, the Group discounts expected future cash flows in respect of the liabilities, using discount rates that, in opinion of the Bank’s management, best represent the time value of money.

Provisions for court cases

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are maintained at the level that the Group’s manage- ment considers sufficient for absorption of incurred losses. The management determines the sufficiency of provisions on the basis of insight into specific items, current legal circumstances, as well as other relevant factors.

Pension insurance

The Group undertakes to provide pensions to savers in specially regulated obligatory and voluntary private pension funds in accordance with specific legal requirements. Once savers become pensionable, their savings in regulated pension funds are transferred to a regulated pension insurance company selected by the member. The pension insurance company thereby undertakes to provide pensions to the former members of compulsory pension funds during their lifetime in ac- cordance with the funds transferred. Pension benefits to former members of voluntary pension funds will be paid over their lifetime or for a predetermined fixed period in accordance with contracted arrangements. Currently, Raiffeisen mirovinsko osiguravajuce društvo d.o.o. is the only such regulated pension insurance company in Croatia.

Technical reserves have been computed by the Group’s licensed actuary, in accordance with methods prescribed by the Law on Pension Insurance Companies and Payment of Pensions based on Individual Capitalised Savings, and in accord- ance with formulae pre-approved by the Croatian Financial Services Supervisory Agency.

The actual liability is necessarily uncertain. The principal assumptions underlying the calculation of the technical reserves are the use of newer Republic of Croatia mortality tables from 2000-2002 and of technical interest rates at 2.5%-4% per annum.

Taxation

The Group provides for tax liabilities in accordance with the tax laws of the Republic of Croatia. Tax returns are subject to the approval of the tax authorities who are entitled to carry out subsequent inspections of taxpayers’ records.

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Notes to the financial statements (continued)

4. Segment reporting

Limited segment information is presented in respect of the Group’s business segments. The primary format, business seg- ments, is based on the Bank’s management and internal reporting structure.

Business segments

The Group comprises the following main business segments:

Corporate Banking Includes loans, deposits and other transactions and balances with cor- porate customers, and leasing activities at Group level;

Retail Banking Includes loans, deposits and other transactions and balances with re- tail customers;

Treasury Undertakes the Group’s funding and centralised risk management activities through borrowings, issues of debt securities, use of derivatives for risk management purposes and investing in liquid assets such as short-term placements and corporate and government debt securities;

Asset management Includes management of investment and pension funds under Group management;

Shared services Undertakes Group property management activities and centralised advertising and marketing services.

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Notes to the financial statements (continued)

4. Segment reporting (continued)

2011 Group Asset Shared HRK millions Corporate Retail Treasury management services Unallocated Total 2011 Net interest income 429 608 284 20   1,341 Net fee and commission income 173 124 1 115   413 Dealing and other income 313 33 (170) 132 19  327 Operating income 915 765 115 267 19  2,081 Operating expenses (509) (476) (70) (170) (62)  (1,287) Impairment losses on loans and advances to customers and other assets (311) (102) (4)    (417) Provisions for liabilities and charges (10) 20     10 Operating expenses (830) (558) (74) (170) (62)  (1,694) Profit before tax 85 207 41 97 (43)  387 Income tax expense      (82) (82) Profit for the year 85 207 41 97 (43) (82) 305 Segment assets 14,069 12,171 12,263 345 50  38,898 Unallocated assets      2,286 2,286 Total assets 14,069 12,171 12,263 345 50 2,286 41,184 Segment liabilities 11,799 14,598 8,747 202 18  35,364 Unallocated equity      5,820 5,820 Total equity and liabilities 11,799 14,598 8,747 202 18 5,820 41,184

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Notes to the financial statements (continued)

4. Segment reporting (continued)

2010 Group Asset Shared HRK millions Corporate Retail Treasury management services Unallocated Total 2010 Net interest income 473 645 178 14   1,310 Net fee and commission income 178 132 14 117   441 Dealing and other income 280 33 70 96 227  706 Operating income 931 810 262 227 227  2,457 Operating expenses (533) (483) (75) (125) (259)  (1,475) Impairment losses on loans and advances to customers and other assets (231) (167)     (398) Provisions for liabilities and charges (54)      (54) Operating expenses (818) (650) (75) (125) (259)  (1,927) Profit before tax 113 160 187 102 (32)  530 Income tax expense      (100) (100) Profit for the year 113 160 187 102 (32) (100) 430 Segment assets 14,779 12,149 13,422 343 52  40,745 Unallocated assets      2,264 2,264 Total assets 14,779 12,149 13,422 343 52 2,264 43,009 Segment liabilities 9,630 13,800 13,259 178 160  37,027 Unallocated equity      5,982 5,982 Total equity and liabilities 9,630 13,800 13,259 178 160 5,982 43,009

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Notes to the financial statements (continued)

4. Segment reporting (continued)

2011 Bank HRK millions Corporate Retail Treasury Unallocated Total 2011 Net interest income 426 608 284  1,318 Net fee and commission income 185 124 1  310 Dealing and other income 83 33 (56)  60 Operating income 694 765 229  1,688 Operating expenses (351) (476) (70)  (897) Impairment losses on loans and advances to customers and other assets (319) (102) (4)  (425) Provisions for liabilities and charges (3) 20   17 Operating expenses (673) (558) (74)  (1,305) Profit before tax 21 207 155  383 Income tax expense    (56) (56) Profit for the year 21 207 155 (56) 327 Segment assets 12,860 12,171 12,263  37,294 Unallocated assets    1,166 1,166 Total assets 12,860 12,171 12,263 1,166 38,460 Segment liabilities 9,484 14,598 8,747  32,829 Unallocated equity    5,631 5,631 Total equity and liabilities 9,484 14,598 8,747 5,631 38,460

2010 Bank HRK millions Corporate Retail Treasury Unallocated Total 2010 Net interest income 438 644 178  1,260 Net fee and commission income 195 132 14  341 Dealing and other income 99 33 70  202 Operating income 732 809 262 1,803 Operating expenses (362) (483) (75)  (920) Impairment losses on loans and advances to customers and other assets (213) (167)   (380) Provisions for liabilities and charges (53)    (53) Operating expenses (628) (650) (75)  (1,353) Profit before tax 104 159 187  450 Income tax expense    (74) (74) Profit for the year 104 159 187 (74) 376 Segment assets 13,847 12,139 13,422  39,408 Unallocated assets    1,014 1,014 Total assets 13,847 12,139 13,422 1,014 40,422 Segment liabilities 7,622 13,798 13,259  34,679 Unallocated equity    5,743 5,743 Total equity and liabilities 7,622 13,798 13,259 5,743 40,422

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Notes to the financial statements (continued)

5. Cash and amounts due from banks

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Cash in hand 515 454 515 454 Items in the course of collection 1 1 1 1 Giro account with the Croatian National Bank 1,622 614 1,622 614 Current accounts with other banks  with parent bank 15 15 15 15  with other Raiffeisen Bank International AG (“the RBI”) group banks 9 4 9 4  with other banks 158 81 158 66 2,320 1,169 2,320 1,154

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Notes to the financial statements (continued)

6. Obligatory reserve with the Croatian National Bank

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Obligatory reserve in domestic currency 2,286 2,114 2,286 2,114 Obligatory reserve in foreign currency 533 430 533 430 2,819 2,544 2,819 2,544

The obligatory reserve represents amounts required to be deposited with the Croatian National Bank (“the CNB”).

The HRK obligatory reserve requirement at 31 December 2011 represented 14% of the relevant HRK deposits (2010: 13%). At least 70% (2010: 70%) of the total obligatory reserve requirement must be deposited on a special account with the CNB and the remainder may be held in cash and/or on giro accounts. At year end the Bank held 100% (2010: 70%) of the total requirement in a special obligatory reserve deposit account with the CNB. Interest is received on a monthly basis. The interest rate for obligatory reserve funds at year-end was 0.25% per annum (2010: 0.25%).

The foreign currency obligatory reserve requirement at 31 December 2011 represented 14% (2010: 13%) of both for- eign currency personal and corporate deposits and foreign currency borrowings.

At 31 December 2011 100% (2010: 60%) of this foreign currency obligatory reserve was deposited with the CNB in ac- cordance with requirements and the remainder was placed with foreign banks in accordance with CNB selection criteria. In accordance with requirements 75% (2010: 75%) of the total foreign currency obligatory reserve is included in the HRK obligatory reserve and is maintained in HRK in accordance with CNB regulations.

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Notes to the financial statements (continued)

7. Financial assets at fair value through profit or loss

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Trading instruments Debt securities:  Domestic government bonds, listed 662 405 662 405  Foreign government bonds, listed 755 1,229 755 1,229  Treasury bills issued by the Ministry of Finance 109  109   Treasury bills issued by the foreign government, quoted  2,470  2,470  Bonds issued by banks, listed 38 264 38 264  Securities issued by companies, listed 39 34 39 34 1,603 4,402 1,603 4,402 Equity instruments, listed 22 40 22 40 Positive fair value of OTC derivative instruments 59 45 59 45 Gain on unsettled OTC foreign exchange spot transactions 2 1 2 1 61 46 61 46 Total trading instruments 1,686 4,488 1,686 4,488 Financial assets designated at fair value through profit or loss Debt securities:  Domestic government bonds, listed 8 5    Bonds issued by banks, listed 1  1   Securities issued by companies, listed 357 397 357 389  Treasury bills issued by the Ministry of Finance 871 741 868 734  Treasury bills issued by the foreign government, quoted 869 51 869 51 2,106 1,194 2,095 1,174 Investments in investment funds managed by related and third parties 14 27  14 Total financial assets designated at fair value through profit or loss 2,120 1,221 2,095 1,188

TOTAL 3,806 5,709 3,781 5,676

The fair value of securities included in trading instruments pledged as collateral for repo transactions amounted at the year end to HRK 965 million of trading instruments (2010: HRK 3,020 million) and HRK 384 million of financial assets designated at fair value through profit and loss (2010: HRK 567 million).

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8. Placements with and loans to other banks

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Loans 513 400 513 400 Deposits 1,342 3,292 1,288 3,227 1,855 3,692 1,801 3,627 Impairment losses (4)  (4)  1,851 3,692 1,797 3,627

Group deposits include guarantee deposit of HRK 54 million (2010: HRK 51 million) placed by Raiffeisen mirovinsko društvo za upravljanje obveznim mirovinskim fondom d.d. with custodian bank in accordance with the Law on Mandatory and Voluntary Pension Funds. These deposits, which are in the form of rolling short term deposits, are not available for the Group’s liquidity requirements and their use is restricted.

9. Financial assets available for sale

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Debt securities  Domestic government bonds, listed on stock exchange 111 98    Securities issued by companies, listed on stock exchange 9 4   Equity securities, not listed on stock exchange 20 16 20 16 140 118 20 16

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Notes to the financial statements (continued)

10. Loans and advances to customers

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Loans to companies and similar entities  denominated in domestic currency 3,965 3,473 3,936 3,526  denominated in or linked to foreign currency 11,541 11,077 11,075 10,900 Loans to individuals  denominated in domestic currency 4,524 4,528 4,524 4,528  denominated in or linked to foreign currency 7,669 7,673 7,669 7,673 Finance lease receivables, denominated in or linked to foreign currency 978 1,059   28,677 27,810 27,204 26,627 Impairment losses (1,628) (1,254) (1,580) (1,190) 27,049 26,556 25,624 25,437

Loans and advances to customers include loans with one way currency clause which gives the Bank the option to revalue the loans at the current foreign exchange rate. This represents an embedded derivative, which is included in contracts in the amount of HRK 14 million (2010: HRK 19 million). These embedded derivatives are valued using the valuation model prescribed by the Croatian National Bank, rather than an option pricing model. In accordance with CNB rules these embedded derivatives are not separated.

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Notes to the financial statements (continued)

10. Loans and advances to customers (continued) a) Movement in impairment losses for loans and advances to customers (including finance lease receivables):

Group 2011 2010

Identified Unidentified Identified Unidentified losses losses Total losses losses Total HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions At 1 January 935 319 1,254 611 278 889 Increase in impairment losses 457  457 424 41 465 Amounts recovered during the year (61)  (61) (96)  (96) Net charge to income statement 396  396 328 41 369 Net foreign exchange gain 10  10 18  18 Write offs (32)  (32) (22)  (22) At 31 December 1,309 319 1,628 935 319 1,254 Hereof Bank 1,264 316 1,580 877 313 1,190 Hereof Raiffeisen Leasing 40 3 43 57 6 63 Hereof other members of Group 5  5 1  1 1,309 319 1,628 935 319 1,254

Bank 2011 2010

Identified Unidentified Identified Unidentified losses losses Total losses losses Total HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions At 1 January 877 313 1,190 560 277 837 Increase in impairment losses 438 3 441 350 36 386 Amounts recovered during the year (36)  (36) (32)  (32) Net charge to income statement 402 3 405 318 36 354 Net foreign exchange gain 10  10 18  18 Write offs (25)  (25) (19)  (19) At 31 December 1,264 316 1,580 877 313 1,190

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Notes to the financial statements (continued)

10. Loans and advances to customers (continued)

b) Finance lease receivables

The Group acts as a lessor under finance leases, mainly of plant and equipment. The leases typically run for a period of one to seven years, with transfer of ownership of the leased asset at the end of the lease term. Interest is charged over the period of the lease based on market related interest rates. The receivables are secured by the underlying assets. Loans and advances to customers include the following finance lease receivables.

Group 2011 Group 2010 HRK millions HRK millions Gross investment in finance leases 1,135 1,222 Unearned finance income (157) (163) Net investment in finance leases 978 1,059 Less impairment losses (41) (54) Net investment in finance leases 937 1,005 Gross investment in finance leases, with remaining maturities Less than one year 454 523 More than one and less than five years 477 490 More than five years 204 209 1,135 1,222

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Notes to the financial statements (continued)

10. Loans and advances to customers (continued) c) Concentration of credit risk by industry

The Group and the Bank have a diversified portfolio within Croatia covering all sectors of the economy. The majority of commercial lending is to companies and individuals domiciled in Croatia. The Group and the Bank have the following gross credit risk concentration by industry in respect of the commercial loan portfolio (including finance leases):

Group 2011 Group 2010 Bank 2011 Bank 2010 % % % % Individuals 34 37 36 37 Trade 17 15 16 14 Central and local government 9 10 9 12 Construction 11 9 12 10 Food and drink industry 7 5 5 5 Non-metal industry 7 2 7 2 Electronics 3 2 3 3 Wood and paper industry 1 1 1 1 Craft and services 8 13 8 11 Other business activities 3 6 3 5 Total loans and advances to customers 100 100 100 100

d) Ageing of past due but not impaired

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Up to 30 days 11,233 10,439 10,611 10,241 Up to 31  90 days 689 589 534 345 Up to 91  180 days 193 258 178 256 Up to 181  360 days 201 145 146 141 Over 365 days 124 130 124 130 12,440 11,561 11,593 11,113

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Notes to the financial statements (continued)

11. Financial investments held to maturity

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Debt securities  Government bonds, listed on stock exchange 727 715 604 593  Corporate bonds, listed on stock exchange 9 14   736 729 604 593

Financial investments held to maturity comprise bonds issued by Government of Republic Croatia in HRK and EUR, with interest rates from 4.125% to 10 % and maturity from year 2012 to 2020.

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Notes to the financial statements (continued)

12. Investments in subsidiaries and associates

The Group and the Bank had the following investments in subsidiaries and associates, all incorporated in Croatia, as at 31 December 2011 and 31 December 2010:

Ownership Investments Nature of 2011 2010 2011 2010 Investment in subsidiaries business % % HRK millions HRK millions Direct holding Raiffeisen mirovinsko društvo za upravljanje obveznim Pension fund mirovinskim fondom d.d. management 100 100 110 110 Raiffeisen mirovinsko društvo za upravljanje dobrovoljnim Pension fund mirovinskim fondovima d.o.o. management 100 100 34 34 Financial and consulting Raiffeisen Consulting d.o.o. services 100 100 15 15 Raiffeisen Leasing d.o.o. Leasing 50 50 15 15 Raiffeisen mirovinsko osiguravajuće društvo d.o.o. Pension insurance 100 100 14 14 Investment fund Raiffeisen Invest d.o.o. management 100 100 8 8 Raiffeisen Factoring d.o.o. Factoring 100 100 15 15 Indirect holding Insurance and Raiffeisen Bonus d.o.o. re-insurance 75 75   Investment in associates Training services to Group companies and Raiffeisen trening centar d.o.o. their affiliates 20 20   211 211

During the July 2010 Raiffeisen Leasing d.o.o. and Raiffeisen Consulting d.o.o. founded company Raiffeisen Bonus d.o.o. for insurance and re-insurance business with the share capital of HRK 200 thousands.

The Parent has classified its 50% investment in Raiffeisen Leasing d.o.o. as a subsidiary, whose financial statements are included in the consolidated financial statements of the Group, even though the Parent does not have a majority of the equity of the investee, in accordance with CNB regulations. The remaining 50% of Raiffeisen Leasing d.o.o. is held by affiliates of RBI, the Banks’s ultimate parent company.

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Notes to the financial statements (continued)

13. Property, plant and equipment

Group Assets under Land and Office operating Assets under buildings Equipment furniture leases construction Total HRK HRK HRK HRK HRK HRK 2011 millions millions millions millions millions millions Gross carrying amount 1 January 2011 443 426 80 1,547 3 2,499 Additions     324 324 Reclassification (note 14)     15 15 Disposals  (9)  (360)  (369) Transfers 23 39 2 275 (339)  Transfer from asset under operating leases 69   (69)   At 31 December 2011 535 456 82 1,393 3 2,469 Accumulated depreciation and impairment losses 1 January 2011 118 330 66 363  877 Charge for the year 15 42 7 155  219 Disposals  (9)  (210)  (219) Transfer from asset under operating leases 4   (4)   At 31 December 2011 137 363 73 304  877 Carrying amount At 1 January 2011 325 96 14 1,184 3 1,622 At 31 December 2011 398 93 9 1,089 3 1,592

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Notes to the financial statements (continued)

13. Property, plant and equipment (continued)

Group Assets under Land and Office operating Assets under buildings Equipment furniture leases construction Total HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions Gross carrying amount 1 January 2010 430 419 76 1,229 1 2,155 Additions     611 611 Disposals  (26) (2) (239)  (267) Transfers 13 33 6 557 (609)  At 31 December 2010 443 426 80 1,547 3 2,499 Accumulated depreciation and impairment losses 1 January 2010 103 307 60 332  802 Charge for the year 15 48 8 165  236 Disposals  (25) (2) (134)  (161) At 31 December 2010 118 330 66 363  877 Carrying amount At 1 January 2010 327 112 16 897 1 1,353 At 31 December 2010 325 96 14 1,184 3 1,622

Operating lease receivables, gross of unearned future income

The Group acts as a lessor under operating leases, mainly of plant and equipment. The leases typically run for a period of two to twenty years. The total gross investment in operating leases at 31 December 2011 is as follows:

Group 2011 Group 2010 HRK millions HRK millions Up to one year 205 248 More than one and less than five years 401 402 Over five years 483 534 1,089 1,184

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Notes to the financial statements (continued)

13. Property, plant and equipment (continued)

Bank Lands and Office Assets under buildings Equipment furniture construction Total 2011 HRK HRK HRK HRK HRK millions millions millions millions millions Gross carrying amount 1 January 2011 319 415 76 25 835 Additions    139 139 Reclassification (note 14)    15 15 Disposals  (9)   (9) Transfers 115 37 2 (154)  At 31 December 2011 434 443 78 25 980 Accumulated depreciation 1 January 2011 71 324 62  457 Charge for the year 11 40 7  58 Disposals  (9)   (9) At 31 December 2011 82 355 69  506 Carrying amount At 1 January 2011 248 91 14 25 378 At 31 December 2011 352 88 9 25 474

Assets under construction comprise buildings at cost of HRK 21 million (2010: HRK 8 million) and equipment and office furniture at cost of HRK 4 million (2010: HRK 17 million), which are being prepared for use by the Bank.

