2019 Annual Report 2019 Annual Report Content

2019 Annual Report 2019 Annual Report Content: Key Financial Indicators 7 Letter from the Chairman of the Board of Directors 8 Foreword by the President of the Executive Board 10 Macroeconomic Environment and the Banking Sector 12 Highlights of the Bank’s Strategy and Planned Development 22 Retail Banking 26 Corporate Banking 32 Asset Management and Investment Banking 36 Corporate Social Responsibility 40 Risk Management System 46 Events after the Reporting Period 54 Financial Report 56 Organisational Chart 204 Branch Network 206 Banca Intesa - 2019 Annual Report Key Financial Indicators RSD thousands Banca Intesa Beograd 2019 2018 Income Statement Net interest income 20,500,555 20,487,856 Net fee and commission income 7,691,852 7,191,558 Profit before tax 13,938,435 13,234,169 Income tax (1,587,375) (1,073,267) Net profit from deferred tax assets and liabilities (21,601) 443,208 Profit after tax 12,329,459 12,604,110 Balance Sheet Cash and balances with Central Bank 97,392,634 86,962,607 Non-current assets held for sale and discontinued operations 38,301 143,015 Securities and receivables from derivatives 108,369,638 93,204,324 Loans and receivables from banks, other financial organisations and customers 425,076,129 372,788,378 Investments in subsidiaries 1,199,472 1,199,472 Intangible assets, property, plants and equipment and investment property 15,302,768 11,756,960 Other assets, current and deferred tax assets 5,251,950 5,020,423 Total assets 652,630,892 571,075,179 Financial liabilities based on derivatives 7,869 21,497 Deposits and other liabilities due to banks, other financial organisations, Central Bank and other customers 538,672,810 455,921,978 Provisions 861,164 1,801,197 Other liabilities and deferred tax liabilities 13,021,982 6,729,321 Total liabilities 552,563,825 464,473,993 Equity 100,067,067 106,601,186 Total liabilities and equity 652,630,892 571,075,179 Indicators Profit before tax/ Total assets 2.14% 2.32% Profit before tax / Total equity 13.93% 12.41% Interest income / Total assets 3.49% 4.09% Interest expenses / Total liabilities 0.35% 0.50% Capital adequacy ratio 21.23% 19.76% Total assets per employee 212,376 190,676 Number of employees 3,073 2,995 7 Banca Intesa - 2019 Annual Report performance across all major metrics, Banca Intesa’s Letter from the Chairman of the Board of Directors net profit before income tax rose 5.3% year-on-year to 13.9 billion dinars in 2019. This success was achieved owing to the hard work and strong commitment of bank employees, guided by the Executive Board and the Board of Directors, who I would like to thank for their continued dedication on the biggest development endeavor in its history, and contribution to overall Group objectives. I am seeking to upgrade its core banking system. I am confident that Banca Intesa, with stable support from proud that the bank successfully completed a project Intesa Sanpaolo, will continue to play a central role in of such complexity and magnitude, putting in place the changing landscape of the Serbian banking sector an advanced operating ecosystem that will support in the years to come, providing a strong contribution its business ambitions and place it firmly on the path to the expected further expansion of the domestic of sustainable growth. economy and helping improve the wellbeing of households and community in general. IT system upgrade will enable Banca Intesa to improve efficiency and bolster competitiveness by creating Sincerely, foundations for developing modern products and Ignacio Jaquotot, advanced services driven by digital technologies. Moreover, the project has confirmed Intesa Sanpaolo’s long-term commitment to developing its business in the Serbian market and will provide the Group with valuable experience on how to continue with the implementation of its IT platform standard across the globe. I am pleased that during my first year as Chairman of the Board of Directors Chairman of Banca Intesa Board of Directors I am able to witness such exciting times for the bank. Ladies and gentlemen, Even though Banca Intesa was predominantly focused Looking at the year behind us, it is evident that global on IT platform modernization last year, it nonetheless economic activity continued its slowdown on the back remained dedicated to maintaining the trend of of rising trade protectionism and geopolitical tensions strong business and financial performance. Owing to that have also impacted future growth prospects. the constant improvement of product offering and service quality, along with a stronger digital presence Uncertainty surrounding global value chains and and implementation of the new branch network international cooperation has led to shaken business service model, the bank kept its leading market confidence, placing a strain on trade growth, capital position in Serbia by all key performance indicators, flows and investment. Amid such an environment, commanding nearly 16% of the market in total assets central banks across the globe have taken a more and total loans, 15% in total capital