AIK BANKA A.D., NIŠ
Financial Statements Year Ended December 31, 2014 and Independent Auditors’ Report
Translation of the Auditors’ Report issued in the Serbian language
AIK BANKA A.D., NIŠ
CONTENTS
Page
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Income Statement 3
Statement of Other Comprehensive Income 4
Statement of Changes in Equity 5
Statement of Cash Flows 6
Notes to the Financial Statements 7 - 94
Appendix: Annual Business Report
Translation of the Auditors’ Report issued in the Serbian language
Translation of the Auditors’ Report issued in the Serbian language
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Owners of AIK banka A.D., Niš
We have audited the accompanying financial statements of AIK banka A.D., Niš ((hereinafter: the “Bank”), enclosed on pages 2 to 94, which comprise the balance sheet as of December 31, 2014 and the related income statement, statement of other comprehensive income, statement of changes in equity and statement of 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 these financial statements in accordance with the International Financial Reporting Standards as per the Law on Accounting of the Republic of Serbia and regulations of the National Bank of Serbia governing financial reporting of banks, as well as for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and the Law on Audit of the Republic of Serbia. 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 Bank’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 internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness 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.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as at December 31, 2014, and its financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards as per the Law on Accounting of the Republic of Serbia and regulations of the National Bank of Serbia governing financial reporting of banks.
Report on Other Legal and Regulatory Requirements
Management of the Bank is responsible for the preparation of the annual business report in accordance with the requirements of the Law on Accounting of the Republic of Serbia. In accordance with the Law on Audit of the Republic of Serbia and Decision on Amendments and Supplements to the Decision on External Audit of Banks, it is our responsibility to express an opinion on the compliance of the Bank's annual business report for the year 2014 with the audited financial statements for the same financial year. In our opinion, the financial information disclosed in the annual business report for 2014 is consistent with the Bank's audited financial statements for the year ended December 31, 2014.
Belgrade, April 15, 2015 Nada Suđić Certified Auditor
AIK BANKA A.D., NIŠ
BALANCE SHEET As of December 31, 2014 (Thousands of RSD)
Note 2014 2013 2012 (Restated) ASSETS Cash and cash funds held with the central bank 20 27,320,656 22,439,278 37,141,632 Pledged financial assets 21 2,409,154 - - Financial assets at fair value through profit and loss, held for trading 22 - 2,714 21,689 Financial assets available for sale 23 41,668,406 28,523,155 - Financial assets held to maturity 24 510,331 2,991,546 27,868,417 Loans and receivables due from banks and other financial institutions 25 12,399,507 12,032,676 5,497,957 Loans and receivables due from customers 26 74,738,626 71,151,336 70,286,050 Intangible assets 27 194,488 128,783 66,740 Property, plant and equipment 28 956,288 1,070,778 1,047,321 Investment property 29 9,905,590 8,827,511 8,528,607 Current tax assets 31 498,938 522,882 - Deferred tax assets 32 81,695 250,338 - Non-current assets held for sale and assets from discontinued operations 30 56,279 - - Other assets 33 2,561,312 4,050,034 3,615,957
TOTAL ASSETS 173,301,270 151,991,031 154,074,370
LIABILITIES AND EQUITY Financial assets at fair value through profit and loss, held for trading 34 - 110 - Deposits and other liabilities due to banks, other financial institutions and the central bank 35 6,700,390 1,434,452 4,631,935 Deposits and other liabilities due to customers 36 111,848,977 97,424,448 97,134,221 Provisions 37 722,532 733,558 696,761 Current tax liabilities 38 - 179,228 103,645 Deferred tax liabilities 32 - 80,271 16,151 Other liabilities 39 877,168 981,530 1,330,137 TOTAL LIABILITIES 120,149,067 100,833,597 103,912,850
EQUITY 40 Issued (share) capital 26,920,470 26,920,470 26,517,651 Profit 1,818,028 1,229,005 3,641,848 Loss (336,262) (336,262) (100,493) Reserves 24,749,967 23,344,221 20,102,514 TOTAL EQUITY 53,152,203 51,157,434 50,161,520
TOTAL LIABILITIES AND EQUITY 173,301,270 151,991,031 154,074,370
Notes on the following pages form an integral part of these financial statements.
These financial statements were adopted by the Board of Directors of AIK banka A.D., Niš on February 27, 2015 and submitted to the Serbian Business registers Agency on March 19, 2015.
Signed on behalf of AIK banka A.D., Niš by:
Dostinja Mentov Jelena Galić Head of Accounting and Reporting Executive Board Chairperson since March 27, 2015
Siniša Mihajlović Executive Board Member
2 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ
INCOME STATEMENT Year Ended December 31, 2014 (Thousands of RSD)
Note 2014 2013 (Restated)
Interest income 8 10,403,936 11,837,198 Interest expenses 8 (3,679,497) (5,087,782)
Net interest income 6,724,439 6,749,416
Fee and commission income 9 974,655 776,821 Fee and commission expenses 9 (156,381) (132,390)
Net fee and commission income 818,274 644,431
Net losses on the financial assets held for trading 10 (2,714) (6,217) Net gains on risk hedges 11 4,130 14,721 Net gains on the financial assets available for sale 12 1,157 - Net foreign exchange gains and positive currency clause effects 13 282,224 313,840 Other operating income 14 591,785 1,787,369 Net losses from impairment of financial assets and credit risk-weighted off-balance sheet assets 15 (3,114,667) (4,008,760) Total operating income 5,304,628 5,494,800
Staff costs 16 (1,142,786) (828,630) Depreciation and amortization charge 17 (170,158) (264,391) Other expenses 18 (2,105,119) (3,532,494)
Profit before taxes 1,886,565 869,285
Current income tax expense 19 (11,377) (100,781) Deferred tax benefits 19 - 250,338 Deferred tax expenses 19 (57,160) (25,606)
Net profit for the year 1,818,028 993,236
Earnings per share Basic earnings per share 184 94 Diluted earnings per share - -
Notes on the following pages form an integral part of these financial statements.
These financial statements were adopted by the Board of Directors of AIK banka A.D., Niš on February 27, 2015 and submitted to the Serbian Business registers Agency on March 19, 2015.
Signed on behalf of AIK banka A.D., Niš by:
Dostinja Mentov Jelena Galić Head of Accounting and Reporting Executive Board Chairperson since March 27, 2015
Siniša Mihajlović Executive Board Member
3 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ
STATEMENT OF OTHER COMPREHENSIVE INCOME Year Ended December 31, 2014 (Thousands of RSD)
Note 2014 2013 (Restated)
Profit for the year 1,818,028 993,236
Other comprehensive income Actuarial gains (474) - Positive effects of changes in fair value of financial assets available for sale 196,490 271,974 Unrealized gains/(losses) on securities available for sale 11,938 (16,029) Income tax expense in respect of the other comprehensive income (31,213) (38,513) Other comprehensive income, net of taxes 176,741 217,432
Total positive other comprehensive income for the year 1,994,769 1,210,668
Notes on the following pages form an integral part of these financial statements.
These financial statements were adopted by the Board of Directors of AIK banka A.D., Niš on February 27, 2015 and submitted to the Serbian Business registers Agency on March 19, 2015.
Signed on behalf of AIK banka A.D., Niš by:
Dostinja Mentov Jelena Galić Head of Accounting and Reporting Executive Board Chairperson since March 27, 2015
Siniša Mihajlović Executive Board Member
4 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ
STATEMENT OF CHANGES IN EQUITY Year Ended December 31, 2014 (Thousands of RSD) Reserves from Profit Issued and Share and Other Revaluation Other Capital Premium Reserves Reserves Profit Loss Total
Balance at January 1, 2013 19,359,727 7,157,924 20,100,870 1,644 3,641,848 - 50,262,013 Adjustment of material errors and changes to the accounting policies in the previous year (Note 2.5.3.) - - - - - (100,493) (100,493) Balance at January 1, 2013 (restated) 19,359,727 7,157,924 20,100,870 1,644 3,641,848 (100,493) 50,161,520 Total comprehensive income for the year Profit for the year - - - - 1,229,005 - 1,229,005 Profit distribution 402,819 - 3,024,275 - (3,427,094) - - 402,819 - 3,024,275 (2,198,089) 1,229,005 Adjustment of material errors and changes to the accounting policies in the previous year (Note 2.5.3.) - - - - - (235,769) (235,769) 402,819 - 3,024,275 - (2,198,089) (235,769) 993,236 Other comprehensive income, net of taxes - - - 217,432 - - 217,432
Total comprehensive income for the year (restated) 402,819 - 3,024,275 217,432 (2,198,089) (235,769) 1,210,668 Transactions with the owners recorded within equity Dividend payment to the shareholders - - - - (214,754) - (214,754) Balance at December 31, 2013 19,762,546 7,157,924 23,125,145 219,076 1,229,005 (336,262) 51,157,434 Total comprehensive income for the year Profit for the year - - - - 1,818,028 - 1,818,028 Profit distribution - - 1,229,005 - (1,229,005) - - - - 1,229,005 - 589,023 - 1,818,028 Other comprehensive income, net of taxes - - - 176,741 - - 176,741 - - 1,229,005 176,741 589,023 - 1,994,769 Balance at December 31, 2014 19,762,546 7,157,924 24,354,150 395,817 1,818,028 (336,262) 53,152,203
Notes on the following pages form an integral part of these financial statements.
These financial statements were adopted by the Board of Directors of AIK banka A.D., Niš on February 27, 2015. Signed on behalf of AIK banka A.D., Niš by:
Dostinja Mentov Jelena Galić Head of Accounting and Reporting Executive Board Chairperson since March 27, 2015
Siniša Mihajlović Executive Board Member
5 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ
STATEMENT OF CASH FLOWS Year Ended December 31, 2014 (Thousands of RSD) 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated by operating activities 9,830,001 9,795,291 Interest receipts 8,452,961 8,456,376 Fee and commission receipts 939,736 793,663 Receipts of other operating income 437,285 545,245 Dividend and profit sharing receipts 19 7
Cash used in operating activities (7,990,669) (7,215,809) Interest payments (4,661,906) (4,362,668) Fee and commission payments (152,508) (133,223) Payments to, and on behalf of employees (1,160,269) (719,194) Taxes, contributions and other duties paid (242,472) (379,213) Payments for other operating expenses (1,773,514) (1,621,511) Net cash inflows from operating activities prior to increases/decreases in loans and deposits and other liabilities 1,839,332 2,579,482 Decrease in loans and increase in deposits received and other liabilities 23,808,554 9,038,218 Decrease in loans and receivables due from banks, other financial institutions, the central bank and customers 6,304,963 4,697,089 Decrease in financial assets initially recognized at fair value through profit and loss, financial assets held for trading and other securities not held for investments 3,566,641 4,341,129 Increase in deposits and other liabilities due to banks, other financial institutions, the central bank and customers 13,936,950 -
Increase in loans and decrease in deposits received and other liabilities - (1,831,897) Decrease in deposits and other liabilities due to banks, other financial institutions, the central bank and customers - (1,831,897) Net cash generated by operating activities before income taxes 25,647,886 9,785,803 Income taxes paid (166,661) (548,081) Dividend payments (2,343) (140,749) Net cash generated by operating activities 25,478,882 9,096,973
CASH FLOWS FROM INVESTING ACTIVITIES Cash generated by investing activities 17,079,811 10,918,715 Proceeds from investments in investment securities 16,986,575 10,916,586 Proceeds from the sales of intangible assets, property, plant and equipment 1,002 2,129 Proceeds from the sales of investment property 92,234 -
Cash used in investing activities (31,444,364) (18,615,052) Cash used for investments in investment securities (31,183,030) (18,342,404) Cash used for the purchases of intangible assets, property, plant and equipment (252,120) (268,268) Cash used for the purchases of investment property (9,214) (4,380) Net cash used in investing activities (14,364,553) (7,696,337)
CASH FLOWS FROM FINANCING ACTIVITIES Cash generated by financing activities 1,804,173 - Borrowings, inflows 1,804,173 - Cash used in financing activities - (2,054,366) Borrowings, outflows - (2,054,366) Net cash generated by/(used in) financing activities 1,804,173 (2,054,366)
TOTAL CASH INFLOWS 52,522,539 29,752,224 TOTAL CASH OUTFLOWS (39,604,037) (30,405,954) NET CASH INCREASE/(DECREASE) 12,918,502 (653,730)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,670,313 11,916,844 FOREIGN EXCHANGE GAINS 731,405 834,200 FOREIGN EXCHANGE LOSSES (63,127) (427,001)
CASH AND CASH EQUIVALENTS, END OF YEAR 25,257,093 11,670,313
Notes on the following pages form an integral part of these financial statements.
These financial statements were adopted by the Board of Directors of AIK banka A.D., Niš on February 27, 2015.
Signed on behalf of AIK banka A.D., Niš by:
Dostinja Mentov Jelena Galić Head of Accounting and Reporting Executive Board Chairperson since March 27, 2015
Siniša Mihajlović Executive Board Member
6 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
1. BANK’S ESTABLISHMENT AND ACTIVITY
Agro-industrial Commercial Bank AIK banka a.d., Niš (hereinafter: the “Bank”) was established in accordance with the Articles of Association on August 10, 1993. The Bank harmonized its operations and organizational structure with the Law on Banks and Other Financial Organizations in 1995 and was registered with the Commercial Court of Niš as a shareholding company under Decision no. Fi 1291/95 dated June 22, 1995.
As of December 31, 2014 the Bank’s largest shareholder with 49.35% voting shares was Sunoko d.o.o., Novi Sad. More details on the shareholder structure of the Bank are provided in Note 40.
The Bank is registered in the Republic of Serbia to provide banking services of payment transfers and lending and depositary operations performed domestically and abroad. As stipulated by the Law on Banks, the Bank is obligated to operate based on principles of liquidity, safety and profitability.
The Bank’s is domiciled in Niš, at no. 42, Nikole Pašića Street. The Bank operates through its Head Office in Niš and affiliates and branch offices in Niš, Belgrade, Novi Sad, Kragujevac, Kruševac, Leskovac, Jagodina, Zaječar, Kraljevo, Čačak, Užice, Novi Pazar, Pančevo, Požarevac, Šabac, Valjevo, Zrenjanin, Vrbas, Sombor and Subotica, which makes the total of 1 Head Office, 20 affiliates, 36 branch offices and 1 counter across Serbia.
As of December 31, 2014, the Bank had 635 employees (December 31, 2013: 553 employees).
The Bank’ tax identification number (fiscal code) is 100618836, and its corporate ID is 06876366.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS
2.1. Basis of Preparation and Presentation of Financial Statements
Legal entities and entrepreneurs incorporated in Serbia are required to maintain their books of account, to recognize and value assets and liabilities, income and expenses, and to present, submit and disclose financial statements in conformity the Law on Accounting (hereinafter referred as: the “Law”, Official Gazette of the Republic of Serbia no. 63/2013). As a large legal entity, the Bank is required to apply International Financial Reporting Standards (“IFRS”), which as per the aforementioned law comprise the following: the Framework for the Preparation and Presentation of Financial Statements (the “Framework”), International Accounting Standards (“IAS”), International Financial Reporting Standards (“IFRS”), as well as the related interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and additional related interpretations issued by International Accounting Standards Board (“IASB”), the translations of which to the Serbian language were approved and issued by the competent Ministry of Finance and which were in effect as at December 31, 2014.
The amendments to IAS, as well as the newly issued IFRS and the related interpretations issued by the IASB and the IFRIC, in the period between December 31, 2002 and January 1, 2009, were officially adopted pursuant to a Decision enacted by the Ministry of Finance of the Republic of Serbia (the “Ministry”) on October 5, 2010 and published the Official Gazette of the Republic of Serbia no. 77/2010. The Ministry’s Decision dated March 13, 2014 adopted the translation of the Conceptual Framework for Financial Reporting and (the “Conceptual Framework,“ adopted by the IASB in September 2010, which supplants the Framework for Preparation and Presentation of the Financial Statements) and basic texts of IAS and IFRS (“Decision on Adoption of the Translations of the Conceptual Framework for Financial Reporting and Basic Texts of International Accounting Standards and International Financial Reporting Standards,” published the Official Gazette of the Republic of Serbia no. 35 on March 27, 2014 (“Decision on Adoption of the Translations”), encompassing amendments to IAS and new IFRS and related interpretations issued by IASB and IFRIC. Based on this Decision on Adoption of the Translations, the Conceptual Framework, IAS, IFRS, IFRIC and related interpretations that have been translated shall be applied to the financial statements prepared as of December 31, 2014.
Standards and interpretations issued that came into effect in the current period pursuant to the Decision on Adoption of the Translations are disclosed in Note 2.2, while standards and interpretations in issue but not yet in effect are disclosed in Note 2.3.
The accompanying financial statements are presented in the format prescribed under the Decision on the Forms and Contents of the Items in the Forms of the Financial Statements of Banks (Official Gazette of RS nos. 71/2014 and 135/2014).
7 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.1. Basis of Preparation and Presentation of Financial Statements (Continued)
These financial statements were prepared at historical cost principle unless otherwise stipulated in the accounting policies presented hereunder.
In the preparation of the accompanying financial statements, the Bank adhered to the accounting policies described in Note 3.
The Bank’s financial statements are stated in thousands of dinars (RSD). Dinar is the official reporting currency in the Republic of Serbia.
2.2. Standards and Interpretations Issued that Came into Effect in the Current Period Pursuant to the Decision on Adoption of the Translations of the Ministry
• Amendments to IFRS 7 “Financial Instruments: Disclosures” – Amendments improving fair value and liquidity risk disclosures (revised in March 2009, effective for annual periods beginning on or after January 1, 2009);
• Amendments to IFRS 1 “First-Time Adoption of IFRS” – Additional Exemptions for First-Time Adopters. The amendments relate to assets in oil and gas industry and determining whether an arrangement contains a lease (revised in July 2009, effective for annual periods beginning on or after January 1, 2010);
• Amendments to various standards and interpretations resulting from the Annual Quality Improvement Project of IFRS published on April 16, 2009 (IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36, IAS 39, IFRIC 16) primarily with a view to removing inconsistencies and clarifying wording, (amendments are to be applied for annual periods beginning on or after 1 January 2010, while the amendment to IFRIC is to become effective as of July 1, 2009);
• Amendments to IAS 38 “Intangible Assets” (revised in July 2009, effective for annual periods beginning on or after July 1, 2009);
• Amendments to IFRS 2 “Share-Based Payment”: Amendments resulting from the Annual Quality Improvement Project of IFRS (revised in April 2009, effective for annual periods beginning on or after July 1, 2009) and amendments relating to group cash-settled share-based payment transactions (revised in June 2009, effective for annual periods beginning on or after January 1, 2010);
• Amendments IFRIC 9 “Reassessment of Embedded Derivatives” effective for annual periods beginning on or after July 1, 2009 and IAS 39 “Financial Instruments: Recognition and Measurement” – Embedded Derivatives (effective for annual periods beginning on or after June 30, 2009);
• IFRIC 18 “Transfers of Assets from Customers” (effective for annual periods beginning on or after July 1, 2009);
• “Conceptual Framework for Financial Reporting 2010” being amendments to “Framework for the Preparation and Presentation of Financial Statements” (effective for transfer of assets from customers received on or after September 2010);
• Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” – Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (effective for annual periods beginning on or after July 1, 2010);
• Amendments to IAS 24 “Related Party Disclosures” – Simplifying the disclosure requirements for government-related entities and clarifying the definition of a related party (effective for annual periods beginning on or after January 1, 2011);
• Amendments to IAS 32 “Financial Instruments: Presentation” – Accounting for Rights Issues (effective for annual periods beginning on or after February 1, 2010);
8 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.2. Standards and Interpretations Issued that Came into Effect in the Current Period Pursuant to the Decision on Adoption of the Translations of the Ministry (Continued)
• Amendments to various standards and interpretations “Improvements to IFRSs (2010)” resulting from the Annual quality improvement project of IFRS published on May 6, 2010 (IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13) primarily with a view to removing inconsistencies and clarifying wording, (most amendments are to be applied for annual periods beginning on or after January 1, 2011);
• 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 January 1, 2011);
• IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments” (effective for annual periods beginning on or after July 1, 2010).
• 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 July 1, 2011);
• Amendments to IFRS 7 “Financial Instruments: Disclosures” – Transfers of Financial Assets (effective for annual periods beginning on or after January 1, 2011);
• Amendments to IAS 12 “Income Taxes” – Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after January 1, 2012);
• IFRS 10 “Consolidated Financial Statements” (effective for annual periods beginning on or after January 1, 2013);
• IFRS 11 “Joint Arrangements” (effective for annual periods beginning on or after January 1, 2013);
• IFRS 12 “Disclosures of Involvement with Other Entities” (effective for annual periods beginning on or after January 1, 2013);
• Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated Financial Statements, Joint Arrangements and Disclosures of Involvement with Other Entities: Transition Guidance” (effective for annual periods beginning on or after January 1, 2013);
• IAS 27 (revised in 2011) “Separate Financial Statements” (effective for annual periods beginning on or after January 1, 2013);
• IAS 28 (revised in 2011) “Investments in Associates and Joint Ventures” (effective for annual periods beginning on or after January 1, 2013);
• IFRS 13 “Fair Value Measurement” (effective for annual periods beginning on or after January 1, 2013);
• Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” – Government Loans with a Below-Market Rate of Interest (effective for annual periods beginning on or after January 1, 2013);
• Amendments to IFRS 7 “Financial Instruments: Disclosures” – Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2013);
• Amendments to IAS 1 “Presentation of Financial Statements” – Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after July 1, 2012);
• Amendments to IAS 19 “Employee Benefits” – Improvements to the Accounting for Post- Employment Benefits (effective for annual periods beginning on or after January 1, 2013);
9 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.2. Standards and Interpretations Issued that Came into Effect in the Current Period Pursuant to the Decision on Adoption of the Translations of the Ministry (Continued)
• Amendments to various standards “Improvements to IFRSs (2009-2011 Cycle)” issued in May 2012, resulting from the annual improvement project of IFRS (IFRS 1, IAS 1, IAS 16, IAS 32, IAS 34) primarily with a view to removing inconsistencies and clarifying wording (amendments are to be applied for annual periods beginning on or after January 1, 2013);
• IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine” (effective for annual periods beginning on or after January 1, 2013); and
• Amendments to IAS 32 “Financial Instruments: Presentation” – Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2014).
2.3. Standards and Interpretations in Issue not yet in Effect
At the date of issuance of these financial statements the following standards, revisions and interpretations were in issue but not yet effective:
• IFRS 9 “Financial Instruments” and subsequent amendments, supplanting the requirements of IAS 39 “Financial Instruments: Recognition and Measurement,“ with regard to classification and measurement of financial assets. This standard eliminates the categories existing under IAS 39 – assets held to maturity, assets available for sale and loans and receivables. IFRS 9 shall be effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.
In accordance with IFRS 9, financial assets shall be classified in one of the following two categories upon initial recognition: financial assets at amortized cost or financial assets at fair value. A financial asset shall be measured at amortized cost if the following two criteria are met: financial assets relate to the business model whose objective is to collect the contractual cash flows and the contractual terms provide the basis for collection at certain future dates of cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets shall be measured at fair value. Gains and losses on the fair value measurement of financial assets shall be recognized in the profit and loss statement, except for investments in equity instruments which are not traded, where IFRS 9 allows at initial recognition a subsequently irreversible choice to recognize changes in fair value within other gains and losses in the statement of comprehensive income. An amount recognized in such a manner within the statement of comprehensive income cannot subsequently be recognized in profit and loss.
Given the nature of the Bank’s operations, the adoption of the standard is expected to have a significant impact on the Bank’s financial statements.
• Amendments to IFRS 11 “Joint Arrangements” – Accounting for Acquisition of an Interest in a Joint Operation (effective for annual periods beginning on or after January 1, 2016);
• IFRS 14 “Regulatory Deferral Accounts” (effective for annual periods beginning on or after January 1, 2016);
• IFRS 15 “Revenue from Contracts with Customers,” defining the framework for revenue recognition. IFRS 15 supplants IAS 18 “Revenue,” IAS 11 “Construction Contracts,” IFRIC 13 “Customer Loyalty Programs,” IFRIC 15 “Agreements for the Construction of Real Estate” and IFRIC 18 “Transfers of Assets from Customers.” IFRS 15 shall be effective for annual periods beginning on or after January 1, 2017, with early adoption permitted.
• Amendments to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” – Clarification of Acceptable Methods of Depreciation and Amortization (effective for annual periods beginning on or after January 1, 2016 );
• Amendments to IAS 16 “Property, Plant and Equipment” and IAS 41 “Agriculture” – Agriculture: Bearer Plants (effective for annual periods beginning on or after January 1, 2016);
10 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.3. Standards and Interpretations in Issue not yet in Effect (Continued)
• IAS 27 “Separate Financial Statements” – Equity Method in Separate Financial Statements (effective for annual periods beginning on or after January 1, 2016);
• Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective for annual periods beginning on or after January 1, 2016 );
• Amendments to IAS 19 “Employee Benefits” – Defined Benefit Plans: Employee Contributions (effective for annual periods beginning on or after January 1, 2014);
• Amendments resulting from Annual Improvements 2010-2012 Cycle issued in December 2013 (IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38) with a view to removing inconsistencies and clarifying wording (effective for annual periods beginning on or after July 1, 2014); and
• Amendments resulting from Annual Improvements 2011-2013 Cycle issued in December 2013 (IFRS 1, IFRS 3, IFRS 13 and IAS 40) with a view to removing inconsistencies and clarifying wording (effective for annual periods beginning on or after July 1, 2014).
2.4. Going Concern
The bank’s financial statements have been prepared on a going concern basis, which entails that the Bank will continue to operate for an indefinite period in the foreseeable future.
2.5. Comparative Information
The Bank’s financial statements for the year ended December 31, 2013 were presented in accordance with the previously prescribed form of the financial statement forms for banks. Due to the changes to the prescribed format of the financial statements of banks required under the Decision on the Forms and Contents of the Items in the Forms of the Financial Statements of Banks and Decision on the Layout of Chart of Accounts and contents of Accounts within the Chart of Accounts for Banks (Official Gazette of RS nos. 71/2014 and 135/2014), the Bank reclassified comparative information from the financial statements for the year ended December 31, 2013.
In addition, the Bank made certain adjustments to the previously reported balance sheet as of December 31, 2013 as well as to the income statement for the financial year 2013 in order to correct certain prior years’ errors and introduced certain changes to the accounting policy on investment property in accordance with the requirements of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors,” as disclosed in more detail in Note 2.5.3.
2.5.1. Change to the Accounting Policies
Under Decision no. 18-VI/2014 dated September 26, 2014, the Bank’s management introduced changes to the accounting policy on subsequent measurement of investment property in such a manner that instead of the previously deployed cost model, the new accounting policy stipulates use of the fair value method for measurement of investment property after initial recognition. This new policy is now applied to all the Bank’s investment properties. The Bank’s management voluntarily changed this accounting policy for the purpose of preparing financial statements which will provide more reliable and more relevant information on the effects of transactions on the financial position and financial performance of the Bank.
11 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.5. Comparative Information (Continued)
2.5.2. Prior Years’ Error Adjustment
In accordance with the Bank’s adopted accounting policy, tangible assets acquired in lieu of debt collection are recorded at the lower of their carrying value and the appraised value as at the balance sheet date. Based on the 2014 report of an independent certified appraiser on the fair values of the bank’s properties as at December 31, 2013, the Bank’s management determined that due to impairment losses such assets were overstated by RSD 505,334 thousand as at December 31, 2013 (Note 2.5.3).
Based on the Tax Administration Decision no. 000-47-00-01305/2014-I0060, the Bank made adjustments to prior years’ errors, i.e., recorded tax liabilities of RSD 100,493 thousand (Note 2.5.3 pertaining to 2012 and prior years.
2.5.3. Effects of the Change to the Accounting Policies and Prior Years’ Error Adjustment
IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” requires that a change to the accounting policies be performed retrospectively unless the amount of adjustments arising therefrom related to the respective prior periods or a cumulative effect of the change to the accounting policies can be determined with sufficient reliability. The management was unable to determine the effects of the adjustments related to the accounting periods prior to 2013 with sufficient reliability due to the inability to establish the time of occurrence of event that gave rise to the changes in fair values of individual items of investment property and tangible assets, and departures of fair values as of December 31, 2013 as assessed in 2014 from the values determined by previously performed appraisals. Accordingly, no adjustment to the opening balance of retained earnings as of January 1, 2013 was made; instead, the effects of the change to the accounting policy and effects of the error adjustment regarding tangible assets were recorded against the Bank’s income statement for 2013.
Error adjustment related to the recording of the tax liabilities based on the Tax Administration Decision pertaining to the year 2012 and prior years was recorded as an adjustment to the opening balance of the retained earnings as of January 1, 2013.
12 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.5. Comparative Information (Continued)
2.5.3. Effects of the Change to the Accounting Policies and Prior Years’ Error Adjustment (Continued)
(а) Effects of Adjustments to the Balance Sheet as of December 31, 2013 Previously Stated Restated December 31, Adjustments December 31, 2013 +/- 2013 ASSETS Cash and cash funds held with the central bank 22,439,278 - 22,439,278 Financial assets at fair value through profit and loss, held for trading 2,714 - 2,714 Financial assets available for sale 28,523,155 - 28,523,155 Financial assets held to maturity 2,991,546 - 2,991,546 Loans and receivables due from banks and other financial institutions 12,032,676 - 12,032,676 Loans and receivables due from customers 71,151,336 - 71,151,336 Intangible assets 128,783 - 128,783 Property, plant and equipment 1,070,778 - 1,070,778 Investment property 8,707,503 120,008 8,827,511 Current tax assets 522,882 - 522,882 Deferred tax assets - 250,338 250,338 Other assets 4,555,368 (505,334) 4,050,034
TOTAL ASSETS 152,126,019 (134,988) 151,991,031
LIABILITIES AND EQUITY Financial assets at fair value through profit and loss, held for trading 110 - 110 Deposits and other liabilities due to banks, other financial institutions and the central bank 1,434,452 - 1,434,452 Deposits and other liabilities due to customers 97,424,448 - 97,424,448 Provisions 733,558 - 733,558 Current tax liabilities - 179,228 179,228 Deferred tax liabilities 80,271 - 80,271 Other liabilities 959,484 22,044 981,530 TOTAL LIABILITIES 100,632,323 201,272 100,833,597
EQUITY Issued (share) capital 26,920,470 - 26,920,470 Profit 1,229,005 - 1,229,005 Loss - (336,262) (336,262) Reserves 23,344,221 - 23,344,221 TOTAL EQUITY 51,493,696 (336,262) 51,157,434
TOTAL LIABILITIES AND EQUITY 152,126,019 (134,988) 151,991,031
13 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.5. Comparative Information (Continued)
2.5.3. Effects of the Change to the Accounting Policies and Prior Years’ Error Adjustment (Continued)
(b) Effects of Adjustments to the Income Statement for FY 2013
Previously Stated Restated December 31, Adjustments December 31, 2013 +/- 2013
Interest income 11,837,198 - 11,837,198 Interest expenses (5,087,782) - (5,087,782)
Net interest income 6,749,416 - 6,749,416
Fee and commission income 776,821 - 776,821 Fee and commission expenses (132,390) - (132,390)
Net fee and commission income 644,431 - 644,431
Net losses on the financial assets held for trading (6,217) - (6,217) Net gains on risk hedges 14,721 - 14,721 Net gains on the financial assets available for sale - - - Net foreign exchange gains and positive currency clause effects 313,840 - 313,840 Other operating income 503,776 1,283,593 1,787,369 Net losses from impairment of financial assets and credit risk-weighted off-balance sheet assets (4,008,760) - (4,008,760) Total operating income (3,182,640) 1,283,593 5,494,800
Staff costs (828,630) - (828,630) Depreciation and amortization charge (264,391) - (264,391) Other expenses (1,863,575) (1,668,919) (3,532,494)
Profit before taxes 1,254,611 (385,326) 869,285 Current income tax expense - (100,781) (100,781) Deferred tax benefits - 250,338 250,338 Deferred tax expenses (25,606) - (25,606)
Net profit for the year 1,229,005 (235,769) 993,236
14 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.5. Comparative Information (Continued)
2.5.3. Effects of the Change to the Accounting Policies and Prior Years’ Error Adjustment (Continued)
(c) Effects of Adjustments to the Equity for FY 2013
Reserves from Issued and Share Profit and Other Revaluation Description Other Capital Premium Reserves Reserves Profit Loss Total Balance at January 1, 2013 previously stated 19,359,727 7,157,924 20,100,870 1,644 3,641,848 - 50,262,013 Effects of error adjustment –recording of tax liabilities under Tax Administration Decision (Note 2.5.2) - - - - - (100,493) (100,493)
Balance at January 1, 2013, restated 19,359,727 7,157,924 20,100,870 1,644 3,641,848 (100,493) 50,161,520
Balance at December 31, 2013, previously stated 19,762,546 7,157,924 23,125,145 219,076 1,229,005 - 51,493,696 Effects of error adjustment as of January 1, 2013 - - - - - (100,493) (100,493) Effects of changes to the accounting policy on investment property - - - - - 120,008 120,008 Effects of prior years’ error adjustment in respect of tangible assets (Notes 2.5.2; 33) - - - - - (505,334) (505,334) Appraisal tax effects (Note 19.1) - - - - - (100,781) (100,781) Appraisal deferred tax effects (Notes 19.1; 32.2) - - - - - 250,338 250,338
Balance at December 31, 2013, restated 19,762,546 7,157,924 23,125,145 219,076 1,229,005 (336,262) 51,157,434
15 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)
2.5. Comparative Information (Continued)
2.5.3. Effects of the Change to the Accounting Policies and Prior Years’ Error Adjustment (Continued)
Effects of retrospective application of the changes to the accounting policies and prior years’ error adjustment on the Bank’s financial statements for 2013 are presented in the table below:
Description Effects on 2013
Effects of fair value adjustment on investment properties as per appraisal as of December 31, 2013 (Note 29) 120,008 Effects of value adjustment of tangible assets and adjustment to the lower fair value as of December 31, 2013 (Note 33) (505,334) Tax effects (Note 19.1.) 149,557
Effect on the income statement (235,769)
Increase in the value of investment property (Note 29) 120,008 Decrease in the value of tangible assets (505,334) Tax effects 149,557 Effect of recording tax liabilities as per the Tax Administration decision (100,493)
Effect on equity (336,262)
Effects of retrospective application of the changes to the accounting policies and prior years’ error adjustment on the basic earnings per share for 2013 are presented in the table below:
In RSD ’000 In RSD Increase / (decrease)in Increase / (decrease) the profit attributable in the basic earnings Description to the shareholders per share Effects of changes to the accounting policies 193,765 22 Effects of prior years’ error adjustments (429,534) (48)
Total effects (235,769) (26)
2.6. Use of Estimates
The preparation and presentation of the financial statements in accordance with IFRS as per the Law on Accounting of the Republic of Serbia requires the Bank’s management to make best estimates and reasonable assumptions that influence the application of accounting policies and presented asset and liability amounts, as well as those of income and expenses. Actual values of assets and liabilities may differ from values estimated in this manner.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revised accounting estimates are presented for both the current (period of review) and future periods.
2.7. Statement of Compliance
The Bank’s financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as per the Law on Accounting of the Republic of Serbia.
16 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements represent the separate (stand-alone) financial statements of the Bank.
3.1. Interest Income and Expenses
Interest income and expenses are recognized in the income statement for all interest-bearing financial instruments following the effective interest method.
The effective interest rate is the rate that precisely discounts estimated future payments or receipts over the expected life of the financial instrument or over a shorter period, where appropriate, to the net carrying value of the financial asset or financial liability. In calculation of the effective interest rate, the Bank estimates cash flows taking into account all the contractually agreed terms of the financial instrument but does not consider future credit losses.
Effective interest rate includes all fees and points paid or received between the counterparties that form an integral part of the effective interest rate, transaction costs and other premiums or discounts.
Interest income and expenses are recognized in the income statement as per matching principle on an accrual basis and pursuant to the terms defined by contracts signed between the Bank and its customers.
Income from penalty interest accrued on impaired loans is suspended as from the moment of borrower migration to default status and such interest is recorded within off-balance sheet items.
3.2. Fee and Commission Income and Expenses
Fees and commission primarily comprise considerations for banking services of payment transfers in the country and abroad, services per payment cards, issuance of guarantees and letters of credit and other banking services.
Fee and commission income and expenses are recognized on an accrual basis, when such services are rendered.
Fees for issuance of guarantees and letters of credit are deferred and recognized as income proportionately to the outstanding loan maturities, or guarantee and letter of credit validity terms.
Loan origination fees are deferred and amortized as interest income over the loan repayment period using the effective interest method.
3.3. Foreign Exchange Translation
Transactions denominated in foreign currencies are translated into dinars at the official middle exchange rates determined at the Interbank Foreign Exchange Market and effective at each transaction date.
Assets and liabilities denominated in foreign currencies, including those in RSD but with a currency clause index, are translated into dinars by applying the official middle exchange rates, as determined at the Interbank Foreign Exchange Market and prevailing at the balance sheet date.
Net foreign exchange positive or negative effects arising upon the translation of transactions, and the assets and liabilities denominated in foreign currencies are credited or charged to the income statement as foreign exchange gains or losses.
3.4. Dividend Income
Dividend income is recognized when the Bank’s entitlement to dividend receipt is established. Dividend income is presented within the item of other operating income.
3.5 Net Gains on the Financial Assets Held for Trading
Net gains on the financial assets held for trading comprise net gains arising from trading in assets and liabilities including all realized and unrealized fair value adjustments
17 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.6. Net Gains on Risk Hedges
Net gains on risk hedges include net gains on the value adjustment of financial derivatives designated as risk hedging instruments as well as on the fair value adjustment of loans, receivables and securities as hedged items, these adjustments arising from the risk against which the item is hedged.
3.7. Operating Lease
Leases of assets where all the rewards and risks of ownership are retained by the lessor, i.e., are not transferred to the lessee, are classified as operating leases. Lease payments under an operating lease are recognized as an expense within the income statement on a straight-line basis (when they arise) over the lease term.
3.8. Tax Expenses
Tax expenses comprise current taxes and deferred taxes. Current taxes and deferred taxes are recognized in income statement except to the extent that they relate to items recognized directly in equity or in other comprehensive income.
Current Income Taxes
Current income tax is an amount payable calculated applying the legally prescribed tax rate of 15% (2013: 15%) to the amount of profit before taxes, as adjusted for permanent differences that adjust the statutory tax rate to the effective tax rate.
The ultimate amount of the income tax payable is determined by applying the legally prescribed tax rate to the tax base determined within the tax balance and reported in the annual corporate income tax return.
The Corporate Income Tax Law of the Republic of Serbia does not envisage that any tax losses of the current period be used to recover taxes paid within a specific carryback period. However, current period tax losses stated in tax return may be used to reduce or eliminate taxes to be paid in future periods but only for duration of no longer than five ensuing years.
Deferred Income Taxes
Deferred tax liabilities are recognized as at the balance sheet date for all taxable temporary differences between the carrying values of assets used for financial reporting purposes and their tax bases. The currently enacted tax rates or the substantively enacted rates at the balance sheet date are used to determine the deferred income tax amount.
Deferred tax assets are recognized for all deductible temporary differences, and the tax effects of income tax losses and credits are available for carryforward, to the extent that it is probable that taxable profit will be available, against which the deductible temporary differences and the tax loss/credits of the carryforwards can be utilized.
Carrying values of deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that sufficient taxable income will be realized against which the total deferred assets or a portion thereof can be utilized. Unrecognized deferred tax assets are reviewed at each reporting date and recognized to the extent that it has become probable that a sufficient level of expected future taxable income will be sufficient will be realized against which deferred tax assets can be utilized.
Current and deferred tax assets and liabilities are offset when levied by the same tax authority on the same taxable entity, when related to the same tax authority and if there is a legally enforceable right to offset tax liabilities against tax assets.
Current and deferred income taxes are either charged or credited to the income statement and included in the profit for the capital and allocated within equity in the current or another period. Indirect taxes and contributions are included in other operating expenses.
18 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.8. Tax Expenses (Continued)
Indirect Taxes and Contributions
Indirect taxes and contributions include property taxes, local utility fees and charges and other taxes and contributions payable pursuant to effective republic and local tax regulations. These taxes and contributions are sated within other expenses.
3.9. Financial Assets and Liabilities
Recognition
The Bank initially recognizes financial assets and liabilities as at the settlement date.
A financial asset or liability is measured initially at fair value plus transaction costs that are directly attributable to its acquisition or issue, except for financial assets and liabilities held for trading, whose initial measurement does not include such costs.
Classification
The Bank classified its financial assets into the following categories: financial assets carried at fair value through profit and loss, loans and receivables, financial assets available for sale and financial assets held to maturity.
The Bank classifies its financial liabilities as measured at amortized cost or held for trading.
Derecognition
The Bank derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Bank neither transfers nor retains substantially all the risk and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualifies for derecognition that is created or retained by the Bank is recognized as a separate asset or liability in the statement of financial position. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.
The Bank enters in transactions whereby it transfers assets recognized on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognized. Transfers of assets with retention of all or substantially all risks and rewards include, for example, repurchase transactions.
Offsetting
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to offset the recognized amounts and it intends either to settle a liability on a net basis or to realize the asset and settle the liability simultaneously
Income and expenses are presented on net basis only when permitted under IFRSs, or for gains and losses arising from a group of similar transactions such as those in the Bank’s trading activity.