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Notes to the financial statements (continued)

13. Property, plant and equipment (continued)

Bank Office Assets under Buildings Equipment furniture construction Total 2010 HRK HRK HRK HRK HRK millions millions millions millions millions Gross carrying amount 1 January 2010 306 409 73 23 811 Additions    52 52 Disposals  (26) (2)  (28) Transfers 13 32 5 (50)  At 31 December 2010 319 415 76 25 835 Accumulated depreciation 1 January 2010 61 301 56  418 Charge for the year 10 47 8  65 Disposals  (24) (2)  (26) At 31 December 2010 71 324 62  457 Carrying amount At 1 January 2010 245 108 17 23 393 At 31 December 2010 248 91 14 25 378

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Notes to the financial statements (continued)

14. Intangible assets

Group Leasehold Assets under improvement Software construction Total HRK HRK HRK HRK 2011 millions millions millions millions Gross carrying amount 1 January 2011 207 354 16 577 Additions   61 61 Reclassification (note 13) (23)   (23) Transfers 18 58 (76)  At 31 December 2011 202 412 1 615 Accumulated amortisation 1 January 2011 101 246  347 Charge for the year 18 53  71 Reclassification (note 13) (9)   (9) At 31 December 2011 110 299  409 Carrying amount At 1 January 2011 106 108 16 230 At 31 December 2011 92 113 1 206

Assets under construction comprise software in the process of installation in the amount of HRK 1 million (2010: HRK 15 million) and leasehold improvements (2010: HRK 1 million).

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Notes to the financial statements (continued)

14. Intangible assets (continued)

Group Leasehold Assets under improvement Software construction Total HRK HRK HRK HRK 2010 millions millions millions millions Gross carrying amount 1 January 2010 188 302 17 507 Additions   72 72 Disposal (1) (1)  (2) Transfers 20 53 (73)  At 31 December 2010 207 354 16 577 Accumulated amortisation 1 January 2010 84 201  285 Charge for the year 18 46  64 Disposal (1) (1)  (2) At 31 December 2010 101 246  347 Carrying amount At 1 January 2010 104 101 17 222 At 31 December 2010 106 108 16 230

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Notes to the financial statements (continued)

14. Intangible assets (continued)

Bank Leasehold Assets under improvement Software construction Total HRK HRK HRK HRK 2011 millions millions millions millions Gross carrying amount 1 January 2011 197 345 16 558 Additions   59 59 Reclassification (note 13) (23)   (23) Transfers 17 57 (74)  At 31 December 2011 191 402 1 594 Accumulated amortisation 1 January 2011 92 240  332 Charge for the year 17 52  69 Reclassification (note 13) (8)   (8) At 31 December 2011 101 292  393 Carrying amount At 1 January 2011 105 105 16 226 At 31 December 2011 90 110 1 201

Assets under construction comprise software in the process of installation in the amount of HRK 1 million (2010: HRK 15 million) and leasehold improvements (2010: HRK 1 million).

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Notes to the financial statements (continued)

14. Intangible assets (continued)

Bank Leasehold Assets under improvement Software construction Total HRK HRK HRK HRK 2010 millions millions millions millions Gross carrying amount 1 January 2010 178 293 17 488 Additions   71 71 Disposals (1)   (1) Transfers 20 52 (72)  At 31 December 2010 197 345 16 558 Accumulated amortisation 1 January 2010 76 195  271 Charge for the year 17 45  62 Disposal (1)   (1) At 31 December 2010 92 240  332 Carrying amount At 1 January 2010 102 98 17 217 At 31 December 2010 105 105 16 226

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Notes to the financial statements (continued)

15. Deferred tax assets

Recognised deferred tax assets and liabilities

Movements in temporary differences and components of deferred tax assets and deferred tax liabilities are as follows:

Group Net credit/(charge) to statement of Assets Liabilities comprehensive income 2011 2010 2011 2010 2011 2010 HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions Property, plant and equipment   (4) (4)   Benefits of tax losses recognised      (1) Deferred fee and commission expense   (4) (3)   Deferred fee and commission income 34 33   (1) 5 Unrealised losses on financial instruments with fair value through profit and loss 176 160   16 105 Other provisions 4 3   1 (2) Deferred tax assets/(liabilities) 214 196 (8) (7) 16 107 Set off (8) (7) 8 7   Net deferred tax assets 206 189    

Bank Net credit/(charge) to statement of Assets Liabilities comprehensive income 2011 2010 2011 2010 2011 2010 HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions Deferred fee and commission expense   (3) (2)   Deferred fee and commission income 28 28   (1) 2 Unrealised losses on financial instruments with fair value through profit and loss 176 160   16 105 Other provisions 2 1   1 (1) Deferred tax assets/(liabilities) 206 189 (3) (2) 16 106 Set off (3) (2) 3 2   Net deferred tax assets 203 187    

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Notes to the financial statements (continued)

16. Other assets

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Accrued interest 268 263 256 253 Accrued fee and commission receivables 33 32 24 22 Deferred fee and commission expenses 47 59 47 56 Non current asset held for sale 13 1 13 1 Prepayments 22 30 30 20 Receivables from credit and debit card business 27 14 27 14 Receivables in respect of operating leases 16 17   Current tax asset 61  64  Other receivables and other assets 60 110 24 71 547 526 485 437 Impairment losses (88) (75) (79) (64)  hereof Bank (79) (64) (79) (64)  hereof Leasing (8) (9)    hereof other Group members (1) (2)   459 451 406 373

Movement in impairment losses

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions At 1 January 75 47 64 39 Increase in impairment losses 19 37 16 26 Recovery (2) (8)   Net change to statement of comprehensive income 17 29 16 26 Write offs (4) (1) (1) (1) At 31 December 88 75 79 64

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Notes to the financial statements (continued)

17. Financial liabilities at fair value through profit or loss

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Trading instruments Negative fair value of OTC derivative instruments 741 685 742 688 Loss on unsettled OTC foreign exchange spot transactions 2 1 2 1 743 686 744 689

18. Deposits from banks

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Current accounts and demand deposits  from ultimate parent bank 1 1 1 1  from RBI group banks other than ultimate parent bank 32 19 32 19  from other banks 119 77 119 77 Term deposits  from ultimate parent bank 279  279   from other RBI group banks 75 148 75 148  from other banks 260 516 260 516 766 761 766 761

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Notes to the financial statements (continued)

19. Deposits from companies and other similar entities

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Current accounts and demand deposits 5,163 4,535 5,255 4,680 Time deposits 3,797 4,423 3,815 4,680 8,960 8,958 9,070 9,360

20. Deposits from individuals

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Current accounts and demand deposits 2,544 2,462 2,544 2,462 Time deposits 11,741 10,995 11,741 10,995 14,285 13,457 14,285 13,457

21. Borrowings

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions From ultimate parent bank 3,946 5,366 2,820 3,201 From other banks 5,616 6,561 4,380 6,207 From companies and other financial institutions  47  47 9,562 11,974 7,200 9,455

Movements of outstanding borrowings

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions At 1 January 11,974 13,943 9,455 10,859 New borrowings 5,833 7,588 4,645 6,254 Repayment of borrowings (8,412) (9,613) (7,009) (7,685) Foreign exchange differences 167 56 109 27 At 31 December 9,562 11,974 7,200 9,455

In accordance with their terms, borrowings from other banks include borrowings from the Croatian Bank for Reconstruc- tion and Development (“HBOR”) used to fund loans to customers for eligible construction and development projects at preferential interest rates, and include a one-way foreign currency clause which gives HBOR the option to revalue the borrowing at the current foreign exchange rate. This represents an embedded derivative which is included in contracts in the amount HRK 14 million (2010: HRK 19 million) which the Bank has not separated and which has been valued using the valuation model prescribed by CNB, rather than an option pricing model.

Borrowings from companies and other financial institutions relate to repurchase agreements.

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Notes to the financial statements (continued)

22. Debt securities issued

On 10 February 2006 the Bank issued bonds with a nominal value of HRK 600 million at par, bearing fixed interest at a rate of 4.125% per annum. The bonds matured on 10 February 2011 and were repaid by the Bank.

23. Provisions for liabilities and charges

Group Off balance Off balance Employee Unused Total sheet items sheet items retirement employee Provision for HRK identified unidentified provisions vacations court cases millions HRK millions HRK millions HRK millions HRK millions HRK millions At 1 January 2011 170 53 95 5 8 9 Provision reversed during the year (121) (53) (59) (8)  (1) Provision charged during the year 111 32 47 5  27 At 31 December 2011 160 32 83 2 8 35

Group Off balance Off balance Employee Unused Total sheet items sheet items retirement employee Provision for HRK identified unidentified provisions vacations court cases millions HRK millions HRK millions HRK millions HRK millions HRK millions At 1 January 2010 116 22 73 4 8 9 Provision reversed during the year (131) (41) (86)   (4) Provision charged during the year 185 72 108 1  4 At 31 December 2010 170 53 95 5 8 9

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Notes to the financial statements (continued)

23. Provisions for liabilities and charges (continued)

Bank Off balance Off balance Employee Unused Total sheet items sheet items retirement employee Provision for HRK identified unidentified provisions vacations court cases millions HRK millions HRK millions HRK millions HRK millions HRK millions At 1 January 2011 164 53 95 5 7 4 Provision reversed during the year (121) (53) (59) (8)  (1) Provision created during the year 104 32 47 5  20 At 31 December 2011 147 32 83 2 7 23

Bank Off balance Off balance Employee Unused Total sheet items sheet items retirement employee Provision for HRK identified unidentified provisions vacations court cases millions HRK millions HRK millions HRK millions HRK millions HRK millions At 1 January 2010 111 22 73 4 6 6 Provision reversed during the year (131) (41) (86)   (4) Provision created during the year 184 72 108 1 1 2 At 31 December 2010 164 53 95 5 7 4

24. Other liabilities

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Accrued interest 277 333 261 316 Deferred fee and commission income 159 165 144 149 Prepaid loans and advances collected from individuals 20 24 20 24 Technical reserves for pension insurance 179 140   Liabilities to employees 70 59 51 49 Liabilities to suppliers 72 45 63 39 Liabilities in respect of credit and debit card business 64 49 64 49 Other liabilities 47 82 13 43 888 897 616 669

Technical reserves for pension insurance provisions have been computed by the Group’s licensed actuary, in accordance with the method prescribed by the Law on Pension Insurance Companies and Payment of Pensions based on Individual Capitalised Savings. The management believes that the current level of technical reserves is sufficient to meet all liabilities which may arise from the pension insurance contracts concluded by 31 December 2011.

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Notes to the financial statements (continued)

25. Interest and similar income

a) Interest and similar income  analysis by product

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Placements with the Croatian National Bank 3 16 3 16 Financial assets at fair value through profit or loss 209 188 209 188 Derivative financial instruments 92 83 93 84 Financial assets available for sale 8 6   Placements with banks 24 23 20 16 Loans and advances to customers and similar entities 1,015 983 923 876 Loans and advances to individuals 987 1,052 982 1,046 Financial instruments held to maturity 41 41 32 33 2,379 2,392 2,262 2,259

b) Interest and similar income  analysis by source

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Companies 883 863 790 757 Individuals 987 1,052 982 1,046 State and the public sector 395 356 381 344 Banks and other financial institutions 111 120 106 111 Other organisations 3 1 3 1 2,379 2,392 2,262 2,259

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Notes to the financial statements (continued)

26. Interest expense and similar charges a) Interest expense and similar charges  analysis by product

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Derivative financial instruments 87 72 88 73 Issued debt securities 1 5 1 5 Deposits from banks 21 14 21 14 Deposits from companies and other similar entities 149 130 155 139 Deposits from individuals 453 543 453 543 Borrowings 327 318 226 225 1,038 1,082 944 999 b) Interest expense and similar charges  analysis by recipient

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Companies 149 127 156 137 Individuals 453 543 453 543 State and public sector 4 2 4 2 Banks and other financial institutions 427 407 326 314 Other organisations 5 3 5 3 1,038 1,082 944 999

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Notes to the financial statements (continued)

27. Fee and commission income

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Domestic payment transactions 89 91 90 91 Investment management, custody and consultancy fees 155 138 27 14 Credit cards 109 96 109 96 Foreign payment transactions 63 61 63 61 Recharge of credit insurance costs (note 28) 37 22 37 22 Guarantees and letter of credits 45 48 45 48 Loans and accounts administration fee 38 43 36 43 Other fees and commission income 51 69 64 83 587 568 471 458

28. Fee and commission expense

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Credit card related charges 67 43 67 43 Domestic payment transactions 23 26 24 26 Rechargeable credit insurance costs (note 27) 39 22 39 22 Other fees and commission expense 45 36 31 26 174 127 161 117

Based on loan insurance contracts the Bank pays premium to insurance companies, which is recharged to customers.

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Notes to the financial statements (continued)

29. Net trading (expense)/income

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Gains less losses from trading financial instruments Debt securities (22) 71 (22) 71 Treasury bills (23)  (23)  Equity securities (14)  (14)  Derivative financial instruments (135) (880) (135) (879) (194) (809) (194) (808) Gains less losses from financial assets designated at fair value through profit or loss Realised (loss)/gain on disposal of:  debt securities (6) 9 (6) 6  treasury bills (11) (7) (11) (8)  investment funds (2) 1 (2)  Unrealised loss on:  debt securities (29) (23) (29) (23)  treasury bills (15) (9) (15) (9) (63) (29) (63) (34) Gains less losses arising from dealing in foreign currencies 102 97 102 97 Gains less losses arising from revaluation of monetary assets and liabilities, other than dealing securities  exchange loss on foreign currency assets and liabilities (298) (95) (256) (74)  exchange gain on valuation clause assets and liabilities 389 974 349 945 193 976 195 968

(64) 138 (62) 126

Net losses from derivative instruments include net trading losses from interest rate and currency swaps, futures, forwards and forward rate agreements.

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Notes to the financial statements (continued)

30. Other operating income

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Rental income from operating leases 234 225   Service contract revenue 9 15   Revenue from construction contracts  207   Gross written premium on pension insurance contracts 127 88   Dividend income from investments in subsidiaries   114 53 Other income 21 33 8 23 391 568 122 76

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Notes to the financial statements (continued)

31. Operating expenses

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Personnel expenses 436 441 385 390 Depreciation 219 236 58 65 Amortisation 71 64 69 62 Increase in technical reserve for pension insurance 77 55   Loss on disposal of assets under operating lease 7 6   Service contract expenses 16 16   Construction contract expenses  202   Administrative expenses 461 455 385 403 1,287 1,475 897 920

Personnel expenses of the Group include HRK 68 million (2010: HRK 70 million) of defined pension contributions paid or payable into obligatory pension plans. Contributions are calculated as a percentage of employees’ gross salaries. The Group had 2,393 employees at 31 December 2011 (2010: 2,518 employees).

Personnel expenses of the Bank include HRK 60 million (2010: HRK 62 million) of defined pension contributions paid or payable into obligatory pension plans. Contributions are calculated as a percentage of employees’ gross salaries. The Bank had 2,192 employees at 31 December 2011 (2010: 2,318 employees).

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Notes to the financial statements (continued)

32. Impairment losses on loans and advances to customers and other assets

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Identified losses  placements with and loans to other banks 4  4   loans and advances to customers 396 328 402 318  other assets 17 29 16 26 417 357 422 344 Unidentified losses  loans and advances to customers  41 3 36  41 3 36 417 398 425 380 Placements with and loans to other banks 4  4  Loans and advances to customers 396 369 405 354 Other assets 17 29 16 26 417 398 425 380

33. Income tax expense

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Recognised in statement of comprehensive income  current tax expense (98) (207) (72) (180)  deferred tax benefit 16 107 16 106 Income tax expense (82) (100) (56) (74) Reconciliation of income tax expense Profit before tax 387 530 383 450 Income tax at 20% (78) (106) (77) (90) Adjustment of income tax from the previous year in current year (1) 7 (1) 7 Non-deductible expenses (4) (5) (3) (5) Tax incentives and tax exempt income 2 2 25 14 Effects of previously unrecognised deferred tax benefit from tax losses available for future periods (1) 2   Income tax expense (82) (100) (56) (74) Effective income tax rate 21.19% 18.87% 14.62% 16.44%

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33. Income tax expense (continued)

Unrecognised deferred tax assets

As at 31 December 2011, the subsidiaries and associates of the Bank have unused gross tax losses amounting to HRK 12 million (2010: HRK 8 million). Such tax losses may only be used by the company that incurred the loss to reduce tax- able profits of the following five years. No deferred tax asset has been recognised in respect of the losses as the ability of the Group to utilise the losses before they expire is not probable. The expiry dates for unused tax losses are as follows:

Group Group Gross tax Group Gross tax Group losses Tax benefit losses Tax benefit 2011 2011 2010 2010 HRK millions HRK millions HRK millions HRK millions 31 December 2013 5 1 5 1 31 December 2014 2 1 2 1 31 December 2015 1  1  31 December 2016 4 1   12 3 8 2

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Notes to the financial statements (continued)

34. Share capital

Group and Bank 2011 Total of Total of ordinary shares preference shares Total share HRK millions HRK millions HRK millions Share capital 3,621  3,621 Nominal value per share HRK 1,000   Number of shares 3,621,432  3,621,432

Group and Bank 2010 Total of Total of ordinary shares preference shares Total share HRK millions HRK millions HRK millions Share capital 3,621 78 3,699 Nominal value per share HRK 1,000 HRK 10,000  Number of shares 3,621,432 7,750 3,698,932

The parent bank of the Group is Raiffeisen International Bank AG, a company founded in Austria. The shareholders at the year-end were as follows:

2011 2011 2010 2010 Ordinary Preference Ordinary Preference Shares Shares Shares Shares % % % % Raiffeisen International Bank - Holding AG 75  75  Raiffeisenbank Zagreb Beteiligungsgesellschaft mbh, Graz 25  25  Management of Raiffeisenbank Austria d.d. Zagreb    100 100  100 100

During 2005, the Bank established a share-based scheme under which key management personnel are entitled to purcha- se the Bank’s preference shares, without further vesting conditions.

The preference shares were granted, vested and sold to eligible employees in 2005 and in 2008.

Following the decisions of Management Board and General Assembly, during 2011 the Bank has exercised, at its discre- tion, the call option and redeemed all preference shares of Raiffeisenbank Austria d.d at their call price. Subsequently, the redeemed preference shares were cancelled and decrease of share capital by HRK 78 million was registered with Commercial Court in Zagreb.

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35. Other reserves

Share premium

The share premium represents the accumulated positive difference between the nominal value and amount received upon issue of share capital.

Legal reserve

The legal reserve represents accumulated transfers from retained earnings in accordance with the Croatian Companies Act, which requires a minimum of 5% of the Group’s net profit to be transferred to a non-distributable statutory reserve until the reserve (including share premium) reaches 5% of the Group’s registered share capital. The legal reserve may be used to cover prior period losses if the losses are not covered by current year profits or if other reserves are not available.

