Consolidated annual RePoRt

Transcription

1 Consolidated ANNUAL REPORT

2 Content We are closest to you wherever you need us 1. Address by the Managing Director 4 2. General Information About the Company 6 3. Company Structure Main Events Corporate Social Responsibility Personnel Policy Brief Description of the Macroeconomic and Competitive Environment Report on Business Activities and Property Situation in Financial statements Branch network 134

3 1. address by the Managing Director Dear Shareholders, Business Partners, and Colleagues, Poštová banka has another year full of changes and novelties behind it. We can boast about new savings products, a gift payment card, and several interesting product benefits. In order to make the lives of our clients easier, we introduced a new deposit product, the Gold Deposit [Zlatý vklad] with a three-month notice of withdrawal period, which is possible to establish online. We continued to expand our distribution network, opening three branches and giving two a new facelift. Another important milestone was the bringing of the universal frontend called Venice to life, thanks to which the attending of clients became faster, of higher quality, and more effective. The past year, too, was largely influenced by massive regulation, which affected the entire banking sector. Banks again had to tackle a bank levy, with the one in Slovakia being among the highest in Europe and reaching amounts that exceeded the European average several times over. Despite these regulations, however, Poštová banka confirmed its stable growth trend and ended the year with an increase in profit by 29.8 %, to 54.3 million euros. Success goes hand-in-hand with responsibility. Therefore, our bank makes it its obligation to return part of its success to the society in which we are doing business. In the past year, we continued to support art and culture as the general partner of Radošinské naivné divadlo [Naive Theater of Radošiná] and the Slovak National Museum, as well as communities, seniors, socially disadvantaged families, and children s sports clubs and talents. The Poštová banka Group distributed a total of 690,000 euros in. We are happy that our subsidiaries also have a successful year behind them. Prvá penzijná [First Pension Management Company] administered assets amounting to 748 million euros in its funds, reaching a market share of 10.8 %. At the same time, it received an award in the Gold Coin [Zlatá minca] competition, where it took second place in the Real Estate Funds category with the fund NÁŠ PRVÝ REALITNÝ o.p.f. [Our First Real Estate Fund]. In cooperation with Poštová banka, it introduced the Good Saving Investment [Dobré sporenie Investícia] product as an attractive combination of saving and investing in mutual funds. Dôchodková správcovská spoločnosť Poštovej banky [Pension Management Company of Poštová banka] was also successful, closing the year with 93,417 savers, despite the fourth reopening of the second (private) pillar of the pension system. The Pension Management Company continues to administer four funds focused on shares, indexes, bonds, and balanced solutions. Poštová poisťovňa [Postal Insurance Company] generated a profit in the amount of 1.7 million euros, which represented an increase of 10 % year-on-year. During, it strengthened its cooperation with Slovenská pošta [Slovak Post] and introduced tailor-made accident insurance for the postal network. Clients primarily appreciate the processing speed, simplicity, and accessibility of this insurance product. Another success was the intensification of the sale of SIPO [Joint Collection of Utility Payments] insurance at post offices and a marked improvement in the terms and conditions of insurance of loans for clients of Poštová banka and Slovenská pošta. My thanks for the excellent results of Poštová banka and its subsidiaries primarily goes to all employees who have done a great deal of work in this regard, as well as to shareholders for their support and trust. We have a demanding, but all the more interesting, year ahead of us, and I am convinced that it will be successful. Ing. Andrej Zaťko Managing Director and Chairman of the Board of Directors 4 5