Amortized Cost Measurement
The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount, less any impairment.
19 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.9. Financial Assets and Liabilities (Continued)
Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions regardless of whether that price is directly observable or estimated using another valuation technique.
When available, the Bank measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, the Bank establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and other optional models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Bank, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments.
Inputs to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Bank calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument of based on other available observable market data.
Assets and long positions are measured at bid prices and liabilities and short positions are measured at ask prices. When the Bank has a risk offsetting position, median market prices are used for measuring offsetting or risk-weighted assets, while adjustment to bid or ask prices is applied only to the net open positions. Here the fair value reflects the credit risk of the instrument and includes adjustments reflecting the credit risk of the Bank and the counterparty, where relevant. Fair value assessments based on the valuation models are adjusted for all other factors, such as liquidity risk or uncertainty models, to the extent that the Bank believes that third party market participants may take them into consideration upon determining transaction cost.
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e., without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is recognized in profit or loss. Any difference between the fair value at initial recognition and the amount that would be determined at that date using a valuation technique in a situation in which the valuation is dependent on unobservable parameters is not recognized in profit or loss immediately but over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable.
Identification and Measurement of Impairment
At each reporting date the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the assets, and that the loss event has an impact on the future cash flows of the assets that can be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active
20 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.9. Financial Assets and Liabilities (Continued)
Identification and Measurement of Impairment (Continued)
market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
The Bank considers evidence of impairment for loans and receivables and held-to-maturity investment securities at both a specific asset and collective level. All individually significant loans and receivables and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and receivables and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and receivables and held-to- maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together loans and receivables and held-to-maturity investment securities with similar risk characteristics.
Assessment and calculation of impairment on the group level (collective assessment) is performed for all receivables where impairment or impairment losses cannot be directly identified and linked to the respective receivables but which can be estimated to exist in the Bank’s loan portfolio based on the historical experience. Group-level assessment is performed for:
1) receivables where individual-level assessment determined that no objective impairment of balance sheet assets or losses per off-balance sheet items exist, i.e., where no impairment loss was identified by individual impairment assessment; 2) receivables belonging to the group of small-amount receivables; and 3) receivables due from borrowers not belonging to the group of small-amount receivables and are not in default status.
Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against loans and receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Impairment losses on available-for-sale investment securities are recognized by transferring the cumulative loss that has been recognized in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition costs, net of any principal repayment and amortization, and the current fair value, less any impairment loss previously recognized in profit or loss.
If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income.
The Bank writes off certain loans and receivables and investment securities when they are determined to be uncollectable.
3.10. Cash and Cash Funds Held with the Central Bank
Cash and cash funds held with the central bank comprise cash on hand, the Bank’s gyro account balance, other cash funds and the obligatory foreign currency reserves held with the central bank. Cash and cash funds held with the central bank are stated at amortized cost in the Bank’s balance sheet.
Within the statement of cash flows cash and cash equivalents also encompass balances on accounts held with foreign banks, whereas the obligatory foreign currency reserves held with the central bank are not included therein.
21 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.11. Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Bank does not intend to sell immediately or in the near term. They arise when the Bank provides money or services directly to a debtor with no intention of trading the receivable. Loans and receivables comprise loans and receivables to banks and customers. Loans and receivables are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortized cost using the effective interest method.
Approved dinar loans which are hedged using a contractual currency clause linked to the dinar EUR exchange rate, to another foreign currency or consumer price index are converted into dinars at balance sheet date in accordance with the terms of the particular loan agreement. The effects of the currency conversion are reported under trading income and expenses. Loans and receivables are presented net of specific and collective allowances for impairment. Specific and collective allowance, are made against the carrying amount of loans and receivables that are identified as being impaired in order to reduce their value to recoverable amount. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the income statement under the item of “net gains/losses on impairment of financial assets.”
3.12. Financial Assets at Fair Value through Profit or Loss
Financial assets at fair value through profit or loss are financial assets that are classified as held for trading or upon initial recognition are designated by the Bank as at fair value through profit or loss. Financial assets at fair value through profit or loss are those that the Bank acquired or incurred principally for the purpose of selling or repurchasing it in the near term or derivatives.
Financial assets at fair value through profit or loss are measured at fair value. Fair value adjustments are presented within the income statement.
Derivatives
Financial derivatives comprise forward and swap transactions. Financial derivatives are initially recognized at cost and are subsequently measured at market value. Market values are obtained using different valuation techniques, including discounted cash flows. Financial derivatives are accounted for under assets if their market value is positive, and under liabilities if their market value is negative. Fluctuations in market value of financial derivatives are reported in the income statement within net gains on financial assets held for trading.
3.13. Financial Assets Held to Maturity
Financial assets held to maturity are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Bank has the positive intention and the ability to hold them to maturity, and which are not designated as at fair value through profit or loss or as available-for-sale.
Held-to-maturity investments are carried at amortized cost using the effective interest method. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Bank from classifying investment securities as held-to-maturity for the current and the following two financial years. However, sales and reclassifications in any of the following circumstances would not trigger a reclassification:
− sales or reclassifications that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value, − sales or reclassifications after the Bank has collected substantially all of the asset’s original principal, and − sales or reclassifications attributable to non-recurring isolated events beyond the Bank’s control that could not have been reasonably anticipated. .
22 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.14. Financial Assets Available for Sale and Equity Investments
Financial assets available for sale are those non-derivative financial assets that are designated as available for sale or are not classified as another category of financial assets. Available-for-sale financial assets are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.
Unquoted shares whose fair value cannot be reliably measured are stated at cost. All other available-for- sale financial assets are measured at fair value.
Interest income from securities available for sale is recognized in profit or loss using the effective interest method. Dividend income from securities available for sale is recognized in profit or loss when the Bank becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognized in profit or loss as are impairment losses.
Other fair value changes are recognized in other comprehensive income until the investment is sold or impaired, whereupon the cumulative gains and losses previously recognized in other comprehensive income are reclassified to profit or loss under item “net gains/losses on the financial assets available for sale.”
A non-derivative financial asset may be reclassified from the available-for-sale category to the loans and receivables category if it otherwise would have met the definition of loans and receivables and if the Bank has the intention and ability to hold that financial assets for the foreseeable future or until maturity.
3.15. Property and Equipment
Recognition and Measurement
Items of property and equipment are initially measured at cost or purchase price.
Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalized as part of such equipment.
Following initial recognition items of equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
A gain or loss on disposal of an item of property and equipment is determined as the difference between the proceeds from disposal with the carrying amount of the item or property and equipment and recognized within other income or other expenses.
Subsequent Expenditure
The cost of replacing part of an item of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.
Depreciation
Depreciation is computed using annual depreciation rates on a straight-line basis over the estimated useful life of each part of an item of property and equipment in order to fully write off those assets.
The applied depreciation rates for the current and comparative periods were as follows:
Buildings 1.3% Computer equipment 20.0% Furniture and other equipment 11.0% - 20.0% Motor vehicles 15.5%
23 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.15. Property and Equipment (Continued)
Calculation of depreciation of property and equipment commences in the month following the month when an asset is placed into use. Depreciation calculation is discontinued for disposed of assets as from the month following the month of asset disposal.
Depreciation methods, useful lives and residual values are reassessed at each financial year-end and adjusted if appropriate.
3.16. Intangible Assets
Intangible assets are comprised of software, licenses and other intangible assets.
Intangible assets acquired by the Bank are stated at cost less accumulated amortization and accumulated impairment losses.
Subsequent expenditure on intangible assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.
Amortization of intangible assets is calculated on a straight-line basis in order to write off the assets over their estimated useful lives of five years. For intangible assets with contractually defined period of usage amortization rates are determined based on such contractually defined terms.
Amortization methods, useful lives and residual values are reassessed at each financial year-end and adjusted as appropriate.
3.17. Investment Property
Investment property is property (land or a building, part of building or both) held by the owner (or lessee) either to earn rental income or for capital appreciation or for both (IAS 40 “Investment Property”).
Upon acquisition, investment property is measured at cost or purchase price. Upon initial measurement, all acquisition related costs are included in the cost or purchase price of investment property.
For subsequent measurement of investment property the Bank uses the fair value model. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Gains or losses arising from the fair value adjustment of investment property are recognized as income or expenses in the period when realized/incurred.
In 2014 the Bank voluntarily introduced a change to its accounting policy on subsequent measurement of investment property by replacing the previously used cost model with the fair value method (Note 2.5.1)
3.18. Inventories
Inventories include tangible assets acquired in lieu of debt collection.
Tangible assets acquired in lieu of debt collection represent properties initially assigned under mortgage liens in favor of the Bank as collaterals securitizing loan repayment, which the Bank foreclosed in lieu of debt collection.
Such properties are measured at prices below the carrying values of the respective loans collected from their foreclosure, or market prices determined by certified appraisers.
24 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.19. Managed Funds
The Bank manages funds on behalf of and for the account of third parties and charges fees for these services. These items are not included in the Bank’s balance sheet.
3.20. Deposits and Borrowings
Deposits are stated in the amount of deposited funds, which may be increased by interest accrued, depending on the contractual terms agreed between depositors and the Bank.
Deposits and borrowings are initially measured at fair value increased for all directly attributable transaction costs, while they are subsequently measured at amortized cost using the effective interest rate method.
3.21. Provisions
A provision is recognized if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
3.22. Financial Guarantees
Financial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantee liabilities are initially recognized at their fair value, and the initial fair value is amortized over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortized amount and the present value of any expected payment (when a payment under the guarantee has become probable). Financial guarantees are reported under off-balance sheet items.
3.23. Employment Benefits
In accordance with the regulations effective in the Republic of Serbia, the Bank is obligated to pay contributions to various state social security funds, which guarantee social security insurance benefits to employees. These obligations involve the payment of taxes and contributions on behalf of the employee, by the employer, in an amount computed by applying the specific, legally-prescribed rates, which are withheld from the gross salaries. The Bank also calculates and pays social security contributions charged to the employer. In accordance with the effective Labor Law, the Bank is under obligation to pay its employees retirement benefits and, pursuant to its bylaws, to disburse jubilee awards for completed 10, 20, 30 and 40 consecutive years of service with the Bank.
Long-term liabilities for retirement benefit provisions and jubilee awards in accordance with IAS 19 represent the present value of the expected future payments to employees as determined by actuarial assessment using assumptions disclosed in Note 37.
3.24. Equity
The Bank’s equity consists of founders’ capital, subsequent issue shares, share premium, reserves, fair value reserves, and retained earnings for the current and prior years. The Bank’s equity was formed from monetary contributions invested by the Bank’s founders. A founder cannot withdraw funds invested in the Bank’s equity.
3.25. Earnings per Share
The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic 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.
Diluted EPS is determined by dividing the profit or loss attributable to ordinary shareholders of the Bank adjusted for the effects of preference non-convertible shares by the weighted average number of ordinary and convertible shares outstanding during the period.
25 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.26. Segment Reporting
The Bank monitors and discloses operations per operating segment – business line (Note 7). Most of the Bank’s operations ae performed in the territory of the Republic of Serbia.
4. RISK MANAGEMENT
Risk is inherent in banking business and cannot be completely eliminated. It is important however to manage risks in such a manner that they are restricted to the levels acceptable for all stakeholders: owners, i.e., shareholders, creditors, depositors and the regulator.
The risk management process entails continued risk identification, measurement, monitoring, minimizing and control through setting of risk limits as well as reporting on risks in accordance with the Bank’s adopted policies and procedures. An adequate risk management system represents a key element in ensuring stability of the Bank’s operations.
Risk monitoring and control are primarily based on establishment of procedures and limits. These limits reflect the Bank’s business strategy and market environment, as well as the risk level the Bank is willing to accept. The Bank constantly monitors and measures the capacity of the acceptable risk exposure level taking into account its total exposure to all risk types and activities.
The Bank implements Basel II standards and permanently monitors all the announcement and amendments to the effective regulations, analyses the risk levels and undertakes measures for timely reconciliation of its operations with newly enacted regulations.
Risk Management System
The Bank has established a comprehensive and reliable risk management system governed by:
• Risk Management Strategy; • Capital Management Strategy; • Risk Management Policies; • Risk Management Procedures; • Methodologies for Managing Individual Risks; and • Other bylaws and enactments
Risk Management Strategy sets out:
• Long-term objectives, defined by the Bank’s business policy and strategy and its aptitude to assume risk determined in accordance with those objectives; • Basic principles of risk assumption and management; • Basic principles of the process of internal assessment of the Bank’s capital adequacy; and • Overview and definitions of all types of risk the Bank is exposed to or may be exposed to.
Policies for managing certain risk types define the basic risk management principles, particularly the Manner of organizing risk management processes, bases for risk identification, measurement, mitigation and monitoring, internal control system and framework and regularity of stress testing and procedure in instances of unfavorable stress test results.
Procedures for managing certain risk types define, in greater detail, the process of managing risks and competencies and responsibilities of all organizational units of the Bank in the risk management system.
Individual methodologies further and in more detail prescribe methods and approaches used in the risk management system.
Competencies
The Bank has in lace an adequate organizational structure to ensure an adequate risk management system and its consistent implementation in practice.
The Board of Directors is competent and responsible for establishing a uniform risk management system and for monitoring such a system, for adopting risk management strategy and policies as well as the capital management strategy, for establishment of internal control system and supervision of the work of the Executive Board.
26 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
Competencies (Continued)
The Executive Board is competent and responsible for implementation of risk management strategy and policies, capital management strategy adoption and efficiency analysis of risk management procedure implementation, which define processes of identifying, measuring, minimizing, monitoring, controlling of and reporting on risk the Bank is exposed to. The Executive Board reports to the Board of Directors on implementation efficiency of the adopted risk policies and procedures.
The Committee for Monitoring of the Bank’s Operations is competent and responsible for adopting proposed risk management and internal control strategies and policies submitted to the Board of Directors for consideration and adoption.
In addition, the Bank’s Audit Committee is in charge of analysis and supervision of adequate implementation of the adopted risk management strategies and policies and the internal control system. At least on a monthly basis it reports to the Board of Directors of its activities and identified irregularities and proposes the manner of their elimination.
The Asset and Liability Committee (ALCO) is responsible for monitoring the Bank’s risk exposure arising from the structure of its receivables, payables and off-balance sheet items, and proposes measures for managing market risks and liquidity risk in particular.
The Bank’s Credit Committees decide on loan approval applications in accordance with the Bank’s internal acts, analyze the Bank’s exposure to credit, interest and currency risks, analyze the credit portfolio and suggest adequate measures to the Executive Board.
For the purpose of implementing an independent and comprehensive risk management system and securing functional and organizational separation of the risk management activity from the regular banking operations, the Bank formed as separate organizational units the following: Corporate, Public and Finance Sector Credit Risk Management Division, Retail and SME Sector Credit Risk Management Division, Credit Administration Department, Risk Control Department, NPL Collection Department and Monitoring and Support Division.
The Risk Control Department proposes risk management strategy, policies, procedures and methodologies for adoption, identifies, measures, mitigates, monitors, controls and reports on risk the Bank is exposed to in the regular course of its business operations. In addition, this department is competent for developing models and methodologies for risk management and reporting to the Bank’s competent bodies.
The Corporate, Public and Finance Sector Credit Risk Management Division and the Retail and SME Sector Credit Risk Management Division take active part in identification, measurement and assessment of credit risk the Bank is exposed to in its operations.
The Treasury is responsible for managing assets and liquidity, the Bank’s assets and liabilities and is primarily involved in managing the Bank’s liquidity risk, interest rate risk and foreign currency risk.
The Internal Audit Division is responsible for continued monitoring of implementation of risk management policies and procedures as well as for the regular assessment of adequacy, reliability and effectiveness of the internal control system.
The Compliance Control Division is obligated to identify and assess compliance risks at least annually and propose risk management plans, of which it prepares a report and submits it to the Executive Board and the Committee for Monitoring of the Bank’s Operations.
In its regular course of business, the Bank is particularly exposed to the following risks: credit risk and risks associated with the credit risk, liquidity risk, interest rate risk, other market risks, operational risks, investment risk, exposure risk and country risk .
27 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk
Credit risk represents the risk of negative effects on the Bank’s financial result and capital arising from borrowers’ inability to settle the matured liabilities to the Bank.
The Bank has defined criteria for loan approval and rescheduling and restructuring of receivables prescribed by its loan approval procedures and methodology. Loans are approved depending on the borrower type, loan characteristics and loan purpose.
In order to implement the policy of optimum credit risk exposure, the Bank assesses the creditworthiness, i.e., the financial situation and credit rating of each borrower both upon loan application submission and subsequently, when the same borrower applies for another loan or as part of regular and continuing borrower performance monitoring.
Assessment of the borrower financial standing and creditworthiness, historical regularity in liability settlement and assessment of the value of offered collateral on an individual level, i.e. for each individual loan, is performed within the Bank’s organizational unit where the application for loan approval has been submitted, while the ultimate credit risk assessment per loan requested is conducted by the Corporate, Public and Finance Sector Credit Risk Management Division or the Retail and SME Sector Credit Risk Management Division, depending on the segment to which the borrower belongs.
The loan proposal is made based on the assessment of the information from the borrower’s financial statements, information on debt from data obtained from the borrowers themselves and those received from the Credit Bureau, information on the account liquidity, information on business relations of the borrower with the customers and suppliers provided by the borrower along with other supporting documents, information from the borrower’s business plan, etc. in such assessment the Bank complies with the requirements of the regulations of the National Bank of Serbia as well as with its internal procedures in order to asses potential risks that may arise from inability of the borrowers to discharge their liabilities due to the Bank.
In order to alleviate credit risk, upon loan approval the Bank demands certain security instruments – collaterals. The amount and type of the demanded collateral depend on the assessed credit risk for each borrower individually. Terms for securitizing loan repayment are defined based on the analyses of the borrower’s creditworthiness, type and extent of credit risk exposure, loan maturity and amount.
Credit risk monitoring on an individual borrower level is based on obtaining updated information on the borrower’s financial standing and creditworthiness and value of the collateral, while credit risk monitoring on the portfolio level is performed through the analysis of the change within a group of borrowers with similar risk level, similar collaterals and reserves in order to determine and manage the balances and quality of assets.
In addition to loans, the Bank issues to its customers guarantees and letters of credit and has a contingent liability in this respect to make payments to the third parties. In this manner the Bank is exposed to risks associated with the credit risk, which may be overcome o mitigated by deployment of control procedures and processes used for credit risk.
Assessment of Impairment of Receivables
The Bank assesses on-balance and off-balance sheet receivables for impairment in accordance with its accounting policies and Impairment Assessment Methodology.
Key elements in assessing impairment of loans are as follows: overdue payments on principal or interest, identified cash flow difficulties on the part of the borrower, the borrower’s credit rating or financial situation and liquidity deterioration, as well as borrower breach of contractually defined and agreed terms.
The Bank assesses allowance for impairment of receivables on an individual and on a group level.
The assessment of impairment in the Bank’s loans and receivables is based on the division of the Bank’s loan portfolio into performing loans (loans which do not have the default status yet) and non- performing loans portfolio (default status loans).
28 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Default loans are loans above the materiality threshold over 90 days past-due – 90 days after the recoding within loan tenor accounts, i.e., 90 days after the repayment due date determined by either the underlying loan agreement or an annex thereto in part related to the extension of repayment term
The materiality threshold is set in the amount above 1% of the individual receivable due to the Bank by the borrower, which cannot be lower than RSD 1,000 thousand for a private individual and cannot be lower than RSD 10,000 thousand per receivable or per borrower (legal entity or entrepreneur) if such a borrower has liabilities to the Bank per a single loan.
Individual Impairment Assessment
The Bank performs individual impairment assessment of loans and receivables due from borrowers in the amount exceeding RSD 6 million, which borrowers:
• have a default or status and belong to the non-performing portion of the Bank’s loan portfolio; • are in bankruptcy, facing bankruptcy or have undergone another type of financial reorganization; • are currently in the process of deletion from the Business Entity register maintained by the Serbian Business Registers Agency; • are currently in the process of liquidation or have been liquidated, without the new status registered with the Serbian Business Registers Agency; • are facing severe financial difficulties and have had their banking accounts blocked for 60 days and over 60 days and/or are over 60 days in arrears in liability settlement toward the Bank (as of the impairment assessment date)
in order to determine whether there is objective evidence of impairment for each individually significant receivable.
Given that some of the above listed data are not available for all SME, entrepreneurs, retail customers and registered agricultural producers, the Bank uses only some of these in assessing the impairment of receivables due from such borrowers:
• for entrepreneurs, in addition to the number of days past due, the Bank uses data on the status with the Serbian Business Registers Agency, and the information on the number of days the bank count has been blocked; • for private individuals and registered agricultural producers the only relevant evidence of impairment is the number of days past-due.
Individual impairment assessment of loans is based on the estimated timing of collection, i.e., on the projected expected cash flows from the collection of receivables given the recorded maximum number of days past-due in settlement of repayment liabilities for a particular loan. The Bank also considers changes in the financial situation and account liquidity of the borrower, collateral values, periods required for estimated sales of collaterals, etc. Such impairment assessment is based on discounting the expected future cash flows, i.e. adjustment of the projected inflows from loan collection (principal and interest) to their present value.
The present value of expected future cash flows is discounted using the contractually defined effective interest rate of the financial asset. If a receivable was contracted at a variable interest rate, its future cash flows are discounted using the current effective interest rate. Calculation of the present value of the estimated future cash flows of a financial asset secured with collateral (under terms defined by the Bank’s internal methodology) takes into account cash flows that may arise from the collateral foreclosure, less costs to sell, irrespective of the probability that the collateral will be realized or not.
The amount of assessed impairment of a receivable is determined as the difference between the asset's carrying value and the present value of future cash flows from the asset.
Estimate of the expected time of collection and estimate of the percentage of collateral realization depend on the type of collateral (property type, deposit, etc.), mortgage rank registered with the Real Estate Cadaster, location of the property, market, current economic strength and interest of prospective buyers, etc.
Loan impairment is determined as the difference between the nominal value of receivables and the resent value of the expected cash flows.
29 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Group-Level Impairment Assessment
The Bank performs group-level impairment assessment and estimates probable losses per off-balance sheet assets for:
• borrowers that do not have the default status (belonging to the performing portion of the loan portfolio); • receivables where individual assessment determined no objective evidence of impairment; • borrowers with the default status (belonging to the non-performing portion of the loan portfolio), whose liabilities to the Bank are not individually significant.
For the purpose of group-level assessment, receivables are grouped in buckets based on the similar credit risk characteristics.
Group-level impairment assessment of performing loan receivables is based on determining probability of default (PD) and an estimate of the loss given default (LGD).
Group-level impairment assessment of performing loan receivables is based the estimated loss given default (LGD), since default has already occurred.
PD is assessed by observation of the non-default status receivables over a certain period of time and by calculating the percentage of receivables that migrate to the default status during this period. The Bank divides its loan portfolio into groups based on the number of days past-due in liability settlement.
PD in the loss identification period (LIP) is estimated using transition matrices. These matrices illustrate the transitions of the borrowers from various groups of the performing portion of the loan portfolio into the default status in the period between two dates.
Loss given default (LGD) represent the irrecoverable amount of loans, loans that do not migrate back to the performing status and loans that are not recovered through collection procedures.
Estimates of probable losses per off-balance sheet assets on and individual level includes estimating recoverability of the future cash outflows for each individual commitment for borrowers whose balance sheet liabilities are assessed on an individual basis, as well as calculation of the amount of probable loss for each individual off-balance sheet item included in the estimate.
Irrecoverable future cash outflows refer to the nominal amount of expected cash outflows for off-balance liabilities decreased by the amount reasonably estimated to be compensated by the counterparty or recovered from the collateral foreclosure.
The amount of probable loss per off-balance sheet items is equal to the present value of the expected irrecoverable future cash outflows per those items. In group-level assessment of the probable losses per off-balance sheet items the Bank uses the impairment allowance percentages calculated for balance sheet exposures subject to group-level impairment assessment, using appropriate credit conversion factors.
Special Reserve for Estimated Losses
In accordance with the relevant NBS regulations, in addition to the impairment assessment and calculation of impairment allowance, for loans to corporate and retail segment customers, the Bank calculates reserves for estimated losses that may arise on balance sheet assets and off-balance sheet items. This calculation is performed in line with the Banks internal model for credit risk assessment, i.e. with the internally defined methodology for classification based on the provisions of the NBS Decision on Classification of Balance Sheet Assets and Off-Balance Sheet Items of Banks.
In this assessment the Bank considers financial performance indicators, timeliness and regularity in liability servicing (currently for the past year) and the quality of collaterals (first-class and adequate collaterals).
30 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Based on the aforesaid parameters, receivables due from borrowers are classified in one of the following categories: A, B, V, G and D. With such classification made, reserves for estimated losses are calculated using appropriate percentages for each of the categories, as follows; A (0%), B (2%), V (15%),G (30%) and D (100%).
Moreover, in accordance with the NBS Decision on Classification of Balance Sheet Assets and Off- Balance Sheet Items of Banks, the Bank calculates the required reserve representing the sum of positive differences between the special reserve for estimated losses and the sum of impairment allowance of the balance sheet assets and provisions for losses per off-balance sheet items. The required reserve is a core capital deductible item in the capital adequacy calculation.
Maximum Credit Risk Exposure
The table below represents the maximum credit risk exposure without reference to collaterals or other means that improve securities' credit rating. The exposure is based on the carrying amounts from the balance sheet:
Maximum Credit Risk Exposure before Collateral or any Other Improvements
Assets December 31, December 31, 2014 2013
I Balance sheet items 159,199,583 137,834,221 Cash and cash funds held with the central bank 27,320,656 22,439,278 Pledged financial assets 2,409,154 - Financial assets at fair value through profit and loss, held for trading - 2,714 Financial assets available for sale 41,668,406 28,523,155 Financial assets held to maturity 510,331 2,991,546 Loans and receivables due from banks and other financial institutions 12,399,507 12,032,676 Loans and receivables due from customers 74,738,626 71,151,336 Other assets 152,903 693,516
II Off-balance sheet items 130,645,910 121,774,729 Managed funds 1,078,543 866,930 Guarantees issued, unsecured letters of credit and acceptances 8,651,526 7,041,801 Irrevocable commitments – per framework loans 5,612,047 4,284,299 Other items 115,303,794 109,581,699
Total 291,606,614 262,293,681
In case of financial instruments measured at fair value (market value), the amounts presented relate to the current credit risk exposure, but not the maximum credit risk exposure that may arise in the future as a result of fair value adjustments.
31 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Loans and Receivables due from Customers, Banks and Other Financial Institutions
December 31, 2014 Not impaired Impaired Impairment allowance Total Not Group- Group- impairment matured Matured Individually level Total Individual level allowance Net
Banks 12,266,867 - 136,162 2 12,403,031 2,544 980 3,524 12,399,507 Corporate customers 40,739,167 3,040,996 37,951,886 622,533 82,354,582 21,714,143 612,305 22,326,448 60,028,134 Entrepreneurs 430,858 21,335 108,391 12,231 572,815 69,842 8,424 78,266 494,549 Total corporate segment 53,436,892 3,062,331 38,196,439 634,766 95,330,428 21,786,529 621,709 22,408,238 72,922,190 Cash loans 5,314,007 813,369 154,137 432,501 6,714,014 74,681 250,159 324,840 6,389,174 Housing loans 4,301,962 198,780 133,839 117,707 4,752,288 59,454 62,024 121,478 4,630,810 Agricultural loans 324,369 33,008 15,978 103,988 477,343 8,949 108,147 117,096 360,247 Credit cards 1,759,081 266,379 3,309 644,286 2,673,055 3,229 383,662 386,891 2,286,164 Current account overdrafts 421,505 77,476 247 202,860 702,088 155 158,780 158,935 543,153 Other loans 6,270 94 165,210 112 171,686 165,210 81 165,291 6,395 Total retail segment 12,127,194 1,389,106 472,720 1,501,454 15,490,474 311,678 962,853 1,274,531 14,215,943
TOTAL 65,564,086 4,451,437 38,669,159 2,136,220 110,820,902 22,098,207 1,584,562 23,682,769 87,138,133
32 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Loans and Receivables due from Customers, Banks and Other Financial Institutions
December 31, 2013 Not impaired Impaired Impairment allowance Total Not Group- Group- impairment matured Matured Individually level Total Individual level allowance Net
Banks 11,900,885 2,736 133,963 2 12,037,586 4,241 669 4,910 12,032,676 Corporate customers 36,064,893 1,815,015 37,428,436 1,624,785 76,933,129 18,724,969 557,608 19,282,577 57,650,552 Entrepreneurs 240,308 14,646 120,925 11,156 387,035 66,919 4,927 71,846 315,189 Total corporate segment 48,206,086 1,832,397 37,683,324 1,635,943 89,357,750 18,796,129 563,204 19,359,333 69,998,417 Cash loans 4,936,475 868,037 125,611 301,696 6,231,819 68,962 179,898 248,860 5,982,959 Housing loans 3,404,931 190,925 138,474 80,636 3,814,966 36,773 48,489 85,262 3,729,704 Agricultural loans 124,377 21,202 15,264 127,127 287,970 8,602 109,734 118,336 169,634 Credit cards 2,164,698 358,375 3,005 595,461 3,121,539 2,801 340,296 343,097 2,778,442 Current account overdrafts 414,783 82,164 193 147,663 644,803 193 121,376 121,569 523,234 Other loans 1,474 25 173,569 262 175,330 173,569 139 173,708 1,622 Total retail segment 11,046,738 1,520,728 456,116 1,252,845 14,276,427 290,900 799,932 1,090,832 13,185,595
TOTAL 59,252,824 3,353,125 38,139,440 2,888,788 103,634,177 19,087,029 1,363,136 20,450,165 83,184,012
33 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Impaired Loans and Receivables
Impaired loans include: • loans individually assessed for impairment; • loans assessed for impairment on a group level meeting some of the following criteria: • the loan repayment is over 90 days past-due; • the loan has been restructured; • the Bank’s management has determined that there is objective evidence of impairment based on other factors.
Credit quality of neither due nor impaired loans and receivables due from customers, banks and other financial institutions:
December 31, 2014 High Medium Low Total
Banks 12,157,962 104,946 3,959 12,266,867 Corporate customers 22,773,602 17,959,816 5,748 40,739,167 Entrepreneurs 427,418 3,440 - 430,858 Total corporate segment 35,358,982 18,068,202 9,707 53,436,892 Cash loans 4,957,383 191,300 165,324 5,314,007 Housing loans 4,017,029 250,625 34,308 4,301,962 Agricultural loans 312,681 7,632 4,057 324,369 Credit cards 1,397,646 251,810 109,625 1,759,081 Current account overdrafts 409,577 6,871 5,056 421,505 Other loans 5,491 136 643 6,270 Total retail segment 11,099,807 708,374 319,013 12,127,194
TOTAL 46,458,790 18,776,576 328,721 65,564,086
Credit quality of neither due nor impaired loans and receivables due from customers, banks and other financial institutions:
December 31, 2013 High Medium Low Total
Banks 11,849,094 47,721 4,070 11,900,885 Corporate customers 22,580,783 13,452,400 31,710 36,064,893 Entrepreneurs 239,573 735 - 240,308 Total corporate segment 34,669,450 13,500,856 35,780 48,206,086 Cash loans 4,452,109 223,264 261,102 4,936,475 Housing loans 3,166,893 196,721 41,317 3,404,931 Agricultural loans 117,329 4,509 2,539 124,377 Credit cards 1,611,977 201,502 351,219 2,164,698 Current account overdrafts 393,725 9,025 12,033 414,783 Other loans 652 21 801 1,474 Total retail segment 9,742,685 635,042 669,011 11,046,738
TOTAL 44,412,135 14,135,898 704,791 59,252,824
The quality of loans not matured and not impaired, due from banks and other financial institutions is presented based on the classification of receivables made in accordance with the NBS Decision on Classification of Balance Sheet Assets and Off-Balance Sheet Items of Banks
High quality receivables comprise receivables form risk categories A. B and V, while the G category receivables at those with medium credit quality. Low credit quality is a feature of receivables classified into category D.
34 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Loans and receivables due from customers, banks and other financial institutions, not matured and not impaired
December 31, 2014 Current Corporate Cash Housing Agricultural Credit account Other Banks customers Entrepreneurs loans loans loans cards overdrafts loans TOTAL
Up to 30 days past due - 1,469,508 21,320 633,981 94,831 28,125 199,301 65,896 94 2,513,056 31 to 60 days past due - 1,458,117 14 113,711 62,077 3,861 40,661 6,980 - 1,685,421 61 to 90 days past due - 113,371 1 65,677 41,872 1,022 26,417 4,600 - 252,960 - 3,040,996 21,335 813,369 198,780 33,008 266,379 77,476 94 4,451,437 December 31, 2013 Current Corporate Cash Housing Agricultural Credit account Other Banks customers Entrepreneurs loans loans loans cards overdrafts loans TOTAL
Up to 30 days past due 924 1,341,830 10,906 672,351 135,226 18,314 113,900 66,219 25 2,359,695 31 to 60 days past due 1,812 440,066 152 130,368 38,062 1,586 187,425 8,673 - 808,144 61 to 90 days past due 33,119 3,588 65,318 17,637 1,302 57,050 7,272 - 185,286
2,736 1,815,015 14,646 868,037 190,925 21,202 358,375 82,164 25 3,353,125
35 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Loans with Altered Initially Agreed Terms
Loans with altered initially agreed terms are loans rescheduled and/or restructured due to the borrowers’ deteriorating financial situation or difficulties in servicing liabilities as these fall due.
Restructuring loan agreements stipulate terms significantly different from those originally defined and agrees and all the previous receivables due from the borrower are replaced by a new loan. Significantly different terms are deemed to be particularly the following: extension of repayment due date for principal and interest, reduction of interest rate or the change in valuation manner.
Loan restructuring is acceptable to the Bank only if pertaining to loans otherwise not likely collectable and if the loan restructuring according to the financial consolidation program enables, within a period acceptable to the Bank, significant improvement in the financial situation of the borrower, with high probability of loan collection in the agreed amount and upon newly defined maturity, and additional collaterals or security – in the form of co-sureties adhering to debt or in the form of pledge lien registered over movable and immovable property of third parties, improving the quality of assets.
Upon loan restructuring, the Bank performs financial analysis of the borrowers, and if it estimates that, after restructuring, the borrower will realize cash flows sufficient for principal and interest repayment, the Bank decides on loan restructuring.
Rescheduling of receivables is performed for borrowers with currently mismatching cash inflows and outflows, yet whose financial indicators have not deteriorated suggesting that such a borrower will be able to settle the rescheduled liabilities according to the subsequently agreed repayment terms.
Loans with Altered Initially Agreed Terms
Restructured Rescheduled December 31, December 31, December 31, December 31, 2014 2013 2014 2013
Corporate 9,732,915 5,529,111 9,620,977 5,790,394 Retail 1,556 1,659 - - Total 9,734,471 5,530,770 9,620,977 5,790,394
36 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Credit quality of loans with altered initially agreed terms
December 31, 2014. Not impa ired Impaired Impairment allowance Total Group- Group- impairment Not matured Matured Individually level Total Individual level allowance Net Loans and receivables due from customers 65,564,086 4,451,437 38,669,159 2,136,221 110,820,903 22,098,207 1,584,563 23,682,770 87,138,133 Rescheduled and restructured receivables 9,513,075 40,483 9,800,490 1,400 19,355,448 2,145,353 82,448 2,227,801 17,127,647 December 31, 2013 Not impaired Impaired Impairment allowance Total Group- Group- impairment Not matured Matured Individually level Total Individual level allowance Net Loans and receivables due from customers 59,252,824 3,353,125 38,139,440 2,888,788 103,634,177 19,087,029 1,363,136 20,450,165 83,184,012 Rescheduled and restructured receivables 5,743,221 2,038 5,575,905 - 11,321,164 788,060 52,432 840,492 10,480,672
37 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Concentration Risk
The Bank manages concentration risk by establishing a system of limits to the exposures with the same or similar risk factors (industry sectors/activities, product types, geographic regions, single entities or groups of related entities, collaterals…).
Loans and receivables due from customers, banks and other financial institutions per industry sector:
December 31, December 31, 2014 2013
Finance and insurance sector 12,399,506 12,032,676 Public companies 14,931,123 18,566,809 Corporate customers 36,990,248 29,914,560 Entrepreneurs 494,548 314,040 Public sector 5,326,857 6,325,525 Retail customers 13,781,475 12,931,524 Non-residents 9,262 8,071 Private households with employed members and registered agricultural producers 426,202 245,318 Other customers 2,778,912 2,845,489
87,138,133 83,184,012
Loans and receivables due from customers, banks and other financial institutions per geographic area:
December 31, 2014 Serbia Europe Other Total Loans and receivables from banks and other financial institutions 106,140 7,373,942 4,919,425 12,399,507 Loans and receivables from customers 74,728,502 10,124 - 74,738,626 TOTAL ASSETS 74,834,642 7,384,066 4,919,425 87,138,133 December 31, 2013 Serbia Europe Other Total Loans and receivables from banks and other financial institutions 6,340,038 5,635,399 57,239 12,032,676 Loans and receivables from customers 71,142,485 8,851 - 71,151,336 TOTAL ASSETS 77,482,523 5,644,250 57,239 83,184,012
Financial assets December 31, December 31, 2014 2013 Financial assets Pledged financial assets 2,409,154 - Financial assets at fair value through profit and loss, held for trading - 2,714 Financial assets available for sale 41,668,406 28,523,155 Financial assets held to maturity 510,331 2,991,546
44,587,891 31,517,415
38 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Available-for-sale financial assets entirely relate to the debt securities issued by the Republic of Serbia. Measurement of old foreign currency savings bonds is performed in accordance with market values (mark-to-market) given the availability of market information at the Belgrade Stock Exchange.
Treasury bills and bonds with fixed and variable yields are initially recognized at cost, while their fair value adjustments is performed on a monthly basis in accordance with the internally developed modes (mark-to-model), based on the discounting of future cash flows of a particular security and use of the available market information on yield curves.
The Bank’s financial assets held to maturity entirely relate to discounted bills of exchange.
Credit Risk Hedges (Collaterals)
For the purpose of protection against credit risk, in addition to regular monitoring of the customer business operations, the Bank most commonly acquires security instruments (collaterals) to secure the collection of receivables and minimize credit risk.
As a standard type of loan security instrument, the Bank demands and receives from clients contractual authorizations for account withdrawals and bills of exchange, whereas, depending on the credit risk assessment and loan type, additional collaterals agreed upon include the following: mortgages assigned over property; pledge liens assigned over movable assets; partial or full loan coverage with deposits; obtaining guarantees from another bank or a legal entity, adequate securities, arranging co-surety or debt adherence whereby another legal entity becomes a co-debtor; and when housing loans are at issue, insurance of the National Corporation for Housing Loans Insurance.
In the event that the Bank arranges for mortgage or pledge lien, assigned over property or movable assets, the Bank always demands an appraisal performed by a certified independent appraiser in order to minimize potential risks.
In the following breakdown the value of collaterals is presented as fair value of collaterals so that it is presented only up to the extent of the gross loan amount (in instances of the values gross carrying amount of the loan, the fair value of collateral is stated.
The values of collaterals and guarantees received in order to mitigate credit risk exposure inherent in the loans approved to customers are provided in the table below:
December 31, 2014 Mortgages Guarantees Deposits Other Total
Corporate loans 29,175,561 2,650,233 6,756,099 16,861,898 55,443,791 Loan to entrepreneurs 89,162 - 52,023 14,352 155,537 Total corporate 29,264,723 2,650,233 6,808,122 16,876,250 55,599,328 Cash loans 275,313 - 272,887 - 548,200 Credit cards 205 - 2,015,730 - 2015,935 Current account overdraft - - 80,475 - 80,475 Housing loans 4,169,530 - 156,083 - 4,325,613 Agricultural loans 134,967 - 9,258 - 144,225 Other 223,018 - 18,364 - 241,382 Total retail 4,803,033 - 2,552,797 - 7,355,830 Total 34,067,756 2,650,233 9,360,919 16,876,250 62,955,158
Note: a portion of housing loan, covered with properties, is insured with the National Corporation for Housing Loan Insurance (2014: RSD 1,972,558 thousand).
Other collaterals include pledge liens assigned over goods, receivables, equipment, shares and precious metals.
The loan amount relative to the revalued amount of the property held as collateral is monitored as loan to value ratio (LTV ratio).
39 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.1. Credit Risk (Continued)
Breakdown of housing loans per LTV ratio spread
December 31, 2014
<50% 1,181,195 51% - 70% 1,339,175 71% - 100% 1,809,802 100% - 150% 143,075 >150% 70,282 Other 208,759 Total 4,752,288 Average LTV ratio 65%
Tangible Assets Acquired in Lieu of Debt Collection
Assets representing security instruments (collaterals) acquired by the Bank in the process of debt collection are provided in the table below:
Tangible assets acquired in lieu of debt collection
2014 2013
Business - residential premises 2,292,937 3,114,710
Equipment 4,262 4,262
Total 2,297,199 3,118,972
In the course of 2014, in the process of loan repayment collection, the Bank acquired collaterals totaling RSD 125,269 thousand (2013: RSD 1,042,888 thousand).
4.2. Liquidity Risk
Liquidity risk represents the risk of negative effects on the Bank’s financial result and equity resulting from the Bank’s difficulty or inability to settle its matured liabilities due to:
• drawdown of the existing sources of financing, i.e., the Bank’s inability to obtain new sources of financing (liquidity risk of asset sources), or • difficult conversion of assets into liquid funds because of market disruptions (market liquidity risk).