Reserve for general banking risks

The reserve for general banking risks represents a reserve for potential losses in excess of those expected and provided for through impairment losses. In accordance with legislation the Bank is required to set aside a certain percentage of its net profit for the year dependant on asset growth above specified thresholds. During 2011 the Bank transferred the amount of HRK 288 million reserves for general banking risks made in 2005 to retained earnings.

Fair value reserve

The fair value reserve includes unrealised gains and losses on changes in the fair value of financial assets available for sale, net of deferred tax.

36. Proposed dividends

Dividends payable are not accounted for until they have been ratified at the General Meeting of Shareholders. At a meet- ing to be held on 19 April 2012, a dividend of HRK 90 per ordinary share (2010: HRK 83 per ordinary share), totalling HRK 325 million (2010: HRK 302 million) is to be proposed. In 2011 the Bank exercised its call option and redeemed all preferential shares, with no dividends on those shares to be distributed in respect of the previous year. The dividends will be distributed out of the retained earnings at 31 December 2011.

During 2011 some of the Group companies declared payment of HRK 114 million of dividends from retained earnings (2010: HRK 53 million).

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Notes to the financial statements (continued)

37. Non controlling interest

Group Group 2011 2010 HRK millions HRK millions At 1 January 89 88 Share of retained profit for the year 3 5 Distribution of dividend (15) (4) At 31 December 77 89

38. Earnings per share attributable to equity holders of the parent

Group Group Bank Bank 2011 2010 2011 2010 HRK millions HRK millions HRK millions HRK millions Net profit for the year attributable to equity holders of the parent net of proposed dividend on preference shares 302 425 327 376 Weighted average number of ordinary shares outstanding during the year 3,621,432 3,621,432 3,621,432 3,621,432 Earnings per share attributable to equity holders of the parent HRK 83 HRK 117 HRK 90 HRK 104

39. Cash and cash equivalents

Group Group Bank Bank 2011 2010 2011 2010 Notes HRK millions HRK millions HRK millions HRK millions Cash in hand 5 515 454 515 454 Items in the course of collection 5 1 1 1 1 Giro account with the Croatian National Bank 5 1,622 614 1,622 614 Current accounts with other banks 5 182 100 182 85 Placements with and loans to other banks with original maturity up to three months 1,450 3,410 1,450 3,395 3,770 4,579 3,770 4,549

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40. Concentration of assets and liabilities

The Group’s and Bank’s assets are significantly concentrated on amounts due from the Republic of Croatia, as follows:

Group Group Bank Bank 2011 2010 2011 2010 Notes HRK millions HRK millions HRK millions HRK millions Giro account with the Croatian National Bank 5 1,622 614 1,622 614 Obligatory reserve with the Croatian National Bank 6 2,819 2,544 2,819 2,544 Government bonds, direct exposure 7, 9, 11 1,508 1,237 1,266 998 Treasury bills issued by the Ministry of Finance 7 980 741 977 734 Loans and advances to customers 3,304 4,264 3,304 4,264 Accrued interest and other assets 59 50 55 47 Deposits from the Republic of Croatia (86) (87) (86) (87) 10,206 9,363 9,957 9,114

In addition, the Bank had indirect exposure to the Croatian state in respect of loans and advances to public funds and off-balance-sheet exposures as follows:

Group Group Bank Bank 2011 2010 2011 2010 HRK millions HRK millions HRK millions HRK millions Loans to customers guaranteed by the State 2,113 1,867 2,113 1,867 Guarantees, letters of credit and undrawn lending facilities 209 214 209 214 2,322 2,081 2,322 2,081

The total net direct and indirect on and off-balance-sheet exposure to Croatian state risk represents 25% of the total assets and off-balance-sheet exposure of the Group (2010: 22%) and 26% of the total assets and off-balance-sheet exposure of the Bank (2010: 23%).

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Notes to the financial statements (continued)

41. Repurchase and resale agreements

The Group raises funds by selling financial instruments under agreements to repay the funds by repurchasing the instru- ments at future dates at the same price plus interest at a predetermined rate.

Repurchase agreements are commonly used as a tool for short-term financing of interest-bearing assets, depending on the prevailing interest rates. The financial instruments sold are not derecognised and the proceeds are accounted for as interest bearing borrowings. At the year-end assets sold under repurchase agreements were as follows:

Group and Bank Carrying Fair value amount of of underlying corresponding Repurchase Repurchase assets liabilities date price HRK millions HRK millions HRK millions Securities at fair value through profit or loss January  February 2011 2,367 1,874 2012 1,885 January  March 2010 4,193 4,047 2011 4,194

The Group also purchases financial instruments under agreements to resell them at future dates (“reverse repurchase agreements”). The seller commits to repurchase the same or similar instruments at an agreed future date. Reverse re- purchases are entered into as a facility to provide funds to customers and are accounted for as loans and advances to customers; the underlying financial instruments are not recognised. At year end assets purchased subject to agreements to resell them were as follows:

Group and Bank Carrying Fair value of assets Repurchase Repurchase amount of receivable held as collateral date price HRK millions HRK millions HRK millions Loans and advances to customers 2011 245 272 January 2011 246 2010 152 162 January 2011 162

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42. Commitments and contingent liabilities

The aggregate amounts of outstanding guarantees, letters of credit and undrawn loan commitments at 31 December 2011 were:

Group Group Bank Bank 2011 2010 2011 2010 HRK millions HRK millions HRK millions HRK millions Guarantees 4,093 3,660 4,157 3,662 Letters of credit 124 127 124 127 Undrawn loan commitments 4,391 4,367 4,402 4,418 8,608 8,154 8,683 8,207

At 31 December 2011, the Group and the Bank recognised portfolio based provisions for off-balance-sheet risks arising from the issue of guarantees, letters of credits and undrawn lending commitments, in the amount of HRK 83 million (2010: HRK 95 million), which are included in provisions for liabilities and charges (see note 23).

Group as a lessee

The Group leases certain business premises and other assets under operating lease arrangements. Lease payments are originally denominated in EUR. In accordance with IAS 39 “Financial Instruments: Recognition and Measurement”, such lease commitments should be accounted for as an embedded derivative. Since market rates for forward EUR currency agreements in excess of six months are currently not easily available in Croatia, the Group is not able to calculate the fair value of the embedded option. Accordingly, gains and losses will be recognised in the statement of comprehensive income upon payment of the lease instalment.

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Notes to the financial statements (continued)

43. Assets and liabilities managed on behalf of third parties

The Group provides trust and custody services to companies, banks, individuals, and investment and pension funds (all non-Group) whereby it holds and manages assets or invests funds received in various financial instruments at the direction of the customer. The Group receives fee income for providing these services. Trust assets are not assets of the Group and are not recognised in the consolidated statement of financial position. The Group is not exposed to any credit risk relating to such placements, as it does not guarantee these investments.

At 31 December 2011, the total assets under custody held by the Group on behalf of customers were HRK 4,676 million (2010: HRK 4,689 million).

In addition, at 31 December 2011, total assets of investment and pension funds under Group management amounted to HRK 14,101 million (2010: HRK 13,736 million).

During 2011 the Group made income in amount of the HRK 127 million (2010: HRK 123 million) of fees on trust activities provided to companies, banks and individuals, and management of investment and pension funds.

As at 31 December 2011 the Group and the Bank managed loans on behalf of third parties as follows:

2011 2010 HRK millions HRK millions Assets  Loans to companies 94 109 Total assets 94 109 Liabilities  Financial institutions 94 109 Total liabilities 94 109

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44. Derivative instruments and dealings in foreign currencies

The Group and the Bank had the following derivative contracts accounted for as trading instruments open at year-end.

Group Notional amount, remaining life Fair values Up to 3 3  12 1  5 Over 5 months months years years Total Assets Liabilities HRK HRK HRK HRK HRK HRK HRK 2011 millions millions millions millions millions millions millions  Forward foreign exchange contracts  OTC  CHF 10 51 311  372 2 1  EUR 2,826 724 80  3,630    USD 230 44   274 9 12  other fx 39 8   47 7 1  HRK 1,470 590   2,060 11 26  Forward rate agreement  1,886   1,886 1 1  Cross currency swap  OTC 46 8 4,089 118 4,261 5 631  Interest rate swap  OTC 57 241 3,134 738 4,170 24 69  Options purchased 8    8    Options sold 8    8   4,694 3,552 7,614 856 16,716 59 741 Unsettled foreign currency spot transactions  OTC 906    906 2 2

Group Notional amount, remaining life Fair values Up to 3 3  12 1  5 Over 5 months months years years Total Assets Liabilities HRK HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions millions  Forward foreign exchange contracts  OTC  CHF 766 356   1,122  84  EUR 3,239 1,308   4,547    USD 249 7   256    other fx 46    46    HRK 1,085 515   1,600 16 8  Cross currency swap  OTC 8 302 3,375 131 3,816 2 555  Interest rate swap  OTC 255 284 2,145 349 3,033 26 38  Futures 28    28 1  5,676 2,772 5,520 480 14,448 45 685 Unsettled foreign currency spot transactions  OTC 1,541    1,541 1 1

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Notes to the financial statements (continued)

44. Derivative instruments and dealings in foreign currencies (continued)

At the Group and the Bank level unsettled foreign currency spot transactions are denominated in EUR in the amount of HRK 318 million (2010: HRK 682 million), in USD in the amount of HRK 320 million (2010: HRK 30 million) in other currencies in the amount of HRK 94 million (2010: HRK 30 million) and in HRK in the amount of HRK 174 million (2010: HRK 799 million).

Bank Notional amount, remaining life Fair values Up to 3 3  12 1  5 Over 5 months months years years Total Assets Liabilities HRK HRK HRK HRK HRK HRK HRK 2011 millions millions millions millions millions millions millions  Forward foreign exchange contracts  OTC  CHF 10 51 311  372 2 1  EUR 2,858 724 80  3,662    USD 230 44   274 9 12  other fx 39 8   47 7 1  HRK 1,477 590   2,067 11 26  Forward rate agreement  1,886   1,886 1 1  Cross currency swap  OTC 46 8 4,089 118 4,261 5 631  Interest rate swap  OTC 57 243 3,144 741 4,185 24 70  Options purchased 8    8    Options sold 8    8   4,733 3,554 7,624 859 16,770 59 742 Unsettled foreign currency spot transactions  OTC 906    906 2 2

Bank Notional amount, remaining life Fair values Up to 3 3  12 1  5 Over 5 months months years years Total Assets Liabilities HRK HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions millions  Forward foreign exchange contracts  OTC  CHF 771 356   1,127  84  EUR 3,388 1,308   4,696    USD 249 7   256    other fx 46    46    HRK 1,107 515   1,622 16 10  Cross currency swap  OTC 8 302 3,375 131 3,816 2 555  Interest rate swap  OTC 255 286 2,155 354 3,050 26 39  Futures 28    28 1  5,852 2,774 5,530 485 14,641 45 688 Unsettled foreign currency spot transactions  OTC 1,541    1,541 1 1

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44. Derivative instruments and dealings in foreign currencies (continued)

Interest rate related contracts

The Group has economically hedged its exposure to interest rate risk on borrowings and government bonds, entering into interest rate swaps, denominated in EUR under which the Group pays a fixed rate and receives a floating rate or pays a floating rate and receives a fixed rate. Other interest rate swaps are customer driven.

The following table indicates the swaps and their weighted average interest rates. Average floating rates are based on rates implied in the yield curve at 31 December. These may change significantly, affecting future cash flows.

2011 2010 Group HRK millions HRK millions Pay fixed swaps  notional amount 3,183 2,367 Pay variable swaps  notional amount 987 665 Average pay fixed rate 2.13% 2.63% Average receive variable rate 1.37% 0.89% Average pay variable rate 1.38% 0.83% Average receive fixed rate 2.24% 2.30%

2011 2010 Bank HRK millions HRK millions Pay fixed swaps  notional amount 3,198 2,384 Pay variable swaps  notional amount 987 665 Average pay fixed rate 2.21% 2.73% Average receive variable rate 1.37% 0.90% Average pay variable rate 1.38% 0.83% Average receive fixed rate 2.24% 2.30%

45. Related party transactions

Raiffeisenbank Austria d.d. and its subsidiaries are immediately owned by Raiffeisen International Bank AG (“the RBI”), a Company founded in Austria. The ultimate parent bank is RBI, incorporated in Austria, to whom and to whose affiliates (collectively “the RBI Group”) the Group provides banking services. The Bank considers that it has an immediate related party relationship with its subsidiaries and associates (“the Group”), and the Group considers that it has an immediate related relationship with the RBI Group, the Supervisory and Management Board members and other executive manage- ment of the Bank and its subsidiaries (together “key management personnel”), close family members of key management personnel, and entities controlled, jointly controlled or significantly influenced by key management personnel and their close family members.

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Notes to the financial statements (continued)

45. Related party transactions (continued)

a) Key transactions with related parties

Assets and liabilities and off-balance sheet exposures and income and expenses as at and for the year ended 31 Decem- ber 2010 and 2011, arising from transactions with related parties were as follows:

Group Group Bank Bank 2011 2010 2011 2010 HRK millions HRK millions HRK millions HRK millions Statement of comprehensive income Interest, fee and commission income  Raiffeisen Leasing d.o.o.   26 8  Raiffeisen Consulting d.o.o.   2 12  Raiffeisen mirovinsko društvo za upravljanje dobrovoljnim mirovinskim fondovima d.o.o.    1  Raiffeisen mirovinsko osiguravajuće društvo d.o.o.   1   Raiffeisen Factoring d.o.o.   11 10  Raiffeisen Invest d.o.o.   8 7  RBI 73 44 73 44 Total 73 44 121 82 Interest, fee and commission expense  Raiffeisen Leasing d.o.o.   (2) (5)  Raiffeisen Consulting d.o.o.   (3) (4)  Raiffeisen mirovinsko društvo za upravljanje obveznim mirovinskim fondovima d.d.   (1)   Raiffeisen mirovinsko osiguravajuće društvo d.o.o.   (1) (1)  Raiffeisen Factoring d.o.o.   (2) (1)  RBI (216) (264) (197) (181)  RBI Group (39) (18) (14) (14) Total (255) (282) (220) (206) Dealing and other income  Raiffeisen Leasing d.o.o.   15 5  Raiffeisen mirovinsko društvo za upravljanje obveznim mirovinskim fondom d.d.   64 50  Raiffeisen Invest d.o.o.   21 1  Raiffeisen Consulting d.o.o.   1 1  Raiffeisen Factoring d.o.o.   20 3  RBI 91 558 91 558 Total 91 558 212 618

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45. Related party transactions (continued)

Group Group Bank Bank 2011 2010 2011 2010 HRK millions HRK millions HRK millions HRK millions Operating expenses  Raiffeisen Leasing d.o.o.   (11) (11)  Raiffeisen Consulting d.o.o.   (37) (34)  Raiffeisen Factoring d.o.o.   (7) (2)  RBI (40) (36) (40) (36)  RBI Group (2) (1) (2) (1) Total (42) (37) (97) (84) Assets Current accounts and placements with banks  RBI 28 16 28 16  RBI Group 14 5 14 5 Total 42 21 42 21 Financial assets at fair value through profit or loss Investments in investment funds managed by Raiffeisen Invest d.o.o., quoted  14  14 Loans to customers  Raiffeisen Consulting d.o.o.   28 52  Raiffeisen Leasing d.o.o.   413 417  Raiffeisen Factoring d.o.o.   152 153  Raiffeisen mirovinsko društvo za upravljanje obveznim mirovinskim fondom d.d.   1  Total   594 622 Accrued income and other assets  Raiffeisen Leasing d.o.o.   11 9  Raiffeisen Consulting d.o.o.   2 2  Raiffeisen Invest d.o.o.   1 1  Raiffeisen Factoring d.o.o.   2 1  RBI  13 20 13 Total  13 36 26

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Notes to the financial statements (continued)

45. Related party transactions (continued)

Group Group Bank Bank 2011 2010 2011 2010 HRK millions HRK millions HRK millions HRK millions Liabilities Deposits  Raiffeisen Leasing d.o.o.   136 174  Raiffeisen Consulting d.o.o.   1 150  Raiffeisen mirovinsko društvo za upravljanje obveznim mirovinskim fondom d.d.   11 15  Raiffeisen mirovinsko društvo za upravljanje dobrovoljnim mirovinskim fondovima d.o.o.   27 21  Raiffeisen mirovinsko osiguravajuće društvo d.o.o.   32 20  Raiffeisen Factoring d.o.o.   33 150  Raiffeisen Invest d.o.o.   4 18  RBI 280 1 280 1  RBI Group 107 167 107 167 Total 387 168 631 716 Borrowings  RBI 3,947 5,367 2,820 3,201  RBI Group 1,059 148   Total 5,006 5,515 2,820 3,201 Debt securities issued  RBI  77  77 Total  77  77 Accruals and other liabilities  Raiffeisen Consulting d.o.o.   3 7  Raiffeisen Factoring d.o.o.    1  RBI 46 103 33 85  RBI Group 5  1  Total 51 103 37 93 Off-balance sheet exposure Derivative instruments  Raiffeisen Leasing d.o.o.   47 45  Raiffeisen Consulting d.o.o.    149  Raiffeisen Invest d.o.o.   8   RBI 8,478 7,521 8,478 7,521  RBI Group 8 4 8 4 Total 8,486 7,525 8,541 7,719

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Notes to the financial statements (continued)

45. Related party transactions (continued)

Exposure Liabilities Income Expense 2011 HRK millions HRK millions HRK millions HRK millions Group Key management personnel Short-term benefits (bonuses, salaries and fees)  13  42 Loans and advances 46  2  Deposits  21  1 Total 46 34 2 43 Bank Key management personnel Short-term benefits (bonuses, salaries and fees)  7  26 Loans and advances 22  1  Deposits  8  1 Total 22 15 1 27

Exposure Liabilities Income Expense 2010 HRK millions HRK millions HRK millions HRK millions Group Key management personnel Short-term benefits (bonuses, salaries and fees)  10  52 Loans and advances 77  2  Deposits  22  1 Preference shares of the Bank  38   Total 77 70 2 53 Bank Key management personnel Short-term benefits (bonuses, salaries and fees)  5  19 Loans and advances 44  1  Deposits  9  1 Preference shares of the Bank  25   Total 44 39 1 20

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Notes to the financial statements (continued)

46. Risk management disclosures

This section provides details of the Group’s exposure to risk and describes the methods used by management to control risk. The most important types of financial risk to which the Group is exposed are credit risk, liquidity risk and market risk. Market risk includes currency risk, interest rate risk and equity price risk.

An integrated system of risk management is being established at the Group level by introducing a set of policies and procedures, determining the limits of risk levels acceptable to the Group. The limits are set according to the amount of regulatory capital and apply to all types of risk. Methodologies and models for managing operational risk have been developed.

Credit risk

The Group is exposed to credit risk through its trading, lending, economic hedging and investing activities and in cases where it acts as an intermediary on behalf of customers or other third parties or issues guarantees. The risk that counterparties to derivative or other instruments might default on their obligations is monitored on an ongoing basis. To manage the level of credit risk, the Group deal with counterparties of good credit standing, and when appropriate, obtains collateral.

The Group’s primary exposure to credit risk arises through its loans and advances. The amount of credit exposure in this regard is represented by the carrying amounts of the assets on the statement of financial position. In addition, the Group is exposed to off- balance-sheet credit risk through unutilised part of loans granted and guarantees issued  refer to note 42.

Exposure to credit risk is managed in accordance with the Group’s policies. Credit exposures to portfolios and individual risk gro- ups are reviewed on a regular basis. Breaches of set limits are reported to appropriate authority level. Any substantial increases in credit exposure are authorised by the Credit Committee. The Credit Committee and Problem Loan Committee monitors changes in the creditworthiness of borrowers.