4 General Information About the Company Kamzík TV Tower

5 2. General Information About the Company Legal name: Poštová banka, a.s. Registered office: dvořákovo nábrežie 4, Bratislava Identification number [IČO]: Date of incorporation: 31 December 1992 Legal form: Joint stock company Scope of activities: a) Pursuant to Article 2 (1) and (2) of the Act on Banks: 1. Acceptance of deposits; 2. Provision of loans; 3. Provision of payment services and clearing; 4. Provision of investment services, investment activities and secondary services pursuant to the Act on Securities, to the extent referred to in Section (b) of this point, and investment into securities in own account; 5. Trading on own account in a) financial money market instruments in euros and foreign currency, including exchange activities; b) financial capital market instruments in euros and foreign currency; c) precious metal coins, commemorative bank notes and commemorative coins, bank notes sheets and sets of coins in circulation; 6. Administration of clients receivables in their accounts, including related consulting; 7. Financial leasing; 8. Provision of guarantees, opening and certification of letters of credit; 9. Provision of consulting services in the area of business activities; 10. Issuance of securities, participation in issuance of securities and provision of related services; 11. Factoring; 12. Safekeeping of items; 13. Renting of safe deposit boxes; 14. Provision of bank information; 15. Activities as a depository; 16. Handling of bank notes, coins, commemorative bank notes and commemorative coins; 17. Issuance and administration of electronic money; 18. Factoring according to special legislation as an independent financial agent in the sector of insurance and reinsurance; 19. Factoring according to special legislation as an independent financial agent in the sector of old-age pension saving. c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities, currencies, interest rates or revenues, which may be settled by delivery or in cash; 3. Trading on own account in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities, currencies, interest rates or revenues, which may be settled by delivery or in cash; 4. Investment consulting in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with currencies, interest rates or revenues, which may be settled by delivery or in cash; 5. Subscription and placement of financial instruments on the basis of fixed commitment in relation to the following financial instruments: a) negotiable securities; b) participating certificates and securities issued by foreign entities of collective investment; 6. Placement of financial instruments without fixed commitment in relation to the following financial instruments: a) negotiable securities; b) participating certificates and securities issued by foreign entities of collective investment; 7. Custody and administration of financial instruments on the client s account, including holder administration, and related services, particularly administration of cash and financial collateral, in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; 8. Provision of credits and loans to investors to facilitate the realization of transactions involving one or several financial instruments, in cases where the credit or loan provider is involved in such transactions. 9. Realization of transactions in foreign exchange assets if these are connected with the provision of investment services. 10. Execution of investment survey and financial analysis, or another form of general recommendation concerning trading in financial instruments; 11. Services related to the subscription of financial instruments. Share capital: EUR 366,305,193 Paid-up share capital: EUR 366,305,193 b) Pursuant to Article 79a (1) in conjunction with Article 6 (1) and (2) of the Act on Securities: 1. Acceptance and forwarding of client s instruction concerning one or several financial instruments in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities, currencies, interest rates or revenues, which may be settled by delivery or in cash; 2. Execution of client s instruction on their account in relation to the following financial instruments: a) negotiable securities; 8 b) money market instruments; 9

6 Company Structure Apollo Bridge

7 3. Company Structure Board of Directors Ing. Andrej Zaťko Chairman of the Board of Directors since 12 August Graduated from the Department of Economic Informatics at the University of Economics in Bratislava, where he specialized in information technology. He started his career in mutual funds and later worked in the area of asset management for private clients. In 2006, he established and managed private banking at the Slovak branch of J&T BANKA. From 2011, he was a member of the Board of Directors of J&T BANKA, a.s. (Czech Republic). From November 2012, he held the position of director and head of the J&T BANKA, a.s. branch in the Slovak Republic J&T BANKA, a.s., branch of a foreign bank. On 12 August, he became Chairman of the Board of Directors and Managing Director of Poštová banka. JUDr. Ján Nosko member of the Board of Directors since 10 April Ing. Slavomír Varcholík member of the Board of Directors since 12 January Graduated from the Department of Trade at the University of Economics in Bratislava. In , he worked for the companies Ernst & Young Audit, a.s., Schindler výťahy a eskalátory [Elevators and Escalators], a.s., GlobtelNet, a.s., and Orange Slovensko, a.s. He has worked for Poštová banka since He first held the position of director of the Finance Division and later became deputy managing director for finances. Since 12 January, he has been a member of the Poštová banka Board of Directors responsible for the area of finances. Graduated from the Department of Law at Matej Bel University in Banská Bystrica. Before joining Poštová banka, he was involved in company restructuring. He has worked for Poštová banka since 2010, when he assumed the position of head of the Department of Credit Claims and later became director of the Division of Legal Services and Compliance. He later became deputy managing director for internal services. He was elected as a member of the Poštová banka Board of Directors on 10 April. He is responsible for the corporate banking area. Ing. Peter Hajko member of the Board of Directors since 3 December Ing. Daniela Pápaiová member of the Board of Directors since 26 July 2012 Graduated from the Department of Business Management at the University of Economics in Bratislava. In , she was primarily involved in the insurance sector, working for the companies ING Nationale Nederlanden poisťovňa, a.s., Aegon Životná poisťovňa, a.s., and Aegon, d.s.s., a.s., as well as for Poisťovňa Poštovej banky, a. s. as a member of the Board of Directors. From May 2009 until the end of 2010, she held the position of member of the Board of Directors in the company Credium Slovakia, a.s. She joined Poštová banka in 2011 as director of the Finance Division. She has been a member of the Poštová banka Board of Directors since 26 July 2012, currently responsible for risk management and ALM. Graduated from the Department of Economic Informatics at the University of Economics in Bratislava. He was active in the banking sector in , working for Všeobecná úverová banka, a.s. as a sub-branch head and, in 2000, for Tatra banka, a.s., where he held the positions of branch director, regional branch network director responsible for sales, servicing, and service quality for retail clients, Sales Department director Supervisory Board responsible for the management of sales and the quality of services of the branch network of Tatra banka, a.s., and director of the Sales Department Mario Hoffmann chairman Corporate Centers responsible for the management of sales and the Ing. Jozef Tkáč deputy chairman quality of services for small and medium-sized enterprises and clients in Ing. Mgr. Tomáš Drucker member the Middle Market segment. The last position that he held at Tatra banka, Mgr. Jozef Salaj member, re-elected with the effective date of 19 January a.s. was that of director of the regional network of branches in the Nitra Ing. Vladimír Ohlídal, CSc. member, re-elected by bank employees with the effective date of region. He joined Poštová banka in October, assuming the position 15 June of director of the Retail Banking Division. He was elected as a member of the Poštová banka Board of Directors on 3 December. He is 12 responsible for the retail banking area. 13