Liquidity risk is manifest as a daily mismatch of the inflows and outflows, maturity mismatch of assets and liabilities, mismatch of RSD and foreign currency inflows and outflows, i.e., assets and liabilities, mismatch of cash and non-cash flows or disproportion of amounts and structures of balance sheet and off-balance sheet assets and liabilities or components thereof. Within the meaning of the aforesaid, the Bank’s liquidity entails consideration of the total liquidity in several ways (long-term and short-term, liquidity in cash operations – RSD and foreign currency money – liquidity in non-cash operations, in RSD and foreign exchange operations, etc.)
The liquidity risk management process is implemented through identification, measurement , mitigation, monitoring and control of as well as reporting on the liquidity risk.
40 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.2. Liquidity Risk (Continued)
In order to identify liquidity risk, the Bank regularly monitors:
• balances on RSD and foreign currency accounts; • balances and relations of the balance sheet items; • changes in relations among balance sheet assets; • absolute and average amounts of deposits; • changes in the quality of the loan portfolio; • volatility and trends in deposits placed by major depositors; • off-balance sheet items in order to determine potential outflows of funds; • mutual connection of the liquidity risk of sources of assets and the market liquidity risk; • daily and monthly reports on the liquidity ratio and rigid (cash) liquidity ratio; and • plans for inflows and outflows of funds.
The basic method of measuring liquidity risk entails assessment and comparison all future cash inflows and outflows per balance sheet and off-balance sheet items in different time intervals, in order to determine potential liquid asset shortages, both in the regular course of business and in stress events, i.e., liquidity crises. For the purposes of monitoring and measuring liquidity risk the Bank has established the processes of:
• daily planning and monitoring of realization of all planned inflows and outflows of funds, in RSD and in the aggregate for all foreign currencies; and • monitoring of balances and changes in balances of assets and liabilities over their outstanding maturities and per significant currencies, individually and in the aggregate for all currencies.
Liquidity risk management is performed through the calculation and monitoring of liquidity ratios and monitoring of departures of the Bank’s actual ratios from the internally defined and regulatory limits. In order to protect itself against liquidity risk and for its measurement, the Bank perform GAP analysis and stress testing.
Liquidity risk is mitigated through diversification, transfer, reduction and/or avoidance of risks that may arise from the Bank’s liquidity risk exposure. In order to minimize liquidity risk, the Bank uses long-term and short-term protection measures against liquidity risk. In addition, the Bank analyzes the behavior of depositors and identifies sources of funds that are stable under various circumstances, as well as those that will be gradually drawn with the problems arising and those that will be drawn down as soon as the first problem signals appear. Accordingly, the Bank reduces it reliance on the sources of funds that are unstable or volatile.
The Bank’s liquidity ratio and rigid (cash) liquidity ratio were well above the set limits in 2014:
Liquidity ratio Rigid (cash) liquidity ratio
2014 2013 2014 2013
As of December 31 4.1150 3.8586 3.8956 3.4076 Average for the year 3.9773 3.4369 3.6659 2.9506 MAX for the year 5.2789 4.4413 4.7772 4.0631 MIN for the year 2.4436 2.1337 2.1473 1.7200 Regulatory limit 1.00 0.70
In the process of liquidity risk measurement the Bank uses GAP analysis by grouping balance-sheet and off-balance sheet items per time buckets according to the contractually defined maturity dates, i.e., expected time for generating cash flows that may be manifest as inflows or outflows. Upon preparation of the internal liquidity GAP report, the Bank considers the overall assets, liabilities and off-balance sheet items giving rise to potential outflows of funds an sorts those into several time buckets
The breakdown of maturity structure of monetary assets and monetary liabilities as of December 31, 2014 and 2013 is provided in the following tables. The monetary items are grouped as per the outstanding maturity. The Bank applied a rather conservative assumption on the transaction deposits and demand deposits, which, accordingly, were allocated to the time bucket of up to 1 month maturity. .
41 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.2. Liquidity Risk (Continued)
December 31, 2014 Up to 1 From 1 - 3 From 3 6 From 6 -12 From 1 - 5 Over month months months months years 5 years Total
Cash and cash funds held with the central bank 27,320,656 - - - - - 27,320,656 Pledged financial assets - - 245,150 1,927,817 210,000 26,187 2,409,154 Financial assets available for sale 3,763,009 6,306,200 5,145,717 7,240,263 19,100,698 112,519 41,668,406 Financial assets held to maturity 490,495 19,836 - - - - 510,331 Loans and receivables due from banks and other financial institutions 11,977,070 - - - 212,254 210,183 12,399,507 Loans and receivables due from customers 1,837,155 10,556,179 7,345,488 15,339,361 34,807,755 4,852,688 74,738,626 Other assets 152,903 - - - - - 152,903
TOTAL ASSETS 45,541,288 16,882,215 12,736,355 24,507,441 54,330,707 5,201,577 159,199,583
Deposits and other liabilities due to banks, other financial institutions and the central bank 2,026,970 106,498 88,105 4,472,863 5,954 - 6,700,390 Deposits and other liabilities due to customers 38,399,932 10,889,109 6,308,182 15,563,295 40,397,588 290,871 111,848,977 Other liabilities 824,198 5,454 17,720 16,605 13,016 175 877,168
TOTAL LIABILITIES 41,251,100 11,001,061 6,414,007 20,052,763 40,416,558 291,046 119,426,535
Net liquidity GAP as at December 31, 2014 4,290,188 5,881,154 6,322,348 4,454,678 13,914,149 4,910,530 39,773,048 Cumulative liquidity GAP as at December 31, 2014 4,290,188 10,171,342 16,493,690 20,948,368 34,862,517 39,773,048
42 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.2. Liquidity Risk (Continued) December 31, 2013 Up to 1 From 1 - 3 From 3 6 From 6 -12 From 1 - 5 Over month months months months years 5 years Total
Cash and cash funds held with the central bank 22,439,278 - - - - - 22,439,278 Financial assets at fair value through profit and loss, held for trading 2,714 - - - - - 2,714 Financial assets available for sale 1,691,000 1,612,591 8,049,006 2,481,468 14,318,047 371,043 28,523,155 Financial assets held to maturity 932,293 1,472,589 453,135 133,529 - - 2,991,546 Loans and receivables due from banks and other financial institutions 11,591,834 286,605 - - - 154,237 12,032,676 Loans and receivables due from customers 3,467,038 6,769,098 8,049,404 16,004,153 32,543,155 4,318,488 71,151,336 Other assets 693,516 693,516
TOTAL ASSETS 40,817,673 10,140,883 16,551,545 18,619,150 46,861,202 4,843,768 137,834,221
Financial liabilities at fair value through profit and loss, held for trading 110 - - - - - 110 Deposits and other liabilities due to banks, other financial institutions and the central bank 1,013,061 38,108 245,030 132,808 5,445 - 1,434,452 Deposits and other liabilities due to customers 24,260,548 23,744,565 9,530,637 24,411,086 15,335,085 142,527 97,424,448 Other liabilities 460,811 304,552 129,697 56,870 7,370 185 959,485
TOTAL LIABILITIES 25,734,530 24,087,225 9,905,364 24,600,764 15,347,900 142,712 99,818,495
Net liquidity GAP as at December 31, 2013 15,083,143 (13,946,342) 6,646,181 (5,981,614) 31,513,302 4,701,056 38,015,726 Cumulative liquidity GAP as at December 31, 2013 15,083,143 1,136,801 7,782,982 1,801,368 33,314,670 38,015,726
In accordance with its internal bylaws, the Bank regularly tests the Crisis Liquidity Plan (Plans for Liquidity Management in Crisis Situations), performs stress testing and checks the internally defined liquidity GAP limits.
In 2014 the Bank did not breach the internally defined liquidity GAP limits.
Reporting on liquidity risk encompasses a system of internal and external reporting and is performed on daily basis, according to the established schedule and in compliance with the system in place..
43 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks
Market risk represents the possibility of occurrence of negative effects on the Bank’s financial result and equity due to changes in values of balance sheet and off-balance sheet items due to the movements in market prices. Market risks include foreign exchange risks for all banking operations, equity price risk per items in the trading book and commodity risk.
The objective of market risk management entails maintenance of the level of exposure to the aforesaid risks acceptable to the Bank and simultaneous maximizing of the financial performance through establishing market positions in respect of the existing and new products. For adequate market risk management, the Bank has established an organizational structure suitable to the volume, type and complexity of its operations, and ensured the separation of functions assuming the risk from those in charge of support and control.
In 2014 the Bank was exposed to foreign exchange risk but not to the equity price risk per debt and equity instruments or commodity risk as it did not possess positions recorded in the trading book or positions in kind.
4.3.1. Interest Rate Risk
Interest rate risk represents the probability of negative effects on the Bank’s financial result and equity through items of the banking general ledger due to adverse interest rate fluctuations. Movements in interest rates directly affect the generation of interest income due to mismatching between the aggregate interest-bearing assets and interest-bearing liabilities or fixed prices of interest-bearing instruments.
The Bank manages the following types of interest rate risk:
• Repricing risk of temporal mismatch between maturity and repricing; • Yield curve risk – to which the Bank is exposed due to changes in yield curve shape; • Basis risk – to which the Bank is exposed due to different reference interest rates for interest rate sensitive items with similar maturity or repricing characteristics; and • Optionality risk – to which the Bank is exposed due to contractually agreed optional terms – loans with an option of early repayment, deposits with an option of early withdrawal, etc.
The process of interest rate risk management consists of identification, measurement, minimizing, monitoring, control and interest rate risk reporting.
The Bank identifies, measures and manages interest rate risk on a monthly basis per all significant currencies in the banking ledger.
Identification of the interest rate risk relates primarily to the identification of the form of the interest rate risk the Bank is exposed to, extent of exposure to each individual form of the interest rate risk and establishing opportunities for measurement of each individual form of interest rate risk.
Interest rate risk measurement entails measuring the impact of the changes in interest rates on the financial performance and the economic value of equity of the Bank. The bank uses the following techniques for interest rate risk measurement: GAP analysis, ratio analysis, stress testing, economic value of equity (EVE) scenario and yield curve scenario.
Interest rate risk monitoring primarily includes analysis of the balances, movements and trends in the Bank’s interest rate risk exposure. The Bank manages the interest rate risk using the defined limits and prescribed protection measures against interest rate risk.
Minimizing interest rate risk means maintaining this risk at a level that is acceptable for the Bank’s risk profile.
44 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks (Continued)
4.3.1. Interest Rate Risk (Continued)
The Bank defines internal limits to the interest rate risk exposure (mismatch ratio, relative GAP, relative impact on EVE, etc.) based on the internal interest rate GAP report. The table below provides the reference and achieved interest rate risk ratios:
Limits 2014 2013
Relative GAP (%) Max 40% -0.14 % 7.83% Mismatch ratio 0.9-2.5 0.9977 1.1422 Relative impact on EVE (app. 200 bp) Max 20% 14.05% 4.09%
Interest rate risk exposure is considered based on the report on interest rate GAP in monetary assets and liabilities which is provided in the following tables:
45 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks (Continued)
4.3.1. Interest Rate Risk (Continued) December 31, 2014 From From From Total Up to 1 1 - 3 3 -6 6 -12 From 1 - 5 Over 5 Interest- Non-Interest
Month Months Months Months Years Years Bearing Bearing Total
Cash and cash funds held with the central bank 23,088,033 - - - - - 23,088,033 4,232,623 27,320,656 Pledged financial assets - - 245,150 1,927,817 210,000 - 2,382,967 26,187 2,409,154 Financial assets available for sale 3,677,703 12,617,805 3,521,732 4,959,015 15,575,698 - 40,351,953 1,316,453 41,668,406 Financial assets held to maturity 490,495 19,836 - - - - 510,331 - 510,331 Loans and receivables due from banks and other financial institutions 11,977,070 - - - 212,254 - 12,189,324 210,183 12,399,507 Loans and receivables due from customers 33,027,932 15,217,373 5,011,088 6,035,872 13,042,520 1,006,671 73,341,456 1,397,170 74,738,626 Other assets ------152,903 152,903
TOTAL ASSETS 72,261,233 27,855,014 8,777,970 12,922,704 29,040,472 1,006,671 151,864,064 7,335,519 159,199,583
Deposits and other liabilities due to banks, other financial institutions and the central bank 2,017,717 100,000 88,039 4,472,737 5,746 - 6,684,239 16,151 6,700,390 Deposits and other liabilities due to customers 38,301,000 10,508,053 6,086,762 15,202,099 40,264,232 275,204 110,637,350 1,211,627 111,848,977 Other liabilities ------877,168 877,168
TOTAL LIABILITIES 40,318,717 10,608,053 6,174,801 19,674,836 40,269,978 275,204 117,321,589 2,104,946 119,426,535
Net interest rate GAP as at December 31, 2014 31,942,516 17,246,961 2,603,169 (6,752,132) (11,229,506) 731,467 34,542,475 5,230,573 39,773,048 Cumulative interest rate GAP as at December 31, 2014 31,942,516 49,189,477 51,792,646 45,040,514 33,811,008 34,542,475 34,542,475 5,230,573
46 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks (Continued)
4.3.1. Interest Rate Risk (Continued) December 31, 2013 From From From Total Up to 1 1 - 3 3 -6 6 -12 From 1 - 5 Over 5 Interest- Non-Interest
Month Months Months Months Years Years Bearing Bearing Total
Cash and cash funds held with the central bank 19,427,650 - - - - - 19,427,650 3,011,628 22,439,278 Financial assets at fair value through profit and loss, held for trading 2,714 - - - - - 2,714 - 2,714 Financial assets available for sale 1,566,000 4,112,591 8,049,006 1,606,468 12,818,047 - 28,152,112 371,043 28,523,155 Financial assets held to maturity 932,294 1,472,588 453,135 133,529 - - 2,991,546 - 2,991,546 Loans and receivables due from banks and other financial institutions 11,591,834 286,605 - - - - 11,878,439 154,237 12,032,676 Loans and receivables due from customers 41,028,754 6,913,876 2,491,380 5,715,993 12,351,316 953,321 69,454,640 1,696,696 71,151,336 Other assets ------693,516 693,516
TOTAL ASSETS 74,549,246 12,785,660 10,993,521 7,455,990 25,169,363 953,321 131,907,102 5,927,120 137,834,221
Financial liabilities at fair value through profit and loss, held for trading 110 - - - - - 110 - 110 Deposits and other liabilities due to banks, other financial institutions and the central bank 1,001,460 38,108 245,030 132,808 5,445 - 1,422,851 11,601 1,434,452 Deposits and other liabilities due to customers 24,003,570 22,354,102 9,268,949 24,096,124 15,301,983 140,671 95,165,399 2,259,049 97,424,448 Other liabilities - 959,485 959,485
TOTAL LIABILITIES 25,005,140 22,392,210 9,513,979 24,228,932 15,307,428 140,671 96,588,360 3,230,135 99,818,495
Net interest rate GAP as at December 31, 2014 49,544,106 (9,606,550) 1,479,542 (16,772,942) 9,861,935 812,650 35,318,741 2,696,985 38,015,726 Cumulative interest rate GAP as at December 31, 2014 49,544,105 39,937,556 41,417,098 24,644,156 34,506,091 35,318,741 35,318,742 2,696,985
47 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks (Continued)
4.3.1. Interest Rate Risk (Continued)
In the process of interest rate risk measurement, the Bank uses GAP analysis encompassing all interest-bearing assets and liabilities in accordance with:
• Re-fixing of interest rate (in instances of variable interest rates) – all assets and liabilities maturing prior to re-fixing interest rate date are grouped in time buckets based on the remaining maturity. In instances of administrative interest rates (e.g., key policy rate, discount rate) for the re-fixing date is not known, classification into appropriate time buckets is performed based on historical data analysis; • Remaining maturities of respective items (in instances of fixed interest rates) – classification in the time buckets is made according to the repayment schedule.
One of elements of interest rate risk management entails considering interest rate risk exposure in stress circumstances. The Bank performs stress testing on a monthly basis in order to identify and measure interest rate risk in extraordinary circumstances, by analyzing possible impact on the Bank’s financial result and equity.
The standard scenario entails assumed parallel changes (increases and decreases) in the domestic and foreign reference interest rates by 100 basis points (b.p.).
• Increase of all interest rates by 100 b.p.; • Decrease of all interest rates by 100 b.p.
Parallel increases by 100 b.p. Parallel decreases by 100 b.p. 2014 2013 2014 2013
As at December 31 441,793 (207,690) (441,793) 207,690
In addition, the Bank separately considers optionality risk, i.e., impact of the early loan repayment and early deposit withdrawal by analyzing historical behavior of the Banks clients and using expert assessment. For certain items where there is no defined maturity date or interest rate repricing date, the Bank assesses movements and trends and deploys appropriate models.
4.3.2. Foreign Exchange Risk
Foreign exchange risk represents the possibility of negative effects on the Bank’s financial result and equity due to fluctuations in exchange rates. All the Bank’s items in the banking book and the trading book that are denominated in a foreign currency and gold, including dinar items indexed to foreign currency clause are exposed to foreign exchange risk.
The process of foreign exchange risk management entails identifying, measuring, minimizing, monitoring, control and foreign exchange risk reporting.
The Bank identifies its exposure to the foreign exchange risk by means of open positions in certain currency and for all currencies it operates with in the aggregate. The Bank’s open foreign currency position represents the difference between foreign currency assets and liabilities in a particular currency as well as between RSD assets and liabilities indexed to a currency clause (including the absolute value of the net open positions in gold).
Measurement of foreign exchange risk entails assessment of the Bank’s exposure thereto using the regulatory limits (foreign exchange risk ratio) and internally defined methods. Basis of measurement and assessment of the Bank’s exposure to the foreign exchange risk is the calculation of the foreign currency position per all individually significant currencies and all other currencies stated in the aggregate.
48 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks (Continued)
4.3.2. Foreign Exchange Risk (Continued)
Foreign exchange risk monitoring includes projections of foreign exchange risk in order to reduce the Bank’s exposure thereto. Such projections allow defining precaution measures for reducing the Bank’s exposure to the foreign exchange risk.
Foreign exchange risk measurement and monitoring is performed on a daily basis with obligatory preparation of detailed reports on the foreign exchange risk ration in accordance with the Bank’s internal bylaws in the following instances:
• the difference between two consecutive foreign exchange risk ratios is 2 percentage points; • the sum of five consecutive absolute differences between consecutive foreign exchange risk ratios exceeds 5 percentage points.
In 2014 the Bank’s foreign exchange risk ration was within the internally and legally prescribed limits:
2014 . 2013
As of December 31 2.00 % 2.26 % MAX 8.35 % 14.86 % MIN 0.02 % 0.67 % Internally defined limit Max 18% Max 18% Legally-defined limit Max 20% Max 20%
In order to ensure efficient foreign exchange risk control the Bank pays close attention to the compliance of the foreign exchange ratio, monitors the foreign currency position and departures from the internally and legally prescribed regulatory limits.
49 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks (Continued)
4.3.2. Foreign Exchange Risk (Continued)
The table below illustrates the Bank’s foreign exchange risk exposure and its net open foreign currency position per currency as at December 31, 2014:
December 31, 2014 Other EUR USD CHF Currencies FX Total RSD TOTAL
Cash and cash funds held with the central bank 16,583,209 262,699 263,532 - 17,109,440 10,211,216 27,320,656 Pledged financial assets 1,781,282 - - - 1,781,282 627,872 2,409,154 Financial assets available for sale 16,440,992 - - - 16,440,992 25,227,414 41,668,406 Financial assets held to maturity - - - - - 510,331 510,331 Loans and receivables due from banks and other financial institutions 4,316,904 7,777,131 166,996 14,336 12,275,367 124,140 12,399,507 Loans and receivables due from customers 47,486,976 2,251,274 52 - 49,738,302 25,000,324 74,738,626 Other assets 8,443 127 29 4 8,603 2,552,709 2,561,312
TOTAL ASSETS 86,617,806 10,291,231 430,609 14,340 97,353,986 64,254,006 161,607,992
Deposits and other liabilities due to banks, other financial institutions and the central bank 221,385 4,828,857 3 - 5,050,245 1,650,145 6,700,390 Deposits and other liabilities due to customers 85,736,477 5,275,941 413,187 12,990 91,438,595 20,410,382 111,848,977 Provisions 36,229 1,436 - - 37,665 684,867 722,532 Other assets 367,106 643 5 - 367,754 509,414 877,168
TOTAL LIABILITIES 86,361,197 10,106,877 413,195 12,990 96,894,259 23,254,808 120,149,067 Off-balance sheet items – net spot foreign currency position 379,204 (181,338) (16,327) - 181,539 - -
Net open foreign currency position at December 31, 2014 635,813 3,016 1,087 1,350 641,266 - -
50 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks (Continued)
4.3.2. Foreign Exchange Risk (Continued)
The table below illustrates the Bank’s foreign exchange risk exposure and its net open foreign currency position per currency as at December 31, 2013:
December 31, 2013 Other EUR USD CHF Currencies FX Total RSD TOTAL
Cash and cash funds held with the central bank 17,847,526 175,283 94,064 2,909 18,119,782 4,319,496 22,439,278 Financial assets at fair value through profit and loss, held for trading - - - - - 2,714 2,714 Financial assets available for sale 14,450,452 - - - 14,450,452 14,072,703 28,523,155 Financial assets held to maturity 1,092,137 - - - 1,092,137 1,899,410 2,991,546 Loans and receivables due from banks and other financial institutions 5,508,690 110,913 284,941 6,446 5,910,989 6,121,687 12,032,676 Loans and receivables due from customers 41,447,491 2,674,812 93 - 44,122,396 27,028,941 71,151,336 Other assets 520,274 16,540 24 3 536,841 3,989,447 4,526,288
TOTAL ASSETS 80,866,570 2,977,548 379,121 9,358 84,232,597 57,434,398 141,666,994 Financial liabilities at fair value through profit and loss, held for trading - - - - - 110 110 Deposits and other liabilities due to banks, other financial institutions and the central bank 159,570 372 130 - 160,072 1,274,379 1,434,451 Deposits and other liabilities due to customers 80,826,935 419,415 376,850 1,215 81,624,415 15,800,034 97,424,448 Provisions - - - - - 733,558 733,558 Deferred tax liabilities - - - - - 80,271 80,271 Other liabilities 437,756 419 438,175 521,310 959,485
TOTAL LIABILITIES 81,424,261 420,206 376,981 1,215 82,222,662 18,409,662 100,632,324 Off-balance sheet items – net spot foreign currency position 1,203,742 (2,462,035) - - (1,258,293) - --
Net open foreign currency position at December 31, 2013 646,051 95,307 2,140 8,143 751,641 - -
51 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.3. Market Risks (Continued)
4.3.2. Foreign Exchange Risk (Continued)
The Bank performs regular stress testing of foreign exchange risk in order to estimate the impact of extraordinary circumstances and stress events on the Bank’s financial result, equity and foreign exchange risk ratio.
Reporting on foreign exchange risk encompasses the system of internal and external reporting and is performed on a daily basis.
4.4. Operational Risk
Operational risk represents the possibility of negative effects on the Bank’s financial result and equity due to employee errors (intentional or accidental), inadequate procedures and processes in the Bank, inadequate management of information and other systems in the Bank, as well as occurrence of unforeseen external events. Operational risk includes legal risk.
Operational risks are identified for all significant products, service outsourcing, processes, systems, and external factors. Operational risk identification throughout the Bank is performed through combination of mapping operational risks, performance of self-assessment and risk control as well as collection of information on the events deemed to constitute operational risks.
The Bank monitors operational risk events per following business lines: corporate financing, trading and sales, broker-dealer operations with retail customers, banking operations involving corporate customers, banking operations involving retail customers, payment transfers, agency services and asset management services.
The Bank classifies identified events into predefined categories of events giving rise to losses: internal and external fraud, omissions in relations with the employees and system of safety at work, omissions and irregularities in relations with the customers, in respect of the products and operating procedures, damages to tangible assets, interruptions in operations and errors in the Bank’s systems, omissions in performance of transactions and deliveries and process management in the Bank.
The Bank performs both quantitative and qualitative measurement of its operational risk exposure. The measurement includes risk assessment, risk early warning indicators, scenario analysis and collection of information and data on operational risk events. The Bank measures/assesses operational risk exposure taking into account possibility (frequency) of such risk occurrence, as well as its potential effects on the Bank’s financial result, with particular focus on the events assessed as almost unlikely to occur, but assumed or known to be able to cause huge material losses should they occur after all. Upon measurement and assessment of operational risk, the Bank particularly estimates whether it is or may be exposed to this type of risk with regard to introduction of new products, activities, processes and systems and whether and how its outsourced activities (if any) may affect the operational risk level.
Control, monitoring of and reporting on the identified and assessed sources of risk, as well as undertaking measures to alleviate possible adverse effect of these risks are an integral part of the operational risk management process.
The Bank’s Board of Directors has adopted the Business Continuity Plan as well as the Disaster Recovery Plan and the Executive Board is responsible for their implementation, training and testing of employees and introducing the employees to their roles and responsibilities in the event of emergency occurrence.
In order to ensure the continuity of its operations, the Bank has determined the key activities, resources and systems required for conducting business processes, critical times for certain processes, risk that may disrupt the continuity of operations and its Recover Strategy defines the key goals the Bank need sot achieve in the event of interrupted operations.
4.5. Investment Risks
The Bank’s investment risks include risks of the Bank’s investments in other legal entities and capital expenditures, where the Bank’s investment in a single non-FSI entity may not exceed 10% of its own assets and the sum of the total Bank’s investments in non-FSI entities and capital expenditures may not exceed 60% of the Bank’s equity; this restriction however does not apply to acquisition of shares for further sale within 6 months from the acquisition date.
52 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.6. Exposure Risk
Risk of the Bank’s exposure to the same or similar risk source or the same or similar risk type – concentration – risk – refers to:
• the Bank’s exposure to a single entity or a group of related entities of over 10% of its equity cannot exceed 25% of the Bank’s equity; • the Bank’s exposure to a party that is related to the Bank cannot exceed 5% of the Bank’s equity, while total exposure to the Bank’s related parties cannot exceed 20% of the Bank’s equity; • the aggregate amount (sum) of the Bank’s large exposures cannot exceed 400% of the Bank’s equity.
The Bank controls the exposure risk by means of defined exposure limits that enable the loan portfolio diversification and use of tangible and intangible collaterals, in accordance with the NBS Decision on Capital Adequacy of Banks.
The Bank’s exposure to a single party or a group of related parties, as well as exposure to the Bank’s own related parties, were within the prescribed limits.
4.7. Country Risk
Country risk relates to the risk of the country of origin of the entity with which the Bank has entered or is to enter into the business relationship.
Country risk refers to the risk of negative effects on the Bank’s financial result and equity due to inability to collect receivables from abroad and is caused by political, economic and social conditions in the borrower’s country of origin. Country risk includes the following risks:
• Political and economic risk (inability of the Bank to collect receivables due to due to limitations prescribed by government regulations or due to other general and system circumstance in the given country); • Transfer risk relates to the probability of losses due to the inability to collect receivables in a currency which is not the official currency in the borrower’s country of origin, due to limitations to liability settlement toward creditors from other countries in specific currency that is predetermined by the official state regulations and bylaws of state and other bodies of the borrower’s country of origin.
Limits to the Bank’s country risk exposure are determined individually per borrower country of origin. In risk assessment and measurement the Bank uses internationally defined and recognized standards for county risk assessment.
The Bank implements internally adopted policies and procedures for country risk management in order to protect its operations from his risk
4.8. Capital Management
The Bank has established a risk management system in accordance with the volume and structure of its business activities and the capital management is aimed at unhindered achievement of the Bank’s business policy goals.
The calculation of the amount of capital and capital adequacy ratio is reconciled with the Basel II Standards.
The Bank manages capital on an ongoing basis in order to: • Maintain the minimum amount of capital of EUR 10 million in RSD equivalent at the official middle exchange rate; • Comply with the prescribed capital adequacy ratio (minimum 12%); • Maintain customer trust in the safety and stability of the Bank’s operations; • Realize business and financial plans; • Realize of the dividend policy.
53 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.8. Capital Management (Continued)
In addition to preservation and maintenance of capital, the Bank strives to enhance its capital by allocating realized profit to share capital and reserves thus increasing the volume of operating activities from its own assets (capital) and ensuring funds for absorbing potential risks of estimated losses.
The Bank’s total capital is the sum of the core capital and supplementary capital decreased by deductible items:
• The Bank’s core capital includes: share capital subscribed and paid in based on the ordinary and preference shares issued, excluding cumulative preference shares, share premium, reserves from profit and profit of the Bank. • The Bank’s supplementary capital is the sum of the par value of the paid in cumulative preference shares of the bank and a portion of the Bank’s positive revaluation reserves. • Deductible items comprise: intangible assets, amount of shares the Bank received in pledge excluding cumulative preference shares, amount of unrealized losses on securities available for sale, investments in banks and other FSI entities in excess of 10% of the equity of those banks and entities, amount in excess of qualified interests in non-FSI entities and required reserve from profit for estimated losses per on-balance sheet assets and off-balance sheet items of the Bank.
4.9. Capital Adequacy Ratio
2014 2013
Core capital 29,179,714 38,923,664 Supplementary capital 2,861,318 2,600,518
Deductible items (29,301) (8,484,492)
Capital 32,011,731 33,039,690
Credit risk-weighted assets 75,996,132 73,931,024 Operational risk exposure 1,339,991 1,459,283 Foreign exchange risk exposure 76,952 89,673 Capital adequacy ratio (minimum 12%) 36.46% 38.05%
In the course of 2014 the Bank’s capital adequacy ratio was in excess of the prescribed regulatory limit of 12%.
The Bank’s strategic goal is to maintain the capital adequacy ratio at the level above the prescribed minimum, not below 14.5%, i.e.. 2.5 percentage points above the prescribed minimum so that the Bank can distribute profit in such a manner that, apart from allocation of profit to the core capital elements, dividend payments to shareholders can be made.
The amount and structure of the Bank’s capital must at all times enable coverage of the minimum capital requirements and capital requirements regarding the risks the Bank is exposed to in its operations and in full compliance with the Risk Management Strategy and policies.
By implementing the Capital Management Strategy and Plan the Bank performs the process of internal capital adequacy assessment, i.e. determines the amount of internal capital in accordance with its risk- weighted portfolio, computing thereby capital requirements for risks it has identified as materially significant.
The Bank’s Capital Management Strategy ensures that the Bank at all times has at its disposal such a level and such a structure of internal capital so as to provide the Bank’s compliance with all its legal obligations, maintenance of the trust of its shareholders and depositors in the security and stability of its operations, realization of the Bank’s business and financial plans, which can support the expected growth of the Bank’s loans and investments, future sources of funds and their deployment, dividend policy and all changes to the prescribed minimum amount of capital.
54 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
4. RISK MANAGEMENT (Continued)
4.9. Capital Adequacy Ratio (Continued)
The Bank’s Capital Management Plan contains the following in particular: • Organization of the internal capital management process, which includes determined competences and responsibilities of the Bank’s bodies, Board of Directors, Executive Board, other Bank’s committees and competent divisions and departments of the Bank: Risk Control Department, Treasury, Compliance Control Division and Internal Audit; • Procedures of planning adequate internal capital levels; • Definition of the Bank’s capital – core capital, supplementary capital and deductible items; • Calculation of capital requirements for credit risk (determining risk-weighted assets, capital requirements for settlement risk and counterparty risk); • Calculation of capital requirements for market risks; • Calculation of capital requirements for operational risks; • Business operation plan in case of occurrence of unforeseen events that could affect the amount of the Bank’s internal capital.
5. USE OF ESTIMATES AND JUDGMENTS
The preparation and presentation of the financial statements in accordance with IFRS requires the Bank’s management to make judgments, estimates and assumptions that affect the application of the accounting policies and amounts of assets and liabilities and income and expenses presented in the financial statements. Actual results may vary from these estimates.
Estimates and assumptions are subject to constant review and are based on previous (historical) experience and other factors, including anticipation of future events deemed reasonable under the current circumstances. Revised accounting estimates are recognized in the period in which the revisions were made, as well as in those future periods affected by the revisions to the estimates.
5.1. Key Sources of Estimation Uncertainty
Provisions for Credit Losses
Impairment of assets carried at amortized cost is estimated in the manner described in accounting policy 3.9 – Impairment Identification and Measurement.
A separate counterparty element in the aggregate impairment provision is applied to financial assets subject to individual-level impairment assessment, and is based on the management’s best estimate of the present value of expected future cash flows. Upon estimating such cash flows, the management makes estimates on the financial standing of the counterparty and on the net realizable value of the existing collateral. Each impaired asset is assessed in terms of quality and output strategy, where the Bank’s Credit Risk Function independently approves the estimate of the cash flows considered to be recoverable.
Provisions assessed on a group-level cover credit losses inherent in the portfolios of loans and receivables and securities held to maturity sharing similar credit risk characteristics due to the objective evidence of impaired items that are no yet identifiable. Upon estimating the need for forming group-level provisions for losses, the management takes into accounts factors such as loan quality, assize of the portfolio, risk concentration and economic factors.
In order to estimate the required provision, the management makes assumptions to define the manner for modelling losses inherent in the portfolio and determine the necessary inputs, based on historical experience and current economic circumstances. The accuracy of provision depends on the estimated cash flows for individual counterparty provisions, as well as on the assumptions and inputs of the model used in determining the amount of group-level provision.
55 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
5. USE OF ESTIMATES AND JUDGMENTS (Continued)
5.2. Key Accounting Estimates in the Application of the Bank’s Accounting Policies
Determining the Fair Value of Financial Instruments
Determining the fair value of financial assets and liabilities for which there is no observable market price requires uses estimation techniques described in accounting policy 3.9. – Fair Value Measurement. Fair values of financial instruments which are rarely traded and the prices of which are not very transparent are less objective and require estimating to a greater extent, depending on the liquidity, concentration, uncertainty of the market factors, assumptions on pricing and other risks related to the specific instruments.
The key accounting estimates in the application of the Bank’s accounting policies include:
Measurement of Financial Instruments
The Bank’s accounting policy on the fair value measurement is disclosed in Note 3.9 .
The Bank measures fair value of financial assets using the following fair value hierarchy of the quality of the inputs used in measurement:
• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: - Valuation techniques based on inputs other than quoted prices included within Level 1 that are observable either directly (that is, as prices) or indirectly (that is, derived from prices). This level includes instruments measured by way of the official active market prices of instruments with similar characteristics, official market prices of identical or instruments with similar characteristics in a market deemed less active or using other valuation techniques with all significant inputs directly or indirectly available on the market.
• Level 3: – Valuation techniques involve unavailable or unobservable inputs. This level includes all instruments the fair values of which are assessed based on unavailable or unobservable input data, which therefore have significant effects on the instrument's fair value measurement. Such instruments are measured based on the official market prices for instruments with the similar characteristics, where significant adjustment or assumptions are required to reflect the differences between the instruments.
Fair values of financial assets and financial liabilities traded in an active market are based on the market prices. The Bank determines the fair values of all other financial instruments using valuation techniques.
Valuation techniques include the net present value and discounted cash flows, comparison to similar instruments for which observable market prices are available and other methods. Assumptions and inputs used in valuation techniques include risk-free and key policy interest rates, credit spreads and other factors used in estimating discount rates, prices of bonds or equity, foreign exchange rates, equity and equity price indexes and the expected instability of prices and correlations. The objective of the use of valuation techniques is to determine the fair value that reflects the price of a financial instrument at the reporting date, which would be determined by market participants in an arm’s length transaction.
The Bank uses generally accepted models for determining the fair values of regular and common financial instruments such as interest and currency swaps, for which exclusively observable inputs are used, requiring less estimates and assumptions to be made by the management. Observable model inputs are mostly available on the market of the quoted debt and equity instruments, trading derivatives and simple derivatives such as interest rate swaps.
Availability of observable market prices and model inputs reduces the need for estimates and assumptions made by management and reduces uncertainty associated with determining fair value. Availability of observable market prices and inputs varies depending on the products and market, it is prone to changes caused by various events and general conditions prevailing in the future markets.
56 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
6. FINANCIAL ASSETS AND LIABILITIES – ACCOUNTING CLASSIFICATION AND FAIR VALUE
The following table provides the breakdown of financial instruments measured at fair value at the end of the reporting period per fair value hierarchy levels, according to which fair value measurement is categorized:
December 31, 2014 Total assets/liabilities Level 1 Level 2 Level 3 at fair value Assets Pledged financial asses available for sale - 2,409,154 - 2,409,154 Financial asses available for sale 11,104 41,657,302 - 41,668,406 Total 11,104 44,066,456 - 44,077,560
Level 1 includes financial instruments traded on the stock exchange, while Level 2 includes securities the fair values of which are assessed based on the internally developed models based on the information from auctions on the secondary securities market. Fair values of assets determined based on the prices from the stock market are allocated to Level 3.
The carrying values and fair values of the financial assets and liabilities measured at other than fair value are presented in the table below:
December 31, 2014 Carrying Fair value value Level 1 Level 2 Level 3 Financial assets Loans and receivables due from customers 74,738,626 77,822,585 - - 77,822,585 Investment securities held to maturity 510,331 513,974 - - 513,974 Financial liabilities Deposits and other liabilities due to customers 111,848,977 112,848,630 - - 112,848,630
The methodology and assumptions used for calculating fair values of the aforesaid financial assets and liabilities not stated at fair value in the financial statements are as follows:
Assets whose fair values approximate their carrying values
For highly liquid financial assets and liabilities with short-term maturities (up to a year) it is assumed that their carrying values approximate their fair values. This assumption is also used for demand deposits, savings deposits without defined maturity and all financial instruments at variable interest rates.
Financial instruments at fixed interest rates
Far value of financial assets and liabilities at fixed interest rates carried at amortized cost is assessed by comparing the market interest rates upon initial recognition to the current interest rates prevailing on the market for financial assets with similar characteristics.
The estimated fair values of financial instruments at fixed interest rates is based on the cash flows discounted using the interest rate prevailing on the money market for financial instruments with similar credit risk characteristics and maturities.
Financial assets held to maturity, loans and deposits include a portion of the fixed interest rate portfolio, which gives rise to the differences between their carrying values and fair values.
57 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
7. SEGMENT REPORTING
7.1. The Bank’s Income Position per Segment December 31, 2014 Item Corporate Public SME Retail Other Total
Interest income 2,393,759 2,638,580 300,738 1,873,850 3,197,009 10,403,936 Interest expenses (195,308) (702,677) (132,335) (2,428,186) (220,991) (3,679,497) Net interest income/(expenses) 2,198,451 1,935,903 168,403 (554,336) 2,976,018 6,724,439 Interest income 259,943 100,226 220,714 267,444 126,328 974,655 Interest expenses (15,181) (9) (1,460) (6,070) (133,661) (156,381) Net fee and commission income/(expenses) 244,762 100,217 219,254 261,374 (7,333) 818,274 Net losses on the financial assets held for trading - - - - (2,714) (2,714) Net gains on risk hedges - - - - 4,130 4,130 Net gains on the financial assets available for sale - - - - 1,157 1,157 Net foreign exchange gains and positive currency clause effects - - - - 282,224 282,224 Other operating income - - - - 591,785 591,785 Net losses from impairment of financial assets and credit risk-weighted off-balance sheet assets (2,532,402) (308,548) (32,652) (167,354) (73,711) (3,114,667) Total operating income, net 2,653,702 2,738,806 521,452 2,141,294 4,202,633 12,257,887 Total operating expenses, net (2,742,891) (1,011,234) (166,447) (2,601,610) (431,077) (6,953,259) Staff costs - - - - (1,142,786) (1,142,786) Depreciation and amortization charge - - - - (170,158) (170,158) Other expenses - - - - (2,105,119) (2,105,119) Profit before taxes - 1,727,572 355,005 - 353,493 2,436,071 Loss before taxes (89,189) - - (460,316) - (549,505) (the Bank’s) profit before taxes 1,886,565
58 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
7. SEGMENT REPORTING (Continued)
7.1. The Bank’s Income Position per Segment (Continued) December 31, 2013 Item Corporate Public SME Retail Other Total
Interest income 3,461,484 3,760,461 389,139 1,895,531 2,330,583 11,837,198 Interest expenses (331,149) (766,091) (167,158) (3,564,129) (259,255) (5,087,782) Net interest income/(expenses) 3,130,335 2,994,370 221,982 (1,668,598) 2,071,328 6,749,416 Interest income 235,970 91,637 158,818 174,706 115,690 776,821 Interest expenses (4,137) - (13) (203) (128,037) (132,390) Net fee and commission income/(expenses) 231,832 91,637 158,806 174,503 (12,347) 644,431 Net losses on the financial assets held for trading - - - - (6,217) (6,217) Net gains on risk hedges - - - - 14,721 14,721 Net foreign exchange gains and positive currency clause effects - - - - 313,840 313,840 Other operating income - - - - 1,787,369 1,787,369 Gains on the reversal of impairment of financial assets and credit risk- weighted off-balance sheet items - - 69,858 - 6,349 76,207 Losses from impairment of financial assets and credit risk-weighted off- balance sheet assets (3,583,269) (428,626) - (73,072) - (4,084,967) Total operating income, net 3,697,454 3,852,098 617,815 2,070,237 4,568,552 14,806,156 Total operating expenses, net (3,918,555) (1,194,717) (167,171) (3,637,404) (393,509) (9,311,356) Staff costs - - - - (828,630) (828,630) Depreciation and amortization charge - - - - (264,391) (264,391) Other expenses - - - - (3,532,494) (3,532,494) Profit before taxes - 2,657,381 450,644 - - 3,108,025 Loss before taxes (221,101) - - (1,567,167) (450,472) (2,238,740) (the Bank’s) profit before taxes 869,285
NOTE: Layout of the Income Statement items was made based on the Bank’s internal segmentation given that the Segment FTP (Funds Transfer Pricing) project had not yet been completed, the allocation of income and expenses to segments was performed only for the interest income and expense, fee and commission income and expenses and total operating income, net, and expenses or losses from impairment of financial assets and credit risk-weighted off-balance sheet assets.
