Group Annual Report 2017 Addiko Bank Key data based on the consolidated financial statements drawn up in accordance with IFRS EUR m 2017 2016 Selected items of the Profit or loss statement 1.1.-31.12. 1.1.-31.12. Net interest income 165.3 158.8 Net fee and commission income 58.5 50.0 Other operating income 3.2 -21.7 Operating expenses -190.1 -212.4 Operating result 36.9 -25.4 Impairment or reversal on loans and receivables -15.1 4.4 Result after tax 41.6 -23.9 Selected items of the Statement of financial position 31.12. 31.12. Loans and advances to customers 3,691.9 3,730.5 Deposits of customers 4,933.8 4,435.6 Equity 844.0 994.7 Total assets 6,485.5 7,216.1 Risk-weighted assets 4,653.1 4,470.8 Key ratios 1.1.-31.12. 1.1.-31.12. Cost/income ratio 83.8% 113.6% Net interest margin 2.4% 2.2% Bank-specific figures 31.12. 31.12. Core Tier 1 ratio 14.9% 15.0% Total capital ratio 17.1% 16.4% Employees and locations 31.12. 31.12. Employees at closing date (Full Time Equivalent – FTE) 2,953 3,152 Number of locations 199 202 Disclaimer: Certain statements contained in this report may be statements of future expectations and other forward-looking statements that are based on management’s current view and assumptions and involve known and unknown risks and uncertainties that could cause actual results, perfor- mance or events to differ materially from those expressed or implied in such statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future perfor- mance. Neither Addiko Bank nor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this report or its content or otherwise arising in connection with this document. This report does not constitute an offer or invitation to purchase or subscribe for any securities and neither it nor any part of it shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. The tables in this report may contain rounding differences. Any data is presented on the Addiko Bank Group level (referred to as Addiko Bank throughout the document) unless stated otherwise. Letter from the CEO Dear Shareholders, Customers and Employees, we have transformed Addiko Group into a successful SEE Retail and SME bank. The year 2017 is the first year in which Addiko Group’s turnaround is visible. All SEE banking subsidiaries achieved positive results, with the Group more than delivering on our market guidance with a first time profit after tax (PaT) of EUR 41.6 million. This result is achieved on a sound basis. We have recorded increased business volume in consumer loans and SME loans and a substantial growth in retail net fee and commission income. Addiko Group is growing client deposits throughout all our markets. As a result of our successful efforts over the year, we have achieved a strong increase in operating profit. We remain focused on our retail strategy, accelerating disbursements in consumer lending by 27.5% to EUR 559 million and the consumer loan book growing by 49% to EUR 889 million. We have demonstrated the success of straightforward banking; be it the fast and efficient account opening in Serbia and Croatia, the convenient consumer loan processes in Serbia or the opening of our new “Addiko Express” branches in Slovenia and Croatia. As a result, we were able to increase the volume of the newly created account packages by 96,000, increasing the retail net fee and commission income by 21.5%. Implementing our new SME end-to-end credit process, we reduced our decision time on average by a staggering 40%, which was completed in close cooperation between our Corporate and Risk streams. We have also implemented new SME account packages that meet the needs of our customers and supported our credit decisions, implementing improved cash flow analytics. All these efforts are clearly reflected in the significant growth of our SME loan disbursements by 22.6% to EUR 492 million, outperforming the overall SME market, and in increasing the net fee and commission income in the SME segment by 21%. Addiko Group invested heavily in its digital platform as we firmly believe that the future of consumer and SME banking is digital and the digital platform reflects our promise of being focused and efficient with significantly improved cus- tomer experience. Out of our 1 million customers, digital customers increased by 40% to 140,000, with an overall in- crease of digital transactions by 33% which clearly confirms the success of our digital strategy in a market that is still dominated by branch business. We have continued the further growth of client deposits across all SEE countries, resulting in a solid funding base and liquidity position. Customer deposits are supported by online deposits gathering in Germany and Austria. The positive