8 List of shareholders in Poštová banka, a.s. as of 31 December Legal name and registered office of the shareholder Number of shares Participation in share capital in % Participation in share capital in EUR J&T FINANCE GROUP SE Pobřežní 297/14, Prague 8, Czech Republic Ministerstvo dopravy, výstavby a regionálneho rozvoja Slovenskej republiky [Ministry of Transport, Construction, and Regional Development of the Slovak Republic] Námestie slobody 6, Bratislava, Slovak Republic PBI, a.s. Pobřežní 297/14, Karlín, Prague 8, Czech Republic Slovenská pošta, a.s. Partizánska cesta 9, Banská Bystrica, Slovak Republic UNIQA Versicherungen AG Untere Donaustrasse 21, 1029 Wien, Austria 213, ,109, , , ,544,142 4, ,444, , , ,305,

9 Main Events Ondrej Nepela Arena

10 4. Main Events January New member of the Board of Directors Slavomír Varcholík became a new member of the Poštová banka Board of Directors; he is responsible for the area of finances. We received two MasterCard awards The company MasterCard awarded the best projects of concerning payment cards. Poštová banka attracted its attention twice. We received the Issuer award for the largest increase in the number of MasterCard PayPass contactless cards issued. We won another award, Prepaid Product, for the largest number of newly-issued prepaid cards. Prvá penzijná celebrated its 20 th birthday In, the First Pension Management Company of Poštová banka celebrated its 20 th anniversary. Over the past 20 years, the company has developed into a stable partner in the world of finance in the Slovak market with a team of top portfolio managers. February We opened a uniquely-designed branch in the SKYBOX complex Poštová banka introduced a new concept of a joint operation of a bank, post office and Moja Samoška grocery store in one place, the SKYBOX multifunctional complex in the Petržalka city district of Bratislava. The new branch is dominated by simplicity and functionality, but also modernity, and meets the requirements of the most discerning clients. Awards for PPSS The Krátkodobý dlhopisový o.p.f. KORUNA [short-term bond fund] of the First Pension Management Company (PPSS) took third place in the Investment of the Year ranking in the Money Market Funds category. In the TOP FOND SLOVAKIA ranking, PPSS won several awards: Best-selling mutual fund in the Money Funds and Short-Term Investment Funds category: Krátkodobý dlhopisový o.p.f. KORUNA third place; Best-selling mutual fund in the Real Estate Funds and Alternative Investment Funds category: NÁŠ PRVÝ REALITNÝ [Our First Real Estate Fund] o.p.f. first place; KAPITÁLOVÝ FOND [Capital Fund] o.p.f. second place. April Gold Deposit was added to the family of deposit products The Gold Deposit is in the group of Poštová banka deposit products with attractive interest rates. Its unique feature is that clients may access their savings free of charge as early as after the expiration of the three-month notice period. May A new communication concept was launched Within a new concept of communication, the public got to know four main characters with interesting stories about their joys and worries, full of humor, unexpected denouements, and practical solutions. June Gift card was added to the portfolio of payment cards Our supply of payment cards was enhanced by a new product a gift card with a cheerful universal design. The new gift card can be bought online without having to personally visit the bank or opening an account. A new branch was opened in Vranov nad Topľou A new branch of Poštová banka in Vranov nad Topľou was opened in June. July We carried out the Good Neighbor project to support neighborly relations In cooperation with the Petit Press publishing house, Poštová banka launched a unique project called Good Neighbor during the summer vacation. Through regional newspapers, Slovaks could publicly thank a neighbor who helped his community. Poštová banka rewarded the neighbor for doing so. New branch in Malacky Another newly-opened branch of Poštová banka was the branch office in Malacky. August We offered a new good savings product We launched the sale of two savings products, dobrésporenie REZERVA [good savings RESERVE] and dobrésporenie ISTOTA [good savings SECURITY]. Prvá penzijná unveiled dobrésporenie INVESTÍCIA [good savings INVESTMENT], which replaced the previous investment savings products Solvent and MINI. New managing director of Poštová banka Andrej Zaťko assumed the position of Managing Director and Chairman of the Poštová banka Board of Directors. September Another branch of Poštová banka A new branch office of Poštová banka was opened in Topoľčany. October Another product of Poštová banka, also offered online From October, our clients can establish a deposit product called Gold Deposit [Zlatý vklad] online, without having to visit a branch office. December Change of the legal name of Poisťovňa Poštovej banky Poisťovňa Poštovej banky [Insurance Company of Poštová banka] changed its legal name to Poštová poisťovňa [Postal Insurance Company]. This step is intended to contribute to an easier recognition of the insurance company and is also related to the arrival of a new shareholder Slovenská pošta [Slovak Post]. Peter Hajko became a new member of the Poštová banka Board of Directors. He is responsible for the Retail Banking Division. New design for five branch offices Five branch offices were completely redesigned during. Thanks to the new, modern design, 18 we disproved the notion that banking institutions must be austere and severe in appearance. 19