59 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
7. SEGMENT REPORTING (Continued)
7.2. The Bank’s Asset Position per Segment December 31, 2014 Item Corporate Public SME Retail Other Total Cash and cash funds held with the central bank - - - - 27,320,656 27,320,656 Pledged financial assets - - - - 2,409,154 2,409,154 Financial assets available for sale - - - - 41,668,406 41,668,406 Financial assets held to maturity 469,457 40,211 663 - - 510,331 Loans and receivables due from banks and other financial institutions - - - - 12,399,507 12,399,507 Loans and receivables due from customers 36,537,653 21,055,099 3,264,768 13,789,754 91,352 74,738,626 Intangible assets - - - - 194,488 194,488 Property, plant and equipment - - - - 956,288 956,288 Investment property - - - - 9,905,590 9,905,590 Current tax assets - - - - 498,938 498,938 Deferred tax assets - - - - 81,695 81,695 Non-current assets held for sale and assets from discontinued operations - - - - 56,279 56,279 Other assets 107,049 26,952 30,765 73,662 2,322,884 2,561,312 TOTAL ASSETS 37,114,159 21,122,262 3,296,196 13,863,416 97,905,237 173,301,270
LIABILITIES AND EQUITY 10,769,049 17,867,093 4,926,402 76,610,365 63,128,360 173,301,270 Deposits and other liabilities due to banks, other financial institutions and the central bank - - - - 6,700,390 6,700,390 Deposits and other liabilities due to customers 10,406,391 16,921,373 4,848,739 76,529,678 3,142,796 111,848,977 Provisions 198,268 511,499 3,644 980 8,141 722,532 Other liabilities 164,390 434,222 74,019 79,707 124,830 877,168 TOTAL LIABILITIES 10,769,049 17,867,094 4,926,402 76,610,365 9,976,157 120,149,067 EQUITY - - - - 53,152,203 53,152,203 Issued (share) capital - - - - 26,920,470 26,920,470 Profit - - - - 1,818,028 1,818,028 Loss - - - - 336,262 336,262 Reserves - - - - 24,749,967 24,749,967
60 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
7. SEGMENT REPORTING (Continued)
7.2. The Bank’s Asset Position per Segment (Continued) December 31, 2013 Item Corporate Public SME Retail Other Total
Cash and cash funds held with the central bank - - - - 22,439,278 22,439,278 Financial assets at fair value through profit and loss, held for trading - - - - 2,714 2,714 Financial assets available for sale - - - - 28,523,155 28,523,155 Financial assets held to maturity 1,745,252 1,221,451 24,843 - - 2,991,546 Loans and receivables due from banks and other financial institutions - - - - 12,032,676 12,032,676 Loans and receivables due from customers 27,558,533 28,382,219 2,110,568 12,950,303 149,713 71,151,336 Intangible assets - - - - 128,783 128,783 Property, plant and equipment - - - - 1,070,778 1,070,778 Investment property - - - - 8,827,511 8,827,511 Current tax assets - - - - 522,882 522,882 Deferred tax assets - - - - 250,338 250,338 Other assets 124,269 14,130 24,145 188,952 3,698,538 4,050,034 TOTAL ASSETS 29,428,054 29,617,800 2,159,556 13,139,255 77,646,366 151,991,031 LIABILITIES AND EQUITY 9,321,924 9,113,430 4,826,540 74,858,815 53,870,322 151,991,031 Financial assets at fair value through profit and loss, held for trading - - - - 110 110 Deposits and other liabilities due to banks, other financial institutions and the central bank - - - - 1,434,452 1,434,452 Deposits and other liabilities due to customers 8,813,900 8,114,234 4,752,672 74,779,859 963,783 97,424,448 Provisions 224,383 506,247 2,882 46 - 733,558 Current tax liabilities - - - - 179,228 179,228 Deferred tax liabilities 80,271 - - - - 80,271 Other liabilities 203,370 492,949 70,986 78,910 135,315 981,530 TOTAL LIABILITIES 9,321,924 9,113,430 4,826,540 74,858,815 2,712,888 100,833,597 EQUITY - - - - 51,157,434 51,157,434 Issued (share) capital - - - - 26,920,470 26,920,470 Profit - - - - 1,229,005 1,229,005 Loss - - - - 336,262 336,262 Reserves - - - - 23,344,221 23,344,221
61 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
7. SEGMENT REPORTING (Continued)
7.3. The Bank’s Income Position per Geographic Segment December 31, 2014 Item Belgrade Novi Sad Kragujevac Niš Head Office Total
1,207,158 912,055 441,289 1,193,118 6,650,316 10,403,936 Interest income Interest expenses (1,058,253) (655,644) (402,749) (865,701) (697,150) (3,679,497) Net interest income/(expenses) 148,905 256,411 38,540 327,417 5,953,166 6,724,439 Interest income 139,054 140,360 57,103 231,276 406,862 974,655 Interest expenses (7,710) (7,494) (4,352) 13,946 (150,771) (156,381) Net fee and commission income/(expenses) 131,344 132,866 52,751 245,222 256,091 818,274 Net losses on the financial assets held for trading - - - - (2,714) (2,714) Net gains on risk hedges - - - - 4,130 4,130 Net gains on the financial assets available for sale - - - - 1,157 1,157 Net foreign exchange gains and positive currency clause effects - - - - 282,224 282,224 Other operating income - - - - 591,785 591,785 Net losses from impairment of financial assets and credit risk-weighted off-balance sheet assets (697,267) (161,016) (240,699) (159,945) (1,855,740) (3,114,667) Total operating income, net 1,346,212 1,052,415 498,393 1,424,394 7,936,474 12,257,887 Total operating expenses, net (1,763,230) (824,154) (647,800) (1,011,700) (2,706,375) (6,953,259) Staff costs - - - - (1,142,786) (1,142,786) Depreciation and amortization charge - - - - (170,158) (170,158) Other expenses - - - - (2,105,119) (2,105,119) Profit before taxes - 228,261 - 412,694 1,812,036 2,452,991 Loss before taxes (417,018) - (149,408) - - (566,426) (the Bank’s) profit before taxes 1,886,565
62 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
7. SEGMENT REPORTING (Continued)
7.3. The Bank’s Income Position per Geographic Segment (Continued) December 31, 2013 Item Belgrade Novi Sad Kragujevac Niš Head Office Total
Interest income 1,472,819 1,377,791 518,540 1,564,791 6,903,257 11,837,198 Interest expenses (1,571,516) (967,733) (553,327) (1,173,311) (821,895) (5,087,782) Net interest income/(expenses) (98,697) 410,058 (34,787) 391,480 6,081,362 6,749,416 Interest income 107,256 132,692 41,038 197,978 297,857 776,821 Interest expenses (1,789) (2,257) (902) 4,519 (131,961) (132,390) Net fee and commission income/(expenses) 105,467 130,435 40,136 202,497 165,896 644,431 Net losses on the financial assets held for trading ------(6,217) (6,217) Net gains on risk hedges ------14,721 14,721 Net gains on the financial assets available for sale ------313,840 313,840 Net foreign exchange gains and positive currency clause effects ------1,787,369 1,787,369 Other operating income (197,985) (124,170) (84,975) (739,217) (2,862,413) (4,008,760) Net losses from impairment of financial assets and credit risk-weighted 1,580,075 1,510,483 559,578 1,762,769 9,317,044 14,729,949 off-balance sheet assets Total operating income, net (1,771,290) (1,094,160) (639,204) (1,908,009) (3,822,486) (9,235,149) Total operating expenses, net ------(828,630) 828,630 Staff costs ------(264,391) 264,391 Depreciation and amortization charge ------(3,532,494) 3,532,494 Other expenses - 416,323 - - 869,043 1,285,366 Profit before taxes (191,215) - (79,626) (145,240) - (416,081) Loss before taxes 869,285
63 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
7. SEGMENT REPORTING (Continued)
7.4. The Bank’s Asset Position per Geographic Segment December 31, 2014 Item Belgrade Novi Sad Kragujevac Niš Head Office Total
Cash and cash funds held with the central bank 2,053,811 271,892 335,245 390,963 24,268,745 27,320,656 Pledged financial assets - - - - 2,409,154 2,409,154 Financial assets available for sale - - - - 41,668,406 41,668,406 Financial assets held to maturity - 675 - 38,474 471,182 510,331 Loans and receivables due from banks and other financial institutions - - - 11,397 12,388,110 12,399,507 Loans and receivables due from customers 11,205,539 7,987,957 3,894,956 9,192,278 42,457,896 74,738,626 Intangible assets - - - - 194,488 194,488 Property, plant and equipment - - - - 956,288 956,288 Investment property - - - - 9,905,590 9,905,590 Current tax assets - - - - 498,938 498,938 Deferred tax assets - - - - 81,695 81,695 Non-current assets held for sale and assets from - - - - discontinued operations 56,279 56,279 Other assets 27,432 37,472 21,994 65,682 2,408,732 2,561,312 TOTAL ASSETS 13,286,782 8,297,996 4,252,195 9,698,794 137,765,503 173,301,270
LIABILITIES AND EQUITY 31,447,034 17,240,827 11,003,983 27,694,425 85,915,001 173,301,270 Deposits and other liabilities due to banks, other financial institutions and the central bank 9,528 32,585 424 1,559 6,656,294 6,700,390 Deposits and other liabilities due to customers 31,387,121 17,156,922 10,992,548 27,062,759 25,249,627 111,848,977 Provisions 8,852 3,104 599 518,518 191,459 722,532 Other liabilities 41,533 48,216 10,412 111,589 665,418 877,168 TOTAL LIABILITIES 31,447,034 17,240,827 11,003,983 27,694,425 32,762,798 120,149,067 EQUITY - - - - 53,152,203 53,152,203 Issued (share) capital - - - - 26,920,470 26,920,470 Profit - - - - 1,818,028 1,818,028 Loss - - - - 336,262 336,262 Reserves - - - - 24,749,967 24,749,967
64 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
7. SEGMENT REPORTING (Continued)
7.4. The Bank’s Asset Position per Geographic Segment (Continued) December 31, 2013 Item Belgrade Novi Sad Kragujevac Niš Head Office Total
Cash and cash funds held with the central bank 693,029 777,495 586,403 855,553 19,526,798 22,439,278 Financial assets at fair value through profit and loss, held for trading - - - - 2,714 2,714 Financial assets available for sale - - - - 28,523,155 28,523,155 Financial assets held to maturity 21,817 956,365 - 275,628 1,737,736 2,991,546 Loans and receivables due from banks and other financial institutions - - - 15,555 12,017,121 12,032,676 Loans and receivables due from customers 10,128,691 8,078,058 3,855,246 11,155,057 37,934,284 71,151,336 Intangible assets - - - - 128,783 128,783 Property, plant and equipment - - - - 1,070,778 1,070,778 Investment property - - - - 8,827,511 8,827,511 Current tax assets - - - - 522,882 522,882 Deferred tax assets - - - - 250,338 250,338 Other assets 61,232 56,187 48,785 60,206 3,823,624 4,050,034 TOTAL ASSETS 10,904,769 9,868,105 4,490,434 12,361,999 114,365,723 151,991,031 LIABILITIES AND EQUITY 31,182,030 19,055,796 11,526,161 26,959,689 63,267,356 151,991,031 Financial assets at fair value through profit and loss, held for trading 110 110 Deposits and other liabilities due to banks, other financial institutions and the central bank 2,211 7,278 157 13,466 1,411,340 1,434,452 Deposits and other liabilities due to customers 31,138,836 18,948,133 11,515,382 26,285,033 9,537,064 97,424,448 Provisions 16,359 8,429 1,454 555,672 151,644 733,558 Current tax liabilities - - - - 179,228 179,228 Deferred tax liabilities - - - 698 79,573 80,271 Other liabilities 24,623 91,956 9,169 104,819 750,963 981,530 TOTAL LIABILITIES 31,182,029 19,055,796 11,526,166 26,959,688 12,109,922 100,833,597 EQUITY - - - - 51,157,434 51,157,434 Issued (share) capital - - - - 26,920,470 26,920,470 Profit - - - - 1,229,005 1,229,005 Loss - - - - 336,262 336,262 Reserves - - - - 23,344,221 23,344,221
NOTE: Allocation of the income statement and balance sheet item to geographic segments was made based on the criteria for customer segmentation: Corporate customers – large legal entities, Public – Government bodies and institutions, banks and financial institutions are under the remit of the Head Office. Other customers are distributed per territorial competence of organizational units.
65 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
8. INTEREST INCOME AND EXPENSES
Interest income and expenses per financial instrument classes are presented below:
Year Ended December 31, 2014 2013 Interest income: Loans and receivables due from customers 7,087,041 8,813,523 Loans and receivables due from banks 35,087 94,867 Deposits held with the National Bank of Serbia 177,846 218,587 Securities: - repo transactions 201,342 177,551 - Republic of Serbia RSD-denominated bonds 1,426,511 538,149 - RSD Treasury bills of the RS Government 645,543 567,125 - Republic of Serbia foreign currency bonds 602,624 313,412 - foreign currency Treasury bills of the RS Government 94,248 371,169 - old foreign currency savings bonds 3,133 8,663 Interest on investments in bills of exchange 130,561 733,992 Interest on corporate bonds - 160 Total 10,403,936 11,837,198 Interest expenses: Borrowings received from banks (40,025) (37,882) Deposits from and liabilities due to customers (3,552,860) (4,967,532) Deposits from and liabilities due to banks (58,158) (78,446) Securities (26,010) (1,090) Other interest expenses (2,444) (2,832) Total (3,679,497) (5,087,782) Net interest income 6,724,439 6,749,416
9. FEE AND COMMISSION INCOME AND EXPENSES Year Ended December 31, 2014 2013
Fee and commission income Fees arising from payment card operations 176,379 148,104 Fees for payment transfer operations 595,846 477,714 Fees on issued guarantees 182,347 150,072 Other fees and commissions 20,083 931 Total 974,655 776,821
Fee and commission expenses Fees arising from payment card operations (81,252) (50,846) Fees for payment transfer operations (61,314) (81,544) Other fees and commissions (13,815) - Total (156,381) (132,390) Net fee and commission income 818,274 644,431
66 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
10. NET LOSSES ON FINANCIAL ASSETS HELD FOR TRADING Year Ended December 31, 2014 2013
Gains on the financial assets held for trading - 2,714 Losses on the financial assets held for trading (2,714) (8,931)
Net losses (2,714) (6,217)
Total net losses on the financial assets held for trading in 2014 relate to the changes in fair value of the currency swap.
11. NET GAINS ON RISK HEDGES Year Ended December 31, 2014 2013
Gains on the risk hedges 4,130 14,721
Net gains 4,130 14,721
Net gains on the risk hedges relate to the changes in the value of loans with contractually defined risk hedges using consumer price index.
12. NET GAINS ON FINANCIAL ASSETS AVAILABLE FOR SALE Year Ended December 31, 2014 2013
Gains on the sale of securities available for sale 1,827 - Losses on the sale of securities available for sale (670) -
Net gains 1,157 -
Net gains on the sale of securities available for sale of RSD 1,157 thousand relate to the gains from the sale of the Republic of Serbia bonds and Treasury bills.
13. NET FOREIGN EXCHANGE GAINS AND POSITIVE CURRENCY CLAUSE EFFECTS
Year Ended December 31, 2014 2013 Foreign exchange gains Foreign exchange gains 4,113,667 6,856,121 Positive currency clause effects 3,510,571 2,285,520 Total gains 7,624,238 9,141,641 Foreign exchange losses Foreign exchange losses (6,217,187) (6,955,882) Negative currency clause effects (1,124,827) (1,871,919) Total losses (7,342,014) (8,827,801) Net foreign exchange gains 282,224 313,840
67 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
14. OTHER OPERATING INCOME Year Ended December 31, 2014 2013
Rental income 316,649 385,684 Cost refunds 49,790 72,186 Gains on the sale of property, plant, equipment and fixtures 43,760 102 Write-off of liabilities 23,018 44,633 Dividend income 19 7 Other income 1,283 1,164 Gains on the valuation of property 157,266 1,283,593 Total 591,785 1,787,369
Rental income from the lease of business premises totaling RSD 316,649 thousand (2013: RSD 385,684 thousand) entirely relates to the income from the lease of investment property to third parties.
Gains on the valuation of property amounting to RSD 157,266 thousand in 2014 (2013: RSD 1,283,593 thousand) entirely relate to the recording of i investment property appraisal effects in accordance with the changed accounting policy on subsequent measurement of investment property (Notes 2.5.1 and 29).
15. NET LOSSES FROM IMPAIRMENT OF FINANCIAL ASSETS AND CREDIT RISK-WEIGHTED OFF- BALANCE SHEET ITEMS Year Ended December 31, 2014 2013 Losses from impairment of balance sheet items Financial assets held to maturity (71,118) (281,579) Loans and receivables due from banks (6,319) (2,479) Loans and receivables due from customers (8,524,649) (5,686,544) Other assets (84,542) (119,753) (8,686,628) (6,090,355) Provisioning charge for off-balance sheet items (784,203) (111,200) Write -off of uncollectable receivables Loans and receivables due from customers (6,921) (12,225) Other assets (2,751) (69) (9,672) (12,294) Total losses (9,480,503) (6,213,849) Gains on the reversal of impairment of balance sheet items Financial assets held to maturity 135,355 92,351 Loans and receivables due from banks 6,651 278 Loans and receivables due from customers 5,355,777 1,965,833 Other assets 59,178 34,176 5,556,961 2,092,638 Gains on the reversal of provisions for off-balance sheet items 808,702 112,451 Collected receivables previously written off Loans and receivables due from customers 119 - Other assets 54 - 173 - Total gains 6,365,836 2,205,089
Net losses from impairment of financial assets and credit risk-weighted off-balance sheet items (3,114,667) (4,008,760)
68 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
15. NET LOSSES FROM IMPAIRMENT OF FINANCIAL ASSETS AND CREDIT RISK-WEIGHTED OFF- BALANCE SHEET ITEMS (Continued)
MOVEMENTS ON IMPAIRMENT ALLOWANCE ACCOUNTS AND PROVISION FOR OFF-BALANCE SHEET ITEMS
Loans and Loans and receivables receivables Securities Off-balance due from due from held to Other sheet banks customers maturity assets liabilities (Note 25) (Note 26) (Note 24) (Note 33) (Note 37) Total Balance as at January 1, 2014 4,908 20,445,255 1,081,294 391,773 671,787 22,595,017 Charge for the year 6,319 8,524,649 71,118 84,542 784,203 9,470,831 Decrease in impairment allowance (6,651) (5,355,777) (135,355) (59,178) (808,702) (6,365,663) Write-off - (20,366) (11,234) (73,913) - (105,513) Foreign exchange effects 128 301,855 - 11 - 301,994 Other movements (1,180) (216,371) 217,545 10 - 4 Balance as at December 31, 2014 3,524 23,679,245 1,223,368 343,245 647,288 25,896,670
16. STAFF COSTS Year Ended December 31, 2014 2013
Net salaries (593,895) (408,808) Net benefits (109,930) (87,136) Payroll taxes and contributions per salaries and benefits (405,386) (285,347) Other staff costs and considerations paid to seasonal and temporary staff (36,873) (42,643) Provisioning charge for long-term employee benefits - (26,771) Reversal of provisions for long-term employee benefits 3,298 22,075
(1,142,786) (828,630)
17. DEPRECIATION/AMORTIZATION CHARGE Year Ended December 31, 2014 2013
Buildings (Note 28) (7,120) (8,072) Equipment and other assets (Note 28) (114,205) (115,689) Investment property (Note 29) - (109,947) Intangible assets (Note 27) (48,833) (30,683)
(170,158) (264,391)
69 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
18. OTHER EXPENSES Year Ended December 31, 2014 2013
Cost of materials 147,492 137,437 Rental costs and other costs relating to leased business premises 244,927 214,895 Telecommunications and postage 224,177 163,204 Cost of other services 22,227 23,159 Property and equipment maintenance costs 145,806 208,887 Marketing and advertising 121,705 65,035 Donations and sponsorships 19,578 22,988 Entertainment 18,459 19,312 Auditing and expertise costs 25,558 27,628 Insurance premiums 497,851 350,144 Membership fees 7,987 35,408 Lawyer, appraiser and valuer fees 48,547 9,802 Court and other fees and costs 28,329 55,106 Broker and Central Registry fees 6,550 19,729 Security services 100,778 119,615 Additional employee insurance 28,595 25,261 Other non-material costs 78,822 47,673 Taxes and contributions payable 141,813 162,563 Reinvoiced costs 32,056 49,889 Provisions for litigations (Note 37) 19,577 35,000 Other expenses 25,716 70,840 Losses on the sale of other investments 61,019 - Losses on the valuation of property 57,550 1,668,919
Total 2,105,119 3,532,494
Losses on the valuation of property totaling RSD 1,668,919 thousand in 2013 relate to the accounting for negative effects investment property appraisal effect in the amount of RSD 1,163,585 thousand in accordance with the changed accounting policy of subsequent investment property measurement (Note 2.5.1) and impairment of tangible assets acquired in lieu of debt collection in the amount of RSD 505,334 thousand (Notes 2.5.2 and 29).
19. INCOME TAXES
19.1. Components of income taxes 2014 2013 (Restated)
Current income tax expense 11,377 100,781 Deferred income tax benefits - (250,338) Deferred income tax expenses 57,160 25,606
Total 68,537 (123,951)
For tax purposes positive effects of the valuation of investment property increase taxable income and in this respect the bank stated current tax liabilities in the amount of RSD 100,781 thousand. Deferred tax benefits per deferred tax assets of RSD 250,338 thousand refers to the created deferred tax assets based on the unrecognized losses on impairment of assets acquired in lieu of debt collection and negative investment property valuation effects (Note 2.5.3).
70 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
19. INCOME TAXES (Continued)
19.2. Reconciliation of the income tax and profit before taxes 2014 2013
(Restated)
Profit for the year before taxes 1,886,565 869,284 Tax calculated using the local income tax rate (15%) 282,985 130,393 Tax effects of unrecognized expenses (24,398) 258,889 Tax effects of the net capital losses/gains (6,476) - Tax effects of the net capital losses/gains 11,377 - Tax effects of income reconciliation 15,197 3,839 Tax credit received and used in the current year - (22,726) Expense and income adjustment 11 - Tax effects of the interest income from debt securities issued by the Republic of Serbia (411,907) (269,614) Tax effect adjustments (used and new ones) 57,160 (224,732) Unrecognized tax credits 144,588 - Tax effects stated within the income statement 68,537 (123,951)
Current income tax expenses for the year 2014 amounting to RSD 11,377 thousand and the adjusted current income tax liability for 2013 in the amount of RSD 100,781 thousand were settled through several advance income tax payments. After closing the current tax liabilities, current tax assets amounted to RSD 498,938 thousand (Note 31).
20. CASH AND CASH FUNDS HELD WITH THE CENTRAL BANK December 31, December 31, 2014 2013
In RSD Gyro account 9,053,666 3,299,882 Cash on hand 1,151,284 1,019,614 Prepayments per funds held with the central bank 6,266 - 10,211,216 4,319,496 In foreign currencies Cash on hand 3,039,940 1,892,866 Other cash funds 35,133 99,148 Obligatory foreign currency reserves held with NBS 14,034,367 16,127,768 17,109,440 18,119,782 Total 27,320,656 22,439,278
Adjustments to cash and cash equivalents for the purpose of preparing the statement of cash flows Foreign currency accounts held with foreign banks (Note 25) 11,977,069 5,358,803 Prepayments per funds held with the central bank (6,265) - Obligatory foreign currency reserves held with NBS (14,034,367) (16,127,768) (2,063,563) (10,768,965) Cash and cash equivalents reported in the statement of cash flows 25,257,093 11,670,313
In the statement of cash flows the Bank reports on the cash funds held on the gyro account held with NBS, cash on hand in RSD and foreign currencies, cash on accounts held with foreign banks and cash funds held on the account with the Central Securities Registry, Depository and Clearing House.
The gyro account balance includes the RSD obligatory reserves, which represent the minimum amount of RSD reserves allocated in accordance with the Decision on Obligatory Reserves Held with the NBS (Official Gazette of RS, nos. 3/2011, 31/2012, 57/2012, 78/2012, 87/2012, 107/2012, 62/2013, 125/2014 and 135/2014).
71 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
20. CASH AND CASH FUNDS HELD WITH THE CENTRAL BANK (Continued)
The Bank is obligated to calculate and allocate the obligatory RSD reserve based on the average daily carrying amount of RSD liabilities for the preceding calendar month, applying the rate of 5% to the liabilities with contracted maturities of up to 2 years and the rate of 0% to the liabilities with contracted maturities of over 2 years (2013: 5% and 0%, respectively).
In addition, the obligatory RSD reserve includes 36% and 28% of RSD equivalent of obligatory foreign currency reserves based on maturities of up to 2 years and over 2 years (2013: 32% and 24%, respectively).
The Bank is obligated to maintain the average daily balance of the obligatory RSD reserve in the amount of the calculated obligatory RSD reserve.
The calculated obligatory RSD reserve that was to be maintained on the gyro account from December 18, 2014 to January 17, 2015 amounted to RSD 7,988,571 thousand and was in compliance with the aforecited NBS Decision.
The average interest rate paid by NBS on the amount of the allocated RSD reserve not exceeding the amount of the calculated obligatory RSD reserve equaled 2.5% per annum for the first six months of 2014 (2013: 2.5% per annum).
In accordance with the Decision on Obligatory Reserves Held with the NBS (Official Gazette of RS, nos. 3/2011, 31/2012, 57/2012, 78/2012, 87/2012,107/2012, 62/2013, 125/2014 and 135/2014), the Bank calculates and allocates the obligatory foreign currency reserve based on the average daily balance of foreign currency liabilities from the preceding month at the rate of 27% applied to liabilities with contracted maturities of up to 2 years, the rate of 20% applied to liabilities with contracted maturities of over 2 years (2013: 29% and 22%, respectively), and at the rate of 50% applied to the average daily balance of RSD liabilities with a currency clause index. The required foreign currency reserve is allocated onto a special account held with the National Bank of Serbia.
Out of the total required foreign currency reserve 64% (for the liabilities maturing within 2 years), and 72% (for the liabilities maturing after 2 years), is allocated in foreign currencies, and the remaining respective 36% and 28% are allocated in RSD and held on the gyro account.
The Bank is under obligation to maintain the average monthly balance of the allocated foreign currency reserve in the amount of the calculated obligatory foreign currency reserve.
The calculated obligatory foreign currency reserve that was to be maintained on the gyro account from December 18, 2014 to January 17, 2015 amounted to EUR 117,201 thousand and was in compliance with the aforecited NBS Decision.
Obligatory foreign currency reserve does not accrue interest.
Other foreign currency cash funds of RSD 35,133 thousand (2013: RSD 99,148 thousand) entirely relate to the clearing account held with the s Central Securities Registry, Depository and Clearing House for trade in securities.
21. PLEDGED FINANCIAL ASSETS December 31, December 31, 2014 2013
In RSD: Securities available for sale – par value 620,000 - Securities available for sale – departure from the par value 7,873 - 627,873 - In foreign currencies: Securities available for sale – par value 1,762,967 - Securities available for sale – departure from the par value 18,314 - 1,781,281 - Total 2,409,154 -
72 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
21. PLEDGED FINANCIAL ASSETS (Continued)
As of December 31, 2014 in order to securitize deposits received the Bank pledged the following securities:
• Republic of Serbia RSD-denominated bonds with the par value of RSD 620,000 thousand; • Republic of Serbia foreign currency-denominated bonds with the par value of EUR 9,825 thousand; and • Republic of Serbia foreign currency-denominated Treasury bills with the par value of EUR 4,750 thousand.
22. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS, HELD FOR TRADING
December 31, December 31, 2014 2013
Receivables per derivatives – currency swap - 2,714 Total - 2,714
23. FINANCIAL ASSETS AVAILABLE FOR SALE December 31, December 31, 2014 2013
Securities In RSD: Republic of Serbia bonds 17,523,074 8,082,731 Republic of Serbia Treasury bills 7,704,340 5,989,971 25,227,414 14,072,702 In foreign currencies: Republic of Serbia bonds 16,399,902 10,473,198 Republic of Serbia Treasury bills 29,986 3,840,249 RS old foreign currency savings bonds 11,104 137,006 16,440,992 14,450,453
Total securities 41,668,406 28,523,155
As of December 31, 2014 the Bank had investments in the Republic of Serbia RSD bonds at both fixed and variable interest rates. RS bonds at fixed interest rates have maturities from 24 to 36 months and interest rates ranging from 8.1% to 16.12%. RS bonds at variable interest rates have maturities of 24 months and interest rates ranging from NBS key policy rate + 0.98% to NBS key policy rate + 2.7%.
Republic of Serbia RSD Treasury bills mature within 3 to 12 months at interest rates from 7.0% do 8.98%.
the Bank’s investments in the Republic of Serbia foreign currency bonds have maturities from 24 months to 60 months at interest rates ranging from 4.0% do 5.0%.
Republic of Serbia foreign currency Treasury bills mature within 12 months at the interest rate of 3.19%.
RS old foreign currency savings bonds mature in May 2015 and the market price for these bonds at the Belgrade Stock Exchange as of December 31, 2014 was 98.85%.
73 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
24. FINANCIAL ASSETS HELD TO MATURITY December 31, December 31, 2014 2013
In RSD: Corporate bills of exchange 1,733,699 4,072,841 1,733,699 4,072,841 Less: Impairment allowance (1,223,368) (1,081,295)
Total 510,331 2,991,546
Movements on the impairment allowance Balance at January 1 (1,081,294) (902,694) Charge for the year (Note 15) (71,118) (281,579) Reversal of impairment allowance (Note 15) 135,355 92,351 Write-off, foreign exchange effects 11,234 10,627 Other changes (217,545) - Balance at December 31 (1,223,368) (1,081,295)
As of December 31, receivables for discounted bills of exchange represented investments with maturities of up to a year and discount rate ranging from 9.6% to 10.2% annually.
25. LOANS AND RECEIVABLES DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
December 31, December 31, 2014 2013
RSD loans and receivables Per repo transactions - 6,000,000 Loans for liquidity maintenance and working capital 954 954 Other RSD loans 125,908 122,298 Interest and fee receivables 56 4,058 Deferred income from fees as part of the effective interest rate - (1,045) 126,918 6,126,265 Foreign currency loans and receivables Foreign currency accounts held with foreign banks 11,977,069 5,358,803 Overnight deposits - 229,284 Earmarked deposits in accordance with the effective regulations 4,838 4,586 Other earmarked deposits 274,917 318,610 Other foreign currency loans 19,289 - Interest and fee receivables - 36 12,276,113 5,911,319
L oans and receivables, gross 12,403,031 12,037,584 Les s: Impairment allowance (3,524) (4,908)
Balance as of December 31 12,399,507 12,032,676
Movements on the impairment allowance Balance at January 1 (4,908) (1,872) Charge for the year (Note 15) (6,319) (2,479) Reversal of impairment allowance (Note 15) 6,651 278 Write-off, foreign exchange effects and other changes 1,052 (835) Balance at December 31 (3,524) (4,908)
74 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
25. LOANS AND RECEIVABLES DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
As of December 31, 2014 the Bank had no investments in the repo transactions with the National Bank of Serbia. During 2014 the Bank invested funds in repo transactions with NBS at interest rates ranging from 9% to 8% per annum.
Short-term foreign currency (EUR) deposits of other banks were placed with the Bank for periods of 1 to 7 days at interest rates ranging from 0.05% to 0.4% annually.
Short-term RSD deposits were placed by domestic banks at interest rates between 5.7% and 10.2% annually for periods from 1 to 7 days.
26. LOANS AND RECEIVABLES DUE FROM CUSTOMERS December 31, December 31, 2014 2013 Corporate customers Transaction account overdrafts 1,280,186 1,253,279 Working capital loans 31,788,331 28,554,166 Export loans - 64,741 Investment loans 40,499,639 37,391,804 Deposits placed 2,094 1,998 Foreign currency loans 3,031,690 3,272,809 Receivables per guarantees and acceptances 1,055,184 832,735 Loans per ceded receivables 84,220 586,100 Receivables per guarantees and acceptances 20,453 19,385 Other loans and receivables 363,094 299,679 Interest and fee receivables 4,953,852 5,205,312 Deferred income from fees as part of the effective interest rate (151,346) (161,844) 82,927,397 77,320,164 Retail customers Transaction account overdrafts 658,118 701,694 Consumer loans 141,052 479,663 Housing loans 4,798,309 3,861,639 Cash loans 6,373,995 5,527,741 Other loan and receivables 3,219,227 3,531,425 Foreign currency real estate purchase loans 17,272 20,195 Interest and fee receivables 392,665 266,805 Deferred income from fees as part of the effective interest rate (110,164) (112,735) 15,490,474 14,276,427 Loans and receivables, gross 98,417,871 91,596,591 Less: Impairment allowance (23,679,245) (20,445,255) Balance at December 31 74,738,626 71,151,336
Movements on the impairment allowance Balance at January 1 (20,445,255) (16,738,080) Charge for the year (Note 15) (8,524,649) (5,686,544) Reversal of impairment allowance (Note 15) 5,355,777 1,965,834 Write-off, foreign exchange effects (281,489) 12,700 Other changes 216,371 835 Balance at December 31 (23,679,245) (20,445,255)
Short-term RSD loans were approved to corporate customers and entrepreneurs for a period up to 12 predominantly at nominal interest rates ranging from 12% to 31.4% annually (effective interest rates from 14.46% to 36%).
Short-term RSD loans (with a currency clause index) were approved to corporate customers at interest rates between 4% and 14% annually (effective interest rates from 5.21% to 15.59%).
75 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
26. LOANS AND RECEIVABLES DUE FROM CUSTOMERS (Continued)
Long-term RSD loans were approved to corporate customers at interest rates between 12% and 18% annually (effective interest rates from 13.1% to 18.63%).
Long-term RSD loans (with a currency clause index) were approved to corporate customers and entrepreneurs predominantly at nominal interest rates ranging from 4% to 12% annually (effective interest rates from 4.84% to 13.5%).
Nominal interest rates applied to short-term foreign currency loans disbursed to corporate customers ranged from 10% to 12% annually (effective interest rates from 11.68 % to 14.85%).
Loans to entrepreneurs are approved under the same terms as to the corporate customers.
Short-term retail loans were disbursed at annual interest rates from 4% to 30% and short-term RSD loans with a currency clause index at the annual rates from 4% to 12%.
Short-term RSD loans were approved to the registered agricultural household producers at interest rates from 14.5% to 22% annually.
Long-term RSD loans were extended to retail customers at annual interest rates ranging from 4% to 24% and nominal interest rates between 3.67% and 19.56% annually were applied to long-term RSD loans with a currency clause index.
Short-term RSD loans with a currency clause index were approved to the registered agricultural household producers at interest rates from 6.75% to 23% annually.
Long-term RSD loans were extended to the registered agricultural household producers at nominal fixed interest rates from 19.75% to 22% annually and long-term SD loans with a currency clause index at nominal fixed interest rates between 7.5% and 22% annually and at nominal interest rates ranging from 3-month Euribor + 6.5% to 3-month Euribor + 13.50% annually.
27. INTANGIBLE ASSETS December 31, December 31, 2014 2013
Patents, license and software 201,416 86,878 Other intangible assets 163,897 163,897 365,313 250,775
Accumulated amortization of intangible assets (170,825) (121,992)
Net book value 194,488 128,783
76 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
27. INTANGIBLE ASSETS (Continued)
Movements on the account of intangible assets in 2013 and 2014 are presented below:
Total COST Balance at January 1, 2013 158,049 Additions 92,726 Balance at December 31, 2013 250,775 Balance at January 1, 2014 250,775 Additions 114,538 Balance at December 31, 2014 365,313 ACCUMULATED AMORTIZATION Balance at January 1, 2013 91,309 Charge for the year (Note 17) 30,683 Balance at December 31, 2013 121,992 Balance at January 1, 2014 121,992 Charge for the year (Note 17) 48,833 Balance at December 31, 2014 170,825 Net book value as at: - December 31, 2014 194,488 - December 31, 2013 128,783
28. PROPERTY, PLANT AND EQUIPMENT December 31, December 31, 2014 2013
Property, plant and equipment Property - buildings 555,029 694,427 Equipment 1,176,193 1,128,701 Investment in progress 110,600 110,600 Leasehold improvements 40,296 - Cost 1,882,118 1,933,728 Accumulated depreciation (925,830) (862,950)
Net book value 956,288 1,070,778
77 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
28. PROPERTY, PLANT AND EQUIPMENT (Continued)
Movements on the account of property and equipment in 2013 and 2014 are presented below:
Equipment and other Investment Leasehold Buildings assets in progress Improvements Total COST Balance at January 1, 2013 682,942 1,034,368 110,600 - 1,827,910 Additions 11,485 139,030 - - 150,515 Retirement and disposal - (44,697) - - (44,697)
Balance at December 31, 2013 694,427 1,128,701 110,600 - 1,933,728 Balance at January 1, 2014 694,427 1,128,701 110,600 - 1,933,728 Additions 12,899 84,387 10,085 30,211 137,582 Transfer from investment in progress - (10,085) 10,085 - Retirement and disposal (726) (36,895) - - (37,621) Transfer to investment property (Note 29) (81,441) - - - (81,441) Transfer to assets held for sale (Note 30) (70,130) - - - (70,130)
Balance at December 31, 2014 555,029 1,176,193 110,600 40,296 1,882,118 ACCUMULATED DEPRECIATION Balance at January 1, 2013 69,953 710,634 - - 780,587 Charge for the year (Note 17) 8,072 115,689 - - 123,761 Retirement and disposal - (41,398) - - (41,398)
Balance at December 31, 2013 78,025 784,925 - - 862,950 Balance at January 1, 2014 78,025 784,925 - - 862,950 Charge for the year (Note 17) 7,120 109,845 - 4,360 121,325 Retirement and disposal (226) (34,007) - - (34,233) Transfer to investment property (Note 29) (13,154) - - - (13,154) Transfer to assets held for sale (Note 30) (11,058) - - - (11,058)
Balance at December 31, 2014 60,707 860,763 - 4,360 925,830
Net book value as at: - December 31, 2014 494,322 315,430 110,600 35,936 956,288 - December 31, 2013 616,402 343,776 110,600 - 1,070,778
The Bank has no buildings assigned under mortgage as collateral for the repayment of borrowings.
As a result of incomplete land (real estate cadaster) registers, as at December 31, 2014, the Bank did not have title deeds as proof of ownership for 4 buildings stated at the net book value of RSD 31,937 thousand. The Bank’s management is undertaking all actions necessary to obtain the appropriate property titles for these buildings.
In 2014 the Bank reclassified, i.e., transferred from property for own purposes (acquired in prior years) to investment property the following premises with the total cost of RSD 81,441 thousand:
• business premises in Belgrade, at no. 10/6, Knez Mihajlova Street, with the area of 520,6 m2, in line with the Executive Board’s Decision dated May 12, 2014; and • part of building in Ćuprija, at no. 91, Cara Lazara Street, with the area of 12 m2, in line with the Executive Board’s Decision dated December 22, 2014.
Reclassification was made in accordance with the executed agreements on the lease of the afore listed premises.
78 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
29. INVESTMENT PROPERTY 2014 2013 (Restated)
Investment property 9,905,590 8,827,511
Total 9,905,590 8,827,511
Movements on the account of investment property in 2013 and 2014 are presented below:
COST Balance at January 1, 2013 8,723,093 Additions 4,381 Transfer from tangible assets acquired in lieu of debt collection (Note 33) 284,463 Reversal of accumulated depreciation (304,434) Valuation/appraisal (Note 2.5.3.) 120,008 Balance at December 31, 2013 8,827,511 Balance at January 1, 2014 8,827,511 Additions 9,214 Retirement and disposal (46,029) Transfer from tangible assets acquired in lieu of debt collection (Note 33) 944,099 Transfer from property (Note 28) 68,287 Valuation/appraisal 102,508 Balance at December 31, 2014 9,905,590 ACCUMULATED DEPRECIATION Balance at January 1, 2013 194,487 Charge for the year (Note 17) 109,947 Reversal of accumulated depreciation (304,434) Balance at December 31, 2014 - Balance at January 1, 2014 - Charge for the year (Note 17) - Retirement and disposal - Balance at December 31, 2014 -
Net book value as at: - December 31, 2014 9,905,590 - December 31, 2013 8,827,511
In 2014 the Bank changed its accounting policy regarding the subsequent measurement of investment property. The previously used cost model was replaced with the fair value model in the new accounting policy for subsequent measurement of investment property.
Based on the appraisals performed by a certified appraiser, the adjustment of the aggregate value of investment property for the previous period amounted to RSD 120,008 thousand. Positive appraisal effects totaled RSD 1,283,593 thousand (Note 14), while the negative appraisal effects amounted to RSD 1,163,585 thousand (Note 18).