year-end result of EUR 41.6 million marks a significant year-on-year improvement (2016: EUR -23.9 million) driven by an increase of net interest income (+4.1%) and net fee and commission income (+17%), a further cost reduction of EUR 22.4 million (-10.5%) and very favorable risk costs as part of our improved risk processes. By additionally improving its lending portfolio and asset quality, Addiko Group has posted a better-than-average NPL ratio of 8.1% (9.2% in 2016) and a solid NPL coverage ratio of 67.0% (67.5% in 2016). Addiko Group has successfully dealt with the negative impacts arising from the economic collapse of a large corporate debtor based in Croatia. With a strong capital base and an above average TCR of 17.1%, Addiko Group continues to rank amongst the best capi- talized banks in the SEE region. All these results confirm that we are successfully back in business and we highly appreciate that this is also reflected in the view of market surveys and in the media, recognizing our successes and the improved way we serve our customers. We received a reward for our excellent digital platform in Serbia, were acknowledged as the best retail bank in Croatia, and just recently received a certificate for being the most customer friendly bank in Croatia, Serbia and Slovenia. Addiko Group’s results demonstrate what we stand for and what we want to work for in order to achieve customer satisfaction. This customer focus is the real value of Addiko Group as it will support us in the years to come. It is the foundation of our future. A future built on straightforward banking, delivering customer appreciation and satisfaction which results in financial success – sustainability in its true sense. In 2018, we will continue to significantly invest in our straightforward proposi- tion and customer promise. We are well on track delivering straightforward banking and achieving long term sustainable profitability and growth. Truly Yours, Ulrich Kissing Chief Executive Officer Addiko Bank AG Table of Contents Group Annual Report 2017 Group Management Report 2 1. Overview of Addiko Group 2 2. General economic conditions 2017 2 3. Significant events in 2017 2 4. Financial development of the Group 6 5. Analysis of non-financial key performance indicators 10 6. Internal Control System for accounting procedures 10 7. Other disclosures 11 8. Research & Development 11 9. Branches 11 10. Outlook 11 I. Group statement of comprehensive income 16 II. Consolidated statement of financial position 17 III. Group statement of changes in equity 18 IV. Group statement of cash flows 19 V. Notes to the consolidated financial statements 20 Company 20 Group accounting policies 20 Notes to the income statement 44 Notes to the consolidated statement of financial position 52 Supplementary information required by IFRS 62 Risk Report 79 Capital Management 119 Supplementary information required by Austrian Law 121 Statement of all legal representatives 126 Auditor’s Report 127 Report on the Consolidated Financial Statements 127 Comments on the Management Report for the Group 130 Additional Information in Accordance with Article 10 of the EU Regulation 131 Consolidated non-financial report 132 Report of the Supervisory Board 144 Glossar 146 Imprint 148 Group Annual Report 2017 1 Group Management Report Group Management Report 1. Overview of Addiko Group the value chain. Slovenian growth, after peaking in 2017, is in 2018 expected to remain at 4,0% with firmer global ac- Addiko Group (herein after referred to also as the Addiko tivity, stronger capital expenditures, post-crisis catch-up Bank) is an international financial group headquartered in effects and domestic demand as the main drivers. Vienna, Austria, operating through seven banks with its core business in Croatia, Slovenia, Bosnia and Herzegovina, Ser- Croatian GDP rose by 3.3% year on year in Q3/2017, driven bia and Montenegro with over one million customers. The by private consumption thanks to a stellar tourist season strategy of Addiko Group is focused on markets in the south- and ensuing robust consumption additionally driven by em- and easteuropean (SEE) region delivering core products and ployment growth and net wage growth, lower savings rates, services relevant to the customers, while also providing resurgent consumer credit dynamics and strong car sales. online deposit services in Austria and Germany. The holding While the ever stronger external demand will continue to company AI Lake (Luxembourg) S.à r.l. is the direct parent push exports, import-driven domestic demand will still pro- company of the Addiko Bank AG and is indirectly owned by duce a negative impact of net trade on the overall growth.