11 Corporate Social Responsibility Slovak National Theatre

12 5. Corporate Social Responsibility We are aware of the need to participate in projects and activities that could not be carried out without support from commercial partners, which is why Corporate Social Responsibility has become an important part of the Poštová banka Group. Both through our foundation and with direct support, we supported several organizations and events in as well. We have been the general partner of the Naive Theater of Radošiná since We are proud that in, we moved the entire theater to its new premises, which we had remodeled for the needs of a modern and functional theater. Thanks to this, the new premises offer comfort not only to actors, but also the audience, without which the theater could not function. The Slovak National Museum, too, is among our long-term partners. Thanks to the museum, we contribute to the preservation of cultural heritage, which is important for us as a Slovak bank. In, we contributed to the carrying-out of more than 10 projects, thus facilitating the organization of exhibitions, events, and a camp, as well as the restoration of several artifacts. Poštová banka is a long-term partner of the Association of Pensioners in Slovakia. This organization brings together more than 1,500 general organizations all over Slovakia and organizes sport, art, and cultural events for its members, but, first and foremost, offers seniors to actively spend their free time. We are proud of being able to be part of the Christmas Mail project again in, thanks to which Father Christmas could send letters and Christmas presents to more than 100,000 children. In, we continued to support events such as the Štiavnica Triathlon, the Donovalský drapák mountain bike race, the Slovak Air Fest in Sliač, the Rýchlik Zoška ultra-marathon, relay race and long-distance hiking event, the POSTPOINT conference, and other events. and their families. We provided funds for the construction of a children s playground in the village of Mengusovce, where we also help build cross-country skiing trails on a long-term basis within the Mengusovce Cross-Country Skiing Paradise. We organized collections of clothes for the ROSA Social Services Home, as well as Easter, summer, and Christmas markets. During the year, we did not forget about those who needed our help and, via open grants, helped dozens of the needy. The area of education was dominated by the Slovak National Museum s project School in the Museum aimed at supporting educational activities in museums all over Slovakia. Under the auspices of this program, the Foundation also organized two summer camps for the children of its employees. Last but not least, our activities in included projects that would not have worked without the help of our employees be it the MAJÁK [Lighthouse] employee grant program, thanks to which we supported 14 projects serving the public good, totaling 18,500, or the Christmas activity called the Tree of Fulfilled Wishes. The Tree of Fulfilled Wishes, which was premiered, was an activity that moved the hearts of many. Thanks to the generosity of employees and a contribution from our Foundation, we magically conjured up a lovely Christmas for 55 children from a disadvantaged social background. The year was indeed the year during which we built on the quality foundations from the past and supported our long-term projects. However, it was also the year that brought about many new activities and projects, through which the beams of our Foundation lighthouse lit up several places. We thank all those who participated in helping others in any way together with us. Without our fans and supporters, the POŠTOVÁ BANKA FOUNDATION would not have been able to help to such an extent as it is doing at the present time. Thank you for helping together with us! The POŠTOVÁ BANKA FOUNDATION has eight successful years behind it, during which there was no lack of interesting and meaningful projects. Such was the year as well. It was full of excellent sports performances, educational projects and activities, which gave people joy and, last but not least, helped out where necessary. The Summer Swimming Camp of Martina Moravcová, which has been an inseparable part of the Foundation in summer months, took place in as well. A total of 175 young swimming hopefuls took part in the camp in three groups. The Foundation supported 42 talented children from socially disadvantaged families through a wild card system and enabled them to take part in the camp totally free of charge. A novelty in the camp was a one-day training camp at the Elements Resort in Šamorín and a visit by an immunologist who did spirometry tests to children. Another of our sports projects that has a successful year behind it is the Sport Family for All. Thanks to the Foundation, for seven years 50 children from socially-disadvantaged families and orphanages have been able to develop their talent in canoeing. In, the two best participants took part in the World and European Junior Championships, where they achieved excellent results. In the Slovak Championships, the Sport Family for All won all 35 medals, including 12 titles. The Swimming Club SPK Bratislava, which the Foundation supports, has been among the top in Slovakia for a long time. This was also confirmed in, when SPK again managed to defend its first position in the Slovak Team Cup. During the year, swimmers participated in many competitions, from where their brought well-earned medals. In the Slovak Championships alone, they won 97 medals, including 20 gold medals, and broke 207 personal records. We wish all of our athletes that the year 2016 is as successful or more for them as the previous year. In addition to sports, we also provided help in other areas in. We supported the project of the To Children for Life civic association, which helps young patients with oncological diseases 22 23