As a result of incomplete land (real estate cadaster) registers, as at December 31, 2014, the Bank did not have title deeds as proof of ownership for 4 properties classified as investment property with the total net book value of RSD 201,795 thousand. in addition, in respect of another 3 buildings with the net book value of RSD 251,545 thousand, the Bank is in possession of final and legally binding Decisions issued by the competent Real Estate Cadaster Offices granting the Bank registration of ownership right over the respective properties. The process of obtaining title deeds is underway.
In 2014, under the Decision of the Bank’s Executive Board dated December 29, 2014, the Bank reclassified, i.e., transferred from tangible assets acquired in lieu of debt collection (acquired in prior years) to investment property premises with the total net book value of RSD 944,099 thousand, as follows:
79 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
29. INVESTMENT PROPERTY (Continued)
• Facility - Shopping Mall ELNOS located in Novi Sad at no. 165, Sentandrejski put Street, cadaster lot no. 65/4, with the cost of RSD 185,426 thousand and area of 15,504 m2. The Bank acquired this property in 2009 from the entity Rodić M&B Invest za gradjevinarstvo d.o.o., Novi Sad under the Contract on Transfer of Ownership Rights in Lieu of Debt Settlement per Loan no. 105080452000806907 executed on January 31, 2008;
• Land in Šimanovci with the total area of 35ha 44a 33m2 (lots: 1750/3, 1750/5, 1750/12, 1750/15, 1750/18 and 1750/30, Cadastral Municipality of Šimanovci), whose cost amounted to RSD 750,978 thousand. The Bank acquired the aforesaid property in 2013 from the entity A1 INVEST d.o.o., Novi Beograd under the Contract on Transfer of Ownership Rights in Lieu of Debt Settlement per Loans no. 105080458002465209 and no. 105080453000347481 and Agreement on Assignment of Receivables for Consideration no. 3439/2013;
• Business premises in Kruševac – Supermarket Sinđelić at no. 9/1, Stevana Sinđelića Street, with the total area of 150 m2, whose cost amounted to RSD 7,695 thousand. The Bank acquired the aforesaid property in 2013 from the entity Jukomerc trgovina a.d. (in bankruptcy), Kruševac pursuant to the Contract on Purchase and Sales of Movable and Immovable Assets.
In 2014 the Bank earned rental income in the total amount of RSD 316,649 thousand.
30. NON-CURRENT ASSETS HELD FOR SALE AND ASSETS FROM DISCONTINUED OPERATIONS
December 31, December 31, 2014 2013
Balance at January 1 - - Transfer from property (Note 28) 59,072 - Losses on value adjustment of assets (2,793) -
Balance at December 31 56,279 -
Under the Executive Board’s Decision dated December 22, 2014 the Bank reclassified properties not used by the Bank for performance of its own business activity to assets held for sale. The net book value of these assets amounted to RSD 59,072 thousand. The said reclassification was made at the lower of the carrying values and appraised values of these assets and losses in the amount of RSD 2,793 thousand arising therefrom were recorded.
31. CURRENT TAX ASSETS December 31, December 31, 2014 2013
Receivables per current tax assets (Note 19.2) 498,938 522,882
498,938 522,882
Current tax assets comprise advance payments of income taxes for the years 2013 and 2014 made as required by the Law on the Corporate Income Tax.
80 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
32. DEFERRED TAX ASSETS AND LIABILITIES
32.1. Balances on the Accounts of Deferred Tax Assets and Liabilities 2014 Tax assets Tax liabilities Net tax effect Buildings and equipment (107,425) (107,425) Impairment of assets 258,970 258,970 Unrealized gains/losses on securities available for sale - (69,921) (69,921) Actuarial losses 71 - 71 Balance at year-end 259,041 (177,346) 81,695 (Restated) 2013 Tax assets Tax liabilities Net tax effect
Buildings and equipment - (41,633) (41,633) Impairment of assets 250,338 - 250,338 Unrealized gains/losses on securities available for sale - (38,638) (38,638) Balance at year-end 250,338 (80,271) 170,067
32.2. Movements on the Accounts of Deferred Tax Assets and Liabilities 2014 Stated within Stated Balance, Income within Balance, January 1 Statement Equity December 31
Buildings and equipment (41,633) (65,792) (107,425) Unrealized gains/losses on securities available for sale (38,638) - (31,283) (69,921) Impairment of assets 250,338 8,632 - 258,970 Actuarial losses - - 71 71 Total 170,067 (57,160) (31,212) 81,695 2013 Stated within Stated Balance, Income within Balance, January 1 Statement Equity December 31
Buildings and equipment (16,026) (25,606) (41,633) Unrealized gains/losses on securities available for sale (126) - (38,513) (38,638) Impairment of assets (Note 2.5.3.) - 250,338 - 250,338 Total (16,152) 224,732 (38,513) 170,067
Unused Tax Credits
Unused tax credits entirely relate to the tax losses arising from the tax effects of interest income from debt securities issued by the Republic of Serbia. The aforesaid tax credits are available for carryforward but only for duration of no longer than 5 year form their inception.
Year of Tax Credit Unused Tax Losses Year of Inception Utilization Expiry
144,589 2014 2019
81 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
33. OTHER ASSETS December 31, December 31, 2014 2013 (Restated) Other RSD receivables: Fee receivables per other assets 89,232 42,851 Interest receivables per other assets 11,060 11,060 Receivables per advances paid for working capital 11,473 16,627 Receivables per advances paid for permanent investments 32,571 54,938 Other receivables from operating activities 297,636 378,408 Receivables in settlement 544 494 Other foreign currency receivables: 442,516 504,378 Fee receivables per other assets 27 - Receivables per advances paid for working capital 1,047 2,991 Other receivables from operating activities 8,512 533,919 9,586 536,910 Other investments: Equity investments 94,898 91,210 94,898 91,210 Prepayments : Deferred interest expenses 48,427 184,600 Deferred other expenses 11,931 5,737 60,358 190,337 Inventories: Assets acquired in lieu of debt collection 2,297,199 3,118,972
Other receivables, gross 2,904,557 4,441,807 Less: Impairment allowances of: - other RSD receivables (298,130) (347,656) - other foreign currency receivables (1,070) (116) - equity investments (44,038) (44,001) - prepayments (7) - (343,245) (391,773)
Balance at December 31, net 2,561,312 4,050,034 Movements on the impairment allowance Balance at January 1 (391,773) (330,545) Charge for the year (Note 15) (84,542) (119,753) Reversal of impairment allowance (Note 15) 59,178 34,176 Write-off, foreign exchange effects 73,902 24,349 Other changes (10) - Balance at December 31 (343,245) (391,773)
Other receivables from operating activities totaling RSD 297,636 thousand mostly, in the amount of RSD 136,822 thousand, relate to the rental receivables for the lease of premises
82 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
33. OTHER ASSETS (Continued)
As of December 31, 2014, the Bank had equity investments in the following entities:
December 31, December 31, 2014 2013
Equity investments up to 10%: Mаrfin Bank а.d., Beogrаd 16 35 OTP Bаnkа Srbijа а.d., Novi Sаd 12,490 12,490 Politikа а.d., Beogrаd 7,478 4,704 AMS Osigurаnje а.d., Beogаrd 175 213 BetrаTrаns а.d., Beogrаd 57 57 Druš.zа kons.i menаdž.pos.Tržište novcа а.d., Beogrаd 171 171 Šаr holding, Kosovo 19,050 19,050 Plаvа tаčkа osiguranje а.d. – u likvidаciji, Beograd 745 745 PB Agrobаnkа а.d., Beogrаd 9,825 9,825 Univerzаl Bаnkа а.d., Beogrаd 14,381 14,381 Preduzeće AIK d.d., Novi Sad 418 418 Regional Center for Entrepreneurship Development in Niš 41 41 Zvezda film a.d., Novi Sad 971 - 65,818 62,130 Equity investments in excess of 10%:
Savings and Crediting Organization AIK Vrаnje 29,080 29,080 94,898 91,210 Less: Impairment allowance of equity investments (44,038) (44,001) Balance at December 31 50,860 47,209
As of December 31, 2014, the Bank’s tangible assets acquired in lieu of debt collection amounted to:
December 31, December 31, 2014 2013 (Restated)
Buildings 2,292,937 3,114,710 Equipment 4,262 4,262 Total 2,297,199 3,118,972
Movements on the Bank’s tangible assets acquired in lieu of debt collection were as follows:
December 31, December 31, 2014 2013 (Restated)
Balance at January 1 3,118,972 2,859,320 Additions – assets acquired during the year 125,269 1,049,449 Transfer to investment property (Note 29) (944,099) (284,463) Sales (2,943) Impairment of assets (Note 2.5.2.) - (505,334) Balance at December 31 2,297,199 3,118,972
Based on the independent appraiser’s report from 2014 on fair values of the Bank’s property as of December 31, 2013, the management determined that the tangible assets acquired in lieu of debt collection were overstated by RSD 505,334 thousand as of December 31, 2013 due to the identified impairment losses.
83 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
33. OTHER ASSETS (Continued)
In 2014 the Bank acquired the following properties:
Acquisition Description Area in m2 Value Date Commercial building in Zaječar, Beogradska bb 3,817.00 11,451 02/06/2014 Apartment in Vrnjačka Banja, Villa Izvor 76.12 2,679 01/09/2014 Building no. 1 - warehouse, Šabac 191.00 235 13/11/2014 Building no. 2 – Head Office, Šabac 83.00 348 13/11/2014 Building no. 1 – Sports hall, Šabac 5,087.00 96,164 13/11/2014 Building no. 3 – Building, Šabac 163.00 271 13/11/2014 Outlet – store in a commercial building in Kragujevac 131.00 12,424 18/11/2014 Outlet – store in Aleksinac, 7. Juli # 1 340.10 1,697 01/03/2014
Total in RSD ’000 125,269
The Bank’s management is undertaking all the necessary measures to realize the sales of the acquired assets.
As a result of incomplete land (real estate cadaster) registers, as at December 31, 2014, the Bank did not have title deeds as proof of ownership for 7 properties classified as tangible assets acquired in lieu of debt collection, with the total net book value of RSD 734,417 thousand. The Bank’s management is undertaking all actions necessary to obtain the appropriate property titles for these buildings.
34. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS, HELD FOR TRADING
December 31, December 31, 2014 2013
Liabilities per derivatives held for trading - 110
Balance at December 31 - 110
35. DEPOSITS AND OTHER LIABILITIES DUE TO BANKS, OTHER FINANCIAL INSTITUTIONS AND THE CENTRAL BANK December 31, December 31, 2014 2013
Transaction deposits 371,740 445,586 Deposits for loans approved - 170,769 Earmarked deposits 4,400 2,248 Other deposits 5,226,329 591,698 Overnight deposits and borrowings 850,000 - Borrowings 230,000 220,000 Other financial liabilities 6,033 424 Interest payable, accrued interest liabilities and fees 11,888 3,727
Balance at December 31 6,700,390 1,434,452
Short-term RSD deposits placed by domestic banks were deposited for periods from 1 to 7 days and the interest rate applied ranged from 5.65% to 10% annually. Short-term EUR deposits placed by domestic banks were deposited for periods from 1 to 7 days and the interest rate applied ranged from 0.05% to 0.35%, annually. Short-term EUR deposits placed by domestic banks were deposited for periods from 1 to 7 days and the interest rate applied ranged from 0.2% to 0.4% annually. Overnight borrowings of RSD 850,000 thousand relate to a loan obtained from Komercijalna banka a.d., Beograd in the amount of RSD 700,000 thousand at the interest rate of 9.2% and a loan from OTP Bаnkа Srbijа a.d., Novi Sad in the amount of RSD 150,000 at the interest rate of 9.2% annually. A short-term loan of RSD 230,000 thousand was obtained from Jubmes Banka a.d., Beograd for a period of 6 days at the interest rate of 9% annually.
Other deposits amounting to RSD 5,226,329 thousand relate to the term deposits of other financial institutions. RSD term deposits totaled RSD 303,453 thousand and accrued interest at the annual rates from 5.8% to 7%. EUR term deposits totaled RSD 4,922,876 thousand and accrued interest at the annual rates from 1.7% to 4%, depending on the deposit placement term.
84 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
36. DEPOSITS AND OTHER LIABILITIES DUE TO CUSTOMERS December 31, December 31, 2014 2013
Corporate customers Transaction deposits 11,932,658 6,353,221 Deposits for loans approved 6,408,258 1,080,755 Earmarked deposits 289,419 80,770 Other deposits 15,298,948 14,646,113 Overnight deposits and borrowings 944,176 - Other financial liabilities 3,081 9,023 Interest payable, accrued interest liabilities and fees 95,301 149,682 34,971,841 22,319,564 Retail customers Transaction deposits 2,659,006 2,088,509 Savings deposits 71,541,459 70,078,045 Deposits for loans approved 1,541,118 794,904 Earmarked deposits 13,659 15,238 Other deposits 4,934 9,980 Other financial liabilities 634 9,643 Interest payable, accrued interest liabilities and fees 1,116,326 2,108,565 76,877,136 75,104,884
Balance at December 31 111,848,977 97,424,448
RSD transaction deposits of corporate customers accrued interest at the rates ranging from 0% to 6.17% annually.
RSD transaction deposits of public sector entities accrued interest at the rates ranging from 0% to 8.73% annually.
The Bank paid interest on foreign currency transaction deposits of corporate and public sector customers at the annual interest rates between 0% and 1.8%, for EUR deposits and between 0% and 0.6% for USD deposits.
The Bank paid interest on retail RSD transaction deposits at the annual rate of 3%.
Retail transaction deposits in foreign currencies are non-interest bearing.
Nominal interest rates applied to savings demand deposits of retail customers ranged from 0.15% to 0.5% annually for EUR savings, and from 0.05% to 0.15% annually for CHF and USD savings.
Nominal interest rates applied to savings term deposits in foreign currencies placed for periods of up to a year ranged from 0.80% to 2.95 annually for EUR deposits, from 0.50% to 1% annually for CHF deposits and from 0.80% to 2.40% annually for USD deposits. In addition, Nominal interest rates applied to savings term deposits in foreign currencies placed for periods of over a year (over 12 months and up to 30 months) ranged from 2.0% to 3.80% annually for EUR deposits, while other currency deposits were not placed for periods of over 12 months.
Nominal interest rates applied to savings term deposits in RSD placed for periods of up to a year ranged from 6.0% to 8.5% annually.
Interest rates applied to earmarked term deposits were contracted in correlation with the prices of such investments.
Term RSD deposits received from corporate customers were placed at interest rates ranging from 5.5% to 9.5% annually for periods of 7 days to 12 months.
Term EUR deposits received from corporate customers were placed at interest rates ranging from 1.0% to 4.2% annually for periods of 7 days to 12 months.
85 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
36. DEPOSITS AND OTHER LIABILITIES DUE TO CUSTOMERS (Continued)
Term RSD deposits received from public sector entities were placed at interest rates ranging from 4.0% to 12.0% annually for periods of 7 days to 12 months.
Term EUR deposits received from public sector entities were placed at interest rates ranging from 1.35% to 3.5% annually for periods of 7 days to 12 months.
37. PROVISIONS December 31, December 31, 2014 2013
Provisions for litigations (Note 41.1.) 54,577 35,000 Provisions for employee retirement benefits and jubilee awards 20,668 26,771 Provisions for losses per off-balance sheet items 647,287 671,787 Total 722,532 733,558
Movements on provisions for litigations during the year are presented in the table below:
December 31, December 31, 2014 2013
Balance at January 1 35,000 - Charge for the year (Note 18) 19,577 35,000
Balance at December 31 54,577 35,000
Movements on provisions for retirement benefits/jubilee awards during the year are presented in the table below: December 31, December 31, 2014 2013
Balance at January 1 26,771 23,723 Charge for the year - 26,771 Reversal of provisions (2,824) (22,076) Release of provisions (3,279) (1,647)
Balance at December 31 20,668 26,771
Movements on provisions for losses per off-balance sheet items during the year are presented in the table below: December 31, December 31, 2014 2013
Balance at January 1 671,787 673,038 Charge for the year (Note 15) 784,203 111,200 Reversal of provisions (Note 15) (808,702) (112,451)
Balance at December 31 647,288 671,787
86 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
37. PROVISIONS (Continued)
The main actuarial assumptions used in calculation of provisions for retirement benefits were as follows:
December 31, December 31, 2014 2013
Discount rate 8.75% 9.50% Bank’s salary growth rate 4.00% 7.00% Employee turnover rate 4.00% 4.00%
38. INCOME TAX PAYABLE December 31, December 31, 2014 2013
Income tax payable - 179,228 Balance at December 31 - 179,228
39. OTHER LIABILITIES December 31, December 31, 2014 2013 (Restated) Other liabilities: Account trade payables 89,971 52,304 Advances received 1,899 1,545 Liabilities per guarantees and acceptances called on 324 339 Liabilities payable against profit 190,862 192,970 Liabilities per managed funds 5,192 5,202 Other liabilities from operating activities 121,768 156,901 Liabilities in settlement 11,563 61 Suspense and temporary accounts 6,400 7,143 Liabilities to employees - 4 Other foreign currency liabilities 3,465 1,040 431,444 417,509 Tax liabilities: Value added tax payable 4,641 5,992 Other taxes and contributions payable 17,554 40,548 22,195 46,540 Accruals : Accrued liabilities per other accrued expenses 7,318 5,415 Deferred interest income 385,728 491,599 Deferred other income 30,483 20,467 423,529 517,481
Balance at December 31 877,168 981,530
87 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
40. EQUITY
40.1. Equity Structure December 31, December 31, 2014 2013 (Restated) Share capital: Ordinary shares 17,186,936 17,186,936 Preference shares 2,575,610 2,575,610 19,762,546 19,762,546 Share premium 7,157,924 7,157,924
26,920,470 26,920,470 Reserves from profit and other reserves 24,354,149 23,125,145 Revaluation reserves from securities available for sale 405,649 280,744 Actuarial losses per defined employee benefit plans (403) - Unrealized losses on securities available for sale (9,428) (61,668) 24,749,967 23,344,221 Current year’s profit 1,818,028 1,229,005 Prior years’ losses (336,262) (336,262)
Balance at December 31 53,152,203 51,157,434
In 2014, pursuant to the Decision of the Bank’s Assembly no. 10/2014 on the allocation and distribution of realized profit stated in the 2013 Annual Accounts, the total profit amounting to RSD 1,229,005 thousand was distributed as follows:
- RSD 548,305 thousand was allocated to the bank’s reserves for estimated losses; - RSD 680,699 thousand was allocated to reserves intended for purchase of the Bank’s treasury shares.
Shareholder Structure:
The structure of the Bank’s shareholders with interests above 1% as of December 31, 2104 is presented in the table below:
Total Share Interest Controlling Interest Capital % Capital %
Sunoko d.o.o., Novi Sad 8,481,906 42.92 8,481,906 49.35 Atebank* 4,122,802 20.86 3,498,202 20.35 JP Elektroprivreda Srbije 878,778 4.45 602,161 3.50 East Capital (lux) - Balkan Fund 641,020 3.24 641,020 3.73 Salink Limited 443,699 2.25 - - Globos Osiguranje a.d., Beograd 361,076 1.83 274,765 1.60 UniCredit Bank Srbija a.d., Beograd 351,069 1.78 351,069 2.04 The Bank of New York Mellon 310,162 1.57 310,162 1.80 Erste Bank a.d., Novi Sad 193,540 0.98 193,540 1.13 Other shareholders 3,978,494 20.12 2,834,111 16.50 TOTAL 19,762,546 100 17,186,936 100
88 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
40. EQUITY
40.1. Equity Structure
Shareholder Structure (Continued):
The total number of the Bank’s subscribed and paid in shares as of December 31, 2014 was 10,401,340, out of which: 9,045,756 ordinary shares and 1,355,584 preference shares, with the individual par value of RSD 1,900 per share (December 31, 2013: 9,045,756 ordinary shares and 1,355,584 preference shares, with the individual par value of RSD 1,900 per share).
In 2014 the Bank did not perform new share issues.
40.2. Earnings per Share December 31, December 31, 2014 2013 (Restated)
Net profit for the year 1,818,028 993,236 Profit decreased by preference dividend 1,663,491 838,698
Weighted average number of shares outstanding 9,045,756 8,960,173
Basic earnings per share (in RSD) 184 94
40.3. Unrealized Dividends
Unrealized dividends originated from 2013 and amounted to RSD 149,864 thousand (6% of the par value of cumulative preference shares).
41. CONTINGENT LIABILITIES AND OTHER OFF-BALANCE SHEET ITEMS
41.1. Litigation
As of December 31, 2014 there were 65 legal suits involving the Bank as a defendant.
Plaintiffs’ claims mostly relate to annulment or refutation of contracts and lien statements, i.e., deletion of registered mortgages, determining that the Bank has no secured rights in the bankruptcy cases, etc., which represent legal suits where the plaintiffs do not claim monetary receivables from the Bank. Given the aforesaid, for the largest number of legal suits monetary claims against the Bank may refer only to the payment of litigation expenses (court fees and counterparty lawyer fees) in the event that the Bank should loses a case.
The aggregate value of legal suits filed against the Bank amounted to RSD 445,875 thousand, which includes any monetary amounts the Bank would be obligated to pay in instances of lost cases (as damage compensation, deb payment and the like); this amount however does not refer to the legal suits without monetary claims of the plaintiffs against the Bank. Based on the opinion of the attorneys representing the Bank before court and estimated probability and amount of the potential losses the Bank could incur, provisions were made in this respect in the amount of RSD 54,577 thousand (Note 37).
The Bank was also involved in a number of lawsuits filed against third parties for debt collection.
41.2. Operating Lease Commitments December 31, December 31, 2014 2013 (Restated)
Maturing within a year 16,825 7,399 Maturing within a period from 1 to 5 years 174,955 452,423 Maturing after 5 years 273,764 119,291
Total 465,544 579,113
89 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
41. CONTINGENT LIABILITIES AND OTHER OFF-BALANCE SHEET ITEMS (Continued)
41.3. Other Off-Balance Sheet items December 31, December 31, 2014 2013
Managed funds 1,078,543 866,930 Guarantees and other sureties issued 23,577,935 14,541,001 Financial assets securitizing liability settlement 2,409,154 - Derivatives held for trading at contractually agreed value - 4,926,840 Securities received as pledges 10,846,367 3,219,992 Other off-balance sheet items 92,733,911 98,219,966
Balance at December 31 130,645,910 121,774,729
a) Managed funds Loans per managed funds in RSD 2014 2013 - short-term 109,422 109,622 - long-term 969,121 757,308 1,078,543 866,930 b) Contingent liabilities Payment guarantees 2014 2013 - in RSD 3,465,721 4,461,547 - in foreign currencies 144,012 183,194 Performance guarantees - in RSD 3,681,954 2,396,285 - in foreign currencies 1,359,839 775 8,651,526 7,041,801
Undrawn loan facilities 5,612,047 4,284,299 5,612,047 4,284,299
Irrevocable commitments per own guarantees and spot - in RSD 4,424,381 1,600,756 - in foreign currencies 4,889,981 1,614,145 9,314,362 3,214,901 23,577,935 14,541,001 c) Assets securitizing liabilities 2014 2013 Financial assets securitizing liability settlement 2,409,154 - 2,409,154 - d) Derivatives 2014 2013 Currency swap with a foreign bank - 4,926,840 - 4,926,840 e) sureties received to securitize liabilities 2014 2013
Securities received to securitize loan repayment 10,846,367 3,219,992 10,846,367 3,219,992 f) Other off-balance sheet items 2014 2013 Tangible assets, guarantees and other sureties received to securitize loan repayment 81,642,381 90,087,446 Unused revocable loan facilities 4,672,422 7,039,360 Depositary operations 173 191 Loro guarantees 5,293,980 144,866 Broken-period interest 513,253 337,043 Other 611,702 611,060 92,733,911 98,219,966 Balance at December 31 130,645,910 121,774,729
90 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
42. RELATED PARTY DISCLOSURES a) Transactions with the Management Personnel
Transactions with the Bank’s Management members are based on the common market terms:
Remunerations to the Management 2014 2013 Executive Board members (56,801) (35,924) Board of Directors (31,582) (41,359) Total remunerations to the Management (88,383) (77,283)
Income/ Income/ Balance Balance Expenses Expenses Other transactions with the Management 2014 2013 2014 2013 Payment cards, cash and consumer loans 2,398 103 269 920 Housing loans - 59,918 - 3,647 Deposits (84,996) (349,147) (6,119) (6) Other liabilities 2 (217) (718) (15) Total other transactions with the Management members (82,596) (289,343) (6,568) 4,546 b) Transactions with Entities Related to the Bank
In the normal course of business, a number of banking transactions are performed with the bank’s shareholders and other persons/entities related to the Bank at arm’s length.
The following table provides details of related party transactions (balances of receivables, payables, income and expenses) as of the balance sheet date :
Balance sheet Off-balance December 31, 2014 gross exposure sheet exposure Total Liabilities
Employees 151,815 33,132 184,947 177,062 Private individual related parties 35,093 8,968 44,061 624,494 Legal entity related parties * 7,300,318 187,596 7,487,914 5,603,023 7,487,226 229,696 7,716,922 6,404,579 December 31, 2013
Employees 258,862 37,163 296,025 231,572 Private individual related parties 58,827 48,593 107,420 1,490,862 Legal entity related parties * 140,305 1,279,433 1,419,738 3,455,724 457,994 1,365,189 1,823,183 5,178,158
* Tables on the following pages provide the breakdown of related parties.
91 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
42. RELATED PARTY DISCLOSURES (Continued) b) Transactions with Entities Related to the Bank (Continued)
December 31, 2014 Balance sheet Off-balance gross sheet Entity Total Liabilities Income Expenses exposure exposure Agroglobe d.o.o., Novi Sad - 7,000 7,000 (10,003) 4,907 (884) Beogradelektro d.o.o., Beograd - 50,714 50,714 (621) 1,128 (758) MK Hollding d.o.o., Beograd 3,869,048 - 3,869,048 - 2,745 (10,471) Granexport d.o.o., Pančevo - - - (248,130) 1,268 (2,403) Sunoko d.o.o., Novi Sad 266,787 - 266,787 (1,831,159) 9,127 (23,643) MK Commerc d.o.o., Novi Sad - - - (1,109,783) 2,164 (2,533) Agroglobe agrar d.o.o., Novi Sad - - - (606) 2,111 (122) Kom-Invest d.o.o., Beograd - - - (787) 5 (664) Brook Development d.o.o., Beograd - - - (121) 5 - MK Mountain resort d.o.o., Kopaonik 62 - 62 (2,505) 107 (1,130) FSH Maxiprotein d.o.o., Požega - - - (204) 5 (20) MK-Fintel wind a.d., Beograd - - - (9,797) 1,000 (609) Energobalkan d.o.o., Beograd - 45,473 45,473 (890) 514 (420) Vetropak kula d.o.o., Beograd - 64,270 64,270 (332) 686 (577) MK Invest d.o.o., Novi Sad - - - (37) 2 (2) M&V Investments a.d., Beograd - - - (24,348) 13 (619) MK Group d.o.o., Beograd 2 - 2 (2,171,627) 22,257 (126,519) Carnex d.o.o., Vrbas - - - (188,838) 3,512 (6,463) Gavrilović inženjering Čačak - - - (256) 8 - MDM Drina d.o.o., Beograd 2,236 - 2,236 - 321 (95) Taverna Nova d.o.o., Vrnjačka Banja 2 - 2 - 2 - Sintezis agro konsalting d.o.o. 698,925 - 698,925 - 173 - Blekoak Developments d.o.o. - - - (8) - - Fashion Company d.o.o., Beograd 20,188 19,680 39,868 - 117 (207) VIctoria Group a.d., Beograd 2,443,024 - 2,443,024 - 47,503 (10,389) Flop szr, Šabac 41 459 500 (1) 70 (4) Others 3 - 3 (2,970) 259 (1,786) Total 7,300,318 187,596 7,487,914 (5,603,023) 100,009 (190,318)
The table above shows 20 related parties (legal entities) with the most significant balances.
92 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
42. RELATED PARTY DISCLOSURES (Continued) b) Transactions with Entities Related to the Bank (Continued)
December 31, 2013 Balance sheet Off-balance gross sheet Entity exposure exposure Total Liabilities Income Expenses Beogradelektro d.o.o., Beograd - 18,311 18,311 (765) 1,510 (94) MK Group, d.o.o., Beograd 8 546,129 546,137 (3,095,053) 10,759 (36,942) BDD M&V Investments a.d., Novi Sad - - - (12) 2 (3) MK Invest d.o.o., Novi Sad - - - (105) 1 - Agroglobe d.o.o., Novi Sad 76,979 338,149 415,128 (11,405) 61,377 (34,827) Sunoko d.o.o., Novi Sad - 22,928 22,928 (238,721) 9,863 (63,297) MK Commerce d.o.o., Novi Sad - - - (10) 4 - Agroglobe agrar d.o.o., Novi Sad 61,989 213,731 275,720 (385) 23,332 (7,401) Com-Invest d.o.o., Beograd - - - (360) 12 (3,670) Brook Development d.o.o., Beograd - - - (341) - - MK Mountain resort d.o.o., Kopaonik 248 - 248 (1,408) 212 (1,876) FSH Maxiprotein a.d., Požega - - - (958) 5 - MK-Fintel wind a.d., Beograd - 139,670 139,670 (78,371) 1,494 (1) Omega future d.o.o., Niš - - - (674) 4 - Merovacrent real estate d.o.o., Beograd - - - (4,686) 9 - Jeanci Serbia d.o.o., Leskovac - - - (20,355) 1,071 (12) Jatik d.o.o., Zrenjanin 287 15 302 - 62 - Severtrans a.d., Sombor – in restructuring - - - (37) 182 - Flop szr, Šabac 794 500 1,294 (935) 77 (6) Gavrilović inženjering Čačak - - - (518) 6 - Others - - - (625) 67 - Total 140,305 1,279,433 1,419,738 (3,455,724) 110,049 (148,129)
43. BALANCE RECONCILIATION OF RECEIVABLES AND LIABILITIES
Article 20 of the Law on Accounting stipulates the Bank’s obligation to reconcile mutual balances of outstanding receivables and liabilities with customers. Balance reconciliations are performed at least annually, prior to preparation of the financial statements. In accordance with the Bank’s internal bylaws, November 30 of the current year was set as the date for balance reconciliation of receivables and liabilities with customers.
Out of the total amount of receivables requested to be reconciled, the amount of RSD 22,398 thousand remained unreconciled. Out of the total amount of liabilities requested to be reconciled, the amount of RSD 12,055 thousand remained unreconciled.
44. EVENTS AFTER THE REPORTING PERIOD
At its meeting by correspondence held on February 25, 2015 the Bank’s Board of Directors enacted the Decision on the Replacement of the Executive Board Chairperson.
Ms. Jelena Galić was appointed Chairperson of the Bank’s Executive Board, while Mr. Vladmir Čupić was relieved of duty. This change was duly registered with the Serbian Business Registers Agency under Decision no. BD 25145/2015 dated March 27, 2015.
After the period these financial statements refer to, on January 20, 2015, 1,841,159 of the bank’s shares were transferred from the shareholder ATEBANK, which was subject to the special liquidation procedure, to the shareholder Piraeus bank SA, pursuant to the Decision of the National Bank of Serbia granting approval to Piraeus Bank SA for direct ownership acquisition.
93 Translation of the Auditors’ Report issued in the Serbian language AIK BANKA A.D., NIŠ NOTES TO THE FINANCIAL STATEMENTS December 31, 2014 All amounts expressed in thousands of RSD, unless otherwise stated.
44. EVENTS AFTER THE REPORTING PERIOD (Continued)
On March 27, 2015 Sunoko d.o.o., Novi Sad announced Notice on intent to take over the remaining shares from minority shareholders given that, through additional purchase of shares ant the stock exchange, it had acquires 6,435,261 voting shares, i.e., 71.14% of the total number of shares carrying voting rights.
Pursuant to the Decision on Measures for Preserving Stability of the Financial System in the Context of Foreign Currency-Indexed Loans published by the National Bank of Serbia on February 24, 2015, the Bank performed the required analysis and established that it had made all the adjustments in 2013 and that it will incur no losses in the implementation of the aforecited Decision.
There have been no significant events after the reporting period that would require adjustments to or disclosures in the Notes to the accompanying financial statements of the Bank as of December 31, 2014.
45. EXCHANGE RATES
The official middle exchange rates of the National bank of Serbia determined in the interbank foreign exchange market and used in the translation of balance sheet components denominated in foreign currencies into the functional currency (RSD) as of December 31, 2014 and 2013 were as follows:
In RSD December 31, December 31, 2014 2013
USD 99.4641 83.1282 EUR 120.9583 114.6421 CHF 100.5472 93.5472
94 Translation of the Auditors’ Report issued in the Serbian language
Annual Report for 2014
Belgrade, April 2015
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Contents
Contents ...... 2 1. Introduction ...... 4 1.1 A word by the Chairman of the Bank's Executive Board ...... 5 1.2 Company ID CARD ...... 7 2. General Terms and Conditions of business activities in 2014 ...... 8 2.1. Macroeconomic trends ...... 9 2.2. Market position and an overview of the business performance indicators ...... 13 2.2.1 Market position ...... 13 2.2.2. Banks' ranking by net assets and profit before tax ...... 13 Market position and an overview of the business performance indicators (continuation) ..... 14 2.2.3. Indicators of profitability and efficiency ...... 15 2.2.4 Balance Sheet indicators ...... 16 2.2.5. Comment on individual performance indicators ...... 16 3. Business Activities of the Bank ...... 17 3.1. General regulatory indicators ...... 18 3.2. Assets ...... 19 3.2.1. Investing in securities and equity investments ...... 19 3.2.2. Classification of on-balance sheet and off-balance sheet assets ...... 20 3.2.3. Loans ...... 21 Loans (continued) ...... 23 Loans (continued) ...... 24 3.3. Liabilities ...... 25 3.3.1. Deposits ...... 25 3.3.2. Capital ...... 27 3.3.3. Acquisition of own shares ...... 33 3.4. Revenues and Expenditures ...... 34 3.4.1. Effect of changes in accounting policy on revenue and expenditure ...... 35 3.4.2. Interest income and expeses ...... 35 3.4.3. Fees ...... 36 3.4.4. Operating expenses ...... 37 3.5. Risk management and NPLs ...... 38 3.5.1. Risk Management System ...... 38 3.5.2. Liquidity risk ...... 39 3.5.3. Foreign currency risk ...... 40 3.5.4. Non-performing loans ...... 40
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3.5.5. Activities in 2014 and plans for 2015 ...... 42 4. Marketing and Public Relations ...... 43 4.1. Marketing Strategy for the year 2014 ...... 44 4.2. Marketing plan for 2014 and its implementation ...... 44 4.2.2. Standardization of the visual identity of the Bank ...... 44 4.2.3. Realization of strategic and tactical marketing campaigns ...... 45 4.2.4. Creating custom made promotional materials to support retail sectors and achieving sales results ...... 46 4.2.5. Continuous communication with the public ...... 46 5. Organizational and personnel structure ...... 48 5.1. Bank organization ...... 49 5.2. Bank management ...... 50 5.2.1. Shareholders’ Assembly of the Bank ...... 50 5.2.2. Board of Directors of the Bank ...... 52 5.2.3. Executive Board of the Bank ...... 54 5.2.4. Other boards of the Bank ...... 56 5.3. Statement on implementation of the Code of Corporate Management ...... 60 5.4. Business relations with Management members and persons related to the Bank ..... 60 5.5. Business network ...... 61 5.5.1. Subsidiaries ...... 62 5.5.2. Branches of the Bank ...... 62 5.5.3. Bank counters ...... 63 5.5.4. Activity Plan for 2015 ...... 63 5.5.5. Standardization of branches and subsidiaries ...... 64 5.6. Amendments to the Bank`s general acts ...... 64 5.7. Development of information system (ICT) ...... 66 5.8. Employees ...... 67
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1. Introduction
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1.1 A word by the Chairman of the Bank's Executive Board
Dear Shareholders,
General macroeconomic environment in 2014 was characterized by the recession trends followed by depreciation of the dinar against major currencies. Public debt to GDP ratio worsened to the level of slightly more than 70%. Low inflation was followed by the general level of interest rates decline, in both the case of investment in in EUR currency, and in investment in RSD currency. In such a general climate, the Bank managed to consolidate its position in the Serbian banking market in terms of almost all the parameters of business activities.
As a direct consequence of implementing the Bank's strategic and operational plans, adopted in early 2014, the Bank's operations in 2014 were marked by a significant increase in the balance sheet amount due to an increase in deposits and profits.
Key growth drivers were achieved through the establishment of a sales model oriented to customers' needs, moderate pricing policy, reduction of the overall risk exposure of assets and liabilities through active management of all types of risks and optimal model of the Bank's liquidity management. Herewith, the Bank ended the fiscal year at a RSD 1.8 billion net profit and with assets standing at RSD 173 billion.
Deposits of economic entities and retail savings increased at the end of 2014 by 20%, and reached almost EUR 1 billion. We believe that our clients put their trust in us because they recognized security provided by Bank's high capitalization, on the one hand, and raising of the level of employees' professionalism and commitment to provision of services, on the other hand. Specialization of operations, conducted by business segments, and the introduction of clear sales targets, reported growth in all segments of business activities as a direct consequence.
During 2014, the Bank was working extensively on the implementation of positive practices of corporate governance in order to organize its business in a transparent and efficient way, which has allowed for sustainable development of the Bank based on socially responsible operations and value maximizing for shareholders, employees, clients and the environment. In this regard, the Bank has adopted and publicly announced its own Code of corporate governance and has implemented it throughout all levels of management and procedures. Communication with shareholders and with the public has intensified through regular reporting on all significant business changes, thus enabling direct communication through the establishment of the Department for investor relations and strengthening of marketing and PR activities. Financial reporting has been improved through changes in accounting policies and procedures, taking into account that the results of operations in accordance with the law and international standards of financial reporting should be presented in the most relevant and most reliable way, by respecting financial discipline.
The risk management system has been completely revised and the mechanisms have been established for analysis, monitoring and managing all the risks across all levels of decision- making. The system has been developed for determining the quality of placements, but also for early identification of increased risks of NPLs. For new lending and investment activities, the balance has been determined between acceptable risk and moderate pricing policy. This resulted in termination of NPLs growth rate, as well as the growth in lending activity and improvement of market position in this segment, despite the general trend that dominated the banking market throughout the year.
There were also significant ownership changes in 2014. Specifically, at the beginning of the year a bid was announced for takeover of the Bank's shares, and upon the completion of a procedure Sunoko d.o.o. Novi Sad became a majority shareholder. The Bank's management supported the
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process of takeover since Sunoko is a solvent, financially and operationally stable economic entity that aims to support the development of the Bank and improve future business operations.
We have to note that the Bank paid particular attention in 2014 to personnel, thus tending, on the one hand, to optimize the needs of organizational structure in the most adequate way and, on the other hand, to establish the basis for permanent development of human resources.
Sincerely,
Jelena Galić, Chairman of the Executive Board
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1.2 Company ID CARD
Full name Agroindustrijsko komercijalna banka “Aik Banka” a.d., Niš Address Nikole Pašića 42, 18000 Niš, Republika Srbija Web address www.aikbanka.rs Legal form Public Joint Stock Company Legal status Active company Registration number 06876366 TIN - tax identification number 100618836
Current accounts and banks they are held with National Bank of Serbia – 908000000001050197 Date of establishment of the Bank 10 August 1993 Register Decision Number at the Business 2946/2005, dated 01 March 2005 Registers Agency Activity code 6419 – Other monetary intermediation Phone 00 381 11 3122051 Fax 00 381 11 2029086 E-mail [email protected]; [email protected] Chairman of the Executive Board Vladimir Čupić Shares traded on Belgrade Stock Exchange, www.belex.rs Shareholders Book available at: Central Securities Depository and Clearing House of the Republic of Serbia a.d., www.crhov.rs Auditor for 2014 Deloitte d.o.o., Beograd, Terazije 8, Beograd
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2. General Terms and Conditions of business activities in 2014
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2.1. Macroeconomic trends
Following a 2.5% growth of economic activity in Serbia, measured by gross domestic product in 2013, a decline was reported during all four quarters and eventually stood at -1.8% annually. The decline was mainly caused by the effects of the May flooding. Observed by sector, industrial activity reported the greatest decline, of -5.5% (-1.1% contribution to gross domestic product (hereinafter "GDP")), particularly in the energy and mining sector (-0.9% contribution to GDP). A positive contribution to GDP was only achieved in agricultural sector where growth stood at 1.5% (0.1% positive contribution to GDP in 2014). A 0.5% decline in GDP is expected in 2015, as well as the recovery in 2016 when GDP is expected to grow by 1.5%.
Aggregate demand decreased in the second quarter by 1.1%, while the greatest impact on declining demand comes from net external demand (-1.5%). According to expectations, decline in demand will continue by the end of the year, while the effects of investment as a result of flooding should have a positive contribution on a domestic demand side. Also, the fiscal consolidation reform may have a negative impact on trends in the domestic demand.