In case the analysis of borrower’s creditworthiness prove to be inadequate a workout officer calculates and recommend creation of individual loan loss provisions. Problem loan committee decides upon individual loan loss provisions. Credit risk assessment is an ongoing process designed to facilitate the early identification of impairment of credit exposures.

The Group applies a prudent approach to credit risk assessment. When credit exposure is classified as a default for the first time i.e. the business unit determines that it is probable that it will be unable to collect all interest and principal, it is reported to the Problem Loan Committee. The Problem Loan Committee has the authority to decide whether the case has to be transferred to the Work-out Department or the relationship can remain and be handled by the Account Manager and when should the next review of the client be submitted to the Problem Loan Committee for approval. However, in case default is recognised the client has to be evidenced in Default Data Base (DDB) and immediately transferred to Work-out Department.

In late 2009, the Bank introduced an early warning system for identifying potentially doubtful accounts among its non-re- tail customers. This is a kind of support to identify timely any changes in the risk level of a particular customer. Monitoring is performed on a monthly basis. Once an early warning is provided, it is acted upon by analysing its value and root cause. Depending on the risk level rating of a customer (1-4), the customer remains within the Corporate Division (1 - re- gular customer and 2 - pre-workout customer) or is transferred to the Loan Workout Division (3 - early workout stage or 4 - late workout stage or legal action).

Early Warning System for Micro segment was introduced at the beginning of 2011. The EWS output is mainly based on an evaluation of the customer‘s behavior and the monitoring is performed on a monthly basis. Customers are classified according to their risk profile (low, medium, high) and appropriate actions are taken as per their category.

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46. Risk management disclosures (continued)

Credit risk (continued)

The Credit Committee has the authority to approve new limit to the clients of risk status 1 and 2. The decision of the Cre- dit Committee can be reversed only by the Supervisory Board. The Problem Loan Committee has the authority for credit reviews of the clients with risk status 3 and 4, and is in charge of determination of individual loan loss provisions.

The Group's credit policies contain retail and corporate customer lending guidelines. The credit policies define the criteria for provi- ding funds to e.g. target industries, structuring portfolios in line with customer ratings, by type of collateral, and similar. The Group has internal policies in place that regulate acceptable types of collateral and their valuation. Most frequently furnished security instruments comprise real estate, cash deposits, movable property, inventories, listed securities and other assets.

Liquidity risk

The liquidity risk is inherently connected to Group’s regular business activities and is primarily manifested due to matu- rity or currency mismatch between inflows and outflows of funds. The liquidity risk includes the risk of not being able to finance own business under acceptable terms (price or maturity) and the risk of being unable to liquidate owned assets at acceptable price and in acceptable timeframe.

The Group has access to a diverse funding base. Funds are raised using a broad range of instruments including deposits, borrowings, and share capital. The Group continually assesses liquidity risk by identifying and monitoring changes in the level of mismatch between inflows and outflows and changes in the availability of funds needed for achieving defined business and strategic goals. In addition to this, the Group maintains a portfolio of liquid assets which can, if needed, be used as a source of fresh funds.

The liquidity risk management is delegated to Treasury and Investment Banking Division while management activities are operatively divided between Money Market Desk and ALM Desk. These units continuously manage liquidity reserves taking into account planned business activities and the needs of the customers.

The Group adjusts its business activities in compliance with liquidity risk legislation and internal policies related to various liquidity risk management aspects, such as the maintenance of liquidity reserves, the matching of liabilities and assets, the setup of position limits and compliance with prescribed regulatory ratios and limits.

One of the more important liquidity ratios is certainly CNB prescribed minimum liquidity coefficient. Measuring the ratio of inflows to outflows, with appropriate haircuts applied, this ratio displays Bank’s ability to service its short term liabilities with short term inflow of funds. Aside the minimum liquidity coefficient, reserve requirements and minimum required amo- unt of foreign currency claims ratio are additional tools CNB uses to stimulate active liquidity risk management.

Additional level of liquidity risk management is defined through numerous internal policies which are used to define, on a more operational level, various methods and techniques of liquidity risk management. These include models used to esti- mate effective maturity date on-balance and off-balance sheet items which do not have contractual maturity dates defined (estimations are based on historical behavioural observations while keeping the conservative stance on models results), methods used to define stress testing activities and methods used to calculate maturity gaps between asset and liability items of the balance sheet. Furthermore, continuously monitored is the availability and cost of different sources of funding and their concentration. Marketability of assets held as liquidity reserve is also continuously monitored.

One of the main liquidity indicators is the deposits (retail/corporate) to total assets ratio which is monitored on a monthly basis. The annual indicators, based on management accounting information, are set out below.

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Notes to the financial statements (continued)

46. Risk management disclosures (continued)

Liquidity risk (continued)

2011 2010 Retail (%) Corporate (%) Retail (%) Corporate (%) 31 December 41.22% 19.51% 37.11% 19.41% Average 39.58% 18.34% 37.75% 18.49% Minimum 36.60% 15.74% 35.67% 15.02% Maximum 41.39% 20.42% 40.04% 20.73%

In addition to activities described above, the Bank is preparing and regularly revising the liquidity crisis contingency plan. This plan clearly defines responsibilities of key liquidity management personnel in crisis situations and presents a plan to be followed in order to get the funds needed to maintain the ability to service own liabilities.

Apart from complying with all currently defined regulatory rules and internal policies related to liquidity risk, the Bank is actively involved in implementation of new ratios regulators are planning to introduce in liquidity risk management over the next couple of years. Focus is primarily paid to Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The efforts invested into implementation of these ratios are coordinated on a RZB Group level and this allows for sharing and transfer of liquidity risk management know-how which will certainly have positive effects on increase of liquidity risk management proficiency in the Bank.

The Bank’s calculation and analyses of asset and liability maturity mismatch is based upon cash inflows and outflows ari- sing from transactions which are assigned to the various timebands in accordance with their residual contractual maturity. Assets are included according to their latest possible date of receipt and liabilities on the basis of the earliest occurrence of the obligation. For cash flows arising from financial instruments which do not have contractually specified repayment date or their behavior significantly differs from contractual, the bank uses behavior assumptions (stickiness & salability ratios) based on the historic analyses.

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46. Risk management disclosures (continued)

Market risk

All trading instruments are subject to market risk, that is, the risk that future changes in market conditions may make an instrument less valuable or more onerous. Trading financial instruments are recognised at fair value, and all changes in market conditions directly affect net trading income. The Group manages its use of trading instruments in response to changing market conditions.

Market risk management of the Group and the Bank is conducted in accordance with legislative requirements and direc- tives of domestic and foreign regulators, which is defined in internal policies and procedures which are regularly revised by Risk division. In line with the internal policies, the Bank actively measures, manages and monitors market risk exposure arising from:

• trading book positions (comprising trading book interest rate risk and trading book equity price risk) • non-trading book positions • total position of the Bank

Measuring Market Risk (Value at Risk)

The Bank measures and manages its market risk using VaR analysis through its internal policies and established control systems. Value at Risk (VaR) is the maximum expected loss that is acceptable for the Bank at a certain point of time. The VaR risk measure is a statistically defined estimate of the worst potential loss of a current portfolio, for a specified confidence level, over a given period during which positions can be closed. Since the 2010, the Bank has been using a combination of a hybrid Monte Carlo and histo- rical methods for VaR calculation. This methodology has been developed internally in the RBI Group to monitor the interest rate risk, foreign exchange risk and price risk, the credit spread risk on the basis of a one-day holding period and a confidence level of 99%.

HRK millions December 2010 December 2011 Average Min Max Interest rate risk  trading book 4.0 4.1 7.3 3.7 16.6  banking book 5.1 5.9 13.4 5.9 20.1 Currency risk 0.6 0.9 1.8 0.2 7.1 Price risk 0.9 1.3 2.2 0.8 3.3 Total VaR 6.9 7.5 18.2 7.5 28.2

Value at risk number provides the maximum losses that will not be exceeded at a certain confidence level under normal market conditions, but does not provide additional information on potential effects in the case of extreme market mo- vements. In order to take these events into account as well, Group carries out weekly stress tests with an emphasis on market movements over the past five years. In this way the Bank simulates possible crisis situations and their impact on the current positions. The stress tests consequently deliver important results for the management of risks, for all risk categories monitored and for various risk factors.

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Notes to the financial statements (continued)

46. Risk management disclosures (continued)

Interest rate risk

The Group’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets and interest-bearing liabilities mature or reprice at different times or in differing amounts. In the case of floating rate assets and liabilities the Group is also exposed to basis risk, which is the difference in repricing characteristics of the various floating rate indices.

Risk management activities are aimed at optimising net interest income, given market interest rate levels, consistent with the Group’s business strategies. To achieve its risk management objectives, the Group also uses interest rate swaps.

The majority of loans and receivables to companies and individuals and deposits from companies and individuals are ini- tially contracted with an interest rate type which allows the Bank to vary its interest rate level at the Management Board’s decision. These financial instruments are classified as instruments that bear variable interest rates, subject to semiannual repricing.

In its transactions with retail sector, the Bank has the option to change the level of interest rates applied on loans and/ or deposits, if these instruments are contracted with an interest rate type subject to Management Board’s decision. The methodology used to determine the need for change and the size of interest rate changes has been published in January 2011 as a response to regulatory requests, with the goal of customer protection. The need for change of these interest rates is determined by the movement of various external parameters, and once the decision for change of interest rates has been reached, level of interest rates is changed on a portfolio level, and not on a level of single line or placement. Even if external parameters move unfavourably for the Bank, the Bank has the option to decide not to change the level of interest rates if it expects that change of interest rates will deteriorate its competitive position. The Bank can decide on interest rate change two times a year while potential interest rate changes can be applied on 1 June and 1 December. For individual contracts, interest rates can change also due to customers’ behaviour. Timely compliance with their obligations might earn customers some bonus in terms of decrease of interest rates and vice versa. These changes are applied at dates of their compliance (non-compliance) with their contractual obligations.

Asset-liability risk management activities are conducted in the context of the Group’s sensitivity to interest rate changes. Exposure to interest rate risk is monitored and measured using sensitivity analysis tolls such Basis Point Value, VaR, stop loss limits and other methods for measuring sensitivity.

Trading book

With its internal policies the Bank also prescribed and implemented sensitivity analysis tools such as Basis Point Value for monitoring interest rate risk within trading book positions.

“Basis Point Value“ is the indicator of the sensitivity of the Bank’s portfolio to a 1bp parallel shift in the referent yield curve. The Bank has established individual BPV limits per each currency and a total BPV limit.

Utilisation monitoring of trading book limits is done on a daily basis.

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46. Risk management disclosures (continued)

Trading book (continued)

Trading book BPV per currencies for 2011 and 2010 were as follows:

BPV / Currency EUR USD HRK 31.12.2011 (9,809.3) (177.8) (13,869.0) Average (21,751.8) (457.9) (10,200.9) Minimum (50,840.9) (5,796.3) (20,823.5) Maximum 7,491.9 3,448.6 (992.1)

BPV / Currency EUR USD HRK 31.12. 2010 47,163.3 261,777.4 7,493.8 Average 120,614.0 37,332.4 37,485.0 Minimum 1,913.3 3,225.7 54,894.0 Maximum 270,623.4 2,135.4 47,092.9

Non trading book

The Bank measures and monitors interest rate risk exposure of non trading book by:

• basis point value limits • analyses of effect on market value of own funds

Interest rate risk analyses are done for every significant currency and interest rate type.

For the purpose of managing and monitoring of interest rate risk exposures via basis point value methodology, which started to use 2008 for banking book positions, the Bank has prescribed internal policies defining:

• limits on particular timebands per significant currency • total limits per significant currency • total limit per non-trading book.

BPV / Currency HRK EUR USD CHF 31.12.2011 (15,800.4) 28,458.4 3,760.2 4,851.9 Average (30,993.0) 18,561.7 4,576.3 (2,693.8) Minimum (44,066.8) (14,745.6) 228.7 (17,427.1) Maximum (13,328.0) 36,237.1 8,461.8 5,056.4

BPV / Currency HRK EUR USD CHF 31.12.2010 85,214.4 323,297.4 5,737.2 34,079.4 Average 122,818.4 331,823.7 13,738.7 35,248.1 Minimum 157,914.6 196,930.5 20,275.2 31,584.2 Maximum 204,096.2 415,567.8 9,698.5 27,665.3

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Notes to the financial statements (continued)

46. Risk management disclosures (continued)

Non trading book (continued)

For the purpose of managing and monitoring of interest rate risk exposures via analyses of the effect on the market va- lue of own funds, the Bank applies an externally defined Basel II methodology (Directive 48/2006 EEC), which implies measuring the effects of a standard stress test of a 200bp parallel shift in the referent yield curve. In 2010, the Group introduced a monitoring of standard interest-rate shock of 200 basis points, following the new CNB regulations and met- hodology, with the following implications:

31.12.2011 31.12.2010 CHF 17,666 25,437 EUR 118,874 64,074 HRK 44,777 31,304 Other (20,352) (13,163) Total 160,966 107,651 % 2.97% 2.09%

Equity price risk

Equity price risk is the possibility that equity prices will fluctuate, affecting the fair value of equity investments and other instruments that derive their value from a particular equity investment. The primary exposure to equity prices arises from equity securities at fair value through profit and loss.

Equity Delta is the indicator of the Bank’s exposure to equity price risk arising from positions in equity securities and equity derivatives held for trading. The Bank has established equity delta and VaR limits per position in a single instrument and a total equity delta limit.

The Group’s and the Bank’s portfolio of equity investments comprises equities issued by domestic entities. The total value of the maximum exposure toward equities is determined by the risk management group of the Bank’s ultimate parent bank. For the monitoring of its equity portfolio the Bank analyses the equity portfolio’s sensitivity through Equity delta limits and VaR limits.

Currency risk

The Group is exposed to currency risk through transactions in foreign currencies.

Foreign currency exposure arises from credit, deposit-taking, investment and trading activities. It is monitored daily in accordance to legislation and internally set limits, for each currency and for the total statement of financial position deno- minated in or linked to foreign currency.

The Group manages its currency risk by setting principles and limits for foreign currency exposures and by monitoring these limits (including stop-loss limits). The Group directs its business activities towards trying to minimise the gap between assets and liabilities denominated in or linked to foreign currency, and maintaining daily business activities within daily allowed open limits per currency.

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46. Risk management disclosures (continued)

Currency risk (continued)

The Group is primarily exposed to EUR. Further currency exposure arises from financial instruments denominated in CHF and USD. In order to protect itself against currency risk, Group uses derivative financial instruments.

Assets and liabilities denominated in domestic currency include HRK 28 million (2010: HRK 38 million) of loans and advances to customers and borrowings, which the Group and the Bank have the option to revalue in line with HRK mo- vements against EUR, if HRK depreciates against to EUR beyond a certain level.

Operational risk

Operational risk is the risk of financial loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal risk, but excludes strategic and reputational risk. Operational risk differs from other risks attributed to the Bank’s activities in a way that it is not directly taken in exchange for the expected future profit, but is embedded in the process of the Bank’s and the Group’s daily activities and inherent to all activities, processes, products and systems.

With the aim of efficient operational risk management, the Group built system based on standards and principles defined in Credit Institutions Act, Basel Committee documents and RBI Group Directives.

Whereas due to characteristics of operational risk, the Group has been exposed to operational risk in all its activities, with its internal procedures the Group established framework for system of identification, measuring, assessment and monitoring operational risk exposures with objective of successfull operational risk management.

Within established operational risk management system, the Group uses methods which include risk assessments, collec- ting operational risk events data, monitoring key risk indicators and performing scenario analysis.

With the aim of regular monitoring of operational risk profile and material exposure to losses, the Bank implemented regular reporting of operational risk information that supports the proactive management of operational risk.

Whilst ultimate responsibility for risk resides with the Management Board, system of responsibilities for managing ope- rational risk is based on responsibilities of Operational Risk Managers, which are in charge of operational enforcement of risk strategy and identification and managing of operational risk within its business areas, and on responsibility of Operational Risk Unit for establishment of operational risk management system through development of rules, processes, methods and system of measuring, control, monitoring and reporting on operational risk exposure.

Risk Coordination has been established as Committee responsible also for discussing operational risk issues, suggesting procedures and risk mitigation actions to the Board when necessary, whilst Operational Risk Managers are finally res- ponsible for their implementation.

The capital requirement for operational risk is determined using the standardised approach.

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Notes to the financial statements (continued)

46. Risk management disclosures (continued)

Derivative financial instruments

The Group enters into derivative financial instruments mostly for risk management purposes and on behalf of customers. Derivative financial instruments used by the Group include swaps and forwards whose value changes in response to changes in interest rates and foreign exchange rates. Derivatives are either standardised contracts transacted through regulated exchanges or individually negotiated over-the-counter contracts. Interest rate swaps are mainly used for econo- mically hedging interest rate exposures.

Swaps

Swaps are over-the-counter agreements between the Group and other parties to exchange future cash flows based upon agreed notional amounts. The swaps most commonly used by the Group are interest rate swaps, whereby the Group agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional amount. The Group is subject to credit risk arising from the respec- tive counterparties’ failure to perform. Market risk arises from the possibility of unfavourable movements in interest rates relative to the contractual rates of the contract.

Forwards

Forward contracts are commitments either to purchase or sell a designated financial instrument or currency at a specified future date for a specified price and may be settled in cash or with another financial instrument. Forwards are individually traded over-the-counter contracts. Forward contracts result in credit exposure to the counterparty and exposure to market risk based on changes in market prices relative to the contracted amounts.

Futures

Futures contracts are commitments either to purchase or sell a designated financial instrument or currency, at a specified future date for a specified price and may be settled in cash or with another financial instrument. Futures are standardised exchange- traded contracts. Initial margin requirements for futures are met in cash or other instruments, and changes in future contract value are settled daily. Futures contracts have limited credit risk because the counterparties are futures exchanges.

Forward rate agreements

Forward rate agreements are individually negotiated interest rate futures that call for a cash settlement at a future date for the difference between a contracted rate of interest and the current market rate, based on a notional principal amount.

Options

Options are derivative financial instruments that give the buyer, in exchange for a premium payment, the right, but not the obligation, to either purchase from (call option) or sell to (put option) the writer a specified underlying instrument at a specified price on or before a specified date. The Group enters into exchange-traded and over-the-counter option contracts to meet the requirements of its risk management and trading activities.

The risk in writing a call option is that the Group may incur a loss if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Group may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Group pays a premium whether or not the option is exercised. The Group also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist.

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47. Maturity analysis

The remaining contractual maturity of the Group’s assets and liabilities as at 31 December 2011 and 31 December 2010 is presented in the tables below:

The items with undefined maturity are included in terms over 5 years.