13 Personnel Policy Slovak Radio

14 6. Personnel Policy Our goal is a professional approach to the selection of high-quality people and a positive perception of the brand. We carry out regular measurements of the satisfaction of candidates and managers with the selection process, and with a high success rate compared to the rest of the market. For candidates, the Poštová banka Group represents professionalism, reliability, and an opportunity for a stable job with good prospects. The number of employees in the Group decreased by 4.4 % compared to the previous year; as of 31 December, the number of employees was 1,316. As of the same date, the individual subsidiaries employed a total of 480 people, including: Poštová poisťovňa, a. s. 48 employees, PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s., and Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s. 38 employees, PB PARTNER, a. s. 214 employees, POBA Servis, a. s. 65 employees, PB Finančné služby, a. s. 28 employees, PB IT, a. s. 80 employees, Branch in the Czech Republic 7 employees. Managers are supported in building and leading successful teams by HR business partners, who provide comprehensive consulting to managers and employees on HR issues. In the area of performance management, we continued the implementation of the itutor information system, in which the first run of the complete process of assigning and assessing goals and employee competencies in terms of personality was performed across the bank. The implementation of this system has done away with administrative steps that burdened managers and employees, and information on the performance of employees has been centralized in one place. In cooperation with our internal IT department and provider, we customized the system to Poštová banka needs in order to allow for easy and friendly use by all employees and management. In, we completed our one-year Talent Management Program and, after evaluating the program, we proposed a new design of a two-year Talent Program. It is focused on two concurrent priorities retaining key experts of the bank and training new potential managers. Based on an innovative system of nominations, 20 employees of the bank and its subsidiaries were selected in this year s run of the program. They were given increased individual care both by their supervising managers and the HR Department in the areas of individual career development, rewards, and benefits. In the area of support for external talent, in we continued the fifth year of the very successful Trainee Program for fifth year university students. As in previous years, after the completion of the program, we hired 11 young people who participated in the program, out of a total of 16 participants, to work for the bank and its subsidiaries on a permanent basis. Following the completion and assessment of the fifth year, we launched the sixth run of the program with 12 participants. This year, too, we continued carrying out activities resulting from the concept of training and development of employees of the Group. We continued to use financial resources invested in training in a targeted and effective manner on the basis of a new model attributing training budgets to work positions according to their importance for the Group in terms of business. We thus tried to introduce the principle of internal justice in the redistribution of finances allocated to development and training. A new innovation was development programs for corporate sales people, which received very positive feedback. This year, too, we continued to carry out individual coaching sessions (52 hours in total), and again with very positive responses, primarily for the group from the Talent Management Program and selected managers. In the area of professional training, we continued to use targeted consulting provided by training specialists in selecting external professional activities. Bank employees participated in 3,717 hours in total, focusing on improving their professional expertise. We also supported the utilization of professional know-how across the bank via internal professional training sessions provided by internal instructors, as well as via the mentoring system. We managed to considerably customize the itutor information system, which has become the system support for the entire training process and enabled us to also launch e-learning platforms in the bank. Internally, we created five e-learning courses, which were successfully carried out. We also successfully continued the implementation of the platform to support inspiration and self-development of employees the Let Us Draw Inspiration forum where we carried out eight meetings with a very positive response, and will continue this project in 2016 as well. At the end of, we expanded our HR team with HR partners and internal instructors, who assumed this role for sales channels the network of post offices and branches. The primary goal of this expansion of the team is to focus on supporting business distribution channels of the Poštová banka Group, which will be in compliance with the new strategy of the bank. We prepared a change in the concept of adaptation and orientation training (in product and sales skills), which supports overall changes in the setup and management of retail operations. From, Poštová banka, a.s. launched a new system of employee benefits called Cafeteria for its employees. Benefits have been divided into five basic groups: Labor and Social Benefits, Product Advantages, Family, Health, Sport and Further Education, and Social and Cultural Events. In, too, employees received contributions for drawing benefits in the areas of health, sports, recreation, and relaxation. The Health category also includes preventive and above-standard medical examinations. The aim of Poštová banka s policy of benefits is to reinforce the perception of the value of benefits as part of total rewards, make it easier to attract qualified and high-performing employees on the market, and build employee pride in their company. The end of was in the spirit of a change in the policy of remuneration of retail employees. We have successfully set up a new remuneration system, which is simple, transparent, competitive, and motivating for our employees. In, the Human Resources Division ensured the comprehensive processing of payroll and personnel records, remuneration, and HR consulting for the individual subsidiaries. We supported cooperation of the individual departments of the bank with subsidiaries by linking customer goals with internal training activities and other HR tools. The objective and purpose of these activities is to harmonize, simplify, and streamline individual work processes and procedures to the largest possible extent for the purpose of reporting and other required outputs. In the area of development, we linked training activities to an updated model of personality competencies with the aim of focusing on the development of key competencies and expected behaviors of employees that lead to the Group s success achieving results, partnership and cooperation, self-management, improvement and development, and professional expertise. We continued the development of both soft skills and managerial skills through two internal instructors. By primarily using closed training sessions, we continued to strive for a more targeted and specific focus of training with respect to individual target groups. In total, we provided 2,653 hours of this type of training. As of 1 January, a new personnel and payroll system, EGJE, was introduced, within which services for both managers and employees of the Group were improved. The processes of approving vacations and leave in accordance with the Collective Agreement KZa, KZb were simplified. For managers, EGJE is a good source of information about employees, such as their work positions, remuneration, vacation, and daily attendance. The system supports the sending of notifications regarding coming changes in employment relationships of employees. In order to improve services provided to employees and managers, certain functionalities of the EGJE system were modified in ; for example, the possibility of the setting up of a substitute for a manager in his absence (approval workflow)

