Management s Responsibility for the Special Purpose Financial Statements

Transcription

1 ABCD KPMG d.o.o. Beograd Kraljice Natalije Belgrade Serbia Telephone: Fax: Internet: Independent Auditors Report To Management, Alpha Bank Srbija a.d., Beograd We have audited the accompanying Special Purpose Financial Statements of Alpha Bank Srbija a.d., Beograd which comprise the balance sheet as at 31 December 2013, the income statement, statements of comprehensive income, statement of changes in equity and statement of cash flow for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. The Special Purpose Financial Statements have been prepared by management of Alpha Bank Srbija a.d., Beograd based on the Alpha Bank A.E. accounting policies as set out in Note 2.1 to the Special purpose financial statements. Management s Responsibility for the Special Purpose Financial Statements Management is responsible for the preparation of these Special Purpose Financial Statements in accordance with the Alpha Bank A.E. accounting policies as set out in Note 2.1 to the special purpose financial statements, and for such internal control as management determines is necessary to enable the preparation of Special Purpose Financial Statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on the Special Purpose Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Special Purpose Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Special Purpose Financial Statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the Special Purpose Financial Statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation of the Special Purpose 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 entity'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 Special Purpose Financial Statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion KPMG d.o.o. Beograd, a Serbian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Matični broj: PIB: Račun: KPMG d.o.o. Beograd je jednočlano društvo.

2 ABCD Opinion In our opinion, the Special Purpose Financial Statements of Alpha Bank Srbija a.d., Beograd for the year ended 31 December 2013 are prepared, in all material respects, in accordance with the Alpha Bank A.E. accounting policies as set out in Note 2.1 to the special purpose financial statements. Basis of Accounting and Restriction on Use Without modifying our opinion, we draw attention to Note 2.1 to the Special Purpose Financial Statements, which describe the basis of accounting. The Special Purpose Financial Statements are prepared to assist Alpha Bank Srbija a.d., Beograd to provide information according to the Greek Company Law. As a result, the Special Purpose Financial Statements may not be suitable for another purpose. KPMG d.o.o. Beograd 27 February 2014 KPMG d.o.o. Beograd Kraljice Natalije Beograd 2

3 SPECIAL PURPOSE FINANCIAL STATEMENTS 2013 ALPHA BANK SRBIJA AD Beograd

4 SPECIAL PURPOSE FINANCIAL STATEMENTS CONTENTS Page Income Statement Balance Sheet Statement of Comprenhensive Income Statement of Changes in Equity Statement of Cash Flow Notes to the Special Purpose Financial Statements 1-64

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10 1. CORPORATE INFORMATION Alpha Bank Srbija A.D., Beograd ( the Bank ) is incorporated and domiciled in Serbia. The Bank was previously named Jubanka A.D., Beograd. The Bank is subsidiary of Alpha Bank A.E., Athens Greece since March The Bank is engaged in corporate and retail banking services in Serbia. The Bank s registered office is at Kralja Milana 11, Belgrade. In 2006, Alpha Bank Belgrade Affiliate A.D., a fully owned subsidiary of Alpha Bank A.E., merged into the Bank, while 1 January 2006 was deemed to be the day of taking over of all the legal claims and obligations. 2. ACCOUNTING POLICIES 2.1 Basis of preparation These special purposes financial statements have been prepared by the Bank in accordance with Alpha Bank Group s accounting policies which are IFRS based. These special purposes financial statements are designed to set out the Bank s financial position and performance, as reported to, and consolidated by, Alpha Bank Athens for Group consolidation purpose for the financial year Management of the Bank believes that the special purpose financial statements set out appropriately and materially the Bank s financial position and performance following the application of Alpha Bank Group s instructions and applicable, IFRS based accounting policy, recognition and measurement criteria in each of the reporting periods presented. However, the statements are not designed to, and do not represent IFRS financial statements of the Bank on a standalone basis, as certain applicable IFRS presentation and disclosure requirements relevant to stand alone IFRS reporting have not been met within these special purpose financial statements. Likewise, the formal transition from Serbian statutory to IFRS based reporting, as required by IFRS 1, has not been presented within the current or comparative period special purpose financial statements. Special purposes financial statements are prepared on the historical cost basis except for investments available-forsale and derivative financial instruments which are measured at fair value. The estimates and judgments applied in the preparation of these special purpose financial statements are based on historical information and assumptions which at present are considered logical. The estimates and assumptions are reviewed on an ongoing basis to take into account current conditions and the effects of any revisions are recognized in the period in which the estimate is revised and in any future period affected. The special purpose financial statements are presented in the Republic of Serbia Dinars (RSD), rounded to the nearest thousand unless otherwise indicated. The special purpose financial statements have been prepared on going concern basis. 2