EU CEFTA Russia Other Total 2014 Exports 7,204 2,123 774 1,055 11,156 The share of the region in 2014 total exports 65% 19% 7% 9% An increase/decrease in exports compared to 2013 306 44 -25 -164 161 Percentage of an increase/decrease in exports compared to 2013 4.43% 2.12% -3.18% -13.45% 1.46%
2014 Exports 9,802.5 699.2 1,756.7 3,267.9 15,526.3 The share of the region in total imports 63% 5% 11% 21% An increase/decrease in imports compared to 2013 221.2 -53.1 327.6 -438.4 57.3 Percentage of an increase/decrease in imports compared to 2013 2.31% -7.06% 22.92% -11.83% 0.37%
Foreign trade deficit in 2014 -2,598.3 1,424.2 -982.3 -2,212.9 -4,369.3 The share of the region in 2014 total deficit/surplus 59% -33% 22% 51% An increase/decrease in deficit/surplus compared to 2013 84.4 97.2 -353.0 274.5 -4,369.3 Percentage of an increase/decrease in deficit/surplus compared to 2013 -3.15% 7.32% 56.09% -11.03% 2.3% Table 1 - Foreign trade trends in 2014 by region (in EUR million). Source: NBS
The total foreign trade exchange in 2014 stood at EUR 26.68 billion, which is slightly higher (+ 0.8%) than the one realized in 2013. Export of goods amounted to EUR 11.16 billion and was 1.5% (EUR 160 million) higher than that achieved in 2013. Individually, the most common products were cars, which recorded EUR 1.5 billion worth exports. Car exports dropped by EUR 100 million compared to the previous year. Due to the consequences of the May flooding, electricity exports declined by EUR 143 million. As for the production of petroleum products, exports thereof increased by EUR 30 million. The highest export growth was recorded in exports of food due to good agricultural season.
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Imports of goods amounted to EUR 15.53
billion in 2014, while remaining at the of Employement level of 2013 (+0.03%). Serbia has 2,000 25.00% reported traditionally the greatest trade Rate exchange with the European Union. 65%
of total exports were placed in the EU No. of persons countries, while EUR 9.8 billion of 1,000 20.00% 1,796 1,746 1,727 1,715 imports accounted for 63% of total 1,698 imports. It has to be noted that export 775 767 762 753 744
growth realized with the European Union was the greatest compared to 0 15.00% 2013, and stood at EUR 306 million. On 2010 2011 2012 2013 2014 the other hand, in trade exchange with Number of persons employed, total Russia, Serbia recorded a deficit in 2014 Unemployeed active persons (end of period in 000) Graph 1 - Movements in the number of the employed, amounting to almost EUR 1 billion, the unemployed and employment rate by year Source: which was largely caused by an increase Ministry of Finance of the RS and NBS in imports from Russia by EUR 327 million.
Trade deficit amounted to EUR 4.36 billion as of the end of 2014, i.e. it was 2.3% lower than in the same period last year.
According to a survey of the Statistical
Office of the Republic of Serbia, 70,000 4 unemployment dropped at the end of 65,000 RSD 2014 to the level of 18.9%, while the 3 60,000 employment rate increased to 39.7% 55,000 Growth compared to the end of 2013. 2 50,000 In 2014, wages increased by 3.4% in real 45,000 1 terms and average wage at the end of 40,000 2014 stood at RSD 44.530. 0 35,000 30,000 In 2014, the rate of inflation ranged -1 25,000 below the lower limit of the inflation 47,450 34,142 52,733 37,976 57,430 41,377 60,708 43,932 61,426 44,530 target, and in December 2014 reached 20,000 -2 2010 2011 2012 2013 2014 1.7%. According to expectations of the Average gross wages (total RSD) National Bank of Serbia, inflation will Average net wages (total RSD) return within the lower limit of its Wages (real growth rate) target mid-2015, and by the end of 2015 Graph 2 - Movements in average gross and net wage and real growth rates by year Source: Ministry of Finance it may move towards the target level. However, one must also take into account the effects of the international environment, low aggregate demand, oil 9.5 9.00 9 prices and the possible reduction in 8.5 private consumption due to the reduction in the general level of wages. 7.00 The positive trend in inflation growth is expected due to the announced 5.00 regulated price adjustments. 3.00 1.7
1.00
Reference rate of NBS Inflation Graph 3 - Movements in the NBS reference rate and inflation in 2014 Source: NBS
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At the end of 2014, public debt amounted to EUR 23.7 billion, representing an increase of approximately EUR 2.5 billion compared to the end of 2013. Due to the additional effect of the dinar depreciation against foreign currencies and GDP drop, public debt reached 70.9% of GDP at the end of 2014, which is a significant increase given that the ratio of public debt to GDP stood at 59.6% at the end of 2013. The largest portion of public debt was financed by emission of bonds in EUR currency in the domestic market and borrowing from foreign creditors. The amount of the debt increase in EUR currency was EUR 197.8, accounting for 41.7% of total public debt. Public debt in USD currency increased by 94.8 million, i.e. to 31.5% of public debt.
By the end of the second quarter of 01 January 2014: 31 December 2014: 2014, the dinar value was stable; 120 however, the second half of the year 120,9583 was marked by strong depreciation 114,6421 110 pressures caused by weak fundamental 93,5472 results, which ultimately led to external 100 imbalance. During 2014, the dinar 93,5472 83,1282 90 depreciated against the EUR, USD and 83,1282 CHF by 5.2%, 16.4% and 6.9%, 80 respectively.
Strengthening of the dinar led to more 01-14 02-14 03-14 04-14 05-14 06-14 07-14 08-14 09-14 10-14 11-14 12-14 EUR/RSD USD/RSD CHF/RSD intensified NBS interventions, so it was only in the last month that the NBS intervened with EUR 495 million through Graph 4 - Movements in exchange rates of major currencies against the dinar in 2014 purchase of EUR 60 million and sale of EUR 435 million, in order to mitigate excessive daily exchange rate fluctuations. Period Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 July 14 Aug 14 Sept 14 Oct 14 Nov 14 Dec 14
Foreign exchange reserves (EUR mln) Foreign exchange 11.951 11.589 11.229 11.272 11.358 11.149 11.162 12.172 12.099 11.975 11.820 11.414 reserves NBS 11.126 10.832 10.428 10.448 10.370 10.125 10.123 10.949 10.878 10.714 10.271 9.907
Banks 825 757 801 824 987 1.024 1.038 1.222 1.222 1.261 1.549 1.507
Foreign exchange market (EUR mln) Foreign exchange 898 671 654 479 315 402 599 497 697 651 972 1.700 market NBS 330 260 210 110 20 40 40 60 135 140 250 495 interventions Interbank Foreign 568 411 444 369 295 362 559 437 562 511 722 1.205 Exchange Market Table 2 - Movements in foreign exchange reserves and turnover in the interbank market (in EUR million) Source: NBS
According to preliminary data, the NBS 10.50% foreign exchange reserves in late December 2014 stood at EUR 9.9 billion, thus providing 9.50% for 278% or more coverage of money supply (M1) from a six-month imports of goods and 8.50% services. The largest influx of foreign currency in December 2014 was realized 7.50% from the use of loans totaling EUR 162.5 6.50% million, as follows: EUR 109 million from the World Bank, EUR 32.1 million from the 5.50% European Investment Bank and EUR 21.4 million from other foreign creditors. At the Beonia Average REPO rate of NBS Belibor 6M 11 | Strana Graph 5 - Movements in Beonia, average realized REPO rates and Belibor, Source: NBS
same time, an influx worth EUR 98.1 million was recorded from the sale of the Republic of Serbia's securities, denominated in EUR currency, in the domestic financial market.
Greater outflow from FX reserves was achieved on the basis of banks' FX required reserves in the net amount of EUR 242.8 million, and mainly resulted from changes in the regulation which reduced the rate of banks' FX required reserve and, at the same time, increased the portion of FX required reserve allocated in RSD. Other major outflows were realized on the basis of settlement of the Republic of Serbia's obligations to foreign creditors, in the amount of EUR 104.1 million, and repayment of debt to the IMF in the amount of EUR 68.3 million. Net FX reserves, i.e. the reserves net of the banks' FX funds from required reserves, as well as the funds withdrawn from the IMF, stood at EUR 7.7 billion at the end of December 2014.
The base interest rate, i.e. benchmark interest rate of the National Bank of 13.2% Serbia ranged in 2014 from 8.5% to a 13.00% 12.99% maximum of 9.5%, as it was at the 12.7% 12.2% beginning of the year. The National 11.99% Bank of Serbia reduced REPO rate by 11.7% 11.80% 11.79%
0.5% on three occasions until the 11.2% Executive Board of the National Bank of 10.7% 10.80% Serbia decided, at the meeting held on 10.49% 10.2% 10.09% 13 November 2014, to reduce the 10.00% 9.80% benchmark interest rate by 0.5%, thus 9.7% 9.70% 9.29% the rate stood at 8.5% at the end of 9.2% 9.30% 9.00% 9.00% 9.00% 2014. Bearing in mind low inflation, one 8.7% can expect further decrease in REPO rate of the National Bank of Serbia. 24M 36M 60M Graph 6 - Movements in rates of return on RSD T-bills in Other rates in the market followed the 2014, Source: NBS trend of the National Bank of Serbia's base REPO rate.
6.0%
5.5% 5.50% 5.50% 5.10% 5.00% 5.0% 4.92% 5.00% 4.80% 4.72% 4.80% 4.80% 4.80% 4.5% 4.47%
4.0% 4.08% 4.08% 4.05% 4.00% 3.80% 3.5% 3.29% 3.24% 3.19% 3.19% 3.0% 2.80% 2.5%
2.0%
12M 24M 36M Graph 5 - Movements in rates of return on EUR T-bills with maturity of 12, 24 and 36 months in 2014, Source: Source: NBS
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2.2. Market position and an overview of the business performance indicators 2.2.1 Market position1 Ranking criterion 30 September 2014 30 June 2014 31 March 2014 31 December 2013 Item Share Amount in Item Share Item Share Amount in Item Share mln EUR mln EUR Net assets 6. 5,5% 1,365 7. 5,3% 1,316 7. 5,3% 1,298 7. 5.4% 1,329
Gross placements 7. 4,6% 709 7. 4,6% 708 8. 4,6% 706 8. 4.6% 716
Net placements 9. 4,1% 557 8. 4,1% 559 8. 4,1% 560 9. 4.1% 577
Total deposits2 6. 4,8% 885 7. 4,6% 828 8. 4,6% 819 7. 4.7% 843
Deposits3 6. 5,7% 869 7. 5,5% 820 8. 5,5% 811 7. 5.7% 841
Capital 5. 8,6% 447 5. 8,6% 455 5. 8,6% 449 4. 8.7% 449 2.2.2. Banks' ranking by net assets and profit before tax Net assets 30 September 2014 31 December 2013 30 September 2013 31 December 2012 Bank Rank Market RSD bln Bank Rank Market RSD bld Bank Rank Market RSD bld Bank Rank Market RSD bld shhare share share share Intesa 1. 16.2% 477,8 Intesa 1. 15.2% 427,2 Intesa 1. 14.9% 427,9 Intesa 1. 14.4% 413,3 Komercijalna 2. 12.9% 380,1 Komercijalna 2. 12.9% 363,7 Komercijalna 2. 12.3% 354,4 Komercijalna 2. 11.3% 324,2 Unicredit 3. 9.0% 265,8 Unicredit 3. 8.9% 252,0 Unicredit 3. 8.8% 253,6 Unicredit 3. 8.5% 243,6 Raiffeisen 4. 7.8% 230,5 SoGe 4. 7.8% 220,9 SoGe 4. 7.4% 212,9 So Ge 4. 7.0% 202,9 SoGe 5. 7.8% 230,2 Raiffeisen 5. 7.3% 205,5 Raiffeisen 5. 7.1% 204,4 Raiffeisen 5. 6.9% 199,6 AIK 6. 5.5% 162,3 Eurobank 6. 5.6% 158,0 Eurobank 6. 6.0% 172,9 Eurobank 6. 5.9% 168,9 Eurobank 7. 5.2% 154,8 AIK 7. 5.4% 152,4 AIK 7. 5.4% 154,9 Hypo 7. 5.9% 168,5 Vojvodjanska 8. 4.2% 124,0 Hypo 8. 4.5% 125,4 Hypo 8. 5.2% 149,0 AIK 8. 5.4% 154,4 Hypo 9. 4.0% 118,3 Vojvodjanska 9. 3.9% 108,9 Vojvodjanska 9. 3.9% 112,4 Vojvodjanska 9. 3.6% 104,1 Poštanska Poštanska štedionica 10. 3.8% 111,4 10. 3.5% 99,6 Sberbank 10. 3.4% 96,6 Sberbank 10. 3.5% 101,9 štedionica
1Market position, ranking of banks and an overview of indicators is presented as at 30 September 2014, given the fact that the banking sector data as at 31 December 2014 have not been published by the date of drafting this report. 2Total deposits include also the loans received from banks 3Deposits include transaction and other deposits 13 | Strana
Market position and an overview of the business performance indicators (continuation) Profit before tax 30 September 2014 31 December 2013 30 September 2013 31 December 2012 Bank Rank Market RSD Bank Rank Market RSD Bank Rank Market RSD Bank Rank Market RSD share bln share bln share bln share bln Intesa 1. 27.4% 5,7 Intesa 1. n/a 9,2 Intesa 1. 37.8% 6,6 Intesa 1. 88.4% 10,3 Raiffeisen 2. 24.8% 5,2 Raiffeisen 2. n/a 6,2 Raiffeisen 2. 30.5% 5,3 Raiffeisen 2. 52.6% 6,1 Unicredit 3. 24.1% 5,0 Komercijalna 3. n/a 4,6 Unicredit 3. 24.7% 4,3 Unicredit 3. 42.2% 4,9 Komercijalna 4. 16.9% 3,5 Unicredit 4. n/a 3,7 Komercijalna 4. 22.7% 4,0 Komercijalna 4. 39.2% 4,6 ProCredit 5. 8.2% 1,7 ProCredit 5. n/a 2,5 ProCredit 5. 10.7% 1,9 AIK 5. 34.4% 4,0 AIK 6. 7.2% 1,5 Vojvodjanska 6. n/a 1,4 Sberbank 6. 9.1% 1,6 Procredit 6. 17.0% 2,0 Eurobank 7. 4.5% 0,9 Eurobank 7. n/a 1,3 AIK 7. 8.6% 1,5 Eurobank 7. 16.3% 1,9 Sberbank 8. 4.3% 0,9 AIK 8. n/a 1,3 Eurobank 8. 7.4% 1,3 Hypo 8. 15.3% 1,8 Poštanska štedionica 9. 2.2% 0,5 Erste 9. n/a 1,1 Vojvodjanska 9. 6.8% 1,2 Sberbank 9. 11.6% 1,4 Erste 10. 2.0% 0,4 Sberbank 10. n/a 1,1 Erste 10. 4.9% 0,9 Erste 10. 9.2% 1,1
Comment on the market position
At the end of the third quarter of 2014, net assets of the 10 largest banks accounted for 76.3% of balance sheet assets of the Serbian banking sector. Compared to the end of 2013, AIK Banka recorded an increase in net assets by EUR 36 million, resulting in improvement of the position in the banking sector and in the 6th rank with a 5.5% share.
Deposits - Deposits of AIK Banka recorded growth in all the three quarters of 2014, whereby the Bank improved its position at the end of the third quarter was ranked 6th by the amount of collected deposits with a 5.7% market share.
Net placements - with EUR 557 million the Bank was ranked 9th, having a 4.1% market share.
Profit before tax-For the first nine months of 2014, the Serbian banking system recorded a profit before tax in the amount of RSD 21 billion (9 banks operating at a loss in the total amount of RSD 5.5 billion). Compared to the same period last year, AIK Banka achieved the same level of profit (RSD 1.5 billion), whereby it improved its position and jumped from the 7th to the 6th place, accounting for 7.2% of the total result of Serbian banking sector's business performance.
Capital - Participation of Bank's capital in the banking market is disproportionately high compared to other indicators of market share. With EUR 447 million of its capital, the Bank is ranked 5th in the Serbian banking market, with 8.6% share.
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2.2.3. Indicators of profitability and efficiency
30 September 2014 31 June 2014 31 March 2014 31 December 2013 Indicators of profitability and efficiency AIK Peers Sector AIK Peers Sector AIK Peers Sector AIK Peers Sector Profit/Average equity (ROE) 3.8% 6.5% 4.6% 4.0% 6.8% 5.0% 1.7% 7.0% 5.4% 2.4% 4.8% -0.1% Profit/Average assets (ROA) 1.3% 1.5% 1.0% 1.4% 1.5% 1.1% 0.6% 1.6% 1.1% 0.8% 1.1% 0.0% Interest margin/Average assets 4.4% 4.2% 4.2% 4.5% 4.2% 4.2% 4.5% 4.2% 4.2% 4.4% 4.3% 4.2% Interest income/Average assets 6.7% 6.1% 6.3% 7.0% 6.2% 6.4% 7.1% 6.3% 6.4% 7.8% 6.8% 6.9% Interest expense/Average assets 2.4% 1.9% 2.1% 2.4% 2.0% 2.1% 2.6% 2.1% 2.2% 3.3% 2.5% 2.7% Impairment loss/Average assets 1.9% 1.3% 1.3% 2.0% 1.3% 1.3% 2.9% 1.3% 1.2% 2.6% 1.8% 2.0% Interest expense/Average interest-bearing liabilities 3.7% 2.7% 2.8% 3.9% 2.8% 2.9% 4.1% 2.9% 3.0% 5.3% 3.5% 3.7% Net fees/Average assets 0.5% 1.1% 1.2% 0.5% 1.1% 1.2% 0.4% 1.1% 1.2% 0.4% 1.1% 1.2% Fee income/Average assets 0.6% 1.5% 1.6% 0.6% 1.5% 1.6% 0.5% 1.4% 1.6% 0.5% 1.5% 1.7% Profit before tax/Total income 16.7% 18.2% 11.6% 17.2% 18.9% 12.5% 7.1% 19.3% 13.5% 9.3% 12.2% -0.3% Profit before provisions/Average assets 3.2% 2.7% 2.3% 3.3% 2.8% 2.3% 3.4% 2.8% 2.4% 3.5% 2.9% 2.0% Total income/Average assets 7.8% 8.0% 8.4% 8.0% 8.1% 8.5% 8.1% 8.1% 8.5% 8.8% 8.8% 8.9% Operating expense/Average assets 2.1% 3.0% 3.6% 2.1% 2.9% 3.6% 2.0% 2.9% 3.5% 1.9% 3.0% 3.7% Operating expense/Total income - CIR 39.5% 52.6% 61.4% 38.9% 51.0% 60.5% 37.0% 50.6% 59.8% 35.6% 50.5% 64.9% Operating expense/Income from interest and fees 28.4% 39.6% 45.9% 28.2% 38.1% 44.7% 26.6% 37.6% 43.8% 23.2% 36.1% 43.8% Costs of wages/Average assets 0.7% 1.1% 1.4% 0.6% 1.1% 1.4% 0.6% 1.1% 1.4% 0.5% 1.1% 1.5% Interest income/Total income 86.8% 76.3% 74.9% 87.1% 77.1% 75.5% 87.1% 77.3% 75.7% 88.0% 77.2% 77.4% Fee income/Total income 8.0% 18.3% 19.2% 7.1% 17.9% 19.0% 6.3% 17.5% 18.6% 5.9% 16.8% 18.7%
Peer group comprises: Intesa Banka a.d., Beograd; Komercijalna banka a.d., Beograd;UniCredit Bank Srbija a.d., Beograd; RaiffeisenBank a.d., Beograd; Societe General Banka Srbija a.d., Beograd;Eurobank a.d., Beograd;Hypo ALpe Adria a.d, Beograd;Erste Banka a.d., Beograd i Sberbank Srbija a.d., Beograd.
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2.2.4 Balance Sheet indicators
30 September 2014 30 June 2014 30 March 2014 31 December 2013 AIK Peers Sector AIK Peers Sector AIK Peers Sector AIK Peers Sector Indicators of profitability and efficiency Net placements/Net assets 40.8% 54.7% 55.0% 42.5% 56.0% 55.7% 43.1% 57.1% 56.3% 43.4% 57.8% 56.8% Allowance for impairment of placements/Gross 21.3% 10.5% 11.5% 21.0% 10.2% 11.3% 20.7% 9.6% 11.0% 19.4% 9.3% 10.6% placements (Cash and cash equivalents + Revocable deposits 20.9% 21.9% 22.2% 20.1% 22.4% 22.7% 19.1% 21.5% 22.3% 22.2% 23.0% 23.8% and loans)/Net assets Revocable deposits and loans/Net assets 8.9% 11.6% 11.7% 12.4% 13.6% 13.6% 11.4% 13.5% 13.5% 14.5% 14.1% 14.3% Total capital/Net assets 32.8% 22.1% 20.8% 34.6% 22.7% 21.4% 34.6% 22.5% 21.4% 33.8% 22.2% 20.9% Total deposits/Net assets 64.9% 72.2% 73.5% 62.9% 71.8% 73.0% 63.1% 71.1% 72.4% 63.4% 72.1% 73.2% Deposits/Net assets 63.7% 58.5% 61.1% 62.3% 58.5% 61.0% 62.5% 57.4% 59.9% 63.2% 58.1% 60.5% Net loans/Total deposits 63.0% 75.7% 74.7% 67.6% 77.9% 76.3% 68.3% 80.3% 77.7% 68.5% 80.1% 77.6% Net loans/Deposits 64.1% 93.5% 89.9% 68.2% 95.7% 91.4% 69.0% 99.5% 93.9% 68.7% 99.5% 93.9% Transaction deposits/Total deposits 12.2% 26.7% 26.6% 13.4% 25.9% 26.0% 11.5% 23.6% 23.6% 9.2% 23.9% 23.8% Transaction deposits/Deposits 12.4% 33.0% 32.0% 13.5% 31.8% 31.2% 11.6% 29.2% 28.6% 9.2% 29.7% 28.8% Peer group comprises: Intesa. Komercijalna banka a.d., Beograd;UniCredit Bank Srbija a.d., Beograd;Raiffeisen Bank a.d., Beograd; Societe General Banka Srbija a.d., Beograd;Eurobank a.d., Beograd; Hypo ALpe Adria a.d, Beograd; Erste Banka a.d., Beograd i Sberbank Srbija a.d., Beograd.
2.2.5. Comment on individual performance indicators Allowance for impairment of placements/Gross placements - from 21.3% of revalued placements, the Bank is far above the average of the banking sector and the observed Peers group. Total capital/Net assets - with 32.8% of the capital share in total assets, the Bank retains a significantly higher level of capitalization compared to the average of the Serbian banking sector and Peers group. ROA – at an approximate level compared to the Peers group, but above the level of the Serbian banking sector. Net fees - an increase compared to the end of 2013, with expectations of a rise in fee share in the total operating income in the forthcoming period, as a result of activities undertaken in the field of expansion of services and creation of new products in the previous period. Interest margin and interest income - remained at a higher level compared to the competition. Ratio of operating expenses to total income - compared to the end of 2013, an increase is reported in Bank's operating expenses but the share of operating costs in total income is still at a significantly lower level than the average of banking market and the observed Peers group.
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3. Business Activities of the Bank
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3.1. General regulatory indicators
Performance indicators Prescribed 31 December 31 December 31 December 2014 2013 2012 Capital adequacy min 12% 36.46% 38.05% 34.66% Exposure to entities related to max 20% 6.53% 2.41% 4.88% the Bank Exposure to one entity related max 5% 4.64% 1.61% 3.80% to the Bank Greatest possible loan to one max 25% 18.64% 18.86% 19.54% borrower Sum of Bank's great exposures max 400% 100.03% 53.54% 82.90% Bank's permanent investments max 60% 3.0157% 3.2572% 3.4040% Investment in a single entity max 10% 0.0234% 0.0142% 0.0137% outside the financial sector Average monthly indicators of min 1 3.8907 3.0976 3.3194 liquidity FX risk indicator max 20% 2.00% 2.26% 10.16% Table 3– General regulatory indicators by year
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3.2. Assets In millions RSD 31 Dec. Change in current year in Description of assets position 31 Dec. 2014 2013 absolute amounts and % Cash and resources with the 27,321 22,439 4,882 21.76% Central Bank Financial assets (securities and 44,588 31,517 13,071 41.47% bills of exchange) Loans and claims from banks and 12,399 12,033 366 3.04% financial institutions Loans and claims from clients 74,739 71,151 3,588 5.04% Intangibles 194 129 65 50.39% Real estate, plant and equipment 956 1,071 -115 -10.74% Investment Real Estate 9,906 8,828 1,078 12.21% Other assets 3,198 4,823 -1,625 -33.69% Total assets 173,301 151,991 21,310 14.02% Table 4– Comparative overview of asset positions for 2014 and 2013 in millions of RSD
The Net balance sum at the end of 2014 amounted to 173,301million RSD and was by 21,310 million RSD (14.02%) higher compared to the end of 2013. The most significant changes in the structure of assets in 2014 were expressed in the position of financial assets (securities); there was an increase of 13,071 million RSD, or an increase of 41.47% while loans and claims from clients increased by 3,588 million RSD or 5.04%. The cash in the accounts amounted to 27,321 million RSD and was increased by 21.76% compared to December 2013.
3.2.1. Investing in securities and equity investments
Description of 31 December The change in the current year in absolute 31 December 2014 assets position 2013 amounts and % Equity investments 51 47 4 8.51% Government bonds 35,675 18,693 16,982 90.85% Treasury bills 8,402 9,830 -1,428 -14.53% Total 44,128 28,570 15,558 54.46% Table 5– Overview of the structure of investments in securities on 31 Dec. 2014 and 31 Dec. 2013 (in millions of RSD)
Total value of securities and equity investments on 31December 2014 amounted 28,000 140 26,000 to 44,128 million RSD and was by 15,558 135
24,000 RSD mill. million higher than at the end of 2013, EUR mill. 22,000 130 representing an increase of 54.46%. This 20,000 125 change in the structure of assets has 18,000 120 positively influenced the increase in revenues 16,000 from this type of investment. Furthermore, 14,000 115 the increase in investments in securities had a 12,000 110 positive impact on the financial results of this Jul-14 Apr-14
segmentbut is has also significantly affected Jan-14 Oct-14 Jun-14 Sep-14 Mar-14 Feb-14 Aug-14 Dec-13 Dec-14 Nov-14 May-14 the total interest income. T-Bills RSD T-Bills EUR Figure 8 - Movement of Portfolio of Treasury bills / bonds (in millions of RSD and EUR)
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3.2.2. Classification of on-balance sheet and off-balance sheet assets
Classification of on-balance sheet and off-balance sheet assets
u 000 RSD
Classification 31 December 2014 31 December 2013 A 47,136,801 43,801,390
B 20,757,554 18,827,269
V 22,601,215 20,573,375
G 6,417,279 7,634,953
D 40,923,282 35,736,072
Total 137,836,131 126,573,059
Table 6 – Classification structure of balance sheet assets on 31 December 2014 (in thousands of RSD)
u 000 RSD Off- On-balance balance On-balance Off-balance Gross claims sheet sheet Net claims sheet sheet adjustment adjustme nt Corporate 69,460,041 59,497,204 9,962,837 18,899,607 140,187 50,420,248 banking Great 41,193,157 36,080,019 5,113,138 10,736,054 42,275 30,414,827 Medium 23,183,793 19,469,368 3,714,425 7,509,609 94,223 15,579,961 Small 5,083,091 3,947,817 1,135,274 653,944 3,689 4,425,458 Retail clients 19,612,522 14,972,712 4,639,810 1,160,506 - 18,452,016 Public Sector 30,307,065 26,117,202 4,189,863 5,003,333 506,508 24,797,224 Financial Sector 15,935,643 12,488,167 3,447,476 185,883 - 15,749,760 Foreclosed assets 2,520,860 2,301,159 219,701 35 602 2,520,223 that are classified Total: 137,836,131 115,376,444 22,459,687 25,249,364 647,288 111,939,470
Table 7- Review of on-balance sheet assets and off-balance sheet items are classified by segments (in thousands of RSD) on 31 Dec. 2014
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3.2.3. Loans Total gross loans increased by
6.8 billion RSD or 7.44% when 40,000 compared to 2013. On the other 35,000 hand, net loans increased by 3.58 30,000 RSD mill. billion RSD while the value 25,000 adjustment of loans rose up to 3.24 billion RSD. The largest part 20,000
of the increase in net loans is 15,000 36,538 28,382
expressed in the segment of 27,559 10,000 business companies and 21,055 5,000 3,265 2,111 13,790 amounted 3 billion RSD. Greatest 12,950 91 150 changes in the currency structure 0 of loans occurred in the growth Corporate Public SME Retail Ostalo of placements denominated in 31.12.2014 21.12.2013 EUR currency, which is an Grafikon 9 – Sectr structure of net loans as of 31/12/2014 and increase of 6 billion RSD 31/12/2013 godine (14.57%). RSD placements were reduced by 2 billion RSD or 7.51% compared to the end of 2013.
Sectional structure of loans toward customers In million RSD 31 December 2014 31 December 2013 Section Gross Value Gross Value loans adjustment loans adjustment of loans of loans Business 82,927 22,404 60,523 77,320 19,354 57,966 Companies and Public Sector Retail banking 15,491 1,275 14,216 14,277 1,091 13,186 Total 98,418 23,679 74,739 91,597 20,445 71,152 Table 8- The sectional structure of loans on 31 December 2014 and 31 December 2013.
Currency composition of loans toward customers
Description of assets 31 December 31 December The change in the current year in position 2014 2013 absolute amounts and % EUR 47,487 41,447 6,040 14.57% USD 2,251 2,674 -423 -15.82% CHF 1 1 - 0% RSD 25,000 27,029 -2,029 -7.50% Total 74,739 71,151 3,588 5.04% Table 9 - Currency structure of net loans on 31/12/2014 and 31/12/2013.
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Retail placements in 2014
Retail placements on 31 December 2014 Home Remainin amounted to about 15,491 million RSD loans g Cash (gross) and increased compared to 2013 up [PERCEN [PERCEN Loans TAGE] TAGE] [PERCEN to 1,214 million RSD (8.5%). The largest TAGE] increase in placements record housing Other loans: 923 million (annual increase by [PERCEN Agricultu 24.56%) and cash loans by 482 million TAGE] Overdraf ral loans t (7.73%). The amount of granted loans to [PERCEN [PERCEN retail clients (excluding loans for ConsumpTAGE] tion TAGE] insurance) in 2014 is 5.1 billion RSD loans Credit achieved through 11676 new loan sub- [PERCEN cards accounts. TAGE] [PERCEN TAGE]
Graph 10 - The structure of retail placements by products on 31 Dec. 2014
Section 31 December 2014 31 December 2013 Gross Value Net Gross Value Net loans loans adjustmen loans loans adjustment t of loans of loans Cash Loans 6,714 325 6,389 6,232 249 5,983 Housing Loans 4,752 121 4,631 3,815 85 3,730 Agricultural loans 477 117 360 288 118 170 Credit Cards 2,673 387 2,286 3,122 343 2,779 Current accounts - 702 159 543 645 122 523 overdraft All other 173 166 7 175 174 1 Total Retail 15,491 1,276 14,216 14,277 1,091 13,186 Table 10 - Overview of retail placements by type of product on 31 Dec. 2014 (in thousands of RSD)
Activities in 2014
The Bank, relying on its business strategy in 2014, paid particular attention to:
• Business development within the SME segment (entrepreneurs, registered agricultural household, small and medium-sized enterprises) as underutilized business segment; • Further expansion of the retail customer base of individuals with a focus on Affluent segment growth, as well as extremely profitable segment; • Activation of inactive clients; • Increase cross selling activities within the Retail sector; • Deepen business relationships with clients, with a focus on increasing the number of clients who are active users of the services of current accounts.
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Loans (continued)
Activities in 2014 (continued)
A new credit processes and organization of sales in the segment of small and medium-sized enterprises in the corporate network has been established, a range of products has been perfected and tailored to the needs of certain segments and sub-segments of clients. Also, training of employees have been organized in order to improve their sales skills.
In the first half of 2014, based on the research of the banking market in Serbia conducted for AIK Bank, following activities have been conducted with the aim of increasing the number of active clients:
• Service prices have been revised and is the Price list of services for retail clients and small and medium-sized enterprises has been fully restructured; • Product catalogues intended for retail clients for mass / upper mass and affluent sectors have been introduced; • New, advanced package of services has been introduces for retail and corporate clients with special emphasis on product profitability.
In 2014 the Bank has redesigned the products and services for retail clients and small and medium-sized enterprises ("SME") - the products have been modernized, standardized and are consistent with applicable regulations. The Bank has aimed a number of activities towards expanding the range of products with the focus on products that generate fee income. The emphasis has constantly been on innovation and optimization of existing offer and the profitability of each product. With loan placement different models of insurance develop. A loan product for retail clients with a repayment holiday has been introduced. Credit cards enable payment in monthly installments. Throughout 2014 special loan offers and service packages have been conducted, which were accompanied by notable media campaigns. Retail Banking and SME continuously monitor both the needs of current and potential clients of the Bank, thereby using market research and analysis of market competition in order to improve product range and service. The Bank had continuously had actions and campaigns for current accounts, loans and deposit packages. In the course of 2014 the Bank has on multiple occasions adjusted to market trends the requirements of savings products for citizens and thus the average interest rate on savings deposits decreased by 35%. The reduction in interest rates will contribute to a significant reduction in interest expense in 2015. With a favourable maturity structure of the new term deposit, the level of total deposits is preserved and the Bank's market participation in this segment is approximately 6.7% (according to data from November 2014). Segmentation of SME clients and retail clients in relation to demographic and social elements has been is performed As a result, product catalogues for SME and retail clients have been developed, with a special division for mass, upper mass segment and affluent segment of customers. With the updated offer in the field of agro-segment, the Banka's participation at the Agricultural Fair in Novi Sad has been noted. In addition to subsidized loans for farmers, the Bank has signed an agreement on subsidized loans for entrepreneurs and SME, developed by the Ministry of Finance and Economy of the Republic of Serbia. From credit products for retail clients we emphasize that in 2014 the Bank joined the program of subsidized housing loans for military personnel through which has acquired new customers. Access to Multicard network of shared ATMs has been realised in order to increase the availability of the Bank.
In 2014 a new, fully automated process of activation of electronic banking services for retail clients has been introduced. In addition, the Bank offers its clients Android, Windows and iOS application for mobile banking.
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Loans (continued)
Goals for 2015 • Further growth in sales and an increase in total sales results in order to achieve portfolio growth; • Increasing the participation of the Bank in the market in SME, entrepreneurs, registered farmers and retail banking segment; • Sales management in order to make long-term loans the largest part of the portfolio launched in 2015, and to avoid the problem of "big annual repayments' • Further increase of the participation of sales in the AGRO segment in total sales, bearing in mind the potential of this segment; • The development and introduction of new products; • The increase in cross-selling and synergy through the cohesion of retail banking and SME; • Development of sales concept and direct marketing; • Organizing promotional campaigns to further promote the retail business segment; • Market research; • Increasing the number of clients through all aspects of Retail Banking; • Maintaining competitive interest rates on deposits and placements; • Developing the Bank's corporate network - reallocation (renting new attractive locations in Belgrade, where the bank is not sufficiently present, or where existing branches do not meet the job requirements); • The increase in transaction deposits; • The growth in commission income and fees; • The reduction in operating costs; • Proactive product sales by employees in retail and corporate network of the Bank; • Improvement of business efficiency and • Education of employees. Three main carriers of the business plan are: Client, Product and Sales Channels.
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3.3. Liabilities 31 December 31 December Change in current year in Description of assets position 2014 2013 absolute amounts and % Deposits and liabilities to banks and 6,700 1,434 5,266 367.22% other financial institutions Deposits and liabilities towards 111,849 97,424 14,425 14.81% customers 723 734 -11 -1.50% Reservations 877 1,242 -365 -29.39% Other obligations 53,152 51,157 1,995 3.90% Capital Total liabilities 173,301 151,731 21,310 14.02%
Table 11– Comparative overview of asset position for 2014 and 2013 in millions of RSD
The largest increase in liabilities in 2014 is the 70.00% result of deposit increase of 14.81% at the level of 111.849 million RSD. Nominally, term 60.00% and other deposits have increased the most, 50.00% 64.54% by 13.6 billion RSD. On the other hand, 64.21% transaction deposits increased by 68.37% to a 40.00%
level of 15 billion RSD. Looking at the sectors,
30.00% the biggest increase was recorded in the
20.00%
Public Sector of about 8.8 billion RSD and 33.72% Financial Institution Sector of about 5.3 billion 10.00% 30.67% 3.87% 0.92% RSD. The largest part of the growth was 0.95% 1.13% caused by the growth of deposits in foreign 0.00% currencies of about 14.7 billion RSD, while the Deposits Capital Banks Other increase in local currency amounted to 5 31.12.2014 liabilities billion RSD. Graph 11 – Structure of Capital and liabilities side as of 31/12/2014 3.3.1. Deposits
Sectional structure of deposits In millions of RSD Description of assets 31 December 31 December The change in the current year position 2014 2013 in absolute amounts and % Corporate 10,406 8,814 1,592 18.07% Public 16,921 8,114 8,807 108.54% SME 4,849 4,753 96 2.02% Retail banking 76,530 74,780 1,750 2.34% Financial institutions 6,700 1,434 5,260 367.22% Other customers 3,143 963 2,180 2.26% Total 118,549 98,858 19,691 19.92% Table 12 - The sectional structure of net loans on 31 Dec. 2014 and 31 Dec. 2013.
The maturity structure of deposits In millions of RSD Description of assets 31 December 31 December Change in current year in position 2014 2013 absolute amounts and % Transaction deposits 14,963 8,887 6,076 68.37% Term and other deposits 103,586 89,971 13,615 15.13% Total 118,549 98,858 19,691 19.92% Table 13 - The currency structure of deposits on 31 Dec. 2014 and 31 Dec. 2013
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The currency structure of deposits In millions RSD Description of assets 31 December 31 December Change in current year in position 2014 2013 absolute amounts and % EUR 85,958 80,987 4,971 6.14% USD 10,105 420 9,685 2305.95% CHF 413 377 36 9.55% Other currency 13 1 12 1200% RSD 22,060 17,073 4,987 29.21% Total deposits 118,549 98,858 19,691 19.92% Table 14 - The currency structure of deposits on 31 Dec. 2014 and 31 Dec. 2013.
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3.3.2. Capital
Calculation of capital Description of position 31 31 December 2013 31 December 2012 December 2014 Nominal value of shares 19,762,546 19,762,546 19,359,727 Share premium 7,157,924 7,157,924 7,157,924 Reserves 24,749,967 23,344,221 20,102,514 Current year profit 1,818,028 1,229,005 3,641,848 Losses from an earlier period -336,262 -336,262 -100,493 Total capital 53,152,203 51,157,434 50,161,520 Table 15 - Structure of capital per year (in thousands of RSD)
Regulatory capital Regulatory capital in 2014 decreased compared to 31 December 2013 for 1,027,959 thousand RSD. The reduction of regulatory capital was largely influenced by the increase of required reserves for estimated losses in on-balance sheet assets and off-balance sheet items. The required reserves' increase is due to the deterioration of classification of a few clients, which does not reflect the state of the overall portfolio. The impact of required reserves increase on regulatory capital has been partially amortized by distribution of profits from 2013 in the amount of 1,229,005 thousand RSD in profit reserves after the regular General Meeting of Shareholders in 2014.
Position name 31 December 2014 31 December 2013 31 December 2012
BASIC CAPITAL 29,179,714 38,923,664 40,175,162 The nominal value of paid in shares, except cumulative 17,264,816 17,264,816 16,913,209 preference shares Share premium 7,157,924 7,157,924 7,157,924 Profit reserves 24,354,149 23,125,145 20,100,871 Losses from previous years -336,262 -336,262 -100,493 Intangibles -194,488 -128,783 -66,740 The amount of the pledged bank's shares, except -17,218 -17,218 -17,313 cumulative preference shares Regulatory valuation adjustments *4 -19,049,207 -8,478,220 -3,912,789 ADDITIONAL CAPITAL 2,861,318 2,600,518 2,339,190 The nominal value of paid in cumulative preference 2,497,731 2,497,731 2,446,518 shares Part of the Bank's revaluation reserve. 363,587 217,895 7,780 The amount of Bank's cumulative preference shares 0 -115,108 -115,108 taken in pledge CAPITAL DEDUCTIONS ** -29,301 -8,484,492 -11,746,677
TOTAL CAPITAL 32,011,731 33,039,690 30,767,675
Table 16- Report on regulatory capital per year
4*, ** Explanation: In accordance with the transitional and final provisions of the Decision on the capital adequacy of the Bank, banks could treat a part of the amount of required reserves for estimated losses in on-balance sheet assets and off- balance sheet items, as a deduction from capital rather than as a deduction from basic capital, namely: until 31/12/11- 100 % of that amount; until 31/12/12 -75% of that amount until 31/12/13 -50% of that amount Therefore, there is significant deviation between the Regulatory valuation adjustment position and Deductions from capital position. 27 | Strana
Capital Adequacy The decision of the National Bank of Serbia on capital adequacy prescribes the obligation of the Bank to manage its affairs in a way that its risk-weighted assets are covered by capital in the amount of at least 12%.
The goal when managing Bank capital is that Bank in each moment has at its disposal the level and structure of capital that ensures fulfilment of legal obligations, keeps the trust of shareholders and deponents of the Bank in safety and stability of its business, achievement of business and financial plans that can support expected increase of placement, future sources of funds and their use, as well as achieving policy of dividends.
Strategy of Capital Management defines maintenance of indicators of capital adequacy on the level above prescribed, and at least at the level of 14.5%, i.e. 2.5 percent points above prescribed minimal rate of capital adequacy so that the Bank can perform allocation of profit in a way which, apart from allocating to elements of basic capital, it will execute payment of dividends to shareholders, i.e. award employees through paying fixed and variable bonuses, etc.