15 Brief Description of the Macroeconomic and Competitive Environment NBS Building

16 7. Brief Description of the Macroeconomic and Competitive Environment The year brought about the fastest economic growth to Slovakia since The performance of the Slovak economy gradually increased during the individual quarters of last year. In the fourth quarter, the growth rate reached a level of 4.3 % year-on-year. The situation in the labor market developed hand-in-hand with the stronger economic growth, with the unemployment rate declining closer to 10 %. We witnessed a decrease in consumer prices throughout the year, as the inflation rate went negative in the individual months, thanks to which real wages grew. The annual growth in Slovakia s GDP at the level of 3.6 % was primarily driven by domestic demand last year. The traditional driving force represented by foreign trade did not drive our economy as strongly as we were used to. The formation of gross fixed capital, that is, investments, which grew at a fast pace, largely contributed to an increase in domestic demand. This was related to the utilization of EU funds remaining in the program period that was coming to an end. Foreign demand remains subject to pressure owing to uncertain developments in China, which is among the main trading partners of Germany. Germany, in turn, is the most important trading partner of Slovakia. The largest European economy has been struggling with an enormous refugee crisis since last year, but the Dieselgate affair has caused quite a lot of commotion as well. Foreign trade as such continued to be influenced by continued geopolitical tensions, among others, between Russia and Ukraine. The inflation rate reached an average level of -0.3 % according to both the national consumer price index (CPI) and the harmonized consumer price index (HICP) in. According to the national CPI index, the largest increase in prices, by 2.3 %, was recorded in the area of education. On the other hand, a drop in prices, by as much as 6.2 % year-on-year, was seen in transport owing to a significant fall in the prices of crude oil. However, foodstuffs and housing are the most expensive items of family budgets of Slovaks. We had a reason to rejoice in this regard. Although the prices of foodstuffs moderately grew year-on-year over several months, they were still cheaper by 0.3 % when calculated for the whole year. We paid 1 percent less for housing in compared to. This caused the dollar to become stronger and the euro again moved slightly lower. It ended the last day of the past year at the level of EUR EUR/USD. As is standard, the currencies in our region copy the development of the euro. During the past year, the euro weakened against the Hungarian forint, the Polish zloty, and the Czech koruna. The Czech central bank (ČNB) continues intervening against the latter with the aim of weakening it. As of 31 December, a total of 13 banks having their registered offices in the territory of the Slovak Republic (including two banks without foreign capital participation and 11 banks with foreign capital participation), 14 branches of foreign banks, and one central bank were in operation in the Slovak banking sector. This means that the total number of banks decreased at the end of, compared to, as the number of branches of foreign banks decreased by one. Over the course of the same year, the number of branches and other organizational units in the banking sector increased by 14 to 1,291. By the end of, 19,953 employees were working in the Slovak banking sector, which was 1.4 % more than at the end of. According to preliminary results, total assets recorded in the banking sector amounted to EUR 67.4 billion last year. Deposits from citizens presented at the end of amounted to EUR 29.2 billion, growing by 8.5 % year-onyear. Loans to citizens increased by 12.7 %, to EUR 24.8 billion, compared to. According to preliminary data, the banking sector generated a net profit of EUR 626 million, which represents an increase of as much as 13.1 % compared to. The lines of the unemployed at labor offices became shorter during, with the registered unemployment rate decreasing from % in January to % in December, which translated at the end of the year into more than 286,000 unemployed ready to immediately take up a job. However, the total number of unemployed was more than 334,000. This means that the revival of economic growth was translated into the creation of new jobs. In the past, state financial management was better than planned, and the annual deficit of the state budget was lower by as much as 35 % than had been assumed when the budget was drawn up. The state budget closed the year with a deficit of EUR 1.93 billion, with the annual deficit decreasing by as much as 34 % year-on-year. The state budget income saw an increase by 30 % year-on-year, but expenditures rose as well, by 17.8 %. The stagnating economy of the euro zone and the failure to meet the inflation target of the European Central Bank (ECB) resulted in the prime interest rate in the euro zone remaining at a technical zero throughout the year. In an effort to move inflation closer to the required limit, just below 2 %, the ECB launched a program of quantitative easing in March, within which it buys selected bonds in the amount of EUR 60 billion per month. The program continues to run at the present time and is likely to be modified soon. An increase in the amount of purchased bonds may also come into consideration. The euro exchange rate against the dollar fluctuated during the course of, but, in summary, the euro lost more than one-tenth of its value. During the first days of last year, it traded at around EUR /USD. However, it plummeted to below EUR /USD during the first three months, which resulted in more and more discussions about parity with the dollar. Though, the euro managed to bounce back from these amounts and more or less oscillated around EUR EUR/USD until October. Nevertheless, at the end of the year, the US Federal Reserve System increased its interest rates for the first time after almost a decade, also to demonstrate the strength of the US economy