11 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies Transactions in foreign currency The special purpose financial statements are presented in RSD, which are the functional currency and the currency of the country of incorporation of the Bank. Transactions in foreign currencies are translated to the functional currency at the closing exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the closing exchange rate at that date. Foreign exchange differences arising on translation are recognized in the income statement. Non-monetary assets and liabilities are recognized at the exchange rate ruling at initial recognition, except for those non-monetary items denominated in foreign currencies that are stated at fair value. The exchange differences relating to these items are part of the change in fair value and they are recognized in the income statement or recorded directly in Shareholders' equity depending on the classification of the non-monetary item. The exchange rates used for translation at 31 December 2013 and 2012 were: Cash and cash equivalents Cash and cash equivalents consist of cash in hand, non-restricted placements with Central bank and due from banks balances that mature within three months from the balance sheet date Initial recognition of financial instruments Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognized on the settlement date. The classification of financial instruments at initial recognition depends on the purpose for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus, in the case of financial assets and financial liabilities not at fair value through profit or loss, any directly attributable incremental costs of acquisition or issue. 3

12 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Classification and subsequent measurement of financial assets The Bank classifies its financial assets in the following categories: Loans and receivables Held-to-maturity investments Financial assets at fair value through profit or loss Available-for-sale financial assets For each of the above classifications the following is applicable: 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. Included in this category are direct loans to customers, amounts paid for a portion or total acquisition of bonds issued by customer and all receivables from customers, banks etc. Loans and receivables are carried at amortized cost using the effective interest rate method and are periodically tested for impairment. Investments held-to-maturity Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity, and which are not designated as at fair value through profit or loss or available for sale. This category is carried at amortized cost using the effective interest rate method and is periodically tested for impairment. Financial assets at fair value through profit or loss Financial assets included in this category are those: that are acquired principally for the purpose of selling in the short term in order to exploit short term market fluctuations (held for trading); that the Bank, at initial recognition, designates as financial assets measured at fair value and recognizes changes in the fair value in the income statement. This classification is used when: the management monitors and manages the financial instruments on a fair value basis in accordance with a documented risk management or investment strategy; the financial instrument eliminates an accounting mismatch that would otherwise arise from measuring financial assets and liabilities on a different basis (i.e. amortized cost) in relation to another financial asset or liability (i.e. derivatives which are measured at fair value through the profit or loss); the financial instrument contains an embedded derivative that significantly modifies the cash flows or the separation of this derivative is not prohibited. Derivatives are used for trading or economic hedge purposes. However, no hedging relationship has been established for accounting purposes. Derivatives are measured at fair value through profit or loss either as derivative assets or derivative liabilities. 4