Group Less than 13 312 15 Over 5 1 month months months years years Total HRK HRK HRK HRK HRK HRK 2011 millions millions millions millions millions millions Assets Cash and amounts due from banks 2,320     2,320 Obligatory reserve with the Croatian National Bank 2,819     2,819 Financial assets at fair value through profit or loss 2,464 468 874   3,806 Placements with and loans to other banks 1,469 20 152 210  1,851 Financial assets available for sale  16 2 18 104 140 Loans and advances to customers 3,005 1,605 4,505 11,601 6,333 27,049 Financial investments held to maturity   4 696 36 736 Property, plant and equipment     1,592 1,592 Intangible assets     206 206 Deferred tax assets    205 1 206 Other assets 246 31 127 51 4 459 Total assets 12,323 2,140 5,664 12,781 8,276 41,184

Liabilities and equity Financial liabilities at fair value through profit or loss 743     743 Deposits from banks 666 60 40   766 Deposits from companies and other similar entities 6,548 1,114 910 337 51 8,960 Deposits from individuals 4,404 2,893 6,044 849 95 14,285 Borrowings 1,718 1,171 2,453 4,035 185 9,562 Provisions for liabilities and charges   39 118 2 159 Other liabilities 693 23 54 96 23 889 Equity attributable to the equity holders of the parent     5,743 5,743 Non controlling interest     77 77 Total equity and liabilities 14,772 5,261 9,540 5,435 6,176 41,184

Maturity gap (2,449) (3,121) (3,876) 7,346 2,100 

Maturity gap (2010) (1,814) (4,233) (5,417) 7,814 3,650 

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47. Maturity analysis (continued)

Group Less than 13 312 15 Over 5 1 month months months years years Total HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions Assets Cash and amounts due from banks 1,169     1,169 Obligatory reserve with the Croatian National Bank 2,544     2,544 Financial assets at fair value through profit or loss 4,551 416 742   5,709 Placements with and loans to other banks 3,410  50 232  3,692 Financial assets available for sale    13 105 118 Loans and advances to customers 2,320 1,855 2,650 11,683 8,048 26,556 Financial investments held to maturity   7 686 36 729 Property, plant and equipment     1,622 1,622 Intangible assets     230 230 Deferred tax assets    188 1 189 Other assets 316 46 36 48 5 451 Total assets 14,310 2,317 3,485 12,850 10,047 43,009

Liabilities and equity Financial liabilities at fair value through profit or loss 686     686 Deposits from banks 342 299 120   761 Deposits from companies and other similar entities 6,116 1,511 992 290 49 8,958 Deposits from individuals 4,444 2,501 5,683 733 96 13,457 Borrowings 4,019 2,052 1,908 3,814 181 11,974 Debt securities issued  124    124 Provisions for liabilities and charges   62 100 8 170 Current tax liability   78   78 Other liabilities 517 63 59 99 159 897 Equity attributable to the equity holders of the parent     5,815 5,815 Non controlling interest     89 89 Total equity and liabilities 16,124 6,550 8,902 5,036 6,397 43,009

Maturity gap (1,814) (4,233) (5,417) 7,814 3,650 

Maturity gap (2009) (3,274) (209) (4,464) 4,652 3,295 

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Notes to the financial statements (continued)

47. Maturity analysis (continued)

The remaining contractual maturity of the Bank’s assets and liabilities as at 31 December 2011 and 31 December 2010 is presented in the tables below:

The items with undefined maturity are included in terms over 5 years.

Bank Less than 13 312 15 Over 5 1 month months months years years Total HRK HRK HRK HRK HRK HRK 2011 millions millions millions millions millions millions Assets Cash and amounts due from banks 2,320     2,320 Obligatory reserve with the Croatian National Bank 2,819     2,819 Financial assets at fair value through profit or loss 2,464 463 854   3,781 Placements with and loans to other banks 1,469 20 98 210  1,797 Financial assets available for sale  16   4 20 Loans and advances to customers 2,833 1,127 3,994 11,199 6,471 25,624 Financial investments held to maturity    604  604 Investment in subsidiaries and associates     211 211 Property, plant and equipment     474 474 Intangible assets     201 201 Deferred tax assets    203  203 Other assets 212 23 119 49 3 406 Total assets 12,117 1,649 5,065 12,265 7,364 38,460

Liabilities and equity Financial liabilities at fair value through profit or loss 744     744 Deposits from banks 666 60 40   766 Deposits from companies and other similar entities 6,634 1,231 920 266 19 9,070 Deposits from individuals 4,404 2,893 6,044 849 95 14,285 Borrowings 1,364 625 1,914 3,115 182 7,200 Provisions for liabilities and charges   38 107 2 147 Other liabilities 450 8 47 91 20 616 Equity     5,632 5,632 Total liabilities and equity 14,262 4,817 9,003 4,428 5,950 38,460

Maturity gap (2,145) (3,168) (3,938) 7,837 1,414 

Maturity gap (2010) (2,068) (4,526) (5,057) 8,589 3,062 

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Notes to the financial statements (continued)

47. Maturity analysis (continued)

Bank Less than 13 312 15 Over 5 1 month months months years years Total HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions Assets Cash and amounts due from banks 1,154     1,154 Obligatory reserve with the Croatian National Bank 2,544     2,544 Financial assets at fair value through profit or loss 4,550 410 716   5,676 Placements with and loans to other banks 3,395   232  3,627 Financial assets available for sale     16 16 Loans and advances to customers 2,241 1,417 2,256 11,315 8,208 25,437 Financial investments held to maturity    593  593 Investment in subsidiaries and associates     211 211 Property, plant and equipment     378 378 Intangible assets     226 226 Deferred tax assets    187  187 Other assets 253 37 32 46 5 373 Total assets 14,137 1,864 3,004 12,373 9,044 40,422

Liabilities and equity Financial liabilities at fair value through profit or loss 689     689 Deposits from banks 342 299 120   761 Deposits from companies and other similar entities 6,437 1,673 1,014 217 19 9,360 Deposits from individuals 4,444 2,501 5,683 733 96 13,457 Borrowings 3,832 1,748 1,059 2,640 176 9,455 Debt securities issued  124    124 Provisions for liabilities and charges   60 100 4 164 Current tax liability   72   72 Other liabilities 461 45 53 94 16 669 Equity     5,671 5,671 Total liabilities and equity 16,205 6,390 8,061 3,784 5,982 40,422

Maturity gap (2,068) (4,526) (5,057) 8,589 3,062 

Maturity gap (2009) (3,679) (535) (3,658) 5,292 2,580 

132 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Notes to the financial statements (continued)

48. Currency analysis

Assets and liabilities denominated in domestic currency include HRK 28 million (2010: HRK 38 million) of loans and advances to customers and borrowings, which the Group and the Bank, and lenders of the Group and the Bank, have the option to revalue in line with HRK movements against EUR, if HRK depreciates against to EUR beyond a certain level.

Group Other Total foreign foreign Domestic Total EUR EUR linked currencies currencies currency currencies HRK HRK HRK HRK HRK HRK 2011 millions millions millions millions millions millions Assets Cash and amounts due from banks 106  179 285 2,035 2,320 Obligatory reserve with the Croatian National Bank 533   533 2,286 2,819 Financial assets at fair value through profit or loss 1,780 1,056 92 2,928 878 3,806 Placements with and loans to other banks 911  416 1,327 524 1,851 Financial assets available for sale 16 68 18 102 38 140 Loans and advances to customers 5,303 10,850 3,686 19,839 7,210 27,049 Financial investments held to maturity 15 658  673 63 736 Property, plant and equipment     1,592 1,592 Intangible assets     206 206 Deferred tax assets     206 206 Other assets 113 39 4 156 303 459 Total assets 8,777 12,671 4,395 25,843 15,341 41,184

Liabilities and equity Financial liabilities at fair value through profit or loss 69  636 705 38 743 Deposits from banks 361   361 405 766 Deposits from companies and other similar entities 2,230 233 717 3,180 5,780 8,960 Deposits from individuals 10,705 14 1,808 12,527 1,758 14,285 Borrowings 7,393 783 69 8,245 1,317 9,562 Provisions for liabilities and charges  4  4 155 159 Other liabilities 218 197 30 445 444 889 Total equity attributable to the equity holders of the parent     5,743 5,743 Non controlling interest     77 77 Total equity and liabilities 20,976 1,231 3,260 25,467 15,717 41,184

Currency gap (12,199) 11,440 1,135 376 (376) 

Currency gap (2010) (11,208) 10,104 2,754 1,650 (1,650) 

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Notes to the financial statements (continued)

48. Currency analysis (continued)

Group Other Total foreign foreign Domestic Total EUR EUR linked currencies currencies currency currencies HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions Assets Cash and amounts due from banks 105  82 187 982 1,169 Obligatory reserve with the Croatian National Bank   430 430 2,114 2,544 Financial assets at fair value through profit or loss 3,954 578 121 4,653 1,056 5,709 Placements with and loans to other banks 2,069  168 2,237 1,455 3,692 Financial assets available for sale 1 21 15 37 81 118 Loans and advances to customers 4,582 10,246 4,625 19,453 7,103 26,556 Financial investments held to maturity 15 648  663 66 729 Property, plant and equipment     1,622 1,622 Intangible assets     230 230 Deferred tax assets     189 189 Other assets 139 40 7 186 265 451 Total assets 10,865 11,533 5,448 27,846 15,163 43,009

Liabilities and equity Financial liabilities at fair value through profit or loss 37  635 672 14 686 Deposits from banks 276  19 295 466 761 Deposits from companies and other similar entities 2,983 501 570 4,054 4,904 8,958 Deposits from individuals 10,489 88 1,331 11,908 1,549 13,457 Borrowings 7,981 745 106 8,832 3,142 11,974 Debt securities issued     124 124 Provisions for liabilities and charges 16 2  18 152 170 Current tax liability     78 78 Other liabilities 291 93 33 417 480 897 Total equity attributable to the equity holders of the parent     5,815 5,815 Non controlling interest     89 89 Total equity and liabilities 22,073 1,429 2,694 26,196 16,813 43,009

Currency gap (11,208) 10,104 2,754 1,650 (1,650) 

Currency gap (2009) (12,803) 11,241 4,664 3,102 (3,102) 

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Notes to the financial statements (continued)

48. Currency analysis (continued)

Bank Other Total foreign foreign Domestic Total EUR EUR linked currencies currencies currency currencies HRK HRK HRK HRK HRK HRK 2011 millions millions millions millions millions millions Assets Cash and amounts due from banks 106  179 285 2,035 2,320 Obligatory reserve with the Croatian National Bank 533   533 2,286 2,819 Financial assets at fair value through profit or loss 1,779 1,049 92 2,920 861 3,781 Placements with and loans to other banks 911  416 1,327 470 1,797 Financial assets available for sale   16 16 4 20 Loans and advances to customers 5,424 9,426 3,608 18,458 7,166 25,624 Financial investments held to maturity  604  604  604 Investment in subsidiaries and associates     211 211 Property, plant and equipment     474 474 Intangible assets     201 201 Deferred tax assets     203 203 Other assets 112 22 4 138 268 406 Total assets 8,865 11,101 4,315 24,281 14,179 38,460

Liabilities and equity Financial liabilities at fair value through profit or loss 70  636 706 38 744 Deposits from banks 361   361 405 766 Deposits from companies and other similar entities 2,253 103 715 3,071 5,999 9,070 Deposits from individuals 10,705 14 1,808 12,527 1,758 14,285 Borrowings 5,129 783 3 5,915 1,285 7,200 Provisions for liabilities and charges  5  5 142 147 Other liabilities 200 13 29 242 374 616 Equity     5,632 5,632 Total liabilities and equity 18,718 918 3,191 22,827 15,633 38,460

Currency gap (9,853) 10,183 1,124 1,454 (1,454) 

Currency gap (2010) (8,879) 9,153 2,708 2,982 (2,982) 

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Notes to the financial statements (continued)

48. Currency analysis (continued)

Bank Other Total foreign foreign Domestic Total EUR EUR linked currencies currencies currency currencies HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions Assets Cash and amounts due from banks 90  82 172 982 1,154 Obligatory reserve with the Croatian National Bank   430 430 2,114 2,544 Financial assets at fair value through profit or loss 3,954 574 121 4,649 1,027 5,676 Placements with and loans to other banks 2,058  168 2,226 1,401 3,627 Financial assets available for sale   13 13 3 16 Loans and advances to customers 4,663 9,107 4,532 18,302 7,135 25,437 Financial investments held to maturity  593  593  593 Investment in subsidiaries and associates     211 211 Property, plant and equipment     378 378 Intangible assets     226 226 Deferred tax assets     187 187 Other assets 137 23 6 166 207 373 Total assets 10,902 10,297 5,352 26,551 13,871 40,422

Liabilities and equity Financial liabilities at fair value through profit or loss 38  635 673 16 689 Deposits from banks 276  19 295 466 761 Deposits from companies and other similar entities 3,120 358 628 4,106 5,254 9,360 Deposits from individuals 10,549 28 1,331 11,908 1,549 13,457 Borrowings 5,568 745  6,313 3,142 9,455 Debt securities issued     124 124 Provisions for liabilities and charges 16 2  18 146 164 Current tax liability     72 72 Other liabilities 214 11 31 256 413 669 Equity     5,671 5,671 Total liabilities and equity 19,781 1,144 2,644 23,569 16,853 40,422

Currency gap (8,879) 9,153 2,708 2,982 (2,982) 

Currency gap (2009) (10,471) 9,804 4,691 4,024 (4,024) 

136 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Notes to the financial statements (continued)

49. Interest rate repricing, gap analysis and amounts subject to fixed interest rates

The following tables present the Group’s and the Bank’s assets and liabilities and equity analysed according to repricing periods determined as the earlier of remaining contractual maturity and contractual repricing.

The tables are management’s estimate of the interest rate risk for the Group and the Bank as at 31 December 2011 and are not necessarily indicative of the positions at other times but provide some indication of the sensitivities of the Group’s and the Bank’s earnings to movements in interest rates. Earnings will also be affected by the currency of the assets and liabilities and equity. The Group and the Bank have a significant proportion of interest-earning assets and interest-bearing liabilities in foreign currency.

Group Non interest Less than 1  3 3  12 Over 12 Fixed bearing 1 month months months months Total interest rates HRK HRK HRK HRK HRK HRK HRK 2 011 millions millions millions millions millions millions millions Assets Cash and amounts due from banks 109 2,211    2,320  Obligatory reserve with the Croatian National Bank 533 2,286    2,819  Financial assets at fair value through profit or loss 97 2,385 463 861  3,806 3,666 Placements with and loans to other banks  1,469 43 129 210 1,851 1,851 Financial assets available for sale 20   3 117 140 121 Loans and advances to customers 24 24,626 485 154 1,760 27,049 2,056 Financial investments held to maturity    4 732 736 736 Property, plant and equipment 1,592     1,592  Intangible assets 206     206  Deferred tax assets 206     206  Other assets 459     459  Total assets 3,246 32,977 991 1,151 2,819 41,184 8,430 Liabilities and equity Financial liabilities at fair value through profit or loss 743     743  Deposits from banks 125 541 60 40  766 640 Deposits from companies and other similar entities 1,202 5,564 1,092 872 230 8,960 3,503 Deposits from individuals  6,844 2,473 4,777 191 14,285 8,994 Borrowings 7 3,816 4,175 1,202 362 9,562 2,494 Provisions for liabilities and charges 159     159  Other liabilities 889     889  Equity attributable to the equity holders of the parent 5,743     5,743  Non controlling interest 77     77  Total liabilities and equity 8,945 16,765 7,800 6,891 783 41,184 15,631 Interest rate gap (5,699) 16,212 (6,809) (5,740) 2,036  (7,201)

Interest rate gap (2010) (5,739) 16,259 (7,013) (5,191) 1,684  (5,783)

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Notes to the financial statements (continued)

49. Interest rate repricing, gap analysis and amounts subject to fixed interest rates (continued)

Group Non interest Less than 1 1  3 3  12 Over 12 Fixed bearing month months months months Total interest rates HRK HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions millions Assets Cash and amounts due from banks 116 1,053    1,169  Obligatory reserve with the Croatian National Bank 430 2,114    2,544  Financial assets at fair value through profit or loss 114 4,464 416 715  5,709 5,357 Placements with and loans to other banks  3,410  50 232 3,692 3,691 Financial assets available for sale 16    102 118 102 Loans and advances to customers 24 23,833 794 519 1,386 26,556 1,774 Financial investments held to maturity    7 722 729 729 Property, plant and equipment 1,622     1,622  Intangible assets 230     230  Deferred tax assets 189     189  Other assets 451     451  Total assets 3,192 34,874 1,210 1,291 2,442 43,009 11,653 Liabilities and equity Financial liabilities at fair value through profit or loss 686     686  Deposits from banks 60 283 298 120  761 701 Deposits from companies and other similar entities 1,125 5,217 1,488 942 186 8,958 4,188 Deposits from individuals 1 7,252 1,933 4,155 116 13,457 7,706 Borrowings 10 5,863 4,380 1,265 456 11,974 4,717 Debt securities issued   124   124 124 Provisions for liabilities and charges 170     170  Current tax liability 78     78  Other liabilities 897     897  Equity attributable to the equity holders of the parent 5,815     5,815  Non controlling interest 89     89  Total liabilities and equity 8,931 18,615 8,223 6,482 758 43,009 17,436 Interest rate gap (5,739) 16,259 (7,013) (5,191) 1,684  (5,783)

Interest rate gap (2009) (4,720) 9,617 (3,326) (2,718) 1,147  (3,103)

138 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Notes to the financial statements (continued)

49. Interest rate repricing, gap analysis and amounts subject to fixed interest rates (continued)

Bank Non interest Less than 1 1  3 3  12 Over 12 Fixed bearing month months months months Total interest rates HRK HRK HRK HRK HRK HRK HRK 2 011 millions millions millions millions millions millions millions Assets Cash and amounts due from banks 109 2,211    2,320  Obligatory reserve with the Croatian National Bank 533 2,286    2,819  Financial assets at fair value through profit or loss 83 2,381 463 854  3,781 3,656 Placements with and loans to other banks  1,470 20 97 210 1,797 1,797 Financial assets available for sale 20     20  Loans and advances to customers  23,348 73 80 2,123 25,624 2,465 Financial investments held to maturity     604 604 604 Investment in subsidiaries and associates 211     211  Property, plant and equipment 474     474  Intangible assets 201     201  Deferred tax assets 203     203  Other assets 406     406  Total assets 2,240 31,696 556 1,031 2,937 38,460 8,522 Liabilities and equity Financial liabilities at fair value through profit or loss 744     744  Deposits from banks 125 541 60 40  766 640 Deposits from companies and other similar entities 1,071 5,655 1,214 900 230 9,070 3,653 Deposits from individuals  6,844 2,473 4,777 191 14,285 8,994 Borrowings 7 2,808 3,216 822 347 7,200 2,477 Provisions for liabilities and charges 147     147  Other liabilities 616     616  Equity 5,632     5,632  Total liabilities and equity 8,342 15,848 6,963 6,539 768 38,460 15,764 Interest rate gap (6,102) 15,848 (6,407) (5,508) 2,169  (7,242)

Interest rate gap (2010) (6,261) 15,766 (6,301) (5,031) 1,827  (6,101)

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Notes to the financial statements (continued)

49. Interest rate repricing, gap analysis and amounts subject to fixed interest rates (continued)

Bank Non interest Less than 1 1  3 3  12 Over 12 Fixed bearing month months months months Total interest rates HRK HRK HRK HRK HRK HRK HRK 2010 millions millions millions millions millions millions millions Assets Cash and amounts due from banks 115 1,039    1,154  Obligatory reserve with the Croatian National Bank 430 2,114    2,544  Financial assets at fair value through profit or loss 99 4,464 410 703  5,676 5,345 Placements with and loans to other banks  3,395   232 3,627 3,626 Financial assets available for sale 16     16  Loans and advances to customers  23,457 71 159 1,750 25,437 2,156 Financial investments held to maturity     593 593 593 Investment in subsidiaries and associates 211     211  Property, plant and equipment 378     378  Intangible assets 226     226  Deferred tax assets 187     187  Other assets 373     373  Total assets 2,035 34,469 481 862 2,575 40,422 11,720 Liabilities and equity Financial liabilities at fair value through profit or loss 689     689  Deposits from banks 60 283 298 120  761 701 Deposits from companies and other similar entities 960 5,562 1,658 994 186 9,360 4,590 Deposits from individuals 1 7,252 1,933 4,155 116 13,457 7,706 Borrowings 10 5,606 2,769 624 446 9,455 4,700 Debt securities issued   124   124 124 Provisions for liabilities and charges 164     164  Current tax liability 72     72  Other liabilities 669     669  Equity 5,671     5,671  Total liabilities and equity 8,296 18,703 6,782 5,893 748 40,422 17,821 Interest rate gap (6,261) 15,766 (6,301) (5,031) 1,827  (6,101)

Interest rate gap (2009) (5,220) 8,955 (2,584) (2,353) 1,202  (3,614)

140 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Notes to the financial statements (continued)

50. Average interest rates

The average interest rates set out below represent the weighted average yield on financial instruments at the end of the reporting period, and are not necessarily representative of the yield at other times during the year.