17 Report on Business Activities and Property Situation in Eurovea

18 8. Report on Business Activities and Property Situation in The year was successful for the Poštová banka Group in terms of business, which is testified to by a profit after tax of 48.9 million euros, representing an increase of 11.2 % compared to. The positive financial result was primarily driven by a more effective functioning of the Group, in addition to lower overall risk costs of the Group and a reduction in the mandatory special levy. The Group also recorded a year-on-year growth in net revenue from fees and commissions, namely by 53.6 %, to 27.4 million euros. This positive development was primarily influenced by a reduction in a special levy for selected financial institutions and a decrease in the payment to the Deposit Protection Fund. The increased effectiveness of the Group functioning and the optimization of it operating expenses were reflected in a decrease in general operating expenses by 7.8 % to 83.3 million euros. The Group includes Prvá penzijná správcovská spoločnosť Poštovej banky [First Pension Management Company of Poštová banka], which successfully continues selling participating certificates of real estate funds. The company administered assets amounting to 748 million euros in its funds, reaching a market share of 10.8 %. At the same time, it received an award in the Gold Coin [Zlatá minca] competition, where it took second place in the Real Estate Funds category with the fund NÁŠ PRVÝ REALITNÝ o.p.f. [Our First Real Estate Fund]. In cooperation with the bank, it introduced the Good Saving Investment [Dobré sporenie Investícia] product as an attractive combination of saving and investing in mutual funds. Insurance activities are provided by Poštová poisťovňa, a. s. [Postal Insurance Company]. Main activities of the company PB Finančné služby, a. s. [PB Financial Services] consist of the provision of financial and operational leasing and factoring. Intermediary activities are provided by the subsidiary PB PARTNER, a. s. Real estate management and registry services are carried out by the company POBA Servis, a. s. The main activity of Dôchodková správcovská spoločnosť Poštovej banky [Pension Management Company of Poštová banka] is management of pension funds (second [private] pillar). The subsidiary PB IT, a. s. provides computer services, IT operation, and project management in the area of information technology. At the end of the year, the balance sheet amount of the Group reached 4.2 billion euros, thus maintaining its stable level from the end of the previous year. Financial parameters that influenced the amount of the financial result of the Group are described in detail in the Notes to the Consolidated Annual Financial Statements. ASSETS The largest part of assets of the Group consisted of loans, receivables from clients, and investment securities. Loans and receivables from clients decreased by 6.6 % compared to, reaching a net value of 2,134 million euros (after taking the created value adjustments into consideration) and representing 51.1 % of total Group assets. Consumer loans provided (principal) amounted to million euros, of which the Dobrá pôžička (Good Loan) product accounted for million euros and Lepšia splátka (Better Installment) amounted to million euros. The amount of consumer loans rose by 1.5 % year-on-year. As of 31 December, the Group had in its portfolio investment securities in the amount of 1,326.3 million euros (including coupon and accruals). The share of investment securities in total assets of the Group was 31.7 %. From the total volume of securities, government bonds represent 1,037.4 million euros, other bonds 92.1 million euros; and shares, participating certificates and other ownership interests million euros. In, accounts in banks of issue and other banks represented 12.9 % of total assets with a value of million euros. According to the IFRS, these assets are primarily presented as part of cash equivalents. Over the course of, the Group deposited the required minimum reserves in the National Bank of Slovakia in compliance with prudent banking rules. By the end of, the volume of the required minimum reserves represented million euros. The Group deposited its temporarily available funds in banks of issue in the form of loans and short-term deposits. As of 31 December, term deposits in the Czech National Bank (ČNB) amounted to million euros. At the end of, deposits in other banks for the entire Group amounted to 98.8 million euros, including euro deposits in the amount of 94.6 million euros and foreign currency deposits of 4.2 million euros. Cash assets amounted to 21.9 million euros as of 31 December, including 20.4 million euros in the euro currency and 1.5 million euros in foreign currency. The share of tangible and intangible assets in total assets represents 1.1 % (47.2 million euros) as of 31 December. EQUITY AND LIABILITIES Primary resources from clients amounted to 3,507 million euros as of 31 December, accounting for 83.9 % of the balance sheet amount. Balances of term deposits form the largest part of primary resources of the Group, with the largest growth being achieved by deposits in passbooks, whose volume increased year-on-year by million euros (principal) to million euros (principal) at the end of the year, representing a 20 % growth. Funds in personal accounts reached the amount of million eurs (principal), growing year-onyear by 15.8 %. More than 46,000 new personal accounts were established in. Secondary resources (accounts of banks of issue and other banks) amounted to 3.9 million euros as of 31 December. As of 31 December, equity of the Group amounted to 605 million euros, growing by 34.9 million euros compared to the previous year. Share capital of the Group amounts to million euros, funds created from profit account for 35.9 million euros, retained earnings from previous years are at million euros, and the financial result of the current year totals 48.9 million euros. SELECTED INDICATORS The development of selected qualitative indicators is documented in the table below. Indicator Actual figures as of 31 December Actual figures as of 31 December Loans (net)/assets 51.1 % 54.3 % Financial institutions + central banks /Assets 12.9 % 8.1 % Government bonds/assets 24.8 % 27.2 % ROA 1.2 % 1.1 % ROE 8.1 % 7.7 % Central banks: NBS National bank of Slovakia, ČNB Czech National Bank ROA Return on assets (year-end balance) ROE Return on equity (year-end balance) 34 35