13 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Classification and subsequent measurement of financial assets (continued) Investments available-for-sale Available-for-sale financial assets are investments that have not been classified in any of the previous categories This category is measured at fair value. Changes in fair value are recognized directly in equity, as a part of comprehensive income, until the financial asset is derecognized or impaired at which time the cumulative gain or loss previously recognized in equity is transferred to profit or loss. The financial assets included in this category are reviewed at each balance sheet date to determine whether there is any indication of impairment. For investments in equity instruments, a significant or prolonged decline in fair value below the cost of the investment is considered objective evidence of impairment. When a subsequent event causes the amount of impairment loss on an availablefor-sale debt security to decrease, the impairment loss is reversed through profit or loss. However, the impairment losses for available-for-sale shares are not reversed Financial liabilities The Bank for measurement purposes classifies financial liabilities in the following categories: Financial liabilities measured at fair value through profit or loss This category includes financial liabilities held for trading: when the financial liability is acquired or repurchased in the short term to take advantage of short-term market fluctuations; when they are derivatives which are not used for hedging purposes. In addition, in this category the Bank includes financial liabilities which are designated at initial recognition, as at fair value through profit or loss in accordance to the principles described for financial assets at fair value through Income statement. Financial liabilities carried at amortized cost The liabilities which are classified in this category are measured at amortized cost using the effective interest method. Liabilities to credit institutions and customers, debt issued and other loan liabilities are classified in this category. 5

14 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Derecognition of financial assets and financial liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: the rights to receive cash flows from the asset have expired; or the Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and the Bank has either transferred substantially all the risks and rewards of the asset, or the Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Bank's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Bank's continuing involvement is the amount of the transferred asset that the Bank may repurchase, except that in the case of a written put option (including a cashsettled option or similar provision) on an asset measured at fair value, the extent of the Bank's continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Alpha Bank Srbija A.D. do not have any outstanding transactions involving the transfer of financial assets that did not lead to full derecognition. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognizing of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. 6

15 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Impairment losses on due from banks and loans and advances to customers The Bank assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For amounts due from banks and loans and advances to customers carried at amortized cost, the Bank first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Bank. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future writeoff is later recovered, the recovery is credited to the impairment loss expense. The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank's internal credit grading system that considers credit risk characteristics such as asset type, collateral type, past-due status and other relevant factors. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. 7

16 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Impairment losses on non-financial assets The Bank assess as at each balance sheet date non-financial assets for impairment, particularly property, plant and equipment, investment property, and intangible assets. In assessing whether there is an indication that an asset may be impaired both external and internal sources of information are considered, of which the following are indicatively mentioned: The asset s market value has declined significantly, more than would be expected as a result of the passage of time or normal use. Significant changes with an adverse effect have taken place during the period or will take place in the near future, in the technological, economic or legal environment in the market to which the asset is dedicated. Significant unfavorable changes in foreign exchange rates. Market interest rates or other rates of return of investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset s value in use. Evidence is available of obsolescence or physical damage of an asset. An impairment loss is recognized in profit or loss when the recoverable amount of an asset is less than its carrying amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Fair value less costs to sell is the amount received from the sale of an asset (less the cost of disposal) in an orderly transaction between market participants. Value in use is the present value of the future cash flows expected to be derived from an asset or cash generating unit through their use and not from their disposal. For the valuation of property, plant and equipment, value in use incorporates the value of the asset as well as all the improvements which render the asset perfectly suitable for its use by the Bank Property and equipment Property and equipment includes land, buildings for use by the branches or for administrative purposes, additions and improvements of leased fixed assets and equipment. Property and equipment are stated at cost less accumulated depreciation. The historical cost includes costs relating to the acquisition of property and equipment. Subsequent expenditure is capitalized or recognized as a separate asset only when it increases future economic benefits. Expenditure on repairs and maintenance is recognized in the income statement as an expense has incurred. Depreciation is charged on a straight line basis over the estimated useful lives of property and equipment taking into account residual values. The estimated useful lives are as follows: Buildings: Additions to leased fixed assets and improvements: Equipment and vehicles: 20 to 33 years duration of the lease 4 to 20 years. The residual value of property and equipment and their useful lives are periodically reviewed and adjusted if necessary at each reporting date. 8