In 2014, the Bank has maintained capital adequacy on a high level. Indicator of adequacy (according to provisions of the Basel II Standard) was above 36%. In the following period, the bank will, adhering to provisions of the Basel II Standard, organise its business activities so that the indicator of adequacy continues to be above level prescribed by the Decision of the National Bank of Serbia on Capital Adequacy.
In accordance with the Decision on Adequacy of Capital, the Bank calculates capital requests for the following types of risk:
- credit risk – by applying standardised approach,
- market risk (FX risk) – by applying standardised approach and
- operational risk – by applying basin indicator approach (BIA).
Description 31 December 2014 31 December 2013 Capital 32,011,731 33,039,690 Capital requests 10,536,479 10,420,679 - Credit risk 9,119,536 8,871,723 - Market risk 76,952 89,673 - Operational risk 1,339,991 1,459,283 Indicators of capital adequacy 36.46% 38.05% Table 17- Calculation of capital adequacy on 31 December 2014 and 31 December 2013 (in 000 RSD)
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Data on issued shares Description of Ordinary shares with Priority convertible Priority, cumulative issuance voting rights shares share without voting rights ISIN RSAIKBE79302 RSAIKBE15363 RSAIKBE36633 CFI code ESVUFR EFNXNR EPNXQR Ticker AIKB AIKBPC AIKBPB Currency RSD RSD RSD Nominal value of one 1,900 1,900 1,900 piece of securities Total issued 9,045,756 40,989 1,314,595 Total nominal value of +77,879,100 shares 17,186,936,400 = 19,762,546,000 + 2,497,730,500 CFI description ORDINARY SHARE. PRIORITY CONVERTIBLE PRIORITY SHARE. EACH SHARE HAS ONE VOTE. SHARE. SHARE WITHOUT VOTING TRANSFER OF OWNERSHIP IS SHARE WITHOUT VOTING RIGHT. NOT LIMITED. RIGHT. CUMULATIVE COMPLETELY REPAID.ARE ON INCOME ACCORDING TO THE PARTICIPATION IN INCOME. THE NAME AND SAME RATE. ARE ON THE NAME AND REGISTERED IN CENTRAL ARE ON THE NAME AND REGISTERED IN CENTRAL SECURITIES DEPOSITORY AND REGISTERED IN CENTRAL SECURITIES DEPOSITORY CLEARING HOUSE SECURITIES DEPOSITORY AND AND CLEARING HOUSE CLEARING HOUSE Trading venue: Belgrade Stock Exchange Belgrade Stock Exchange Belgrade Stock Exchange Market Open Market MTP MTP Trading method: Continuous trading Single price method Continuous trading method method Statistical display of Central Securities Depository and Clearing House: www.crhov.rs ownership: Table 18 - Overview of issued shares on 31 December 2014
Ownership structure of ordinary shares Name Number of shares % participation 1. Sunoko d.o.o.,Novi Sad 4,464,161 49.35% 2. Atebank5 1,841,159 20.35% 3. East Capital (lux) - Balkan Fund 337,379 3.73% 4. JP Elektroprivreda Srbije 316,927 3.50% 5. UniCredit Bank Srbija a.d., Beograd 184,773 2.01% 6. The Bank of New York Mellon 163,243 1.80% 7. Globos Osiguranje a.d., Beograd 144,613 1.60% 8. Erste Bank a.d., Novi Sad 101,863 1.13% 9. Napred razvoj a.d., N. Beograd 85,910 0.95% 10. The Royalbankof Scotland plc 68,642 0.85% 11. Bdd M&V Investment a.d., Beograd 80,516 0.89% 12. Keramika Jovanović d.o.o., Beograd 59,673 0.66% 13. Raiffeisen Bank a.d.,Beograd 53,964 0.60% 14. Makler Invest a.d.,Beograd 50,000 0.55% 15. NLB Banka a.d., N. Beograd 41,708 0.46% Other shareholders 1,051,225 11.57% Total number of ordinary shares 9.045.756 100.00% Table 19 - Ownership structure of shareholders with voting rights on 31 December 2014 Source: Central Securities Depository and Clearing House.www.crhov.rs
5Nakon perioda za koji je ovaj izveštaj sastavljen, dana 20.01.2015. godine izvršeno je preknjižavanje 1.841.159 akcija sa ATEBANK nad kojom je otvoren postupak specijalne likvidacije na Piraeus bank SA, a u skladu sa Rešenjem NBS kojim se daje saglasnost Piraeus Bank SA na sticanje direktnog vlasništva. 29 | Strana
Share takeover through a takeover bid
On 13 January 2014, the Communication on the Intent to takeover shares of AIK Bank a.d., Niš by the bidder Sunoko d.o.o., Novi Sad was published in the daily newspaper 'Privredni Pregled'.The bid for share takeover was open on 4 February 2014 and it lasted 21 days. After the takeover process was finalised, the bidder, together with controlled companies, acquired 4,556,494 ordinary shares with voting rights or 50.37% of the total number of issued shares with voting rights. The bidder acquired 1,127,445 shares as a cost of 1,635 RSD per share through the takeover bid. Valid list of shareholders for all issued shares is available on the Internet page of the Central Securities Depository and Clearing House www.crhov.rs. After reporting period, on 27 March 2015, Sunoko d.o.o., Novi Sad published the Communication on the Intent to Takeover, given that by additional purchase on the Stock Exchange, it acquired 6,435,261 share with voting rights, i.e. 71.14% of the total number of shares with voting right.
Movement of share prices at the Belgrade Stock Exchange
1. Ordinary shares Ticker (Emission) AIKB Minimum price 1,367 RSD, Maximum price 1,920 RSD, Total value of the trade in 3,034,868,568 RSD, Total scope of the trade 1,854,171 Average daily value of the trade in 12,043,129 RSD, Average daily scope of the trade in 7,358 shares Weighted average price 1,636 RSD, Market value of emission on 31 December 2014 16,689,419,820 RSD, Table 20 – Annual statistic movement of prices for ordinary shares for the period 01 January 2014 - 31 December 2014 at Belgrade Stock Exchange. Source: Belgrade Stock Exchange
1,950 740 AIKB vs Belex15
01.01.2014. - 31.12.2014. 690 Value
1,750 Price (RSD)
-
- 640 x15
AIKB 590 1,550 Bele 540
1,350 490 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 AIKB Belex15
Figure 12 - Movement of price for AIKB shares and Index Belex15 in the period 01 January 2014 - 31 December 2014
2. Priority cumulative shares without voting rights
Ticker (Emission) AIKBPB Minimum price 690 RSD, Maximum price 850 RSD, Total value of the trade in 195,330,062 RSD, Total scope of trading in 2014 262.070 Average daily value of the trade in 775,119 RSD, Average daily scope of the trade in 1.040 Weighted average price 745 RSD, Market value of emission on 31 December2014 1,031,957,075 RSD,
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Table 21 – Annual statistic movement of prices for priority cumulative shares for the period 01 January
850 AIKBPB vs BelexLine 01.01.2014. - 31.12.2014. Value
- 1200 800 Price (RSD)
750 - 700 BelexLine BelexLine 700 AIKB
650 200 Jul 14 Jul 14 Apr 14 Apr 14 Jan 14 Jan 14 Jan 14 Oct 14 Oct 14 Oct Jun 14 Jun 14 Sep 14 Sep 14 Mar 14 Mar 14 Feb 14 Feb 14 Aug 14 Aug 14 Aug 14 Dec 14 Dec 14 Nov 14 Nov 14 May 14 AIKBPBMay 14 BelexLine
Graph 13 - Movement of price for AIKBPB shares and Index BelexLine in the period 01 January 2014 - 31 December 2014. Source: Belgrade Stock Exchange
2014 - 31 December 2014 at Belgrade Stock Exchange. Source: Belgrade Stock Exchange 3. Priority convertible shares
Ticker (Emission) AIKBPC Minimum price 550 RSD, Maximum price 800 RSD, Total value of the trade in 5,207,475 RSD, Total scope of trading in 2014 8.114 Average daily value of the trade in 20.665 RSD, Average daily scope of the trade in 32 Weighted average price 642 RSD, Market value of emission on 31 December 2014 22,543,950 RSD, Table 22 – Annual statistic movement of prices for priority convertible shares for the period 01 January 2014 - 31 December 2014 at Belgrade Stock Exchange. Source: Belgrade Stock Exchange
900
AIKBPC vs BelexLine 1200
01.01.2014. - 31.12.2014. Value 800 -
700 Price (RSD)
- 700 BelexLine BelexLine 600 AIKB
500 200 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 AIKBPC BelexLine
Figure 14 - Movement of price for AIKBPC shares and Index BelexLine in the period 01 January 2014 - 31 December 2014. Source: Belgrade Stock Exchange
Dividend and profit distribution Payment of dividends to shareholders is approved by the decision on profit distribution at the Shareholders annual General Assembly.
The Dividend date (the date on which the list of shareholders entitled to the dividend is established) is the date of the adoption of the Decision on the payment of dividends at the General Assembly of Shareholders of the Bank, as defined by the Act of Incorporation (Articles of Association) of the Bank and the Dividend Policy.
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A shareholder who transfers shares on the basis of which he is entitled to a dividend after the Dividend day and before the Dividend payment reserves the right to the dividends.
Own shares are not entitled to the dividend.
The bank cannot distribute the profit by payment of dividends to its shareholders or perform payment of share in profit or other benefits from the Bank's profit to Bank management members and employees of the Bank in case it: • Does not maintain its liquidity in accordance with the regulations of the National Bank of Serbia; • Due to such distribution it would not be able to maintain its liquidity in accordance with the regulations of the National Bank of Serbia; • It has not eliminated the weaknesses and deficiencies it was ordered by the National Bank of Serbia in relation to the improper presentation of transactions and other events that may affect the Bank's income statement; • Has failed to act in accordance with the orders for elimination of deficiencies • The National Bank of Serbia stipulates so by its corrective measures.
The bank cannot make advance payments relating to the distribution of profit referred to in the preceding paragraph, or perform any type of payment of dividends and the distribution of profit in case it is undercapitalized in terms of the Law on Banks.
In case the total amount of the payments referred to in paragraph 1 of this Article exceeds 10% of the Bank capital or the income statement shows a loss in the current or previous quarter, namely for the year to date, the Bank may make the distribution of such payments only with the prior approval of the National Bank of Serbia.
In accordance with the Decision of the General Assembly of Shareholders on the use and profit distribution generated by the annual financial report for the year 2013 No 10/2014 from May 30th 2014 the total operating profit in the amount of RSD 1,229,005 thousand was allocated to: Bank reserves for estimated losses in the amount of RSD 548,306 thousand and for the reserves for the purpose of purchase of own shares amount of RSD 680,699 thousand. Accordingly, during 2014 the Bank did not pay a dividend to shareholders. For cumulative preference shares ISIN number RSAIKBE36633, CFI EPNXQR, whose yield is determined by the level of 6% per year based on the nominal value of shares the unpaid dividends to the priority cumulative shares as per Annual Accounts for the year 2013 will also be cumulated for the next dividend payment. The accumulated unpaid dividends are paid out first.
At the XXXII (Extraordinary) Assembly of shareholders held on October 28th 2014 the Bank adopted the Decision no. 15-XXXII/2014 on the adoption of Dividend Policy. Taking into account that AIK Banka ad, Niš has issued various types and classes of shares and that there are terms and conditions prescribed by law and the Bank under which the Bank may distribute dividends to shareholders according to the adopted Dividend policy in one place are defined as follows:
• determining the amount to be allocated for the payment of dividends to shareholders; • method of determining dividends for each class of shares issued; • restrictions on the payment of dividend payments and priorities of different classes of shares as well as • establishing the procedure of payment of dividends to individual shareholders In this way, the optimal dividend policy that connects and aligns the interests of shareholders, the interests of the Company, the management and employees is established. Dividend policy is published on the website of the Bank www.aikbanka.rs under the section "Investor Relations"
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3.3.3. Acquisition of own shares
At the regular meeting of the General Assembly of Shareholders dated May 30th 2014 Decision No. 11/2014 on the acquisition of own shares was made, which the shareholders offer in the secondary sale, in order to prevent significant damage to the shareholders of the Bank.
From the reserve generated from profit for the purpose of acquiring its own shares the Bank allocated the amount of RSD 1,437,196 thousand up to a maximum of 10% of share capital, regardless of the type and class of shares issued.
By the Decision passed, the Board of Directors has the authority, by other special decisions, to: determine the class, number and price of each individual acquisition of own shares; define how to dispose of own shares; define the price in accordance with paragraph 7 of this Decision in case alienation is done for a fee; other terms and conditions under which it may dispose of its own shares and which may be alienated without compensation or be cancelled.
On 9 January 2015 the National Bank of Serbia passed a decision G No. 160 which gives the Bank prior approval for the acquisition of own shares, which the bank is required to dispose of one year from the date of their acquisition, otherwise it would be obliged to withdraw and cancel them at the expense of its share capital.
Until the date of preparation of this report, the Bank did not acquire its own shares on the secondary market.
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3.4. Revenues and Expenditures Change in the current year in Description of asset position 31 Dec. 2014 31 Dec. 2013 absolute amounts and %
Interest income 10,404 11,837 -1,433 -12.11%
Interest expense -3,680 -5,088 1,408 -27.68%
Net interest income 6,724 6,749 -25 -0.37%
Fee income 975 777 198 25.48%
Fee expense -156 -132 -24 18.18%
Net fee income 819 645 174 26.98%
Net income from foreign exchange 282 314 -32 -10.19% differences Other operating income 594 1,796 -1,202 -66.93%
Total operating revenues 8,419 9,504 -1,085 -11.42%
Operating expenses -3,418 -4,626 -1,208 -26.11%
Operating result 5,001 4,878 123 2.52%
Cost of provisions and impairment -3,115 -4,009 -894 -22.30%
Result before taxation 1,886 869 1,017 117.03%
Tax effects -68 124 -192 -154.84%
Net result 1,818 993 825 83.08%
Table 23 - Brief Bank's income statement (in millions of dinars)
In 2014 the Bank achieved a net profit of 1,818 million dinars which is 83.08% better operating result compared to the year 2013.
Net interest income, which at the end of 2014 reached the amount of RSD 6,724 million and was at approximately the same level as in 2013 despite the general trend of declining interest rates. Even though it saw a decline in interest income in 2014 by 12.11% or RSD1,433 million compared to 2013, the net interest income was held at approximately the same level due to the relatively significant decrease in interest expense (-27.68% compared to 2013) or in absolute terms RSD 1,408 million. Interest income amounted to RSD 10,404 million in 2014. Looking at the business segments, Treasury and Balance Sheet Management reported growth in interest income based on increased investments in government securities and repurchase operations, while the Corporate Sector of and Sector for operations with the public sector recorded an overall decline in interest income in the amount of 2.3 billion. Interest expenses achieved in the total of RSD3, 680 million during 2014 are lower by RSD 1,408 million compared to 2013. The main reason for this decrease in interest expense is the decline in interest rates on retail deposits which was reflected in lower interest expense in the retail sector by RSD1.14 billion. The total fee income in 2014 has grown compared to the same period of the previous year and amounted to RSD 975 million. This led to the growth of fee income in the amount of 25.48% as a result of the introduction of different types of products, especially since the second half of 2014. Fees for payment transactions dominantly participate in this with 50%, followed by fees from debit cards with 18.10% and fees for guarantees with 17.19%. Operating expenses in 2014 amounted to RSD 3.4 billion and are by 1.2 billion lower than the expenses in 2014. This difference largely comes from the effects of other operating expenses that have recorded the change in accounting policy. Besides this, salary costs are rising to 314 34 | Strana
million dinars (37.91%) due to the increased number of employees in 2014, but also because of wage policy. Insurance costs recorded growth of 40% and came as a consequence of the introduction of deposit insurance premiums by the Deposit Insurance Agency (80 million dinars). Also, increased marketing activities have resulted in higher marketing expenses in 2014 compared to the same period last year. 3.4.1. Effect of changes in accounting policy on revenue and expenditure
The Annual Report for 2013 contains information in accordance with the previously prescribed form and regulation of financial reporting. During 2014 there was a change in the chart of accounts of the National Bank of Serbia amending the Decision on the Form and Content of the Financial Statements of Banks and the Decision on the chart of accounts and content of accounts for banks (Official Gazette of the Republic of Serbia no. 71/2014 and 135/2014). In preparing the financial statements for 2014 the Bank has reclassified comparative data from financial statements for the year 2013.
In 2014 the Bank changed its accounting policy with the aim of preparing financial statements with the purpose of providing relevant and reliable information about the effects of transactions on the financial position and financial performance of the Bank. For investment property and material values, instead of the earlier approach of valuation at cost method of valuation, the Bank applied the "fair value „method. On the basis of this, the adjustment of the opening balance of retained earnings was not performed as at January 1st 2013 but the effects of changes in accounting policies, namely, the effects of error correction on material values and investment property were recorded in the income statement of the Bank for the year 2013, and the final effect has been included through the loss of the previous period.
Based on the valuation made by the certified appraiser, a correction of the total value of investment property for the previous period amounted to 120 million dinars. Positive effects of assessment amount to 1,283 million dinars, while the negative effects of assessment amount to 1,163 million dinars. In addition to that, material value as at December 31st 2013 was overestimated by 505 million dinars. These changes have been recorded in other income and other expenses in 2013.
In addition to all the above, corrections were made to the tax effects of the earlier period to the cumulative amount of 49 million dinars.
The total effects of the above changes in accounting policies in the liabilities of the balance sheet for 2014 can be seen through the position loss of the previous period, totaling 336 million dinars, and detailed information can be found in the Notes to the financial statements for 2014.
3.4.2. Interest income and expeses In RSD million Position description 31 Dec 2014 31 Dec 2013 Change in %
Total interest income 10,404 11,837 -12.11%
CORPORATE 2,394 3,461 -30.83%
PUBLIC 2,638 3,760 -29.84%
SME 301 389 -22.62%
RETAIL 1,874 1,896 -1.16%
OTHER 3,197 2,331 37.15%
Total interest expenses -3,680 -5,088 -27.67%
CORPORATE -196 -331 -40.79%
PUBLIC -703 -766 -8.22%
SME -132 -167 -20.96%
RETAIL -2,428 -3,564 -31.87%
OTHER -221 -260 -0.15%
NET INTEREST INCOME 6,724 6,736 -0.18%
Table 24 – Review of Income and Expenses by business segmet for 2014 and 2013
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40%
70% 60.32% 32.75% 35% 68.84% 30.62% 29.95% 60%
30% 25.36% 50% 23.78% 25% 40% 18.91% 18.37%
26.64%
16.26%
20% 30%
15% 20% 15.22%
8.95% 5.99% 3.64% 3.40% 1.96% 10% 10% 1.84% 2.12% 5% 1.87% 0% -10% Redovna Hartije od Zatezna Naknade REPO i 0% kamata vrednosti kamata po višak Treasury Public Corporate Retail SME kreditima likvidnosti
2014 2013 2014 2013
Graph 14 - Share of operating segments in total Graph 15 - Structure of interest income by type interest income for 2014 and 2013 for 2014 and 2013
3.4.3. Fees RSD million 31 Dec. 2014 31 Dec. 2013 Type of fee income Annual change amount % share amount % share Payment transactions fees 489 50.15% 330 42.47% 159 48.18% Fees for guarantees 168 17.23% 144 18.54% 24 16.67% Payment card fees 176 18.05% 148 19.05% 28 18.92% Fees for checks 24 2.46% 35 4.50% -11 -31.43% Fees for cash receipts and 78 8.00% 107 13.77% -29 -27.10% payments Other fees 40 4.11% 13 1.67% 27 203.69% Total fee income 975 100.00% 777 100.00% 198 25.48% Table 25 – Structure of fees for 2014 and 2013 (in million RSD)
60.00% 50.18% 50.00% 42.47% 40.00% 30.00% 17.19%18.56% 18.10%18.99% 20.00% 13.76% 7.99% 10.00% 4.52% 2.41% 4.13% 1.71% 0.00% Payment fees LGs fees Credit cards Checks Cash payments Other
2014 2013
Graph 16 – Type of fee income share in the total income from fees for 2014 and 2013
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3.4.4. Operating expenses
In million rsd Change in the current year Position description 31 Dec 2014 31 Dec. 2013 in absolute amounts and % Expenses for salaries, compensation for salaries and 1,143 829 314 37.88% other personal expenses Depreciation and amortization 170 264 -94 -35.61% expenses Cost of facilities 577 702 -125 -17.81% Insurance 526 375 151 40.27% Appertaining costs of business 359 316 43 13.61% activities Intellectual services 119 111 8 7.21% Marketing 140 84 56 66.67% Taxes and fees 142 163 -21 -12.88% Extraordinary expenses 26 71 -45 -63.38% Other operating expenses 216 1,711 -1,495 -87.38% Total operating costs 3,418 4,626 -1,208 -26.11% Table 26 - Overview of expenses for 2014 and 2013
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3.5. Risk management and NPLs
3.5.1. Risk Management System
The risk management process involves continuous identifying, assessing, measuring, monitoring and control of exposure to risk. Adequate risk management system is one of the key elements in ensuring Bank stability.
The Risk Management System is defined by the following Acts of the Bank:
• Risk Management Strategy;
• Capital Management Strategy;
• Risk Management Policies;
• Risk Management Procedures;
• Methodologies for managing individual risks and
• Other Bank enactments.
With the changes to the organizational structure, which began to be implemented in the last quarter of 2013, the Bank established a comprehensive and reliable risk management system that is fully integrated into all business activities of the Bank and which ensures that the Bank's risk profile is in line with the Bank's defined risk appetite.
In accordance with the overall business strategy, new organizational model takes into account the separation of certain segments such as sales, loan administration, risk management, risk control and monitoring of facilities. In accordance with this, in the course of 2014 the Bank significantly improved credit risk management through improvement of the lending process and process of control and facility monitoring.
A Loan Administration Sector was established which represents the basic support to the lending process. In addition, the Risk Management Department conducts analysis of loan applications with regard to risks, namely it assesses the level of risk. The Bank management gives special emphasis on the portfolio quality monitoring for early identification of non-performing loans. In view of this, a department for monitoring and support was created, which is responsible for monitoring the quality of the portfolio. In addition, a Committee has been established to monitor clients who are in charge of monitoring the facilities at the level of individual clients and identifying the increased credit risk or monitoring receivables from customers in arrears and customers who may increase credit risk. Permanent monitoring of individual clients as well as the overall portfolio has led to the halting of new NPLs in 2014.
From the point of view of monitoring risk exposure, a Risk Committee has also been established which is responsible for monitoring the Bank's exposure to credit risk, liquidity risk, market risk, operational risk, investment risk and other risks.
In accordance with the new organizational model the following are responsible for the risk management process:
Executive Board - responsible for establishing a uniform system of risk management and control of that system; adoption of Strategies and policies for risk management and capital management strategy; establishing a system of internal controls; supervision over the work of the Executive Board; as well as the implementation of the internal capital adequacy assessment.
Audit Committee - responsible and accountable for analyzing and monitoring the implementation and proper enforcement of the adopted strategies and policies for risk management and internal control system.
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Executive Board - is responsible for implementing strategies and policies for risk management and capital management strategy; adoption and analysis of the effectiveness of the implementation of risk management procedures which define the process of identification, measurement, mitigation, monitoring, control and reporting of risks to which the Bank is exposed; as well as reporting to the Board of Directors on the effectiveness of the implementation of defined risk management procedures.
The Asset and Liability Committee monitors the Bank's exposure to risks arising from the structure of its balance sheet liabilities and receivables and off-balance sheet items, and proposes measures for managing market risk and liquidity risk in particular.
The Credit Committee makes decisions on loan applications, within the framework established by the Bank, analyzes the Bank's exposure to credit, interest rate and currency risk.
Risk Committee monitors the Bank's exposure to credit risk, liquidity risk, market risk, operational risk, investment and other risks and proposes measures for managing these risks to the Executive Board.
Committee for Client Monitoring is responsible for monitoring the quality of facilities at the level of individual clients and spotting increased credit risk, namely, for monitoring receivables from clients in arrears and customers with potentially possible increase of credit risk. The Committee also analyzes the adoption processes of the proposed measures and activities in order to reduce credit risk on an individual basis.
Credit Risk Management Department (in accordance with the Strategy, the Corporate Credit risk Management Department, the Public and the Financial sector and the Department of Retail and SMEs Credit risk have been separated). Credit Risk Management Departments are independent departments in the direct jurisdiction of the Members of the Executive Board responsible for risk management. The task of the Department is to carry out the assessment and management of credit risk of clients of the Department and to prepare a proposal and provide expert advice and "vote" on a specific loan proposal concerning financing.
Risk control Sector is responsible for the implementation and maintenance of methodologies and procedures related to risks in terms of providing independent risk control process. This Sector also provides complete coverage of risk in the system of risk assessment and reporting.
NPL collection Sector manages problematic clients in the segment of corporate business, the public and the financial sector. This Sector is responsible for monitoring non-performing loans, conducting analysis and identifying potential strategies for recoverability.
Preventive Collection Department, as part of Operation Sector, Organization and ICT manages the collection of all receivables arising from outstanding liabilities to the Bank in the segment of retail operations, registered farmers, entrepreneurs and small and medium-sized enterprises. This Department is responsible for monitoring the NPLs, conducting analysis and identification of potential strategies to collect receivables from individuals, registered farmers, entrepreneurs and small and medium-sized enterprises.
Function of Internal Audit and Audit Committee conducts an independent evaluation of the risk management system and performs regular assessment of the adequacy, reliability and efficiency of the internal control system.
3.5.2. Liquidity risk
Within its operations, the Bank pays special attention to the maintenance of liquidity, considering that good liquidity is one of the basic prerequisites of financial stability and development. The experience of the banking sector in our country and in the neighboring countries shows that in the environment of imperiled liquidity, the trust of clients declines, increasing reputational risk, withdrawal of deposits, and thus to compromising profitability.
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The Bank manages its assets and liabilities in the manner that it ensures to meet all of its liabilities at any time and that the Bank's clients manage their funds in accordance with the agreed terms.
The Bank continuously monitors liquidity through the daily calculation of the liquidity indicator, the narrow liquidity indicator and the additional liquidity ratios. In addition, in 2014 the Bank improved its methodology for monitoring liquidity risk or maturity mismatch of balance sheet liabilities and receivables and off-balance sheet items (Gap Analysis) as well as the stress tests which are conducted on a monthly basis.
Liquidity ratio and narrow liquidity ratio during the entire period of 2014 were well above the regulatory minimum. The average liquidity ratio during 2014 amounted to 3.9773 while the narrow average liquidity ratio was 3.6659.
Range Liquidity indicator Narrow liquidity indicator Minimum 2.4436 2.1473 Maximum 5.2789 4.7772 Average 3.9773 3.6659 Table 27- Movement of liquidity indicators in 2014
3.5.3. Foreign currency risk
During the entire year the currency risk indicator was below the regulatory maximum of 20% of capital and as at 31 December 2014 it was 2.0%.
3.5.4. Non-performing loans
For the purpose of timely identification of possible problems, the Bank has intensified its monitoring of level and trend of the non-performing loans (NPLs) in the first half of the year 2014. The NPL monitoring is of great significance for the monitoring of credit risk, since it represents one of the basic indicators of Financi worsening of the Bank’s credit portfolio quality. Public al [PERCE instituti Najveći iznos NPL-a je u sektoru privrednih Retail NTAGE] društava (81.84%). 5,46%ons [PERCE it comes to companies it should be noted that a NTAGE] slight increase in NPL indicators is partly due to the decrease in credit activities (evident in the Corpora te operations of the entire banking sector in 81,84% Serbia). It should be noted that a significant portion of NPLs refers to a segment of legal entities in bankruptcy from which the Bank claims approximately 12.8 billion dinars as at 31 December 2014, (these debtors make up 38% of Graph 17 – Structure of NPLs per client the total NPLs of the Bank). category as at 31 Dec. 2014
In addition there are a number of clients who were in the status of active clients as at December 31st 2014, and those clients are the ones who are in restructuring i.e. the clients who have previously been declared bankrupt or pending bankruptcy but are not currently in bankruptcy status but are listed as active companies.
The retail sector accounts for 5.46% in total NPLs of the Bank, while the percent of NPLs in this sector is 12.3%.
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Broken down by years the NPLs have increased, which is especially pronounced in the segment of companies. For many years the Bank has been considered a bank that is mainly oriented to work with corporate clients, so the increase in NPLs in this segment is not surprising. It should be noted that the economy in the previous period suffered severe impact of the economic crisis. This was reflected in the Bank's clients who, starting from 2008, through insolvency and blocking of accounts, ended up in bankruptcy proceedings. The impact on results of operations is multiple. On one hand, there is no interest income and on the other hand costs rose as the Bank had to perform additional loan impairment.
Also, it should be noted that the Bank in the second half of 2014 stopped the increase of the NPLs, namely the process of intensive monitoring individual clients as well as the entire Portfolio showed that the results compared to 30 June 2014 the amount of NPLs has decreased in the amount of 1.7 billion dinars.
40,000 40.00% 34.38% 35,000 33.66% 35.00% 30.53% 30,000 MILL.RSD 28.30% 30.00% 25,000 25.00% 21.07% 20,000 22.34% 20.00%
15,000 23,989 24,620 30,899 15.00% 14,484 16,493 33,887 10,000 10.00% 5,000 5.00% 0 0.00% 2009 2010 2011 2012 2013 2014 Total Gross NPL Share of NPL in total loans
Graph 18 – NPL dynamics per years and NPL participation in total loans (in millions of RSD) Note: The share of NPLs to total loans is as defined by the NBS (certain balance sheet positions are not included in the definition of loans by NBS)
Coverage of non-performing loans
Once we compare the amounts of separate corrections and reserves for claims in the NPL status (according to the NBS methodology and using the data from the quarter reports to NBS on the situation in the Serbian banking sector) we can ascertain the following:
• The gross NPL covering rate by corrections (according to IFRS) in the banking sector amounts to approximately 55.3% while in AIK Bank the covering percentage is around 67.5% (data for the banking sector relates to the date 30 September 2014 while the data for AIK Bank as at December 31st 2014). Compared to 30 June 2014 the Bank's allowance for NPLs increased by 1.6 billion. • Provisions for estimated losses on balance sheet positions in the banking sector covered 115.2% of the total gross NPLs while gross NPLs in the Bank was covered with 128% of the gross reserves for estimated losses which in turn means that the Bank, with the calculated corrections and formed provisions, significantly covered NPL claims (data for the banking sector refers to 30 September 2014, whilst the figure for the Bank is as at 31 December 2014).
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3.5.5. Activities in 2014 and plans for 2015
During 2014, intensive efforts were made to improve the process of identifying, estimating monitoring and risk control as well as on improving the internal reporting of risk exposure.
In the first half of the year, the Bank has established a Risk Committee, which is responsible for monitoring the Bank's exposure to credit risk, liquidity risk, market risk, operational risk, investment and other risks and proposing measures to manage these risks to the Executive Board.
In accordance with the plan of enhancing the process of operational risk management at the end of the year the Bank has started the implementation process of self-assessment of exposure to operational risk for primary lines of business.
In 2015 the Bank will finalize the group of projects that will improve the risk management process, especially in the part of credit risk and market risk.
The introduction of tools that will be implemented during these projects will significantly improve the calculations that are performed in the assessment of credit risk and will further improve the process of monitoring and collateral management.
From the aspect of market risk it is expected that the implementation of new tools will improve the overall process of management and control of market risk.
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4. Marketing and Public Relations
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4.1. Marketing Strategy for the year 2014
Marketing strategy for 2014 focuses on building brand recognition of the Bank as a stable, strong, secure and flexible financial institution by undertaking the following activities:
• Defining market positions of the Bank with guidelines for communication with internal audiences in order to improve the image and prominence at national level; • Standardization of the visual identity of the Bank in all segments (business documents, websites, external and internal branding of the Bank offices); • Proactive coordination with the sales sectors in order to strengthen the recognition of the Bank through communication of products and services that differentiate the Bank compared to the competition with the continuous strengthening of the image of the Bank through its corporate values; • Creating and maintaining relationships with clients through the Bank's continued commitment to their needs.
4.2. Marketing plan for 2014 and its implementation
Marketing Plan for 2014 includes activities defined on the basis of marketing strategy:
4.2.1 Conducting market research
In means of of identifying the prominence and image of the Bank, habits and attitudes of clients in order to gather information and clear guidelines as a starting basis for marketing activities in early 2014, market research was conducted.
The survey was conducted on a nationally representative sample of 1,000 respondents aged 25 to 65, grouped according to gender, age and region (Vojvodina, Belgrade, Eastern Serbia and Western Serbia) using CAPI technology (Computer Assisted Personal Interviewing or "Face to face" method).
The survey was conducted in three main segments:
• Satisfaction and recommendations; • Use of Banks (products and services) and • Prominence and image of the Bank. In accordance with the recommendations of the survey, essential elements and guidelines for communicating with clients were adopted: the simplicity and clarity of the message that is communicated with the emphasis on "humanity" (warmth, cordiality), safety and availability.
4.2.2. Standardization of the visual identity of the Bank
With the aim of standardization and unification of the visual identity of the Bank in February 2014 a Book of Graphic Standards was made, which included the implementation of a new - and redesigned logo of the Bank with the change of corporate slogans and the unification of the business records of the Bank in accordance with the adopted corporate graphic standards.
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In accordance with the standardization plan and unification of the visual identity of the Bank and with the aim to present itself in a modern and conceptually different way, in April 2014 the Bank launched a new Internet presentation adjusted to the new visual identity. By daily updating and placing advertising banners of current marketing campaigns and PR releases, the Internet presentation of the Bank becomes an active communication channel.
Picture 1 – New visual identity of branches The project of external and internal Bank branding, standardized the layout of Bank offices with the aim to modernize the look of offices through the choice of warm colors and details. The idea is that clients who visit the offices feel comfortable (in addition to already characterized kindness of the staff) and ultimately to take this opportunity to build a positive image of the Bank in the public.
During 2014, three subsidiaries of the Bank were refurbished according to the adopted project - two in Belgrade (Subsidiary Grawe and the one in Jurija Gagarina Street) and the main subsidiary in Niš in Nikole Pašića Street.
4.2.3. Realization of strategic and tactical marketing campaigns
In 2014 two strategic marketing campaigns were organized:
• "Real support when you most need it" - for a set of products: account overdraft, loan refinancing and cash loan (with free travel insurance). Campaign Period: May/June. The duration of the campaign: 3 weeks. • "Bit by bit to all you care for" - a campaign for Savings week. Campaign Period: November/December. The duration of the campaign: 5 weeks.
Communication in both strategic campaigns has been defined in accordance with the recommendations of the market research taking into account the building of a notable image of the Bank. With simple, clear and direct messages, clients were informed about specific products while continually building relationships as the basis of long-term loyalty between the bank and the client.
The Bank has implemented eight tactical campaigns to promote the brand and products of the Bank for natural persons:
• Current Account Package “Positive” + Retail savings + Corporate campaign (February); • “Thank you for trusting us” – Corporate campaign (May); • “Agro loans” – agricultural loans (June); • “Cash loans” (Loans in EUR and RSD) (August); • “Pensions in advance” – Payment of pensions 7 days before anyone else (September); • “Skip an installment” – Cash loan with a suspension in repayment (October);
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• “I choose installments with no interest” – payment cards with payment in installments (December); • “Days of ideal buying” – benefits in payment by Visa and Master cards (December)
The realization of the mentioned campaign entailed the following:
• Communication tone in accordance with the defined target groups - simple, clear and direct messages with the aim of better informing; • Integrated visual communication - advertising solutions, OOH/billboards. LED display, POS materials, web banners, ATM screens, and banners for social networks (FB. TW.YT); • PR support at all available channels (press releases, interviews, press releases, PR texts).
4.2.4. Creating custom made promotional materials to support retail sectors and achieving sales results
In addition to marketing campaigns and PR activities, special attention was given to the production of brochures and offers that are aimed at:
• Informing the business public about the results achieved by the Bank ("Company profile" for the promotion of the Bank's key events); • Improvement of sellers‘performance (Cross selling guidelines); • Detailed information for clients as a form of additional customer care (Guide for housing loans); • Informing employees about the security of information (brochures); • Tailor-made offers for special segments and/or clients (companies). 4.2.5. Continuous communication with the public
With the aim of better, more comprehensive and integrated communication with a targeted public service, the Public Relations and Marketing Department focused special attention on PR activities which to this year have not been planned or conducted by the Bank.
Strengthening corporate brand on a national level as a strategic objective implied tactic activities and continuous relations with the public mentioned keeping in mind the needs and means of communication with each of these stakeholders.
In this respect, special attention was directed to the following:
• Strengthening the relations with the media; • Professional addressing public of interest; The Bank has sponsored events in which it participated actively on panels with corporate presentation and accompanying BTL activities: o Kopaonik Business Forum, Kopaonik from 4 March to 6 March 2014; o Agrarian Policy of Serbia, Crown Plaza 24 March 2014; o Erste Group SEE Investor Conference 2014, Athenee Palace Hilton, Bucharest 21 May 2014; o East Capital Summit 2014, Hyatt Regency Hotel 4 June 2014; o Cvet uspeha za ženu zmaja, (Flower of success for the dragon lady) Madlenianum 29 October 2014; th o 38 session of the European Group - Trilateral Conference, Crown Plaza 31 October to 2 November 2014; o “Upgrade in Belgrade” – International Conference of the Belgrade Stock Exchange Hyatt – 18 November 2014 and o Mini Fair of women's entrepreneurship, Gallery TC "Ušće“ 6 December 2014.
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By sponsoring the events listed below, the Bank was given the opportunity of establishing the corporate identity and promotion of current products. o Beer fest, Ušće from 14 August to 17 August 2014; o Promotion of “Tiki” drink, Bel expo centar 4 September 2014; o Pal Zileri fashion show, Bel expo centar 8 September 2014 and o Van Gogh concert, Sport Hall 11 and 12 December 2014. • Establishment of digital communication (Website, Facebook,Twiter,Youtube); • With the launch of the new Internet presentation, the digital communication is visually integrated and focused on: o Facebook fun page: regular updating, stimulating and significantly increasing interaction with users; o Twiter: regular updating, stimulating and significantly increasing interaction with users; o YouTube - videos (TV commercials). • Donations and CSR The Bank donated funds for the following purposes: o Help for the Student Center in Kosovska Mitrovica (with the aim of promoting the culture of sport and contribution to community development); o Help for citizens threatened by natural disasters across the country (the funds were directed to a special purpose account of the Government of the Republic of Serbia for assistance in flood-threatened people); o Support for the newly established Forum Serbia - Germany. CSR activities of the past year had been the focus of sustainable development as well as investing in young, promising talents.
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5. Organizational and personnel structure
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5.1. Bank organization
Figure 1 – Organizational structure of the Bank as at 31 December 2014
During the year 2013 the Bank’s Board of Directors has changed the Rules of Procedure for the Internal Organization of the Bank with the aim to create the organizational model, which is based on the combination of the „best practice“ and specific solutions, appropriate for the scope of business operations of the Bank.
During 2014, the Board of Directors made amendments three times to the Rules of Procedure for the Internal Organization of the Bank Decision no. 10-04/2014 dated 28 February 2014, Decision no. 07-II/2014 dated 23 April 2014 and Decision no. 10-VI/2014 dated 26 September 2014.
The most important organizational changes related to the introduction of Department for investor relations and further adjustment in accordance with the specific needs of the business operations and the implementation of strategic goals.
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5.2. Bank management 5.2.1. Shareholders’ Assembly of the Bank
Name and surname Function Dragijana Radonjić Petrović Chairman of the Shareholders’ Assembly Table 28– Chairman of the Shareholders’ Assembly
The shareholders of the Bank constitute the assembly of the Bank.
The shareholders of the Bank may participate directly in the work of the Bank, or through an appointee, which means the right to vote on issues which his class of shares is voting, right to participate in the discussions about items of the Assembly Agenda, including the right to submit proposals, asking questions referring to the Agenda of the Assembly and receiving answers, according to the Statute and Rules of Procedure of the work of the Assembly.
Assembly of the Bank (competences):
1. Adopts the Business Policy and Bank Strategy; 2. Renders the Articles of Association of the Bank and adopts amendments of the Incorporation Act and the Articles of Association of the Bank; 3. Adopts the annual report of the Bank and decides on the use and profit distribution, respectively coverage of losses; 4. Decides on capital increase of the Bank, namely, on capital investments in another bank or other legal entities, as well as on the amount of investment into fixed assets of the Bank; 5. Decides on conditions for capital increase of the Bank based on convertible bonds and warrants in shares, 6. Appoints and dismisses the Chairman and the members of the Board of Directors of the Bank and determines reimbursement for the members of the Board of Directors; 7. Decides on status changes and dissolution of the Bank; 8. Decides on taking over rights and obligations of the Bank in the procedure of administrative management, namely, banks for special purposes; 9. Appoints and dismisses the external auditor; 10. Renders the Rules of Procedure for its work and decides on other issues, according to the law and the Articles of Association.
The meetings of the Assembly may be regular and extraordinary. The regular meetings of the Shareholders’ Assembly are held at least once a year and within 6 months from the end of the business year at the latest.
Shareholders’ Day: The day when the list of shareholders is determined, who are entitled to participate in the work of the Shareholders’ Assembly and is the tenth day before the holding that meeting.