The major part of liabilities and interest earning assets are denominated in or linked to foreign currency.

Group Less than 1 month 1  3 months 3  12 months Over 12 months 2011 % % % % Assets Cash and amounts due from banks 0.34    Obligatory reserve with the Croatian National Bank 0.25    Financial assets at fair value through profit or loss 3.14 2.84 5.96  Placements with and loans to other banks 0.58 4.91 3.30 2.77 Financial assets available for sale   9.00 6.21 Loans and advances to customers 7.44 5.95 6.91 7.15 Financial investments held to maturity   7.31 5.53

Liabilities Deposits from banks 1.21 3.28 2.90  Deposits from companies and other similar entities 1.31 4.25 4.01 3.06 Deposits from individuals 2.33 3.53 3.62 4.10 Borrowings 2.55 4.14 3.57 2.38

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Notes to the financial statements (continued)

50. Average interest rates (continued)

Group Less than 1 month 1  3 months 3  12 months Over 12 months 2010 % % % % Assets Cash and amounts due from banks 0.34    Obligatory reserve with the Croatian National Bank 0.25    Financial assets at fair value through profit or loss 2.44 2.67 5.51  Placements with and loans to other banks 0.52  4.40 1.71 Financial assets available for sale    5.96 Loans and advances to customers 7.61 6.60 6.72 7.06 Financial investments held to maturity   5.66 5.50

Liabilities Deposits from banks 1.19 2.37 3.25  Deposits from companies and other similar entities 1.06 2.68 3.63 4.02 Deposits from individuals 2.89 4.24 4.16 4.61 Borrowings 1.54 4.22 3.51 2.36 Debt securities issued  4.13  

142 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Notes to the financial statements (continued)

50. Average interest rates (continued)

Bank Less than 1 month 1  3 months 3  12 months Over 12 months 2011 % % % % Assets Cash and amounts due from banks 0.34    Obligatory reserve with the Croatian National Bank 0.25    Financial assets at fair value through profit or loss 3.14 2.84 5.97  Placements with and loans to other banks 0.58 4.80 2.72 2.77 Loans and advances to customers 7.46 5.65 4.53 6.62 Financial investments held to maturity    5.50

Liabilities Deposits from banks 1.21 3.28 2.90  Deposits from companies and other similar entities 1.30 4.22 4.03 3.06 Deposits from individuals 2.33 3.53 3.62 4.10 Borrowings 2.20 3.96 3.74 2.25

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Notes to the financial statements (continued)

50. Average interest rates (continued)

Bank Less than 1 month 1  3 months 3  12 months Over 12 months 2010 % % % % Assets Cash and amounts due from banks 0.29    Obligatory reserve with the Croatian National Bank 0.25    Financial assets at fair value through profit or loss 2.44 2.60 5.51  Placements with and loans to other banks 0.51   1.71 Loans and advances to customers 7.61 5.67 5.14 6.71 Financial investments held to maturity    5.50

Liabilities Deposits from banks 1.19 2.37 3.25  Deposits from companies and other similar entities 1.11 2.70 3.63 4.02 Deposits from individuals 2.89 4.24 4.16 4.61 Borrowings 1.48 4.24 4.38 2.24 Debt securities issued  4.13  

144 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Notes to the financial statements (continued)

51. Fair value of financial instruments

Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s length basis.

Financial instruments at fair value through profit or loss and available for sale are measured at fair value. Loans and recei- vables and held-to-maturity assets are measured at amortised cost less impairment.

The carrying amount of cash and amounts due from banks, obligatory reserve with the Croatian National Bank, and pla- cements with banks, deposits from banks and deposits from companies and similar entities, are deemed to reflect their fair value due to the short-term maturity of these financial instruments.

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments.

Loans and advances

The fair value of loans and advances is calculated based on discounted expected future principal and interest cash flows. Loan repayments are assumed to occur at contractual repayment dates, where applicable. For loans that do not have fixed repayment dates or that are subject to prepayment risk, repayments are estimated based on experience in previous periods when interest rates were at levels similar to current levels, adjusted for any differences in interest rate outlook. Expected future cash flows are estimated considering credit risk and any indication of impairment including portfolio based impairment allowances for performing loans calculated at rates prescribed by the CNB. Expected future cash flows for homogeneous categories of loans, such as residential mortgage loans, are estimated on a portfolio basis and discounted at current rates offered for similar loans to new borrowers with similar credit profiles. The estimated fair values of loans reflect changes in credit status since the loans were made and changes in interest rates in the case of fixed rate loans. As the Group has a very limited portfolio of loans and advances with fixed rates and longer-term maturity, the fair value of loans and advances is not significantly different from their carrying value. Differences between the fair value of future losses from currently performing loans in the portfolio and the effect of the portfolio based provisions recognised in accordance with CNB rules, are not taken into account.

Bank and customer deposits

For demand deposits and deposits with no defined maturities, fair value is taken to be the amount payable on demand at date of reporting. The estimated fair value of fixed-maturity deposits is based on discounted cash flows using rates currently offered for deposits of similar remaining maturities. The value of long-term relationships with depositors is not taken into account in estimating fair values.

Borrowings

Most of the Group’s long-term debt has no quoted market price and fair value is estimated as the present value of future cash flows, discounted at interest rates available at date of reporting to the Group for new debt of similar type and re- maining maturity.

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Notes to the financial statements (continued)

51. Fair value of financial instruments (continued)

The following table summarises fair values of financial instruments held by the Group and the Bank at 31 December 2011 and 2010:

Group 2011 2010 Unrecogni- Unrecogni- sed estima- sed estima- Carrying ted gains/ Carrying ted gains/ amount Fair value (losses) amount Fair value (losses) HRK millions HRK millions HRK millions HRK millions HRK millions HRK millions Cash and amounts due from banks 2,320 2,320  1,169 1,169  Obligatory reserve with the Croatian National Bank 2,819 2,819  2,544 2,544  Financial assets at fair value through profit or loss 3,806 3,806  5,709 5,709  Placements with and loans to other banks 1,851 1,830 (21) 3,692 3,655 (37) Financial assets available for sale 140 140  118 118  Loans and advances to customers 27,049 27,034 (15) 26,556 26,022 (534) Financial investments held to maturity 736 713 (13) 729 741 12 Financial liabilities at fair value through profit or loss (743) (743)  (686) (686)  Deposits from banks (766) (766)  (761) (761)  Deposits from companies and other similar entities (8,960) (8,944) 16 (8,958) (8,956) 2 Deposits from individuals (14,285) (14,285)  (13,457) (13,457)  Borrowings (9,562) (9,533) 29 (11,974) (11,701) 273 Debt securities issued    (124) (124)  Total (4) (284)

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Notes to the financial statements (continued)

51. Fair value of financial instruments (continued)

Bank 2011 2010 Unrecogni- Unrecogni- sed estima- sed estima- Carrying ted gains/ Carrying ted gains/ amount Fair value (losses) amount Fair value (losses) HRK millions HRK millions HRK millions HRK millions HRK millions HRK millions Cash and amounts due from banks 2,320 2,320  1,154 1,154  Obligatory reserve with the Croatian National Bank 2,819 2,819  2,544 2,544  Financial assets at fair value through profit or loss 3,781 3,781  5,676 5,676  Placements with and loans to other banks 1,797 1,776 (21) 3,627 3,590 (37) Financial assets available for sale 20 20  16 16  Loans and advances to customers 25,624 25,573 (51) 25,437 24,903 (534) Financial investments held-to- maturity 604 597 (7) 593 606 13 Financial liabilities at fair value through profit or loss (744) (744)  (689) (689)  Deposits from banks (766) (766)  (761) (761)  Deposits from companies and other similar entities (9,070) (9,054) 16 (9,360) (9,358) 2 Deposits from individuals (14,285) (14,285)  (13,457) (13,457)  Borrowings (7,200) (7,229) 29 (9,455) (9,182) 273 Debt securities issued    (124) (124)  Total (34) (283)

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Notes to the financial statements (continued)

51. Fair value of financial instruments (continued)

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

1. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

2. Level 2 fair value measurements are those derived from 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); and

3. Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable).

Group 2011 2010 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total HRK HRK HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions millions millions Financial assets at fair value through profit or loss Trading instruments  Debt securities 1,603   1,603 4,402   4,402  Equity instruments 22   22 40   40  Derivative financial assets  61  61  46  46 Financial assets designated at fair value through profit or loss  Debt securities 366 1,740  2,106 402 792  1,194  Investments in investments fund managed 14   14 27   27 Financial assets available for sale  Debt securities 120   120 102   102  Equity securities 16  4 20 13  3 16 Total 2,141 1,801 4 3,946 4,986 838 3 5,827 Financial liabilities at fair value through profit or loss  Derivataive financial liabilities  (743)  (743)  (686)  (686) Total  (743)  (743)  (686)  (686)

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Notes to the financial statements (continued)

51. Fair value of financial instruments (continued)

Bank 2011 2010 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total HRK HRK HRK HRK HRK HRK HRK HRK millions millions millions millions millions millions millions millions Financial assets at fair value through profit or loss Trading instruments  Debt securities 1,603   1,603 4,402   4,402  Equity instruments 22   22 40   40  Derivative financial assets  61  61  46  46 Financial assets designated at fair value through profit or loss  Debt securities 358 1,737  2,095 389 785  1,174  Investments in investments fund managed     14   14 Financial assets available for sale  Equity securities 16  4 20 13  3 16 Total 1,999 1,798 4 3,801 4,858 831 3 5,692 Financial liabilities at fair value through profit or loss  Derivataive financial liabilities  (744)  (744)  (689)  (689) Total  (744)  (744)  (689)  (689)

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Notes to the financial statements (continued)

52. Capital management

The Group’s lead regulator, the CNB, sets and monitors capital requirements for the Group as a whole. The amount of capital allocated by individual activity is based primarily on regulatory requirements. The procedure of capital allocation for specific activities is performed independently from responsible personnel for certain activities.

Even though the maximisation of yield on risk weighted capital represents the most important basis used for determining capital allocation within the Group to individual activities, it is not the sole basis used for decision-making. Consideration is given to synergy with other activities, availability of the Management Board and other resources, and reconciliation of activities with the long-term strategic goals of the Group. The policies related to capital management and capital allocation are regularly reviewed by management.

Law of credit institutions prescribes capital adequacy rate to be at least 12%. Ratio is calculated between guarantee capital and the sum of the credit weighted assets and other risk exposures. The capital requirement for operational risk is determined using the standardised approach.

The computation of capital adequacy ratio in accordance with CNB regulations is presented in the following table.

Group 2011 Group 2010 Bank 2011 Bank 2010 HRK millions HRK millions HRK millions HRK millions Guarantee capital Core capital 5,481 5,622 5,290 5,387 Supplementary share capital     Deductions (61) (52) (233) (230) Total guarantee capital 5,420 5,570 5,057 5,157 Credit-risk-weighted assets 27,244 27,464 24,612 24,846 Currency risk exposure 325 1,232 312 90 Position risk exposure 1,022 955 1,028 964 Settlement and counterparty risk exposure     Operational risk exposure 3,798 3,704 3,090 3,017 Credit-risk-weighted assets and other risk exposures 32,389 33,355 29,042 28,917

Capital adequacy ratio % 16.73 16.70 17.41 17.84

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Appendix I Regulatory forms requested by the Croatian National Bank

Pursuant to the Croatian Accounting Law (Official Gazette 109/07) Croatian National Bank issued the Decision on structure and contents of annual financial statement of the banks (Official Gazette 62/08). The following tables present financial statements in accordance to the above mentioned decision:

Consolidated Income Statement

2011 2010 HRK millions HRK millions Unaudited Unaudited 1. Interest income 2,373 2,382 2. (Interest expenses) (1,043) (1,087) 3. Net interest income 1,330 1,295 4. Commission and fee income 587 568 5. (Commission and fee expenses) (135) (102) 6. Net commission and fee income 452 466 7. Gain/(loss) from investments in subsidiaries, affiliated companies and joint ventures   8. Gain/(loss) from trading activities (91) (726) 9. Gain/(loss) from embedded derivatives   10. Gain/(loss) from financial assets not traded on active markets at fair value through profit and loss (63) (17) 11. Gain/(loss) from financial assets available for sale 1 2 12. Gain/(loss) from financial assets held to maturity (1)  13. Gain/(loss) from hedging transactions   14. Income from investments in subsidiaries, affiliated companies and joint ventures   15. Income from other equity investments 2 1 16. Gain/(loss) from foreign exchange differences 101 896 17. Other income 405 581 18. Other expenses (67) (44) 19. General and administrative expenses, depreciation and amortization (1,298) (1,464) 20. Net income before value adjustments and provisions for losses 771 990 21. Expenses from value adjustments and provisions for losses (384) (460) 22. Profit/(loss) before tax 387 530 23. Income tax (82) (100) 24. Current year profit/(loss) 305 430 25. Earnings per share HRK 83 HRK 117

Appendix to the Income Statement

2011 2010 Current year profit/(loss) 305 430 Distributable to the parent company shareholders 302 425 Minority participation 3 5

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

Consolidated Balance Sheet

2011 2010 HRK millions HRK millions Unaudited Unaudited Assets 1. Cash and deposits with CNB 4,956 4,611 1.1. Cash 515 454 1.2. Deposits with CNB 4,441 4,157 2. Deposits with banking institutions 1,520 2,392 3. Treasury bills of Ministry of Finance and treasury bills of CNB 981 741 4. Securities and other financial instruments held for trading 1,516 4,442 5. Securities and other financial instruments available for sale 140 118 6. Securities and other financial instruments held to maturity 736 729 7. Securities and other financial instruments that are not traded on active markets at fair value through profit and loss 1,249 480 8. Derivative financial assets 59 46 9. Loans to financial institutions 694 513 10. Loans to other clients 26,866 26,443 11. Investments in subsidiaries, affiliated companies and joint ventures   12. Repossessed assets 13 1 13. Tangible and intangible assets (minus depreciation and amortisation) 1,811 1,866 14. Interests, fees and other assets 992 748 A. Total assets 41,533 43,130 Liabilities and equity 1. Borrowings from financial institutions 2,213 2,953 1.1. Short-term borrowings 1,237 1,963 1.2. Long-term borrowings 976 990 2. Deposits 23,901 22,886 2.1. Deposits on giro-accounts and current accounts 4,832 4,044 2.2. Savings deposits 3,012 2,890 2.3. Term deposits 16,057 15,892 3. Other borrowings 7,349 9,020 3.1. Short-term borrowings 300 3,807 3.2. Long-term borrowings 7,049 5,213 4. Derivative financial liabilities and other trading financial liabilities 741 686 5. Issued debt securities  124 5.1. Issued short-term debt securities   5.2. Issued long-term debt securities  124 6. Issued subordinated instruments   7. Issued subordinated debt   8. Interests, fees and other liabilities 1,509 1,617 B. Total liabilities 35,713 37,226

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

Consolidated Balance Sheet (continued)

2011 2010 HRK millions HRK millions Unaudited Unaudited Equity 1. Share capital 3,633 3,701 2. Minority participation 77 89 3. Current year gain/loss 302 425 4. Retained earnings/(loss) 1,619 1,195 5. Legal reserves 178 178 6. Statutory and other capital reserves 1 302 7. Unrealised gain/(loss) from available for sale fair value adjustment 10 14 C. Total equity 5,820 5,904 D. Total liabilities and equity 41,533 43,130

Appendix to the Balance Sheet

2011 2010 Total equity 5,820 5,904 Equity distributable to parent company shareholders 5,743 5,815 Minority participation 77 89

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

Consolidated Cash Flow Statement

2011 2010 HRK millions HRK millions Unaudited Unaudited Operating activities 1.1. Gain/(loss) before tax 387 530 1.2. Value adjustments and provisions for losses 407 452 1.3. Depreciation and amortization 290 300 1.4. Net unrealised (gain)/loss from financial assets and liabilities at fair value through profit and loss 16 105 1.5. Gain/(loss) from tangible assets sale   1.6. Other (gains)/losses (348) (1,128) 1. Operating cash flow before operating assets movements 752 259 2.1. Deposits with CNB (247) 321 2.2. Treasury bills of Ministry of Finance and treasury bills of CNB (239) 620 2.3. Deposits with banking institutions and loans to financial institutions (187) (281) 2.4. Loans to other clients (307) (124) 2.5. Securities and other financial instruments held for trading 2,996 241 2.6. Securities and other financial instruments available for sale (20) (70) 2.7. Securities and other financial instruments that are not traded on active markets at fair value through profit and loss (769) 588 2.8. Other operating assets (74) 205 2. Net (increase)/decrease in operating assets 1,153 1,500 Increase/(decrease) in operating liabilities 3.1. Demand deposits 636 (65) 3.2. Savings and term deposits (159) 1,040 3.3. Derivative financial liabilities and other trading liabilities 55 520 3.4. Other liabilities 113 326 3. Net increase/(decrease) in operating liabilities 645 1,821 4. Net cash flow form operating activities before profit tax paying 2,550 3,580 5. Paid profit tax (264) (61) 6. Net inflows/(outflows) of cash from operating activities 2,286 3,519

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

Consolidated Cash Flow Statement (continued)

2011 2010 HRK millions HRK millions Unaudited Unaudited Investing activities 7.1. Receipts from sale/(payments for purchasing) tangible and intangible assets (244) (583) 7.2. Receipts from sale/(payments for buying) investments in subsidiaries, affiliated companies and joint ventures   7.3. Receipts from collection/(payments for buying) securities and other financial instruments held to maturity 6 164 7.4. Received dividends   7.5. Other receipts/(payments) form investment activities 191 114 7. Net cash flow from investing activities (47) (305) Financial activities 8.1. Net increase/(decrease) in borrowings (2,579) (2,025) 8.2. Net increase/(decrease) in issued debt securities (124) 5 8.3. Net increase/(decrease) in subordinated and subordinated debt   8.4. Receipts from issued share capital   8.5. (Dividends paid) (317) (158) 8.6. Other receipts/(payments) from financial activities (68)  8. Net cash flow from financial activities (3,088) (2,178) 9. Net increase/(decrease) in cash and cash equivalents (849) 1,036 10. Effects from foreign exchange rates changes on cash and cash equivalents 40 75 11. Net increase/(decrease) in cash and cash equivalents (809) 1,111 12. Cash and cash equivalents at the beginning of the year 4,579 3,468 13. Cash and cash equivalents at the end of the year 3,770 4,579

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

Consolidated Statement of Changes in Equity

Unrealised gain/losses from available Legal, Current for sale fi- Total statutory Retained year nancial assets Minority capital (All amounts in HRK million) Share Treasury and other earnings/ profit/ fair value participa- and Unaudited capital shares reserves (loss) loss adjustment tion reserves 1. Balance at 1 January 2011 3,711 (10) 480 1,620  14 89 5,904 2. Changes of Accounting policies and error corrections         3. Restated current year balance 3,711 (10) 480 1,620  14 89 5,904 4. Sale of financial assets available for sale         5. Fair value changes of financial assets available for sale         6. Tax on items directly recognised or transferred from capital and reserves         7. Other gains or losses directly recognised in capital and reserves         8. Net gains/losses directly recognised in capital and reserves         9. Current year gain/(loss)     302  3 305 10. Total income and expenses recognised for the current year     302  3 305 11. Increase/(decrease) in share capital (78) 10      (68) 12. Buying/(sale) of treasury shares         13. Other changes   (13) 13  (4)  (4) 14. Transfer to reserves   (288) 288     15. Dividends paid    (302)   (15) (317) 16. Distribution of profit (78) 10 (301) (1)  (4) (15) (389) 17. Balance at 31 December 2011 3,633  179 1,619 302 10 77 5,820

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

Consolidated Statement of Changes in Equity (continued)

Unrealised gain/losses from available Legal, Current for sale fi- Total statutory Retained year nancial assets Minority capital (All amounts in HRK million) Share Treasury and other earnings/ profit/ fair value participa- and Unaudited capital shares reserves (loss) loss adjustment tion reserves 1. Balance at 1 January 2010 3,711 (9) 552 1,277  7 88 5,626 2. Changes of Accounting policies and error corrections         3. Restated current year balance 3,711 (9) 552 1,277  7 88 5,626 4. Sale of financial assets available for sale         5. Fair value changes of financial assets available for sale         6. Tax on items directly recognised or transferred from capital and reserves         7. Other gains or losses directly recognised in capital and reserves         8. Net gains/losses directly recognised in capital and reserves         9. Current year gain/(loss)     425  5 430 10. Total income and expenses recognised for the current year     425  5 430 11. Increase/(decrease) in share capital        12. Buying/(sale) of treasury shares  (1)      (1) 13. Other changes   (73) 73  7  7 14. Transfer to reserves   1 (1)     15. Dividends paid    (154)   (4) (158) 16. Distribution of profit  (1) (72) (82)  7 (4) (152) 17. Balance at 31 December 2010 3,711 (10) 480 1,195 425 14 89 5,904

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

As data in financial statements prepared in accordance with the Croatian National Bank ("CNB") decision are classified differently from those in financial statements prepared according to the statutory accounting requirements for banks in Cro- atia the following tables present comparatives.