17 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Property and equipment (continued) Property and equipment are reviewed at each reporting date to determine whether there is an indication of impairment and if they are impaired the carrying amount is adjusted to its recoverable amount with the difference recorded in the income statement. Gains and losses from the sale of property and equipment are recognized in the income statement Investment property The Bank includes in this category buildings or a portion of buildings that are held to earn rental income. Investment property is initially recognized at cost, which includes all related acquisition costs. Subsequent to initial recognition investment property is stated at cost less accumulated depreciation and impairment losses. All costs for repairs and maintenance are recognized in the income statement as incurred. The estimated useful life over which depreciation is calculated under the straight line method, are the same as property and equipment Intangible assets Intangible assets consist of software which is carried at cost less amortization. Amortization is charged over the estimated useful life, which the Bank has defined from three to four years. Expenditure incurred to maintain software programs is recognized in the income statement. Intangible assets are carried at cost less accumulated amortization except for these assets that have an indefinite useful life and are not amortized. All intangible assets are subject to impairment test. For intangible assets no residual value is estimated Leases The Bank enters into leases either as a lessee or as a lessor. When the risks and rewards incident to ownership of an asset are transferred to the lessee they are classified as finance leases. All other lease agreements are classified as operating leases. The Bank had not entered into finance leases either as a lessee or as a lessor. The accounting treatment for operating leases is as follows: When the Bank is the lessor When the Bank is a lessor of assets under operating leases, the leased asset is recognized and depreciation is charged over its estimated useful life. Income arising from the leased asset is recognized as other income on an accrual basis. When the Bank is the lessee For operating leases, the Bank as a lessee does not recognize the leased asset but charges in general administrative expenses, the lease payments on an accrual basis. 9

18 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Income tax Current tax Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred tax Deferred tax is provided on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except: where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Current tax and deferred tax relating to items recognized directly in equity are also recognized in equity and not in the income statement. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. 10

19 2. ACCOUNTING POLICIES (continued) 2.2 Summary of significant accounting policies (continued) Employee benefits Short-term employee benefits The Bank makes contributions to the Government s health, retirement benefit and unemployment schemes at the statutory rates in force during the year, based on gross salary payments. The cost of social security payments is charged to the statement of income in the same period as the related salary cost. There is no additional liability for these plans. Post employment and other long-term employee benefits In accordance with the Labor Law, there is mandatory one-off retirement compensation equal to 3 gross monthly salaries, based on the country average salary earned in the month prior to retirement. The retirement compensation is payable by the last employer of retiree. The Bank has performed valuation to determine the present value of this liability resulting with recognition of the provision for this liability has been made in the accompanying special purpose financial statements. Valuation was carried out on individual employee level by taking into account their age, gender and expected remaining employment years until retirement Provisions A provision is recognized when the Bank has a constructive or legal obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount has been reliably estimated. The provisions recognition is done on the present value of the expenditures expected to be required to settle the obligation. Provisions are measured by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money. Cash payments are recorded to provisions to the extent that they relate to the specific provision. At each reporting period provisions are re-assessed. Provisions are not recognized for future operating losses. However, future events that may affect the amount required to settle the obligation, for which a provision has been recognized, are taken into account when sufficient objective evidence exists that they will occur. Reimbursements from third parties relating to a portion of or all of the estimated cash outflow are recognized as assets, only when it is virtually certain that they will be received. The expense recognized in the income statement relating to the provision is presented net of any amount of reimbursement. 11

20 2. ACCOUNTING POLICIES (continued) Interest income and expense Interest income and expense are recognized in the income statement for all instruments measured at amortized cost. The recognition of interest income and expense is performed on the accrual basis using the effective interest rate method. The effective interest rate method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or the next reprising date, in order the present value of the future cash flows to be equal to the carrying amount of the financial instrument including fees or transaction costs. Interest income and expense is also calculated for interest bearing financial instruments that are measured at fair value Fee and commission income Fee and commission income are recognized on an accrual basis when the relevant service has been provided. Transaction revenues relating to the recognition of a financial instrument which measured at amortized cost, such as loans and advances, are capitalized and recognized in the income statement using the effective interest method. 2.3 Significant accounting judgments and estimates In the process of applying the Bank's accounting policies, management has used its judgments and made estimates in determining the amounts recognized in the special purpose financial statements. The most significant use of judgments and estimates are as follows: Impairment losses on loans and advances The Bank reviews its problem loans and advances at each reporting date to assess whether an allowance for impairment should be recorded in the income statement. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. In addition to specific allowances against individually significant loans and advances, the Bank also makes a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted. Impairment losses of non financial assets The Bank, at each balance sheet date, assesses for impairment non financial assets, and in particular property, plant and equipment, investment property, goodwill and other intangible assets, as well as its investments in associates and joint ventures. Internal estimates are used to a significant degree to determine the recoverable amount of the assets, i.e. the higher between the fair value less costs to sell and the value in use. 12