and close to 17% accommodative stance, with a wave of global in total customer deposits at the end of the third monetary easing helping mitigate adverse effects on quarter. The bank boosted overall lending in 2019, financial markets, while fostering growth through supporting the country’s economic expansion and diminished costs of funding. helping households improve their quality of living. At the same time, it lifted its customer deposit base, Against such a challenging international background, reflecting the strong level of confidence that Serbian Serbia recorded solid economic performance, driven businesses and citizens place in Banca Intesa. by a rise in consumption and public investments, as well as a record-high inflow of foreign direct The bank maintained its sound business model, investments. Owing to maintained fiscal discipline with a low risk profile and high liquidity and capital and continued public investment programs, positions, as reflected in a loan-to-deposit ratio of monetary policy easing of the National Bank of 79.2% at the end of 2019 and a capital adequacy ratio Serbia and ongoing reformatory processes, the of 21.2% at the end of the third quarter. Furthermore, external and internal economic imbalances narrowed, it continued to strengthen operational efficiency, strengthening Serbia’s growth potential for the years reducing the cost-to-income ratio to 46.5% in 2019. to come. At the same time, further advancement of the loan approval system in combination with proactive Understanding that improved technological capability loan management paved the way for a slowdown will further strengthen its capacity to support the in NPL inflow, while efficient workout resulted in a expected economic expansion Banca Intesa embarked further reduction of the NPL level. Based on the good 8 9 Banca Intesa - 2019 Annual Report on the national level and were also recognized as a Foreword by the President of the Executive Board gender sensitive company. In addition, we continued to improve internal regulatory framework in line with international CSR standards, further strengthened our corporate volunteering culture and allocated substantial funds for cultural heritage preservation and promotion of culture, as well as for the work of welfare and educational institutions. In such circumstances, the central bank continued to lower its key policy rate, which was cut to its Looking back at what we accomplished in 2019, I all-time low in the regime of targeted inflation. would like to thank all bank employees for displaying The NBS monetary policy easing allowed banks to exceptional commitment and teamwork and providing keep lowering active interest rates in a move that crucial contribution to achieving the goals set out helped further boost lending activity in the domestic in our business strategy. I would particularly like to market. Retail lending on market level went up 9.3% extend my gratitude to our customers, shareholders in December compared to end-2018, predominantly and members of the Board of Directors for their fueled by cash and housing loans, while corporate trust and strong support in laying the foundation for lending rose 9.1%. In the same period, overall deposits developing a modern, agile and efficient bank that is of the banking sector picked up 8.5% on the back keeping pace with the challenges of the technological of a high level in customer confidence, while the NPL revolution and the needs of its customers. level fell to record-low 4.58% in November, further strengthening the stability of the market. Respectfully, Draginja Đurić, For Banca Intesa, 2019 was a year of big accomplishments. In keeping with the requirements of the digital era and the needs of our customers, we completed the Constellation Serbia project, which President of the Executive Board marked the start of a new stage in the development Dear readers, of the bank and laid a foundation for building a sustainable business model. The migration to a new IT In the retrospective of Banca Intesa operations, 2019 platform has cleared the way for further development will, no doubt, be remembered as the year in which through improved quality of products and services, we completed one of the biggest developmental and better market agility and higher operational efficiency, investment endeavors of the bank and put in place which will enable us to be even more attentive to the preconditions for sustainable growth in the future. needs of our customers. Despite the fact that we channeled substantial Improved offering, digitalization of services and resources towards upgrading our IT platform and further expansion of the new service model in the operated in conditions of market consolidation, branch network allowed Banca Intesa to post a 11.0% strengthening competition and new regulatory increase in lending to private individuals in December requirements, we managed to record excellent compared to end-2018, which was led by outstanding business results and reaffirm our leading market results in housing loans.

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