The list of shareholders is determined on the basis of the Excerpt of the Central Depository and Clearing House of the Republic of Serbia. The day of the shareholders adjourned meeting is valid for the repeated meeting.
Chairman of the Shareholders’ Assembly
The Chairman of the Shareholders’ Assembly is Dragijana Radonjić Petrović, appointed by the Shareholders’ Assembly by Decision No. 01/2014 of May 30th 2014.
The meetings of the Shareholders’ Assembly are chaired by the person elected on the Shareholders’ Assembly meeting. Once chosen, the Chairman of the Shareholders’ Assembly is exercising that function in all future Assembly meetings till the election of a new chairman, according to the Statute and Rules of Procedure of the Assembly’s work.
Chairman of the Assembly: 50 | Strana
• Proposes to the Assembly Rules of Procedure for the work of the Assembly and its amendments and supplements; • Appoints working presidency, recording secretary and members of the voting commission and is responsible for regular making of meeting minutes, which he/she signs within eight days from the date of the Assembly meeting and within 3 following days at the latest it shall be published on the website of the Bank within the duration of at least 30 days.
The holding of the Shareholders’ Assembly meetings are governed in detail by the Articles of Association of the Bank and Rules of Procedure of the Shareholders’ Assembly operation, in accordance with the Law and good practice of the corporate management.
Meetings of the Shareholders’ Assembly held in 2014
In 2014, the Bank held one regular meeting of the Shareholders’ Assembly on May 30th 2014 and passed the following decisions:
• 01/2014 – Election of Chairman of the Assembly - Adopted by majority of votes • 02/2014 – Election of Working Presidency - Adopted by majority of votes • 03/2014 – Consent for appointment of the Recording Secretary and members of the Voting Commission - Adopted unanimously • 04/2014 – Adoption of the Report of the Voting Commission - Adopted unanimously • 05/2014 - Decision on adoption of the Minutes from the 30th regular meeting of the Assembly of AIK BANKA AD NIŠ, held on 30 May 2013 - Adopted unanimously • 06/2014 - Decision on adoption of the amendments of the Incorporation Act of AIK BANKA AD NIŠ and the refined text of the Incorporation Act - Adopted by majority of votes • 07/2014 - Decision on adoption of amendments and supplements to the Articles of Association of AIK BANKA AD NIŠ and adoption of the Articles of Association (in refined text) - Adopted by majority of votes • 08/2014 - Decision on adoption of the Annual report on operation of AIK BANKA AD NIŠ for the period January – December 2013 with the statement on application of code of corporate management - Adopted by majority of votes • 09/2014 - Decision on adoption of the Annual Financial Statement – Annual Report of AIK BANKA AD NIŠ for the year 2013, with the Report and opinion of the External Auditor - KPMG d.o.o. Beograd - Adopted by majority of votes • 10/2014 - Decision on use and distribution of the realized profit according to the Annual Report of AIK BANKA AD NIŠ for the year 2013 - Adopted by majority of votes • 11/2014 - Decision on acquiring of treasury shares - Adopted by majority of votes • 12/2014 - Decision on appointment of the member of the Board of Directors - Adopted by majority of votes 13/2014 - Decision on appointment of external auditor for audit of the Annual Financial Statement of the year 2014 - Adopted unanimously • 14/2014 - Decision on adoption of the business policy and strategy with the strategy plan for the three-year period 2014. – 2016 - Adopted by majority of votes • 15/2014 - Decision on the Financial plan of AIK BANKA AD NIŠ for the year 2014 – Plan of Income Statement and Balance Sheet - Adopted by majority of votes • 16/2014 - Decision on authorizations of the Board of Directors and the Executive Board in decision making on expenditures for advertising, publicity, propaganda, donations, sponsorships and entertainment – Adopted by majority of votes • 17/2014 - Decision on capital investment in persons within financial sector and those which are not in the financial sector (other legal persons) - Adopted by majority of votes • 18/2014 - Decision on capital investments in fixed assets of AIK BANKA AD NIŠ and on intangible investments - Adopted by majority of votes • 19/2014 - Decision on collection of claims of AIK BANKA AD NIŠ in intangible assets in the year 2014 and further - Adopted unanimously • 20/2014 - Decision on alienation of investment real estate and material values, acquired in the process of collection of Bank receivables - Adopted unanimously
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• 21/2014 - Decision on writing off the Bank’s claims - Adopted unanimously • 22/2014 - Decision on remuneration to the members of Board of Directors and salaries of the members of the Executive Board for the year 2014 and discussion on the written information with detailed data on all earnings, remunerations and other income of members of the Board of Directors and Executive Board - Adopted unanimously
During 2014 an Extraordinary General Meeting (XXXII) was also held on 28 October 2014, at which the following decisions were adopted:
• Decision 01-XXXII/014 on the Election of Working Presidency - Adopted by majority of votes; • Decision 02-XXXII/2014 on the appointment of the Recording Secretary and members of the Voting Commission - Adopted unanimously • Decision 03-XXXII/2014 on the Adoption of the Report of the Voting Commission - Adopted unanimously; • Decision 04-XXXII/2014 on adoption of the Minutes from the XXXI regular meeting of the Assembly of AIK BANKA AD NIŠ, held on 30 May 2013 - Adopted unanimously • Decision 05-XXXII/2014 on correction of a technical error in Decision No. 10/2014 on the use and allocation of profit in the annual accounts of the Bank for the year 2013 dated May 30th 2014 – Adopted unanimously; • Decision 06-XXXII/2014 on the dismissal of a member of the Board of Directors of the Bank-Ljubiša Jovanović - Adopted unanimously; • Decision 07-XXXII/2014 on the dismissal of a member of the Board of Directors -Đorđe Djukić - Adopted unanimously; • Decision 08-XXXII/2014 on the reappointment - the re-election of the Chairman of the Board of Directors Miodrag Kostić - Adopted unanimously; • Decision 09-XXXII/2014 on the reappointment - the re-election of a members of the Board of Directors Nikola Litvinenko - Adopted unanimously; • Decision 10-XXXII/2014 on the appointment of a member of the Board of Directors -Marko Hinić - Adopted unanimously; • Decision 11-XXXII/2014 on the appointment of a member of the Board of Directors – Vladimir Sekulić – Adopted unanimously; • Decision 12-XXXII/2014 – submission of information to the Board of Directors in accordance with Article 78 Paragraph 3 of the Law on Banks – Adopted unanimously; • Decision 13-XXXII/2014 on the collection of receivables of the Bank in non-monetary forms in 2014 and onwards – Adopted unanimously; • Decision 14-XXXII/2014 on the authority in dealing with investment property, material assets (hereinafter immovable property) and movable property of the Bank acquired in the process of debt collection – Adopted unanimously and • Decision 15-XXXII/2014 on enacting the Dividend Policy – Adopted unanimously.
5.2.2. Board of Directors of the Bank
Name and surname Date of birth Function Miodrag Kostić 25 August 1959 Chairman of the Board of Directors Nikola Litvinenko 29 June 1959 Member of the Board of Directors Marko Hinić 7 April 1974 Member of the Board of Directors Aleksandar Surla 3 March 1973 Member of the Board of Directors Vladimir Sekulić 10 September 1973 Member of the Board of Directors Tim Umberger 25 September 1980 Member of the Board of Directors Table 29– Composition of the Board of Directors as at 31 December 2014
On work of the Board of Directors in general
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The Board of Directors consists of at least 5 (five) members, including the Chairman, out of which one third are the persons, independent from the Bank.
The members of the Board of Directors of the Bank must be persons, with a good business reputation and appropriate qualifications, as set forth by the National Bank of Serbia.
At least three members of the Board of Directors of the Bank must have an appropriate experience in finance.
At least one member of the Board of Directors of the Bank must be fluent in Serbian and have residence in the territory of Republic of Serbia.
The Chairman and other members of the Board of Directors of the Bank are appointed by the Assembly of the Bank for the period of 4 (four) years, whereas the existing members execute the obligations of the Chairman and members of the Board of Directors, until taking office in the newly chosen Board of Directors, upon previously provided approval of the NBS and after expiry of the four year mandate.
Together with the application for prior approval to appointment of the members of the Board of Directors, documents are submitted and data given, by which the business reputation and qualification of the person proposed for the membership in the Board of Directors of the Bank is proven.
The members of the Board of Directors of the Bank may be appointed again – re-elected.
The current Board of Directors proposes candidates for members of the Board of Directors with a mandatory consultation with major shareholders of the Bank.
The Assembly of the Bank renders decisions on dismissal of the members and the chairman of the Board of Directors.
Competencies of the Board of Directors
Board of Directors of the Bank:
1. Convenes meetings of the Assembly of the Bank; 2. Prepares decision proposals for the Assembly of the Bank and is responsible for the implementation of those decisions; 3. Renders, between two meetings of the Assembly of the Bank, the acts by which the business policy of the Bank is implemented; 4. Determines general terms of business of the Bank, as well as amendments and supplements thereto; 5. Appoints and removes the Chairman and Members of the Bank’s Executive Board; 6. Appoints and dismisses the members of the Audit Committee, Credit Committee, ALCO Committee and other committees of the Bank, as well as the managers of organizational unit of compliance of Bank’s business operations and internal audit; 7. Establishes upper limits for decisions of the bank’s Executive Board on placements and borrowing and decides on Bank’s placements and borrowing in excess of those limits; 8. Gives prior consent for the bank’s exposure to each single person or a group of related persons which exceeds 10% of the Bank’s capital, and/or for the increase of this exposure in excess of 20% of Bank’s capital; 9. Supervises the work of the Executive Board of the Bank; 10. Adopts the program and plan of the Bank internal audit; 11. Establishes the internal control system of the Bank; 12. Establishes the Risk Management Strategy and policies as well as the Capital Management Strategy of the Bank; 13. Reviews Internal and External Audit Reports;
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14. Adopts quarterly and annual reports of the bank’s executive board on bank’s operations, including quarterly reports on risk management, and submit the adopted financial report to the bank’s assembly for final adoption; 15. Passes Rules of Procedure for its work and the work of the Executive Board; 16. Reports to the National Bank of Serbia and other competent authorities on the established irregularities in the Bank’s operation; 17. Establishes internal organization or organizational structure of the Bank that provides segregation of duties, powers and responsibilities of employees in a manner that prevents conflicts of interest and provides a transparent and documented process of making and implementing decisions; 18. Adopts the policy on salaries and other remunerations to the bank’s staff; 19. Performs other activities in compliance with the Bank’s Articles of Association.
Important events in the work of Board of Directors
At the XXXI meeting of the Shareholders’ Assembly of 30 May 2014, by the Decision no. 12/2014 Tim Umerger, representative of shareholders has been appointed as a member of the Bank Board of Directors for a mandate of 4 years. The Decision on appointment of Tim Umberger as the Bank Board of Directors member has come into force after the receipt of the Decision of the National Bank of Serbia on issuing of the preliminary approval for appointment and the above- named was registered as the Bank Board of Directors member by the Decision of Business Registers Agency number BD 84078/2014. At the XXXII meeting of the Shareholders’ Assembly of 28 October 2014, due to the expiry of the mandates of the Board of Directors members, Ljubiša Jovanović and Professor Dr Đorđe Đukić were released from duty. At the same meeting of the Shareholders’ Assembly there was the reappointment of Nikola Litvinenko, person, who is independent from the Bank, for a member of the Board of Directors and Miodrag Kostić as the President of the Bank Board of Directors. As the new members of the Bank Board of Directors, Marko Hinić, person, who is independent from the Bank and Vladimir Sekulić were elected. By the Decision of Business Registers Agency number BD 91253/2014 of 3 November 2014, the changes of data on the members of the Board of Directors of the Bank have been registered.
5.2.3. Executive Board of the Bank
Name and surname Personal No. Position Vladimir Čupić 2410966710269 President of Executive Board Ana Marković 1003975715216 Executive Board member Siniša Mihajlović 0812974710409 Executive Board member Branka Damnjanović 0508972778013 Executive Board member Srđan Vidović 2510976710288 Executive Board member Table 30 – Composition of the Executive Board of the Bank on 31 December 2014
Dejan Tešić has ceased to perform duty of the Bank Executive Board member according to the Decision of Business Registers Agency No. BD 170/2014 of 9 January 2014. In 2014, Branka Damnjanović was appointed as a member of the Bank Executive Board by the Decision of the Board of Directors No. 01/2014 of 10 January 2014. This change has been registered by the Decision of Business Registers Agency No. BDŽU 21676/2014/1 of 19 March 2014. By the Decision of Board of Directors No. 26/2014 of 19 June 2014, Srđan Vidović is appointed as a member of the Bank Executive Board. The above-named received approval from the National Bank of Serbia and on 14 August 2014 he was registered at the Business Registers Agency as the representative of the Bank.
After the reporting period, Jelena Galić was appointed as the President of the Executive Board of the Bank by the Decision of the Board of Directors and she is registered at the Business Registers
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Agency by the Decision BD 25145/2015 of 27 March 2015, while Vladimir Čupić ceased to carry out the duty of the President of the Executive Board of the Bank.
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5.2.4. Other boards of the Bank
Asset-Liability Committee (ALCO)
Name and surname Position within Bank Position within Committee Vladimir Čupić President of Executive Board Member of ALCO Siniša Mihajlović Member of Executive Board President of ALCO Ana Marković Member of Executive Board Member of ALCO Branka Damnjanović Member of Executive Board Member of ALCO Srđan Vidović Member of Executive Board Member of ALCO Bojan Topalović Director of Organizational Unit for Member of ALCO Funds and Balance Management Aleksandra Babić Director of the Organizational Unit Member of ALCO for Risk Management Vladan Đorđević Director of Organizational Unit for Member of ALCO Operations with Public Sector Nenad Marković Director of Organizational Unit for Member of ALCO Financial Planning and Control Nela Arsić Director of Organizational Unit for Member of ALCO Retail and SME Dejan Vasić Deputy Director of Organizational Member of ALCO Unit for Corporate Affairs Table 31 – Composition of ALCO on 08 July 2014
Board for monitoring of business activities of the Bank (Revision Board)
Name and surname Position in Board Aleksandar Surla President Vladimir Sekulić Member Nikola Litvinenko Member Table 32 – Composition of Revision Board on 31 December 2014
The Board for monitoring of business activities of the Bank consists of 3 (three) members, out of which two are members of the Board of Directors of the Bank with appropriate experience – in the sense of Law in the field of finances and at least one member must be a person, who is independent from the Bank.
The Board for monitoring of business activities of the Bank is helping the Board of Directors of the Bank in supervision of the Executive Board of the Bank and the Bank employees.
The Board for monitoring of business activities of the Bank is obliged to:
1) Analyze the annual reports and other financial reports of the Bank, which are submitted to the Board of Directors of the Bank for consideration and adoption;
2) Analyze and adopt the proposals of strategies and policies of the Bank in regard to the risk management, strategy of Bank capital management, as well as the system of internal control, which are submitted to the Board of Directors of the Bank for consideration and adoption;
3) Analyze and supervise the implementation and adequate implementtion of adopted strategies and policies for risk management, strategy of Bank capital management as well as the implementation of the internal control system;
4) At least once a month advises the Board of Directors on its activities and noticed irregularities and proposes the way to remove such irregularities i.e. improvement of the strategy and policy for risk management, strategy of Bank capital management as well as the implementation of the internal control system; 56 | Strana
5) At the proposal of the Board of Directors or Executive Board of the Bank or external auditor of the Bank, takes into consideration the investments and activities of the Bank;
6) Proposes the external auditor of the Bank to the Board of the Directors and Assembly of the Bank;
7) Takes into consideration the annual audits of Bank’s financial reports together with the external auditor of the Bank;
8) Proposes to the Board of Directors of the Bank to include the certain issues in relation with the external and internal audit into the agenda of the Assembly and
9) Adopts the Rules of Procedure on its operation.
The Board is obliged to propose to the Board of Directors of the Bank to remove the noticed irregularities once it estimates that the Bank is operating contrary to the Law, other regulation, Statute or other act of the Bank, or once it concludes so on the basis of Report on audit and to schedule the extraordinary meeting of the Assembly when it established that the noticed irregularities can cause severe consequences to the Bank business operations.
The members of the Board for monitoring of business activities of the Bank are meeting mostly once a month and at least once in three months in the headquarters of the Bank.
Credit boards
The Board of Directors of the Bank in 2014 made the Decision on establishment of the credit boards of the Bank and appointment of the members of the credit boards No. 13-IV/2014 and when it came into force it has annuled the validity of the decision of the Board of Directors No. 08-V/2013 on establishment of credit boards and appointment of members of the credit boards, and then the Decision No. 19/2014 of 5 May 2014, which has been amended and modified on three occasions during year 2014.
The adoption of a positive decision on approval of a placement requires the presence of 3 members, a compulsory presence of the risk representative and provision that at least three members vote „FOR“ with compulsory vote „FOR“ of the Risk representative (except in case of credit boards of the Subsidiaries, where the adoption of a positive decision on approval of placements requires presence of 2 members of the credit board with compulsor positive opinion of the Risk or Service for the loan requests processing). The membership in the credit boards is not transferable. If any member of the Credit Board for corporate and public sector, Credit Board for population and SME and Credit Boards of Subsidiaries is not satisfied with the adopted decision, the proponent of the loan request may escalate the decision making to the next, higher level of the decision making.
At the meeting of a Credit Board only the loan proposals with positive opinion of the Risk representative are taken into consideration while the decision making is performed by voting „FOR“ and „AGAINST“. The Risk representative in the Credit board has right to veto, except in case of Credit Boards of the Subsidiaries where the right to veto is not foreseen. Abstention from voting is not allowed. If a member of the Credit Board, who is the Risk representative, uses his right of veto, it shall be deemed that the decision on the loan request is negative.
The meetings of the Credit Boards are chaired by the President of the Credit Board and in case of his/her absence, the Credit Board members who are competent and responsible for risks. The Minutes are made on the meeting of a Credit Board, except on the work of a Subsidiary Credit Board.
A meeting of a Credit Board may be attended (without right to make decisions) by representatives of other organizational units of the Bank, who are responsible for the loan requests, which are being considered and which are the subject of decision making at the 57 | Strana
meeting, i.e. the employees, who have immediately worked on the processing of loan requests. A Credit Board may have its meetings in a written or electronic form, by telephone, telegraph, by telefax or by use of other means of audio-visual communications, in which case the Credit Board members, who are communicating in such way, are deemed to be present at the meeting but are obliged to sign the decision, which was made by the Credit Board once they come to the Bank.
The Credit Board members have particularly the following rights and obligations:
- To participate in discussions on particular issues from the agenda, to express their opinions and suggestions; - To raise questions in relation with the submitted loan requests and to demand additional explanations and data; - To request the possiblity of insight into the documents in relation with the loan request i.e. other material, which is discussed; - If during a discussion at the meeting, the Credit Board members establish that the loan request does not contain all the elements, required for the decision making, it shall return the loan request to the proponent for the amending with appropriate instructions and term in which the irregularities of the loan request should be removed.
The Credit Board members are elected for an unlimited period of time till making the decsion on discharge of the existing and/or appointment of new members. A Credit Board member must be a person with sufficient experience and expert knowledge for making right decisions on approval of placements.
Kreditni odbori formirani u Banci su:
1. The Credit Boards, established in the Bank are the following:
Nane and Position in the Bank Position in the Board surname Vladimir Čupić President of the Bank Executive Board President of the Credit Board Ana Marković Bank Executive Board member in charge of Member of the Credit Board risk management, risk control and reporting Siniša Mihajlović Executive Board member in charge of Member of the Credit Board management of funds and Bank capital Branka Bank Executive Board member in charge of Member of the Credit Board Damnjanović jobs with population and SME, operations, organizations and ICT Srđan Vidović Bank Executive Board member in charge of Member of the Credit Board and responsible for corporate and public sector affairs Vladan Đorđević Director of Organizational Unit for Occasional member i.e. Deputy Operations with Public Sector President of Credit Board Svetlana Bašić Director of Credit Risk Management in Occasional member i.e. Deputy Corporate, Public Sector and Financial member of Bank Executive Board in Sector charge and responsible for risk management Bojan Topalović Director of Organizational Unit for funds Occasional member i.e. Deputy and balance management member of Bank Executive Board in charge of management of funds and Bank capital Nela Arsić Director of Organizational Unit for Business Occasional member i.e. Deputy with Population and SME member of Bank Executive Board in charge of business with population and SME, operations, organization and ICT Dejan Vasić Deputy Director of Organizational Unit for Occasional member i.e. Deputy Corporate Affairs member of Bank Executive Board in charge of corporate and public sector affairs
2. Credit Board for corporate and public sector on 31 December 2014:
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Name and Position in the Bank Position in the Board surname Vladan Đorđević Director of Organizational Unit for President of the Credit Board Operations with Public Sector Dejan Vasić Deputy Director of Organizational Unit Member of the Credit Board for Corporate Affairs Svetlana Bašić Director of Organizational Unit for Member of the Credit Board credit risk management in corporate, public sector and financial sector Ivan Veselinović Head of Restructuring Department Member of the Credit Board Goran Ilić Deputy Director of Organizational Unit Occasional member i.e. Deputy for credit risk management in Director of Organizational Unit for corporate, public sector and financial credit risk management in sector corporate, public sector and financial sector Vladimir Anokić Regional Director of Sales for Corporate Deputy Director of Corporate and Public Sector Affairs Sector Dražen Babić Employee within Public Affairs Sector Occasional member i.e. Deputy Director of Public Affairs Sector
3. Credit Board for retail and SME on 31 December 2014:
Name and Position in the Bank Position in the Board surname Nela Arsić Director of Organizational Unit for Retail President of the Credit Board and SME Saša Jovanović Director of Organizational Unit for Credit Member of the Credit Board Risk Management - Retail and SME Ivan Novaković Head of Department for Products and Sale Member of the Credit Board to Small and Medium Enterprises Maja Vezmar Head of Department for Product Member of the Credit Board Ristić Management and Sale to Physical Persons Višnja Trpovski Senior Associate in the Organizational Occasional member i.e. Deputy Unit for Products and Sale to Physical Head of Department for Persons Products and Sale to Physical Persons Dragana Senior Associate for Credit Risk Occasional member i.e. Deputy Milivojević Assessment for Clients from SME Segment Director of Organizational Unit for Credit Risk Management - Population and SME Ivana Ranđelović Deputy Director of Organizational Unit for Occasional member i.e. Deputy Đorđević Retail and SME Director of Organizational Unit for Population and SME Aleksandar Kiš Senior Associate in the Organizational Occasional member i.e. Deputy Unit Products and Sale to Small and Head of Organizational Unit Medium Enterprises Products and Sale to Small and Medium Enterprises
4. Credit Boards of Subsidiaries are formed for each Subsidiary separately and the Executive Board is authorized to appoint the members of the same.
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5.3. Statement on implementation of the Code of Corporate Management
Pursuant to the Law on Companies ("Official Herald of RS". No. 36/2011. 99/2011 i 83/2014 – other law) OECD Principles of corporate management, in 2004, the Board of Directors of the Bank, at its regular meeting, on 26 September 2014, has adopted its own Code of Corporate Management and published it on its internet page www.aikbanka.rs.
The subject of the adopted Code of Corporate Management is the integration of the practice of corporate management of the Bank, which is implemented by all Bank corporate managers, particularly from the point of view of influence on the public and transparency of the Bank operation, rights of shareholders, work of Bank organs and management of all sorts of risk.
The basic goal of this Code is to represent the corporate management sytem established in the Bank in a transparent and efficient way and in the way, which is allowing a sustainable development of the Bank, based on the socially responsible business and increase of value for the shareholders, employees, clients and environment.
This Code represents an amendment to the rules, included in the Law on Banks, Law on Companies, Law on Capital Market, by-laws of the mentioned laws, acts of the Bank and international and local regulations and corporate management practice.
At all managing lavels, it is focused on the implementation of rules and principals of this Code and they are defined in more detail by the acts of the Bank, when necessary.
The Bank has built in the principles of corporate management included in the Code by development of organization, classification, amendments of general and particular acts, in all the processes and at all levels of decision-making and it is implementing it.
The Bank has paid special attention to the shareholders and other investment public through the establishment of a special organizational unit – Department for Investors Relations.
5.4. Business relations with Management members and persons related to the Bank
In its daily operations, the Bank is making business transactions with shareholders and other persons, related to the Bank under regular market conditions. The detailed description of jobs with related persons is provided in the Remarks to financial reports for the period from 1 January 2014 to 31 December 2014 (Remark No. 42).
The following table is presenting the business relations (state of claims and liabilities, income and expenditure) with related persons, concluding with the balance date (31 December 2014):
Description Balance gross Out-of-balance Total Liabilities exposure exposure Employees (related 151,815 33,132 184,947 177,062 persons) Other physical persons 35,093 8,968 44,061 624,494 Legal persons * 7,300,318 187,596 7,487,914 5,603,023 Total 7,487,226 229,696 7,716,922 6,404,579 Table 33 – Business relations with persons in relation with the Bank in 2014 (in thousands RSD)
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5.5. Business network
Figure 2 - Scheme of Bank operations out of the headquarter on 31 December 2014
The Bank is performing its business in the Bank headquartes and in the Name of organizational unit Total organizational units out of the Bank headquarters. The organizational units Subsidiaries 20 within which the Bank is performing its Branches 36 business are: Counters 1 - Subsidiaries - Branches and Total 57 - Counters Table 344 – Organizational units of the Bank on 31 December 2014 AIK Bank business network on 31 December 2014 consists of 20 subsidiaries, 36 branches and one counter.
The Bank has made decisions on change of number of subsidiaries and branches, namely to close non-profit making or low-profit making organizational units–branches: Svilajnac, Ivanjica, Sremska Mitrovica and counters in: Srbobran, Temerin, Ribarska Banja, Apatin, Kanjiža,at border pass Kelebija, in Pančevo court of justice, in Pančevo Municipality, in Port of Novi Sad, in coujrt of justice in Vrbas, in Belgrade Business School, in Šabac General Hospital, in TC RODA Mercator, Šabac and in TC Roda, Niš.
The Branch Customs New Belgrade was relocated from the address Narodnih heroja No. 30 to the address Jurija Gagarina No. 32 and relocation of Branch 01 with merger with the Subsidiary in Novi Sad from Bulevar Mihajla Pupina No. 5 to Bulevar Mihajla Pupina No. 2.
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The relocations were performed in the equipped business premises according to the adopted Bank standards. The organizational unit of the Bank– counter in Kostolac has grown into the Bank Branch.
The business premises of the Subsidiary in Niš were renovated at the location Nikole Pašića No. 42 providing modern conditions for provisions of services to the clients.
5.5.1. Subsidiaries Name Place Address Subsidiary Belgrade Beograd Bulevar Mihajla Pupina No. 115-đ Subsidiary Čačak Čačak Kuželjeva No. 2 Subsidiary Jagodina Jagodina Kneza Lazara No. 69 Subsidiary Kragujevac Kragujevac Trg Radomira Putnika No. 3 Subsidiary Kraljevo Kraljevo Miloša Velikog No. 58 Subsidiary Kruševac Kruševac Gazimestanska bb Subsidiary Leskovac Leskovac Bulevar oslobođenja bb Subsidiary Niš Niš Nikole Pašića No. 42 Subsidiary Novi Pazar Novi Pazar Stevana Nemanje bb Subsidiary Pančevo Pančevo Karađorđeva broj 2b Subsidiary Požarevac Požarevac Veljka Dugoševića No. 35 Subsidiary Sombor Sombor Pariska broj 1 Subsidiary Subotica Subotica Dimitrija Tucovića No. 11 Subsidiary Šabac Šabac Gospodar Jevremova No. 42/1 Subsidiary Užice Užice Dimitrija Tucovića No. 64 Subsidiary Valjevo Valjevo Karađorđeva No. 59 Subsidiary Vrbas Vrbas Maršala Tita No. 80 Subsidiary Zaječar Zaječar Pana Đukića bb Subsidiary Zrenjanin Zrenjanin Žitni trg bb Subsidiary Novi Sad Novi Sad Bulevar Mihaila Pupina No. 2 Table 35– List of subsidiaries of the Bank as of 31 December 2014
5.5.2. Branches of the Bank Name Place Address Branch Aleksinac Aleksinac Taušanovićeva bb Branch Bačka Topola Bačka Topola Glavna No. 8 Branch Balkanska Beograd Balkanska No. 20 Branch Banovo Brdo Beograd Požeška No. 93 Branch Bečej Bečej Uroša Predićabroj 4 Branch Slavija Beograd Kralja Milana No. 43 Branch Bor Bor Djordja Vajferta No. 21 Branch Gornji Milanovac Gornji Kneza Aleksandra No. 13 Milanovac Branch Inđija Inđija Novosadska broj 2 Branch Kikinda Kikinda Generala Drapšina broj 13 Branch Kula Kula Lenjinova broj 14 Branch Bulevar dr Zorana Đinđića Niš Buleva dr.Zorana Đinđićabroj 23 Branch Negotin Negotin Trg Djordja Stanojevića broj 66 Branch Voždova Niš Voždova broj 2
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Branch Zona III Niš Bulevar Nemanjića No. 25 Branch Palilula Niš Episkopska No. 56 Branch Pantelej Niš Pantelejska No. 77 Branch Bulevar oslobođenja Novi Sad Bulevar oslobođenja No. 5 Branch Novo naselje Novi Sad Bulevar Jovana Dučića No. 5 Branch Paraćin Paraćin Tome Živanovića bb Branch Pirot Pirot Slavonska No. 1 Branch Plato Kragujevac Dr Zorana Đinđića No. 11b Branch Ruma Ruma Glavna No. 192 Branch Smederevo Smederevo Kralja Petra I No.19 Branch Trstenik Trstenik Cara Dušana 19 Branch Vidikovac Beograd Patrijarha Joanikija No. 28b Branch Vranje Vranje Kralja Stefana Prvovenčanog No. 111 Branch Vrnjačka banja Vrnjačka Banja Drvara No. 2 Branch Zemun Zemun Bežanijska No. 56 Branch Zlatibor Zlatibor Tržni centar bb Branch Bulevar Kralja Aleksandra Beograd Bulevar Kralja Aleksandra No. 334 Branch Fontana Beograd Otona Župančića No. 1 Branch Topola Topola Bulevar Kralja Aleksandra No. 24 Branch Knez Mihajlova Beograd Knez Mihajlova No 10 Branch Jurija Gagarina Beograd Jurija Gagarina No. 32 Table 36– List of the branches of the Bank as of 31 December 2014
5.5.3. Bank counters Name Place Address Counter at GRAND and ANGELLA Hotels Kopaonik Kopaonik Kopaonik Table 37– List of the counters of the Bank as of 31 December 2014
5.5.4. Activity Plan for 2015
In 2015, the Bank will continue with the activities focusing on optimisation of its business network grounded on analysis and continual monitoring of profitability of individual organisational units, market and financial indicators.
In order to reach higher level of optimisation of its geographical positioning and increase in profitability of its network, the Bank analyzes the arguments for relocation of certain branches, as well as for uniting certain organisational parts and introducing new ones in the area of Belgrade, where it has not been sufficiently present or where existing branches do not meet business requirements.
In the previous period certain results have been achieved regarding the adaptation of business network. Global economic situation has slowed down this process, but it is realistic to expect that within the planned period whole business network will advance to the desired standard. Adaptations shall be made taking into account their costs.
During the process of opening new or refurbishment of the existing organisational units, the effective standards set by the Bank shall be taken into account as regards interior design and safety conditions.
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5.5.5. Standardization of branches and subsidiaries
In 2014, the Bank standardized its organisational units, meaning that services regarding the segments of retail and corporate clients became available in all organisational units. The size and location of an organisational unit affect the scope of service performed within that particular unit.
The Bank`s business network is divided into three types of organisational units, including:
1. Counters and Branches – small organizational units 2. Subsidiaries of B type – average organizational units 3. Subsidiaries of A type – large organizational units Counters and Branches – Organizational units of minimum three to five employees. Basic activities performed within these organizational units include:
• cash and cashless transactions; • daily sales (accounts, savings, credit cards, modern market channels etc); • retail loans-mass segment; • personal banking and business with SMEs, performed by the head of an organizational unit and • diverting clients.
Subsidiary of B type – Organizational unit of minimum five to seven employees. All business activities as regards retail are performed within these organisational units:
• cash and cashless transactions; • daily sales (accounts, savings, credit cards, modern market channels etc; • diverting clients – corporate; • retail loans -mass segment; • personal banking, performed by the head of an organizational unit and • sales for SMEs segment.
Subsidiary of A type – Specialised organizational unit within the seat of the subsidiary. Organizational unit with more than 8 employees. All business activities regarding the following are performed within these organizational units:
• cash and cashless transactions; • daily sales (accounts, savings, credit cards, modern market channels etc; • diverting clients; • retail loans - „mass segment“; • personal banking; • sales for the SMEs segment.
5.6. Amendments to the Bank`s general acts
At the XXXI annual Shareholders Assembly held on 30 May, 2014, the Bank`s Incorporation Agreement and its Statute were amended.
Major amendments to Incorporation Agreement refer to the following two Articles:
- Article 2, paragraph 4 has been deleted (business name of the Bank is in Serbian language and in writing of official use), and replaced by new paragraph 4 stating that: “Business name of the Bank is in Serbian language”.
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- Article 15, paragraph 3 has been amended in such a way that the day of dividend was changed. As previously stated, the dividend date was December 31 (of the previous year), which meant that the right to the dividend payment for the current year according to annual account for the previous year was granted to individual shareholders of the Bank according to the Central Securities Depository and Clearing House` statement obtained from the single records of shareholders on December 31 of the year for which the dividend was distributed according to the decision of the Assembly. The amendment stipulates that the date of the dividend is the date of the adoption of the decision on dividend payment at the session of the Shareholder`s Assembly.
Major amendments to the Statute are as follows:
- Article 3, paragraph 1 has been amended to proscribe that business name of the Bank, instead in Serbian language and in written in Cyrillic, shall be in Serbian language and written in Latin;
- Articles 5 and 6, amendments have been made in accordance with the changes in the Bank`s internal organisation in such a way that the titles of the documents defining internal organization of the Bank and classification of its jobs have been introduced (this refers to the Rules on internal organisation and the Rules on classification of jobs), and it has been further specified that these documents shall stipulate the requirements that each employee must fulfil, along with his or her duties, and also state that the Bank shall operate within its organizational units titled: sectors, departments, independent departments, functions, but also head office, subsidiaries, branches and counters.
Previously abolished organizational units, including custody bank as these activities are not performed anymore, have been deleted, while the organization unit for performing the operation regarding the control of compatibility of activities and internal audit represent the sectors/services whose description of activities has been defined by the Rules on internal organization.
- Article 22, paragraph 1, maximum number of Management Board members has been deleted (it was 5);
- Article 23, paragraph includes amendments aimed at introducing the possibility to submit request for obtaining previous approval of the National Bank of Serbia for appointment of new Management Board members on the basis of the proposal of the Decision of the Assembly which was defined by the Bank`s Management Board;
- Article 24, paragraph 2, wording which was defining that the Rules of Procedure of the Management Board specifying the conditions which should be met by new Management Board members and the procedure of their appointment has been amended due to the fact that these conditions are stipulated in the Banking Law and relevant decisions of the National Bank of Serbia;
- Article 27, paragraph 2, maximum number of Executive Board members (previously limited to 5) has been deleted, as Banking Law provides no restrictions in this regard;
- Article 28, new paragraph has been introduced which authorizes Executive Board to select the bodies whose activities shall not be within the competences of the Management Board, such as Commissions, Committees and similar, as there appeared the need for establishing Committees for tracking clients;
- Article 34, wording regarding the description of the activities of the Board for managing assets and liabilities has been deleted, as the activities of this body have been described in more detail within the Rules on Procedure adopted by the Management Board (additionally, the Assembly is not competent to decide upon the activities and the operations of Alko Board), and maximum number of members to this Board has been deleted (there had been 5 previously);
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- Articles 35, 36, 37, 47 and 57 include the amendments to the titles of the documents and instead of the title Internal Organisation Act the title Rulebook has been introduced, instead of the title Act on fundamental principles of organization and internal control operations the title of the document is Decision on establishment and application of the internal control system.
- Articles 54 and 57 provide that signing documents in the Bank shall be performed in accordance with the Rules on signing authorizations;
- Article 59 provides more detailed specifications on general acts which, apart from the Statute, may exist in the Bank (instructions for operations have been added) and on who adopts them. 5.7. Development of information system (ICT)
In accordance with its new Business Strategy, the Bank has defined the Strategy for the development of information system for the 2014-2016 period, which includes general guidelines for ICT and strategic activities derived upon the adopted strategic principles:
- Principle of flexibility and adaptation to business requirements; - Principle of reliability and security of IT service, and - Principle of optimization, standardization and transparency in IT.
Strategic activities aimed at reaching the Bank`s business targets have been planned and are implemented within the project portfolio. In 2014, 48 projects planned for realization in 2014 or 2015 have been defined.
With the aim of managing ICT in the best possible manner in 2014, the Bank has undertaken the following measures:
- established IT Committee as body for controlling the strategy implementation and ICT functioning; - adopted the methodology for management of projects and processes; - adopted new organization of the department and significantly strengthened the team - defined the framework for managing IT risks; - defined the rules and the processes for managing internal documents within the Bank; - enhanced the process of managing IT budget; - created new ‘Disaster recovery site’ and improved BCP plan; - improved the process of managing incidents, requests and resources, and - raised the level of security and reliability of IT service. In 2014, the Bank`s ICT initiated a number of projects with the aim of changing ICT architecture and consolidating ICT infrastructure in order to stabilize the existing state and to create sound grounds for further improvements of the Bank`s information system:
- Consolidation of Datacenter; - Consolidation of network infrastructure; - Consolidation of telephone system; - Consolidation of printing system; - Consolidation of Help Desk; - Upgrade core bank applications (about 40 new modules/functionalities); - Introduction of DWH and the accompanying modules for internal/external reporting, calculation of correction of value; - Implementation of Collateral mgmt.; - Implementation of Treasury application; - Implementation of HR application;
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- Implementation of eDMS solution for support of the Bank`s business processes (loans, accounts, foreign currency payments, processing invoices etc.) and - Implementation of Scoring. Planned activities for 2015 include the following:
• Upgrade of core banking application; • Implementation of application for management of collateral; • Implementation of Treasury application; • Implementation of application for calculation of correction of value; • Implementation of ‘Management information system’ – for internal reporting; • Completion of the initiated consolidations of IT infrastructure; • Management of profiles within the Bank`s information system; • Defining the Catalogue of IT services; • Performance management for key business indicators; • Implementation of tools for supporting internal acts, and • Intranet portal.
5.8. Employees Qualification level Number of employees Percentage of total number of employees Up to III level 2 0.32% IV level 141 22.20% V level 2 0.32% VI level 94 14.80% VII level 396 62.36% TOTAL 635 100.00% Table 38 – Overview of the number of employees according to qualification level as of 31 December 2014
Politika Employment policy resulted from the organizational changes initiated in 2013 and >60 50-60 <30 continued in 2014, and it defined the Bank`s 12% 1% strategy that staff potential of the organization 17% must be at highest levels, permanently 40-50 developed and oriented towards clearly set 15% goals. By adopting new organizational model, organization structure has been supported with additional resources (legal operations, internal audit, human resources, credit risk management sectors, corporate sector, sector for payments of problematic loans, department for managing the 30-40 taken over property, etc.) partly from the 55% Bank`s own personnel and partly by new Graph 19 – Age structure of employees as of employments. Staff policy also takes into 31/12/2014 account the necessary reduction of the number of employees within nonproductive organizational units of the Bank.
Total number of employees records an increase in 2014, and on December 31, 2014 it was 14.8% higher than at the end of 2013. The Bank listed 635 employees at the end of December 2014. Dominant participation is observed with the age group of up to 40 (72.3%), while employees with university education account for 62.36% o of the total number of Bank`s employees.
Within the period ending September 2014, a comprehensive classification of jobs was completed, by which each position was clearly defined in terms of description of duties and obligations, requirements to be met and the necessary number of employees was specified for particular positions. All employment agreements have been standardized and central HR archives has been
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formed. At the end of the year the implementation of HR software was completed, as well as the implementation of self-service portal and new software for calculation of salaries.
The Bank is dedicated to honest and fair working conditions and without any exceptions recognizes the fundamental standards of International Labor Organization. Observing the right to collective negotiations and freedom of association of its employees, the Bank organized collective negotiations with relevant trade union and concluded Collective Agreement harmonized with the new Labor Law. Open communication between the employer and employees and constructive cooperation based upon the responsibility of authorized representatives of employees constitute and important part of the Bank`s corporate culture.
In 2014, the Bank introduced monthly targets and stimulation system for the employees in sales network. In savings campaign at the end of the last year, the most successful subsidiaries and branches and the best salesperson were elected.
In its development strategy for 2015, the Bank plans to introduce variable system of rewarding the employees based on results, which will set quantitative and qualitative objectives in accordance with the objectives of the Bank for 2015. In addition, a system of monitoring of realization and evaluation of the set targets will be developed. Plans for staff training focusing on improving sales skills for employees in subsidiaries and branches and employees in corporate sector will be developed in 2015.
635 HighSh ool Higher High [PERCE 553 educat educat NTAGE ion 514 ion ] 505 [PERCE [PERCE NTAGE NTAGE
Dec-11 Dec-12 Dec-13 Dec-14 Graph 20 – Number of employees by year Graph 21 - Education structure of employees as of 31 December 2014
______Dostinja Mentov Jelena Galić
Head of Accounting and Reporting President of the Executive Board Department
______Siniša Mihajlović
Member of the Executive Board
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