21 2. ACCOUNTING POLICIES (continued) 2.3 Significant accounting judgments and estimates (continued) Income tax The Bank recognizes the amounts of current and deferred income tax based on estimates concerning the amount of taxable profits, based on which the amounts of tax expected to be paid or recovered in the current and future periods are determined. Estimates are affected by factors such as the practical implementation of the relevant legislation, the expectations regarding the existence of future taxable profit etc. Future tax audits, changes in tax legislation and the amount of taxable profit actually realised, may result in tax payments other than those recognized in the financial statements of the Bank. Long-term employee benefits The cost of the long-term employee benefits is determined using assumptions about discount rates, future salary increases, and future turnover rates. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. 2.4 Fair value of financial instruments 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. For assets and liabilities traded in active markets, the determination of their fair value is based on quoted, market prices. In all other cases the determination of fair value is based on valuation techniques that use observable market data to the greatest extent possible. In cases where there is no observable market data, the fair value is determined using data that are based on internal estimates and assumptions eg. determination of expected cash flows, discount rates, prepayment probabilities or potential counterparty default. The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Quoted market price (unadjusted) in an active market for an identical instruments. Level 2: Valuation techniques which are not quoted market price, instead are based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 3: Valuation techniques using significant unobservable inputs. Investments available-for-sale Investments available-for-sale consist of quoted instruments which are carried at fair value and short-term treasury bills whose carrying amount is a reasonable estimate of fair value. 13

22 2. ACCOUNTING POLICIES (continued) 2.5 Segment reporting The Bank has three reportable operating segments, as described below, which are the Bank s strategic business units. The strategic business units offer different product and services, and are managed separately based on the Bank s management and internal reporting structure. The following summary describes the operations in each of the Bank s reportable segments: Retail Banking - Includes loans, deposits and other transactions and balances with retail customers Corporate Banking - Includes loans, deposits and other transactions and balances with corporate customers Central Treasury Undertakes the Bank s funding and centralized risk management activities through borrowings, use of derivatives for risk management purposes and investing in liquid assets such as short term placements and government debt securities. The Bank is not listed in an active market and accordingly is not obliged to disclose results and balances per operating segment. 2.6 Related parties According to IAS 24, a related party is a person or entity that is related to the entity that is preparing its financial statements. For the Bank, in particular, related parties are considered: An entity that constitutes for the Bank: i) subsidiaries ii) a joint venture, iii) an associate and iv) a Post-Employment Benefit Plan, A person or an entity that have control, or joint control, or significant influence over the Bank. This category includes the Hellenic Financial Stability Fund and its subsidiaries because, in the context of the L.3864/2010, the HFSF participates in the Board of Directors and in significant committees of the Bank and as a result is considered to have significant influence over the Group. A person and his close family members, if that person is a member of the key management personnel. The Bank considers as key management personnel all the members of the Bank s Board of Directors and of the Bank s Executive Committee, as well as all the members of Alpha Bank's Board of Directors and Executive Committee, while as their close family members it considers their children and spouses or domestic partners and their dependants and the dependants of their spouses or domestic partners. Moreover, the Bank discloses all transactions and outstanding balances with entities which are controlled or jointly controlled by the above mentioned persons. This disclosure concerns participations of the above persons in entities that exceed 20%. 14

23 3. NET INTEREST INCOME 4. NET FEES AND COMMISSION INCOME 15

24 5. NET GAINS ON FINANCIAL OPERATIONS 6. OTHER INCOME 7. STAFF COSTS The total number of employees as of 31 December 2013 was 1,306 (2012: 1,435). All the employees of the Bank receive their pensions from the Serbian Pension and Disability Insurance Fund and medical benefits from the Serbian Health Insurance Fund, which are accounted as defined contribution plans. 16