Comparatives for the income statement for years ended 31 December 2011 and 2010:

2011 2011 2011 2010 2010 2010 Accounting Accounting Croatian Require- Croatian Require- National ments National ments Bank for banks Bank for banks Decision in Croatia Difference Decision in Croatia Difference HRK millions HRK millions HRK millions HRK millions HRK millions HRK millions Interest and interest similar income 2,373 2,379 (6) 2,382 2,392 (10) Interest and interest similar expenses (1,043) (1,038) (5) (1,087) (1,082) (5) Net interest income 1,330 1,341 (11) 1,295 1,310 (15) Commission and fee income 587 587  568 568  Commission and fee expenses (135) (174) 39 (102) (127) 25 Net commission and fee income 452 413 39 466 441 25 Net trading gain (154) (64) (90) (743) 138 (881) Gain/(loss) from financial assets available for sale 1  1 2  2 Gain/(loss) from financial investments held to maturity (1)  (1)    Income from other equity investments 2  2 1  1 Net foreign exchange differences 101  101 896  896 Other operating income 405 391 14 581 568 13 Total other income 357 327 27 737 706 31 General and administrative expenses, depreciation and amortization (1,298) (1,287) 11 (1,464) (1,475) 11 Expenses from value adjustments and provisions for losses (384) (407) 23 (460) (398) (62) Other operating expenses (67)  (67) (44) (54) 10 Total other expenses (1,749) (1,694) (55) (1,968) (1,927) (41) Profit before tax 387 387  530 530  Income tax (82) (82)  (100) (100)  Net profit for the year 305 305  430 430  Earnings per share (in HRK) HRK 83 HRK 83  HRK 117 HRK 117 

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

• Interest and similar income is higher in the annual report prepared according to the accounting requirements for banks in Croatia by the amount of interest income of previously write offs. According to CNB methodology this income is repre- sented in value adjustments.

• According to CNB methodology net foreign exchange differences are classified in positions net interest income, net commission income and expenses from value adjustments. In annual report all foreign exchange differences are classified in net trading gain.

• In the income statement presented in accordance with statutory accounting requirements for banks in Croatia rechar- gable credit insurance costs increased the position fee and commissions expenses while according to CNB methodology those expenses are recognised as general and administrative expenses.

• In the income statement presented in accordance with statutory accounting requirements for banks in Croatia position provision for employee retirement, unused vacations and for court cases are recognised as impairment losses on provisi- ons for liabilities and charges while in CNB report they are part of other operating expenses.

• Expenses for donations, advertising, promotions and representations are also reclassified from other expenses to ad- ministrative expenses in the income statement presented in accordance with statutory accounting requirements for banks in Croatia.

• Income from other equity investments are recognized as other operating income in the annual report prepared accor- ding to the accoounting requirements for banks in Croatia.

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Appendix I (continued) Regulatory forms requested by the Croatian National Bank

Comparatives for the balance sheet at 31 December 2011 and 31 December 2010

2011 2011 2011 2010 2010 2010 Accounting Accounting Croatian Require- Croatian Require- National ments National ments Bank for banks Bank for banks Decision in Croatia Difference Decision in Croatia Difference HRK millions HRK millions HRK millions HRK millions HRK millions HRK millions Assets Cash and deposits with CNB 4,956 5,139 (183) 4,611 3,713 898 Treasury bills of Ministry of Finance and CNB 981  981 741  741 Financial assets at FVTPL 2,765 3,806 (1,041) 4,922 5,709 (787) Financial investments held to maturity 736 736  729 729  Placements with and loans to other banks 1,520 1,851 (331) 2,392 3,692 (1,300) Loans and receivables 27,560 27,049 511 26,956 26,556 400 Available for sale financial assets 140 140  118 118  Repossessed assets 13  13 1  1 PPE and intangible assets 1,811 1,798 13 1,866 1,852 14 Derivative financial assets 59  59 46  46 Deferred tax assets  206 (206)  189 (189) Other assets 992 459 533 748 451 297 Total assets 41,533 41,184 349 43,130 43,009 121 Liabilities Due to other banks and deposits from customers 33,463 33,573 (110) 34,859 35,150 (291) Long-term issued debt securities    124 124  Provisions for liabilities and charges  160 (160)  170 (170) Derivative financial liabilities and other trading financial liabilities 741 743 (2) 686 686  Other liabilities 1,509 888 621 1,557 975 582 Total liabilities 35,713 35,364 349 37,226 37,105 121 Subordinated debt       Equity Share capital 3,633 3,633  3,701 3,701  Net profit for the year 302 302  424 424  Retained earnings/(loss carried forward) 1,619 1,619  1,197 1,197  Hedging reserve       Unrealised gain/(loss) from available for sale fair value adjustment 10 10  14 14  Reserves 179 179  479 479  Total equity 5,743 5,743  5,815 5,815  Total liabilities and equity 41,456 41,377 349 43,041 42,920 121

160 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Financial Statements

Appendix I (continued) Regulatory forms requested by the Croatian National Bank

The difference in total assets and total liabilities of HRK 349 million as of 31 December 2011 (2010: HRK 121 millions) between the balance sheet presented according to the CNB decision and the balance sheet presented in accordance with statutory accounting requirements for banks in Croatia arises from deferred tax liabilities and also from portion of other participators in syndicated loans in the other assets or other liabilities presented in accordance with statutory accounting requirements for banks in Croatia.

• Cash and balances with the CNB  balances on accounts with other banks in the amount of HRK 102 million (2009: HRK 124 million) have been reclassified from placements with other banks.

• Financial assets at fair value through profit or loss  the difference in the amount of HRK 981 million relates to the Treasury bills of the Ministry of Finance (2010: HRK 741 million) and the difference of HRK 59 million (2010: HRK 46 million) relates to the fair value of derivatives.

• Loans and receivables  comprise loans and advances to credit institutions that have been reclassified to loans to other banks.

• Deferred tax assets have been presented in the balance sheet under the bank accounting requirements in Croatia as a separate line item, whereas in the balance sheet as per the CNB Decision they are included in other assets.

• Prepaid rents in the total amount of HRK 12 million (2010: HRK 13 million), repossessed assets in the amount od HRK 13 million and small inventory in the amount of HRK 1 million (2010: HRK 1 million) have been reclassified in the Annual Report in other assets.

• In the Annual Report, operating lease guarantee deposits in the amount of HRK 141 million (2010: HRK 146 million), restricted deposits in the amount of HRK 98 million (2010: HRK 133 million) and other liabilities (deposits on the escrow account, investments in equity instruments of domestic corporate issuers) in the amount of HRK 21 million (2010: HRK 71 million) have been reclassified from other liabilities (under the CNB methodology) into deposits from other banks and customers.

• Provisions for risks and charges are presented separately in the Annual Report. Under the CNB methodology, they are presented within other liabilities.

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 161 Supplementary Financial Statements

Supplementary financial statements expressed in EUR and USD

Supplementary financial statements of the Group and Bank are given only for illustration and not represent part of the audi- ted financial statements.

Statement of financial position and statement of comprehensive income reported in the audited financial statements, are translated into EUR and USD using the following exchange rates at each year end:

31 December 2011 31 December 2010 1 EUR = HRK 7.530420 1 EUR = HRK 7.385173 1 USD = HRK 5.819940 1 USD = HRK 5.568252

162 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Supplementary Financial Statements

Consolidated statement of financial position as of 31 December 2011

Group Group Group Group 2011 2011 2010 2010 Assets EUR millions USD millions EUR millions USD millions Cash and amounts due from banks 308 399 158 210 Obligatory reserve with the Croatian National Bank 374 484 345 457 Financial assets at fair value through profit or loss 506 654 773 1,025 Placements with and loans to other banks 246 318 500 663 Financial assets available for sale 19 24 16 21 Loans and advances to customers 3,592 4,648 3,596 4,769 Financial investments held to maturity 98 126 99 131 Property, plant and equipment 211 274 220 291 Intangible assets 27 35 31 42 Deferred tax assets 27 35 26 34 Other assets 61 79 60 81 Total assets 5,469 7,076 5,824 7,724

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 163 Supplementary Financial Statements

Consolidated statement of financial position as of 31 December 2011 (continued)

Group Group Group Group 2011 2011 2010 2010 Liabilities EUR millions USD millions EUR millions USD millions Financial liabilities at fair value through profit or loss 98 128 93 123 Deposits from banks 102 132 103 137 Deposits from companies and other similar entities 1,190 1,540 1,213 1,609 Deposits from individuals 1,897 2,454 1,822 2,417 Borrowings 1,270 1,643 1,621 2,150 Debt securities issued   17 22 Provisions for liabilities and charges 21 27 23 30 Current tax liability   11 14 Other liabilities 118 152 122 161 Total liabilities 4,696 6,076 5,025 6,663 Equity Share capital 481 622 501 664 Treasury shares   (1) (2) Share premium 2 2 2 3 Capital reserve     Legal reserve 24 31 24 32 Reserve for general banking risks   39 52 Treasury share reserve   1 2 Fair value reserve 1 2 2 3 Retained earnings 255 330 219 291 Total equity attributable to equity holders of the parent 763 987 787 1,045 Non controlling interest 10 13 12 16 Total equity 773 1,000 799 1,061

Total liabilities and equity 5,469 7,076 5,824 7,724

164 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Supplementary Financial Statements

Consolidated statement of comprehensive income for the year ended 31 December 2011

Group Group Group Group 2011 2011 2010 2010 EUR millions USD millions EUR millions USD millions Interest and similar income 316 409 324 429 Interest expense and similar charges (138) (178) (147) (194) Net interest income 178 231 177 235 Fee and commission income 78 101 77 102 Fee and commission expense (23) (30) (17) (23) Net fee and commission income 55 71 60 79 Net trading (expense)/income (8) (11) 19 25 Other operating income 52 67 77 102 Dealing and other income 44 56 96 127 Operating income 277 358 333 441 Operating expenses (171) (221) (200) (265) Impairment losses on loans and advances to customers and other assets (55) (72) (54) (71) Impairment gains/(losses) on provisions for liabilities and charges 1 2 (7) (10) Profit before tax 52 67 72 95 Income tax expense (11) (14) (14) (18) Profit for the year 41 53 58 77 Other comprehensive income Net value gain on available for sale financial instruments (1) (1) 1 1 Other comprehensive income for the year, net of tax (1) (1) 1 1 Total comprehensive income for the year 40 52 59 78 Profit attributable to:  Equity holders of the parent 40 52 57 76  Non controlling interest 1 1 1 1 Earnings per share attributable to the equity holders of the parent EUR 11 USD 14 EUR 16 USD 21

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 165 Supplementary Financial Statements

Unconsolidated statement of financial position as of 31 December 2011

Bank Bank Bank Bank 2011 2011 2010 2010 Assets EUR millions USD millions EUR millions USD millions Cash and amounts due from banks 308 399 156 207 Obligatory reserve with the Croatian National Bank 374 484 345 457 Financial assets at fair value through profit or loss 502 650 769 1,019 Placements with and loans to other banks 239 309 491 651 Financial assets available for sale 3 3 2 3 Loans and advances to customers 3,403 4,403 3,444 4,568 Financial investments held to maturity 80 104 80 106 Investments in subsidiaries 28 36 29 38 Property, plant and equipment 63 81 51 68 Intangible assets 27 34 31 41 Deferred tax assets 27 35 25 34 Other assets 54 70 50 67 Total assets 5,108 6,608 5,473 7,259

166 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Supplementary Financial Statements

Unconsolidated statement of financial position as of 31 December 2011 (continued)

Bank Bank Bank Bank 2011 2011 2010 2010 Liabilities EUR millions USD millions EUR millions USD millions Financial liabilities at fair value through profit or loss 99 128 93 124 Deposits from banks 102 132 103 137 Deposits from companies and other similar entities 1,204 1,558 1,267 1,681 Deposits from individuals 1,897 2,454 1,822 2,417 Borrowings 956 1,237 1,280 1,698 Debt securities issued   17 22 Provisions for liabilities and charges 20 25 22 29 Current tax liability   10 13 Other liabilities 82 106 91 120 Total liabilities 4,360 5,640 4,705 6,241 Equity Share capital 481 622 501 664 Treasury shares   (1) (2) Share premium 2 2 2 3 Capital reserve     Legal reserve 23 30 23 31 Reserve for general banking risks   39 52 Treasury shares reserve   1 2 Fair value reserve 2 3 2 2 Retained earnings 240 311 201 266 Total equity 748 968 768 1,018 Total liabilities and equity 5,108 6,608 5,473 7,259

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 167 Supplementary Financial Statements

Unconsolidated statement of comprehensive income for the year ended 31 December 2011

Bank Bank Bank Bank 2011 2011 2010 2010 EUR millions USD millions EUR millions USD millions Interest and similar income 300 389 306 406 Interest expense and similar charges (125) (162) (135) (179) Net interest income 175 227 171 227 Fee and commission income 63 81 62 82 Fee and commission expense (21) (28) (16) (21) Net fee and commission income 42 53 46 61 Net trading (expense)/income (8) (11) 17 23 Other operating income 16 21 10 13 Dealing and other income 8 10 27 36 Operating income 225 290 244 324 Operating expenses (119) (154) (125) (165) Impairment losses on loans and advances to customers and other assets (57) (73) (51) (68) Impairment gains/(losses) on provisions for liabilities and charges 2 3 (7) (10) Profit before tax 51 66 61 81 Income tax expense (7) (10) (10) (13) Profit for the year 44 56 51 68 Other comprehensive income Net value gain on available for sale financial instruments 1 1 1 1 Other comprehensive income for the year, net of tax 1 1 1 1 Total comprehensive income for the year 45 57 52 69

Earnings per share EUR 12 USD 15 EUR 14 USD 19

168 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts

Branch network in Croatia

Raiffeisenbank Austria Plc.

Head office Ilica 253 Trg Ivana Kukuljevića 9 Petrinjska 59 Phone: +385-1-5575 140 Phone: +385-1-5575 340 HR/10000 Zagreb Fax: +385-1-4604 993 Fax: +385-1-4604 886 Phone: +385-1-4566 466 Fax: +385-1-4811 624 Jurišićeva 9 Ulica grada Vukovara 37b Telex: 21137 Phone: +385-1-5575 160 Phone: +385-1-6324 000 S.W.I.F.T.: RZBH HR2X Fax: +385-1-4604 960 Fax: +385-1-6324 051 [email protected] www.rba.hr Lanište 26 Ulica grada Vukovara 37b Contact: Phone: +385-1-5575 200 RBA Stambeni centar Zdenka Vuksan, Fax: +385-1-5575 215 Phone: +385-1-6324 084 Secretary to the Board Fax: +385-1-6324 054 Magazinska 69 Phone: +385-1-6174 540 Vlaška 120 BRANCH NETWORK: Fax: +385-1-3035 333 Phone: +385-1-5575 370 Fax: +385-1-4604 931 ZAGREB Maksimirska 62 Avenija Dubrava 47 Phone: +385-1-5575 060 Vrapčanska 2b Phone: +385-1-5575 090 Fax: +385-1-4604 977 Phone: +385-1-5575 010 Fax: +385-1-4604 944 Fax: +385-1-4604 948 Pakoštanska 3a Dankovečka 1, Dubrava Phone: +385-1-6174 500 Phone: +385-1-5575 270 Fax: +385-1-4604 980 Fax: +385-1-4604 935 Petrinjska 59 Froudeova 11, Siget Phone: +385-1-4566 466 BJELOVAR Phone: +385-1-5575 300 Fax: +385-1-4566 481 Trg Eugena Kvaternika 9 Fax: +385-1-4604 856 43000 Bjelovar Prečko 22 Phone: +385-43-343 500 Garićgradska 13-15 Phone: +385-1-6174 520 Fax: +385-43-343 535 Phone: +385-1-5575 220 Fax: +385-1-4604 857 Fax: +385-1-4604 840 ČAKOVEC Radnička cesta 43 Trg Eugena Kvaternika 1 Gundulićeva 7 Phone: +385-1-6174 990 40000 Čakovec Phone: +385-1-5575 240 Fax: +385-1-4604 889 Phone: +385-40-640 600 Fax: +385-1-4604 848 Fax: +385-40-646 644 Samoborska 258 Heinzelova 40 Phone: +385-1-6174 560 DUBROVNIK Phone: +385-1-6174 760 Fax: +385-1-4604 828 Vukovarska 17 Fax: +385-1-4604 848 20000 Dubrovnik Ulica SR Njemačke 8 Phone: +385-20-320 500 Ilica 1a Phone: +385-1-6174 455 Fax: +385-20-320 546 Phone: +385-1-5575 070 Fax: +385-1-4604 937 Fax: +385-1-4604 992 ĐAKOVO Tratinska 58/60 Trg Franje Tuđmana 3 Ilica 216 Phone: +385-1-5575 050 31400 Đakovo Phone: +385-1-5575 260 Fax: +385-1-4604 974 Phone: +385-31-531 700 Fax: +385-1-4604 867 Fax: +385-31-531 715

