HELLENIC BANK GROUP ANNUAL REPORT 2016 www.hellenicbank.com ANNUAL REPORT WorldReginfo - 93ffc0d5-7d96-4df5-a945-701e01551ade HELLENIC ANNUAL CONTENTS BANK REPORT GROUP 2016 1 BASIC FINANCIAL HIGHLIGHTS 3 BOARD OF DIRECTORS AND EXECUTIVE COMMITTEE 4 CHAIRWOMAN’S STATEMENT 6 GROUP GENERAL MANAGER, BUSINESS AND INSURANCE DIVISION’S REVIEW 10 GROUP OPERATIONS REVIEW 30 GROUP MANAGEMENT REPORT 38 REPORT OF THE BOARD OF DIRECTORS ON CORPORATE GOVERNANCE FOR THE YEAR 2016 52 REMUNERATION POLICY REPORT FOR THE YEAR 2016 64 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF HELLENIC BANK PUBLIC COMPANY LIMITED 68 CONSOLIDATED INCOME STATEMENT 69 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 70 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 71 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 73 CONSOLIDATED STATEMENT OF CASH FLOWS 74 INCOME STATEMENT 75 STATEMENT OF COMPREHENSIVE INCOME 76 STATEMENT OF FINANCIAL POSITION 77 STATEMENT OF CHANGES IN EQUITY 79 STATEMENT OF CASH FLOWS 80 NOTES TO THE FINANCIAL STATEMENTS 187 DECLARATION BY THE MEMBERS OF THE BOARD OF DIRECTORS AND THE BANK OFFICIALS RESPONSIBLE FOR THE DRAFTING OF THE FINANCIAL STATEMENTS BOARDS OF DIRECTORS OF THE GROUP’S MAIN SUBSIDIARY COMPANIES 188 DESIGN AND LAYOUT: GNOMI COMMUNICATION CONSULTANTS 189 GROUP OFFICES AND BRANCH NETWORK PRINTING AND BINDING: CHR. NICOLAOU & SONS LTD 194 SHAREHOLDER INFORMATION AND INVESTOR RELATIONS WorldReginfo - 93ffc0d5-7d96-4df5-a945-701e01551ade BASIC HELLENIC ANNUAL BANK REPORT FINANCIAL GROUP 2016 HIGHLIGHTS 2016 2015 2014 2013 2012 CUSTOMER DEPOSITS AND OTHER CUSTOMER ACCOUNTS € million 6.111,1 6.138,7 6.345,9 5.513,3 7.766,9 LOANS AND ADVANCES € million 4.300,1 4.395,9 4.405,1 4.394,2 5.556,8 TOTAL FINANCIAL POSITION € million 7.037,6 7.397,4 7.551,6 6.383,9 8.755,7 CAPITAL RESOURCES € million 563,5 639,6 590,0 394,5 481,7 GROUP PROFIT FROM ORDINARY OPERATIONS BEFORE IMPAIRMENT LOSSES AND PROVISIONS TO COVER CREDIT RISK € million 103,2 104,3 157,9 129,5 159,4 Note: According to the provisions of the International Financial Reporting Standard 5, ‘Non-current Assets Held for Sale and Discontinued Operations’, the results for the year ended 31 December 2014 refer to the comparative figures of the annual results of the Group for the year ended 31 December 2014 which have been restated to reflect the reclassification of the operations of the BNG from continuing to discontinued operations on 26 of March 2013, as well as the disposal of the Bank’s subsidiary company in Russia, Limited Liability Company Commercial Bank ‘Hellenic Bank’ on 5 June 2014 and the disposal of the Bank’s subsidiary Borenham Holding Limited on 6 February 2015. 1 WorldReginfo - 93ffc0d5-7d96-4df5-a945-701e01551ade HELLENIC ANNUAL BANK REPORT GROUP 2016 WorldReginfo - 93ffc0d5-7d96-4df5-a945-701e01551ade BOARD OF DIRECTORS AND HELLENIC ANNUAL BANK REPORT EXECUTIVE COMMITTEE GROUP 2016 AS AT 30 MARCH 2017 Board of Directors of Hellenic Bank Antonis Rouvas Public Company Ltd Chief Financial Officer Irena A. Georgiadou (until 18.01.2017) CHAIRWOMAN Lars Kramer Marinos S. Yannopoulos Chief Financial Officer VICE-CHAIRMAN (from 03.04.2017) Marianna Pantelidou Neophytou Vladislav Botic Ioannis A. Matsis Chief Operating Officer David Whalen Bonanno Evripides A. Polykarpou Stefano Capodagli Georgios Fereos Chief Risk Officer Christodoulos A. Hadjistavris Henricus Lambertus (Bert) Pijls (until 15.12.2016) INTERIM HEAD GROUP Andreas Christofides COMPLIANCE UNIT Lambros Papadopoulos Marina Kolokotroni (from 13.06.2016) Andrew Charles Wynn Stephen John Albutt Chief Internal Auditor (from 21.09.2016) Niki Nicolaidou-Hadjixenophontos Chief Financial Officer Chief Executive Officer Antonis Rouvas (until 18.01.2017) Henricus Lambertus (Bert) Pijls Lars Kramer (from 03.04.2017) (until 15.12.2016) Ioannis A. Matsis Company Secretary (The appointment is subject to approval Petros Arsalides from the regulatory authorities. In the meantime, the duties of the Chief Executive Officer will be officiated by Mr. Phivos Staso- Auditors poulos, Group General Manager, Business & KPMG Limited Insurance Division) Legal Advisers Georgiades & Pelides LLC Executive Committee of the Hellenic Registered Office Bank Group Corner Limassol Avenue & 200 Athalassa Avenue, 2025 Strovolos, Nicosia, Cyprus Georgios Fereos P.O.Box 24747, 1394 Nicosia, Cyprus Group General Manager, Group Corporate Development Kyriaki Papadopoulou Group General Manager, Group Arrears Management Division Phivos Stasopoulos Group General Manager, Business & Insurance Division George Karageorgis Group General Manager, Retail & International Banking 3 WorldReginfo - 93ffc0d5-7d96-4df5-a945-701e01551ade HELLENIC ANNUAL CHAIRWOMAN’S BANK REPORT GROUP 2016 STATEMENT In the context of strengthening our The referendum in the United Kingdom and balance sheet, we increased provisions the decision in favour of Brexit have caused for problematic loans, a practice which, great market confusion. On the one hand, in conjunction with the one-off write the sterling is slipping but, on the other, off of deferred tax assets amounting