25 8. GENERAL ADMINISTRATIVE EXPENSES 9. IMPAIRMENT LOSSES AND PROVISIONS 17

26 10. INCOME TAX The components of income tax credit for the years ended 31 December 2013 and 2012: The deferred tax included in the balance sheet is as follows: 18

27 11. OTHER ASSETS 12. CASH AND BALANCES WITH CENTRAL BANK Mandatory Requirement Reserve (MRR) with the National Bank of Serbia (NBS) is calculated and allocated in accordance with the Decision on Obligatory Reserve and relevant Guidelines for its implementation. MRR in dinars is calculated on average monthly balance of dinar deposits and other dinar obligations. Rates are: 5% for the dinar liabilities with maturity less than two years, or 730 days, 0% for the dinar liabilities with maturity greater than two years, or 730 days. MRR in dinars is calculated as a sum of: MRR calculated on average balance of liabilities in dinars at the rate of 5%, 32% of dinar equivalent of foreign currency MRR calculated on foreign currency liabilities with maturity less than two years, or 730 days, 24 % of dinar equivalent of foreign currency MRR calculated on foreign currency liabilities with maturity greater than two years, or 730 days. MRR in foreign currency is calculated on average monthly balance of foreign currency deposits and other foreign currency obligations. Rates are: 29% for the foreign currency liabilities with maturity less than two years, or 730 days. 22% for the foreign currency liabilities with maturity greater than two years, or 730 days. NBS does not pay any interest on the calculated and allocated foreign currency MRR, while on dinar part 2.50% p.a. is paid to the Bank. During the calculation period, the Bank is required to maintain average daily balance of foreign currency MRR in accordance with the Decision. 19

28 13. DUE FROM BANKS Reconciliation of the allowance for impairment losses is as follows: 20

29 14. LOANS AND ADVANCES TO CUSTOMERS The following is a reconciliation of allowances for impairment losses on loans and advances to customers: 21

30 15. INVESTMENTS AVAILABLE-FOR-SALE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS Only equity investments in local legal entities are measured using valuation techniques using significant unobservable inputs (level 3 valuations). Derivatives are valued by discounting future cash flows using market interest rates and market FX rates and are classified in level 2 of the fair value hierarchy. All other financial instruments are measured using quoted market prices (level 1). 22

31 17. PROPERTY AND EQUIPMENT, INVESTMENT PROPERTIES AND INTANGIBLE ASSETS Fair value of investment property as of 31 December 201 is 204,281 thousand RSD. The fair value of investment property is calculated using research inputs, assumptions and inputs relating to properties of relevant characteristics and therefore encompass a wide range of non-observable market inputs, as Level 3 for the fair valuation. As of 31 December 2013 there were no restrictions on the title of the Bank's fixed assets and none of them were pledged as security for liabilities. 23

32 18. DUE TO BANKS 19. DUE TO CUSTOMERS 20. SUBORDINATED DEBT 24

33 21. PROVISIONS Provisions Long-term employee benefits 25

34 22. OTHER LIABILITIES 23. EQUITY Share capital The Bank s share capital as of 31 December 2013 consists of shares, nominal value RSD 11,920 each. Largest shareholder is Alpha Bank AE Athens with the participation of nearly 100%. One remaining share is owned by an individual. Basic earnings per share are calculated by dividing the profit after income tax for the period, by the weighted average number of ordinary shares of outstanding, after deducting the weighted average number of treasury shares held by the Bank during the period. Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Bank does not have dilutive potential ordinary shares and therefore, basic and diluted earnings per share should not differ. 26