170 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Branch network in Croatia

IVANIĆ GRAD OSIJEK Šmogorska 1 Savska 39 Kapucinska 34 51211 Matulji 10310 Ivanić Grad 31000 Osijek Phone: +385-51-851 400 Phone: +385-1-6174 925 Phone: +385-31-531 550 Fax: +385-51-851 425 Fax: +385-1-4604 879 Fax: +385-31-531 570 Ulica Matije Gupca 11 JASTREBARSKO Ulica Hrvatske Republike 14 51000 Rijeka Ulica Franje Tuđmana 43 31000 Osijek Phone: +385-51-851 500 10450 Jastrebarsko Phone: +385-31-531 500 Fax: +385-51-851 540 Phone: +385-1-6174 780 Fax: +385-31-531 535 Fax: +385-1-4604 855 Žabica 7 POREČ 51000 Rijeka KARLOVAC Karla Huguesa 4 Phone: +385-51-851 600 Trg Milana Sufflaya 1 52440 Poreč Fax: +385-51-851 635 47000 Karlovac Phone: +385-52-652 740 Phone: +385-47-547 500 Fax: +385-52-652 755 ROVINJ Fax: +385-47-547 540 Trg brodogradilišta bb POŽEGA 52210 Rovinj KOPRIVNICA Vukovarska 14 Phone: +385-52-652 700 Trg mladosti 16a 34000 Požega Fax: +385-52-652 715 48000 Koprivnica Phone: +385-34-434 500 Phone: +385-48-248 500 Fax: +385-34-434 520 SAMOBOR Fax: +385-48-248 530 Perkovčeva 36 PRELOG 10430 Samobor KUTINA Glavna ulica 26 Phone: +385-1-5575 550 Kralja Petra Krešimira IV 6 40323 Prelog Fax: +385-1-4604 972 44320 Kutina Phone: +385-40-640 500 Phone: +385-44-844 500 Fax: +385-40-640 525 SESVETE Fax: +385-44-844 527 Zagrebačka cesta 6 PULA 10360 Sesvete LUDBREG Ciscuttieva 1 Phone: +385-1-2051 910 Ulica kardinala Franje 52100 Pula Fax: +385-1-2051 935 Kuharića 14 Phone: +385-52-652 660 42230 Ludbreg Fax: +385-52-652 960 SISAK Phone: +385-42-242 700 Trg bana Josipa Jelačića 6 Fax: +385-42-242 710 43. istarske divizije 2 44000 Sisak 52100 Pula Phone: +385-44-844 550 MAKARSKA Phone: +385-52-652 600 Fax: +385-44-844 587 Trg Hrpina 5 Fax: +385-52-652 650 21300 Makarska SLAVONSKI BROD Phone: +385-21-521 200 RIJEKA Andrije Štampara 29 Fax: +385-21-521 220 Kvaternikova 30, Vežica 35000 Slavonski Brod 51000 Rijeka Phone: +385-35-235 100 METKOVIĆ Phone: +385-51-851 450 Fax: +385-35-235 120 Splitska 2 Fax: +385-51-851 465 20350 Metković Trg pobjede 7 Phone: +385-20-684 940 35000 Slavonski Brod Fax: +385-20-684 948 Phone: +385-35-235 050 Fax: +385-35-235 080

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 171 Branch network in Croatia

SPLIT VELIKA GORICA ZAPREŠIĆ Kvaternikova 32 Zagrebačka 44 Ante Starčevića 11a 21000 Split 10410 Velika Gorica 10290 Zaprešić Phone: +385-21-521 000 Phone: +385-1-5575 400 Phone: +385-1-5575 450 Fax: +385-21-521 030 Fax: +385-1-4604 953 Fax: +385-1-4604 930

Svačićeva 2-4 VINKOVCI ZELINA 21000 Split Trg dr. Franje Tuđmana 1 Bocakova 2d Phone: +385-21-521 040 32100 Vinkovci 10380 Zelina Fax: +385-21-521 056 Phone: +385-32-432 500 Phone: +385-1-5575 030 Fax: +385-32-432 535 Fax: +385-1-4604 956 Domovinskog rata 29b 21000 Split VIROVITICA Phone: +385-21-521 100 Ljudevita Gaja 2 Fax: +385-21-521 163 33000 Virovitica Phone: +385-33-833 500 Ulica Ruđera Boškovića 13 Fax: +385-33-833 530 21000 Split Phone: +385-21-521 060 VRBOVEC Fax: +385-21-521 090 Trg Petra Zrinskog 5a 10340 Vrbovec SVETA NEDELJA Phone: +385-1-6174 411 Dr. Franje Tuđmana 6 Fax: +385-1-4604 933 10431 Sveta Nedelja Phone: +385-1-6174 620 VUKOVAR Fax: +385-1-4604 829 Dr. Franje Tuđmana 12 32000 Vukovar ŠIBENIK Phone: +385-32-432 400 Trg Dražena Petrovića bb Fax: +385-32-432 425 22000 Šibenik Phone: +385-22-222 000 ZABOK Fax: +385-22-222 025 Matije Gupca 90 49210 Zabok UMAG Phone: +385-49-449 500 Obala Josipa Broza Tita 4 Fax: +385-49-449 520 52470 Umag Phone: +385-52-652 720 ZADAR Fax: +385-52-652 735 Ante Starčevića 5a 23000 Zadar VARAŽDIN Phone: +385-23-723 000 Franjevački trg 5 Fax: +385-23-723 030 42000 Varaždin Phone: +385-42-242 600 Ulica bana Josipa Jelačića 1 Fax: +385-42-242 650 23000 Zadar Phone: +385-23-723 100 Zagrebačka 13 Fax: +385-23-723 155 42000 Varaždin Phone: +385-42-242 520 Fax: +385-42-242 545

172 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Branch network in Croatia

RAIFFEISEN GROUP Raiffeisen Invest Ltd. IN CROATIA Palmotićeva 56 HR/10000 Zagreb Raiffeisen BONUS Ltd. Phone: +385-1-6003 700 Radnička cesta 43 Fax: +385-1-6112 767 HR/10000 Zagreb www.rbainvest.hr Phone: +385-1-6307-127 [email protected] Fax: +385-1- 6595-050 Raiffeisen Consulting Ltd. www.raiffeisen-bonus.hr Petrinjska 59 [email protected] HR/10000 Zagreb Phone: +385-1-6174 357 Raiffeisen Leasing Ltd. Phone: +385-1-6174 358 Radnička cesta 43 Fax: +385-1-4604 894 HR/10000 Zagreb www.limun.hr Phone: +385-1-6595 000 [email protected] Phone: +385-1-6595 010 Fax: +385-1-6595 050 Raiffeisen Factoring Ltd. www.rl-hr.hr Froudeova 11 [email protected] HR/10000 Zagreb Phone: +385-1-6174 900 Raiffeisen Mandatory Fax: +385-1-4604 877 Pension Fund Management www.raiffeisen-factoring.hr Company Plc. [email protected] Heinzelova 44 HR/10000 Zagreb Phone: +385-1-6003 900 ASSOCIATED MEMBERS Fax: +385-1-6003 927 OF RAIFFEISEN GROUP www.rmf.hr IN CROATIA [email protected] Raiffeisen Building Raiffeisen Voluntary Society Plc. Pension Funds Management Radnička cesta 47 Company Ltd. HR/10000 Zagreb Heinzelova 44 Phone: +385-1-6006 100 HR/10000 Zagreb Fax: +385-1-6006 199 Phone: +385-1-6003 900 www2.raiffeisenstambena.hr Fax: +385-1-6003 925 stambena.stednja@ www.mirovinaplus.hr raiffeisenstambena.hr [email protected] UNIQA Insurance Plc. Raiffeisen Pension Insurance Savska cesta 106 Company Ltd. HR/10000 Zagreb Heinzelova 44 Phone: +385-1-6324 200 HR/10000 Zagreb Fax: +385-1-6324 250 Phone: +385-1-6003 900 www.uniqa.hr Fax: +385-1-6003 925 [email protected] www.rmod.hr [email protected]

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 173 Addresses and contacts of RBI Group members

Addresses and contacts of Raiffeisen Bank International Group Members

Raiffeisen Bank Bulgaria Poland International AG Raiffeisenbank (Bulgaria) EAD Raiffeisen Bank Polska S.A. 18/20 Gogol Str. Ul. Pieækna 20 Austria 1504 Sofia 00549 Warsaw Am Stadtpark 9 Phone: +35929198 5101 Phone: +4822585 2001 1030 Vienna Fax: +3592943 4528 Fax: +4822585 2585 Phone: +43171707 0 SWIFT/BIC: RZBBBGSF SWIFT/BIC: RCBWPLPW Fax: +43171707 1715 www.rbb.bg www.raiffeisen.pl www.rbinternational.com [email protected] Croatia Romania rbi[email protected] Raiffeisenbank Austria d.d. Raiffeisen Bank S.A. Petrinjska 59 15 Charles de Gualle Square 10000 Zagreb 011857 Bucharest 1 Phone: +3851456 6466 Phone: +4021306 1000 Banking network Fax: +3851481 1624 Fax: +4021230 0700 SWIFT/BIC: RZBHHR2X SWIFT/BIC: RZBRROBU Albania www.rba.hr www.raiffeisen.ro Raiffeisen Bank Sh.a. “European Trade Center” Czech Republic Russia Bulevardi "Bajram Curri" Raiffeisenbank a.s. ZAO Raiffeisenbank Tirana Hvezdova 1716/2b SmolenskayaSennaya Sq. 28 Phone: +3554238 1000 14078 Prague 4 119020 Moscow Fax: +35542275 5599 Phone: +420221141 111 Phone: +7495721 9900 SWIFT/BIC: SGSBALTX Fax: +420221142 111 Fax: +7495721 9901 www.raiffeisen.al SWIFT/BIC: RZBCCZPP SWIFT/BIC: RZBMRUMM www.rb.cz www.raiffeisen.ru Belarus Priorbank JSC Hungary Serbia 31-A, V. Khoruzhey Str. Raiffeisen Bank Zrt. Raiffeisen banka a.d. 220002 Minsk Akadémia utca 6 Bulevar Zorana Djindjića 64a Phone: +37517289 9090 1054 Budapest 11070 Novi Beograd Fax: +37517289 9191 Phone: +361484 4400 Phone: +38111320 2100 SWIFT/BIC: PJCBBY2X Fax: +361484 4444 Fax: +38111220 7080 www.priorbank.by SWIFT/BIC: UBRTHUHB SWIFT/BIC: RZBSRSBG www.raiffeisen.hu www.raiffeisenbank.rs Bosnia and Herzegovina Kosovo Slovakia Raiffeisen BANK d.d. Bosna i Raiffeisen Bank Kosovo J.S.C. Tatra banka, a.s. Hercegovina Rruga UÇK, Str. No. 51 Hodžovo námestie 3 Zmaja od Bosne bb 10000 Pristina 81106 Bratislava 71000 Sarajevo Phone: +38138222 222 Phone: +42125919 1111 Phone: +38733287 101 Fax: +381382030 1130 Fax: +42125919 1110 Fax: +38733213 851 SWIFT/BIC: RBKORS22 SWIFT/BIC: TATRSKBX SWIFT/BIC: RZBABA2S www.raiffeisenkosovo.com www.tatrabanka.sk www.raiffeisenbank.ba

174 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Addresses and contacts of RBI Group members

Slovenia Bosnia and Kazakhstan Raiffeisen Banka d.d. Herzegovina Raiffeisen Leasing Kazakhstan Zagrebeška cesta 76 Raiffeisen Leasing d.o.o. LLP 2000 Maribor Sarajevo Shevchenko St. 146, No. 12 Phone: +3862229 3100 Zmaja od Bosne 11 050008 Almaty Fax: +3862303 442 71000 Sarajevo Phone: +77273785 430 SWIFT/BIC: KREKSI22 Phone: +38733254 354 Fax: +77273785 447 www.raiffeisen.si Fax: +38733212 273 www.rlkz.kz www.rlbh.ba Ukraine Kosovo Raiffeisen Bank Aval JSC Bulgaria Raiffeisen Leasing Kosovo 9, Leskova Street Raiffeisen Leasing Bulgaria OOD Gazmend Zajmi n.n., Sunny 01011 Kiev Mladost 4, Business Park Hill Phone: +38044490 8888 Sofia 10000 Pristina Fax: +38044285 3231 Building 7B, 4th floor Phone: +38138222 222 SWIFT/BIC: AVALUAUK 1504 Sofia Fax: +38138203 03011 www.aval.ua Phone: +3592491 9191 www.raiffeisen-leasing-ks.com Fax: +3592974 2057 www.rlbg.bg Moldova Leasing companies I.C.S. Raiffeisen Leasing S.R.L. Croatia Alexandru cel Bun 51 Austria Raiffeisen Leasing d.o.o. 2012 Chisi n aπ u RaiffeisenLeasing Radnicka cesta 43 Phone: +373222793 13 International GmbH 10000 Zagreb Fax: +373222283 81 Am Stadtpark 3 Phone: +38516595 000 www.raiffeisenleasing.md 1030 Vienna Fax: +38516595 050 Phone: +43171707 2966 www.rlhr.hr Poland Fax: +43171707 762966 RaiffeisenLeasing Polska S.A. www.rli.co.at Czech Republic Ul. Prosta 51 RaiffeisenLeasing s.r.o. 00838 Warsaw Albania Hvezdova 1716/2b Phone: +4822326 36 66 Raiffeisen Leasing Sh.a. 14078 Prague 4 Fax: +48223263 601 “European Trade Center” Phone: +4202215116 11 www.rl.com.pl Bulevardi “Bajram Curri” Fax: +4202215116 66 Tirana www.rl.cz Romania Phone: +355-4-2274 920 Raiffeisen Leasing IFN S.A. Fax: +355-4-2232 524 Hungary Nusco Tower www.raiffeisen.al Raiffeisen Lízing Zrt. Sos Pipera Nr. 42, Etaj 1A Hungaria krt. 4044 020112 Bucharest Belarus 1087 Budapest Phone: +4021306 9696 JLLC “Raiffeisen-leasing” Phone: +361298 8000 Fax: +4037287 9988 31-A, V. Khoruzhey Str. Fax: +361298 8010 www.raiffeisenleasing.ro 220002 Minsk www.raiffeisenlizing.hu Phone: +37517289 9394 Fax: +37517289 9394 www.priorbank.by

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 175 Addresses and contacts of RBI Group members

Russia Real estate UK OOO Raiffeisen-Leasing leasing companies Stanislavskogo St. 21/1 RBI London Branch 109004 Moscow Czech Republic 10, King William Street Phone: +7495721 9980 Raiffeisen Leasing Real Estate s.r.o. London EC4N 7TW Fax: +7495721 9901 Hvezdova 1716/2b Phone: +44207929 2288 www.raiffeisen-leasing.ru 14078 Prague 4 Fax: +44207933 8099 Phone: +4202215116 10 Serbia Fax: +4202215116 41 Sweden Raiffeisen Leasing d.o.o. www.rlre.cz Milutina Milankovića 134a RBI Representative 11000 Novi Beograd Office Nordic Countries Phone: +3811120177 00 Branches and Drottninggatan 89 Fax: +3811131300 81 representative P.O. Box 3294 www.raiffeisenleasing.rs 10365 Stockholm offices  Europe Phone: +468440 5086 Slovakia Fax: +468440 5089 Tatra Leasing s.r.o. Germany Hodžovo námestie 3 81106 Bratislava RBI Representative Branches and Phone: +42125919 3168 Office Frankfurt representative offices Fax: +42125919 3048 Mainzer Landstraße 51 www.tatraleasing.sk 60329 Frankfurt  Asia and America Phone: +49692992 1918 Slovenia Fax: +49692992 1922 China Raiffeisen Leasing d.o.o. Bleweisova cesta 30 France RBI Beijing Branch 1000 Ljubljana Beijing International Club 200 Phone: +3861241 6250 RBI Representative 2nd floor Fax: +3861241 6268 Office Paris Jianguomenwai Dajie 21 www.rl-sl.si 911, Avenue Franklin D. 100020 Beijing Roosevelt Phone: +8610653 23388 Ukraine 75008 Paris Fax: +8610653 25926 LLC Raiffeisen Leasing Aval Phone: +3314561 2700 9, Moskovskiy Av. Fax: +3314561 1606 RBI Representative Corp. 5 Office 101 Office Hong Kong 04073 Kiev Malta Unit 210608, 21st Floor, Phone: +38044590 2490 Tower One, Lippo Centre Fax: + 38044200 0408 Raiffeisen Malta Bank 89 Queensway, Hong Kong www.rla.com.ua plc Phone: +8522730 2112 52 “Il Piazzetta” Tower Road Fax: +8522730 6028 Sliema SLM 1607 Phone: +356-2260 0000 Fax: +356-2132 0954

176 www.rba.hr Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts Addresses and contacts of RBI Group members

RBI Representative Singapore Selected Raiffeisen Office Xiamen specialist companies Unit 0102, RBI Singapore Branch 32/F Zhongmin Building One Raffles Quay F.J. Elsner Trading No. 72 Hubin North Road #3801 North Tower GmbH Fujian Province Singapore 048583 Am Heumarkt 10 301012 Xiamen Phone: +656305 6000 1030 Vienna Phone: +865922623 988 Fax: +656305 6001 Telefon: +431797 36 0 Fax: +865922623 998 Fax: +431797 36 230 USA www.elsner.at India RB International Finance (USA) LLC Kathrein Privatbank RBI Representative 1133, Avenue of the Aktiengesellschaft Office Mumbai Americas, 16th Floor Wipplingerstraße 25 803, Peninsula Heights 10036 New York 1010 Vienna C.D. Barfiwala Road, Phone: +01212845 4100 Phone: +43153 451 239 Andhere (W) Fax: +01212944 2093 Fax: +43153 451 233 400 058 Mumbai www.kathrein.at Phone: +91222623 0657 RBI Representative Fax: +91222624 4529 Office New York Raiffeisen Centro Bank 1133 Avenue of the Americas, AG Korea 16th Floor Tegetthoffstraße 1 10036 New York 1050 Vienna RBI Representative Phone: +01212593 7593 Phone: +431515 20 0 Office Korea Fax: +01212593 9870 Fax: +431513 43 96 Leema Building, 8th floor www.rcb.at 1461 Soosongdong Vietnam Chongroku Raiffeisen Investment Seoul 110755 RBI Representative Aktiengesellschaft Phone: +822398 5840 Office Ho Chi Minh City Krugerstraße 13 Fax: +822398 5807 6 Phung Khac Khoan Street, 1015 Vienna Room G6 Phone: +431710 5400 0 Malaysia District 1, Ho Chi Minh City Fax: +431710 5400 169 Phone: +8483829 7934 www.raiffeisen-investment. RBI Labuan Branch Fax: +8483822 1318 com Suite No. 28.02, Level 28 Johor Bahru City Square Raiffeisen ZUNO BANK AG Office Tower Zentralbank AG Am Stadtpark 3 106-108 Jalan Wong Ah Fook 1030 Vienna 80000 Johor Bahru Phone: +43171707 2691 Phone: +607291 3800 Austria Fax: +43171707 762691 Fax: +607291 3801 Am Stadtpark 9 www.zuno.eu 1030 Vienna Phone: +43171707 0 Fax: +43171707 1715 www.rzb.at

Introduction 2011 Business Developments RBI Group Financial Statements Suplementary Financial Statements Contacts www.rba.hr 177 Impressum

ISSN: 13347756 PUBLISHER: Raiffeisenbank Austria d.d. Zagreb

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