to the British economy is predicted to grow by €51.2 million, led to a loss after taxes from 2% in 2017. At the same time, Italy’s fragile continuing operations amounting to €62.7 banking sector is also causing stock markets million for 2016. turbulence. The systematic review of our business model Concurrently, the Eurozone has been split revealed key challenges, but is has also given into two camps due to the monetary policy. us a clear path to improve the Bank. It is In an effort to tackle unemployment, very important to grasp every opportunity prolonged deflation and the low investment given, to improve our performance. It is rate, there remains disagreement regarding our job as Board of Directors to ensure that whether or not the unusual negative interest each strategy translates into value for our rates and the ECB’s Quantitative Easing Irena A. Georgiadou shareholders. This is why we will never shy Programme should continue. Chairwoman away from change. All of this is happening while the increased International Economic Environment influx of refugees continues, the number of 2016 was a difficult year, full of intense Eurosceptics is growing and Europe faces the political turmoil and changes. Investors’ challenge of populism. Populism threatens psychology has being tested continuously on the Union which was built on the foundations Dear Shareholders, an international level. of liberalism and democracy. This past year was filled with challenges From the beginning of 2016, markets The uncertainty is reflected on growth rates both for Hellenic Bank and our country. We witnessed the tumbling of oil prices, which remain subdued. The Eurozone’s managed through an international financial a decrease which led to high global growth rate reached 1.7% in 2016 and is crisis and its turbulent aftermath, while never uncertainty. predicted to recede slightly, to 1.6%, in 2017. losing sight of the reason we are here: to serve our clients, our economy and country, Concurrently, the growth rate of the Chinese Reforms in Cyprus and of course, the interests our shareholders. economy, the second biggest economy Despite international volatility and after the USA, receded to the lowest point uncertainty, 2016 was the year that Cyprus In 2016, we implemented our strategic of the past 25 years, a development which returned to stability. In March 2016, our priorities in a disciplined and focused inevitably affected global demand. country successfully completed the three- manner. year macroeconomic adjustment programme Despite concerns and the unpredictable and regained access to international capital We enhanced our corporate governance and geopolitical environment, the International markets. brought about changes in the composition of Monetary Fund’s projections for the global both the Board of Directors and the Executive economy in 2017, estimate a strengthened For seven consecutive quarters, the Cypriot Management Team, the most important of growth rate of 3.4% due to the fact that economy has exhibited growth and is one which was the smooth transition for our new emerging economies are still growing at high of the fastest-growing economies in the Chief Executive Officer, Mr. Yannis Matsis. rates. Eurozone. More specifically, in 2016 the growth rate reached 2.8% and is predicted We also focused on implementing our “In 2016, we continued to actively to remain at the same level for 2017, while strategy for dealing with Non-Performing in 2018 it is expected to range between Exposures (NPEs) more effectively and support recovery of the econo- 2.5% and 3%. The impressive recovery of faster via the creation of the first NPE my granting €354 million in new the Cypriot economy is also reflected in servicing platform in co-operation with the loans, equivalent to the one third the improved levels of confidence. Credit international firm APS Holdings. (1/3) of the total loans given to rating agencies place our economy just one level below investment grade and this was For another year, we grew our balance the island”. preceded by seven upgrades from the lowest sheet responsibly and supported point in June 2013. creditworthy businesses and households, Upsets in the European Union while we continued to invest in technology, 2016 was also a year of upsets in the The steady course towards recovery is also infrastructure and new talents which European Union as, six decades after the reflected in the labour market conditions constitute the Bank’s future. Our efforts were founding of EU, its integrity is being tested as which are improving, as well as private fruitful and were recognised by international never before. consumption which increased by 2.9% credit rating agencies such as Moody’s and compared to 2015. At the same time, Fitch which upgraded Hellenic Bank’s credit investments exhibited a growth of 26%. ratings. 4 WorldReginfo - 93ffc0d5-7d96-4df5-a945-701e01551ade HELLENIC ANNUAL BANK REPORT GROUP 2016 “Increased competition within Cyprus combined with absence of sufficient qualitative demand and low interest rates significantly restrain the banks’ revenues”.