35 23. EQUITY (continued) Reserves The Bank s reserves are formed in accordance with the law, regulations and the Statute of the Bank. These reserves are not distributable. Available-for-sale securities reserves This reserve comprises changes in fair value of investments available-for-sale securities reserve. 24. CONTINGENT LIABILITIES AND COMMITMENTS To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. Even though these obligations may not be recognized on the balance sheet, they do contain credit risk and are therefore part of the overall risk of the Bank. The total outstanding commitments and contingent liabilities are as follows: Letters of credit, guarantees (including standby letters of credit) commit the Bank to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Guarantees and standby letters of credit carry the same credit risk as loans. Undrawn credit facilities represent contractual commitments to make loans and revolving credits. Commitments generally have fixed expiry dates, or other termination clauses. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. The potential credit loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Legal claims The Bank in the ordinary course of business is a defendant in claims from customers and other legal proceedings. Provision for litigation as of 31 December 2013 amounted to RSD 107,564 thousand (2012: RSD 118,969 thousand). No further provision has been recorded because after consultation with legal council, the ultimate disposition of other matters is not expected to have a material effect on the financial position or operations of the Bank. 27

36 24. CONTINGENT LIABILITIES AND COMMITMENTS (continued) Operating leases The Bank s minimum future lease payments are as follows: The Bank has entered into commercial property leases on its investment properties, which are leased out under operating leases which include one month cancellation clauses. Other commitments The Bank has entered into various purchase commitments in the amount of RSD thousand as of 31 December 2013 (2012: RSD 253,632 thousand). This amount is mostly related to maintenance of Bank s core system. 28

37 25. RELATED PARTY DISCLOSURES Compensation of the key management personnel of the Bank Total compensation of the key management personnel of the Bank and the Board of Directors in the year ended 31 December 2013 amounted to RSD thousand (2012: RSD thousand) and RSD thousand (2012: RSD thousand), respectively, and related to short-term benefits. Transactions with key management personnel of the Bank and other related parties In addition to the key management personnel, the Banks enters into transactions with other related parties comprising Alpha Bank A.E., the Bank s parent company and its other subsidiaries. The outstanding balances with other Alpha Bank Group companies and effects of transaction included in the Bank s Income statement are as follows: 29

38 25. RELATED PARTY DISCLOSURES (continued) The above mentioned outstanding balances arose from the ordinary course of business. The interest charged to and by related parties is at normal commercial rates. Outstanding balances at the year-end are unsecured. 30

39 26. RISK MANAGEMENT Introduction The main risk management principles and objectives Identification of significant risks In the course of 2013, the Bank continued with implementation of the adopted set of documents relevant for efficient risk management activities which enable appropriate control of risks, identified as being materially significant. Identified risks are the following: Credit risk, Market risk, Liquidity risk, Interest rate risk Counter party risk Concentration risk Country risk Operational risk Furthermore, during 2013 the annual review of the Risk Management Policies has been performed and approved by the Executive Board and Board of directors. It has been confirmed that established risk management system is comprehensive and reliable, that includes all business activities of the Bank, and ensures that the risk profile is in line with determined risk appetite of the Bank. Adequacy and Effectiveness of Application of Risk Management Policies Given that the external and regulatory environment of the Bank has not changed and hence, the Bank s risk profile remained the same, adopted Policies for risk management continued to be adequate to support comprehensive and sound risk management system in the Bank enabling compliance with both regulatory and Group requirements. The Main Risk Management Principles and Objectives Risk Management is the process that assumes constant identification, assessment, measurement, monitoring and control of risks that the Bank is or it could be exposed to, with the underlying purpose to support achieving strategic goals of the Bank and its operational plans. The Bank has established an efficient framework for managing risk within its operations. For risks that have been identified as being materially significant, the Bank has developed adequate methodologies for their assessment and quantification. Moreover, within the system of risk control, the Bank develops methods and specifies activities for estimating concentration limits and their monitoring, in order to ensure that the limits remain at the acceptable level. Risk Management Process has the following goals: Identification of materially significant risks; Development of methodologies for measurement of identified materially significant risks; Establishment of adequate systems for efficient risk management; Minimizing the annual level of losses associated with the identified risks and enhancement of profitability Risk Management Process relies on the following principles: Acceptable risk level and business orientation; Promote transparency through clear communication lines; 31