FINANCIAL STATEMENTS OF ALPHA BANK CYPRUS LTD AS AT 31.12.2016 ALPHA BANK CYPRUS LIMITED ANNUAL REPORT For the period from 1 January to 31 December 2016 Nicosia, 15 March 2017 ANNUAL FINANCIAL REPORT ANNUAL REPORT FOR THE YEAR 2016 TABLE OF CONTENTS Page Board of Directors and Professional Advisers 4 Statement by the Members of the Board of Directors and the person responsible for the preparation of the annual financial report 5 Board of Directors’ Report 6 Independent Auditors’ Report 34 Financial Statements as at 31.12.2016 Statement of Comprehensive Income 40 Balance Sheet 41 Statement of Changes in Equity 42 Statement of Cash Flows 43 Notes to the Financial Statements General Information 44 Accounting policies applied 1.1 Basis of presentation 44 1.2 Operating segments 59 1.3 Transactions in foreign currency 59 1.4 Cash and cash equivalents 59 1.5 Classification and measurement of financial instruments 60 1.6 Derivative financial instruments 64 1.7 Fair value measurement 64 1.8 Property, plant and equipment 65 1.9 Investment property 66 1.10 Intangible assets 66 1.11 Operating leases 66 1.12 Impairment losses on non financial assets 66 1.13 Tax 67 1.14 Deferred tax assets 67 1 FINANCIAL STATEMENTS OF ALPHA BANK CYPRUS LTD AS AT 31.12.2016 1.15 Other assets 67 1.16 Employee benefits 68 1.17 Provisions for litigation and arbitration of disputes 68 1.18 Subordinated bonds 68 1.19 Share capital 69 1.20 Convertible capital securities 69 1.21 Interest income and expense 69 1.22 Gains less losses on financial transactions 69 1.23 Income and expenses from fees and commissions 70 1.24 Dividend income 70 1.25 Expenses on improvements repairs and maintenance 70 1.26 Financial guarantee contracts 70 1.27 Related parties definition 71 1.28 Comparatives 71 1.29 Estimates, decision making criteria and significant sources of uncertainty 72 1.29.1 Going concern 73 Income statement 2 Net interest income 76 3 Net fee and commission income 76 4 Dividend income 77 5 Gains less losses on financial transactions 77 6 Other income 78 7 Staff costs 78 8 General administrative expenses and other expenses 79 9 Impairment losses and provisions to cover credit risk 79 10 Losses before tax 80 11 Tax 80 12 Earnings/(losses) per share 81 Assets 13 Cash and balances with central banks 82 14 Due from banks 82 15 Investment securities available for sale 83 16 Derivative financial instruments (assets and liabilities) 85 17 Loans and advances to customers 86 18 Investment property 87 19 Property, plant and equipment 88 20 Intangible assets 90 21 Deferred tax assets 91 22 Other assets 92 Liabilities 23 Due to banks 92 24 Due to customers 92 25 Subordinated bonds 93 26 Other liabilities and provisions 95 2 ANNUAL FINANCIAL REPORT Equity 27. Share capital 96 28. Convertible capital securities 97 29. Share premium 98 30. Reserves 98 31. Retained earnings 99 Additional information 32 Contingent liabilities and commitments 99 32.1 Off balance sheet liabilities 99 32.2 Lease commitments 101 32.3 Legal 101 32.4 Tax 101 33 Cash and cash equivalents 102 34 Operating segments 102 35 Risk management 104 35.1 Credit risk 105 35.2 Market risk 136 35.2.1 Interest rate risk 136 35.2.2 Foreign currency risk 139 35.3 Liquidity risk 139 35.4 Operational risk 142 35.5 Regulatory compliance 143 35.6 Transfers / pledge of financial assets 143 35.7 Offsetting financial assets / liabilities 143 36 Economic environment 144 37 Fair value 147 38 Capital adequacy 150 39 Participation of directors in the bank’s share capital 153 40 Related party transactions 154 41 Acquisition of Emporiki Bank 157 42 Events after the balance sheet date 157 Additional risk disclosures 158 3 FINANCIAL STATEMENTS OF ALPHA BANK CYPRUS LTD AS AT 31.12.2016 BOARD OF DIRECTORS AND PROFESSIONAL ADVISERS Board of Directors Sp. N. Filaretos, Chairman (Resigned on 29 March2016) A. M. Michaelides Chairman (Appointed on 29March 2016) Ch. C. Giampanas, Vice-Chairman G. A. Georgiou, Managing Director Dr. A. K. Kritiotis C. N. Papadopoulos Ν. Mavrogenis L. Georgiadou (Appointed on 31 January 2017) I. Rouvitha Panou (Resigned on 27August 2016) Secretary Μ. Malahtou Pampalli (Resigned on 26.4.2016) N.Alkiviades (Appointed on 26.4.2016) Legal Advisers Chryssafinis & Polyviou LLC Independent Auditors KPMG Limited Registered Office Corner of Chilonos & Gladstonos Street Stylianou Lena Square, Nicosia Head Office Alpha Bank Building 3, Limassol Avenue Nicosia 4 ANNUAL FINANCIAL REPORT STATEMENT BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE PERSON RESPONSIBLE FOR THE PREPARATION OF THE ANNUAL FINANCIAL REPORT In accordance with Article 9 sections (3)(c) and (7) of the Transparency Requirements (Traded Securities in Regulated Markets) Law of 2007 (“Law”) we, the members of the Board of Directors and the Bank’s person responsible for the financial statements of Alpha Bank Cyprus Limited for the year ended 31 December 2016, confirm that, to the best of our knowledge: a) the annual financial statements which are presented on pages 40 - 157: (i) were prepared in accordance with International Financial Reporting Standards as adopted by the European Union and in accordance with the provisions of Article 9 section (4) of the Law, and (ii) give a true and fair view of the assets and liabilities, the financial position and the profit or losses of Alpha Bank Cyprus Limited, and b) the Directors’ Report gives a fair review of the developments and the performance of the business as well as the financial position of Alpha Bank Cyprus Limited together with a description of the principal risks and uncertainties which they face. Members of the Board of Directors and person responsible of the Bank’s financial statements A. M. Michaelides – Chairman Ch. C. Giampannas – Vice-Chairman G. A. Georgiou – Managing Director Dr. A. K. Kritiotis – Board Member C. N. Papadopoulos – Board member L. Georgiadou – Board member Ν. Mavrogenis – Board Member Y. Tofarides – Head of Financial Services Division Nicosia, 15 March 2017 5 FINANCIAL STATEMENTS OF ALPHA BANK CYPRUS LTD AS AT 31.12.2016 DIRECTORS’ REPORT The Board of Directors of Alpha Bank Cyprus Limited (the “Bank”) presents to the members, its annual report and the audited financial statements of the Bank for the year ended 31 December 2016. PRINCIPAL ACTIVITIES During 2016, the Bank continued to conduct full banking operations by providing a wide range of banking and financial services. The Bank is a subsidiary of Alpha Bank S.A., which is registered in Greece, and member of Alpha Bank Group (the “Alpha Bank Group”) REVIEW OF THE DEVELOPMENTS, POSITION AND PERFORMANCE OF ACTIVITIES Key financial data From 1 January to Change 31.12.2016 31.12.2015 In Euro mil. Net interest income -16,5% 88,5 106,0 Total income -3,9% 108,2 112,6 Total expenses 42,4% 82,2 57,7 Profit before impairment -52,6% 26,0 54,9 Impairment losses and provisions to cover credit risk -41,2% 58,6 99,6 Loss after income tax -31,3% -30,7 -44,7 Loss per share -17,6 cent -26,2 cent In Euro mil. 31.12.2016 31.12.2015 Loans and advances to customers -4,4% 1.946,4 2.036,5 Due to customers 4,8% 1.940,6 1.851,8 Transitional common equity tier I ratio (CET I) -100 basis points 16,5% 17,5% Net Interest income in 2016 amounted to Euro 88,5 million, presenting a decrease of 16,5% compared to Euro 106,0 million in 2015. The decrease is attributed mainly to the transfer of loans to a company of Alpha Bank Group in 2015 and the decrease of loans and deposits interest rates. Total income of the Bank amounted to Euro 108,2 million in 2016, presenting a decrease of 3,9%, compared to Euro 112,6 million in 2015, mainly attributed to the decrease of loans’ portfolio and the decrease of interest rates of loans and deposits. Total income of 2016 was positively impacted from the recognition of a non recurring income of Euro 6,6 million from the sale of Visa Europe shares. Total expenses of the Bank in 2016, amounted to Euro 82,2 million compared to Euro 57,7 million in 2015. The increase is attributed to the compensation cost of Euro 31,6 million of a voluntary retirement programme offered to Employees. Excluding the non-recurring compensation cost of the program, total expenses present a decrease of 12,3% compared to 2015. Cost to income ratio, excluding non-recurring items, (income from sale of Visa Europe shares and the voluntary retirement compensation cost), stands for 2016 at 49,8% compared to 51,2% in 2015. 6 ANNUAL FINANCIAL REPORT BOARD OF DIRECTORS’ REPORT (cont.) REVIEW OF THE DEVELOPMENTS, POSITION AND PERFORMANCE OF ACTIVITIES (cont.) Impairment loss and provisions to cover credit risk amounted to Euro 58,6 million in 2016 compared to Euro 99,6 million in 2015. The decrease of 41,2% reflects the deleveraging efforts of the bank as well as collections from loans previously written off. Accumulated impairment to cover credit risk amounted to Euro 856,5 million on 31 December 2016, representing 30,6% of gross loans and an increase of 7,3% compared to 31 December 2015. Accumulated impairments include the fair value adjustment of Emporiki Bank Cyprus Ltd loan portfolio, which was acquired at fair value. Net loans on 31 December, 2016 amounted to Euro 1.946,4 million compared to Euro 2.036,5 million on 31 December 2015 presenting a decrease of 4,4%.