19 Consolidated financial statements SNP Bridge

20 9. Consolidated financial statements Prepared in accordance with International Financial Reporting Standards as adopted by the European Union (English Translation) Year ended 31 December Consolidated statement of financial position As at 31 December Assets Notes Cash and deposits at central banks 7 570, ,894 Trading assets 8 2,106 2,370 Hedging derivatives 8 1,242 Loans and advances to banks 9 2,482 1,806 Loans and advances 10 2,134,022 2,283,715 Investment securities 11 1,326,283 1,416,783 Investment in joint ventures Property and equipment 13 20,098 21,620 Intangible assets 14 27,157 29,152 Deferred tax asset 15 14,273 21,834 Tax receivable 16 4, Other assets 17 77,557 63,950 4,180,553 4,208,433 Liabilities Notes Trading liabilities Hedging derivatives Deposits by banks 18 3,930 13,475 Customer accounts 19 3,506,955 3,557,002 Received loans 20 6,820 5,051 Provisions for off-balance sheet liabilities 21 1, Provisions for insurance contracts 22 11,097 8,805 Deferred tax liability Tax liabilities ,779 Other liabilities 24 35,217 29,117 Subordinated debt 25 8,013 8,013 3,575,545 3,638,346 Equity Notes Share capital , ,305 Share premium Reserves and retained earnings , ,899 Equity shareholders 601, ,942 Non-controlling interests 3, , ,087 4,180,553 4,208,433 These consolidated financial statements, which include the notes on pages 45 to 133, were approved by the Board of Directors on 24 March Chairman of the Board of Directors Member of the Board of Directors 38 Andrej Zaťko Slavomír Varcholík 39

21 Consolidated income statement Year ended 31 December Consolidated statement of profit or loss and other comprehensive income Year ended 31 December Notes Notes Interest income , ,255 Interest expense 31 (41,168) (47,782) Net interest income 190, ,473 Fee and commission income 32 62,548 56,619 Fee and commission expense 33 (35,167) (38,791) Net fee and commission income 27,381 17,828 Net trading income 34 6,656 11,226 Net other (loss) /income* 35 3,871 (3,634) Net earned premium 36 11,194 10,186 Net non-interest income 49,102 35,606 Operating income 239, ,079 Administrative expenses* 37 (83,314) (90,398) Depreciation and amortisation 38 (10,635) (8,938) Claim costs 39 (4,073) (3,307) Operating expenses (98,022) (102,643) Operating profit before impairment losses and provisions 141, ,436 Impairment losses on investment securities 11 (5) Impairment losses on receivables 10 (67,680) (79,724) Impairment losses on tangible assets 13 (686) (Creation)/(release) of impairment losses on intangible assets (424) Impairment losses on other assets 17 (698) (29) Profit for the year 48,898 43,998 Other comprehensive income Change in fair value of available-for-sale financial assets: Items that may be reclassified to profit or loss in the future from available-for-sale securities Reclassification of revaluation differences from securities available-for-sale to profit or loss Influence of change in fair value of hedged financial instruments 4,032 (10,760) 7,633 13,908 1,130 Income tax on other comprehensive income 41 (2,813) (692) 9,982 2,456 Translation difference from foreign operations 361 (172) Other comprehensive income after tax 10,343 2,284 Total comprehensive income for the year 59,241 46,272 Attributable to: Shareholders of the Bank 59,020 46,208 Non-controlling interest ,241 46,272 Net profit for the accounting period (in ) 48,898 43,988 Number of issued shares 330, ,899 Earnings per share (in EUR) The notes on pages 45 to 133 are an integral part of these consolidated financial statements. Creation of provisions for off-balance sheet liabilities 21 (1,894) (14) Share on profit in joint venture Profit before taxation 71,049 64,240 Income tax 41 (22,151) (20,252) Profit after taxation 48,898 43,988 Attributable to: Shareholders of the Bank 48,728 43,924 Non-controlling interests * Specific information are described in point 3 (y) The notes on pages 45 to 133 are an integral part of these consolidated financial statements

22 Consolidated statement of changes in equity Year ended 31 December Consolidated statement of changes in equity Year ended 31 December Notes Share capital Share premium Revaluation reserve Legal reserve fund Retained earnings Translation reserve Non-controlling interests Total Notes Share capital Share premium Revaluation reserve Legal reserve fund Retained earnings Translation reserve Non-controlling interests Total As at 1 January 366, ,129 31, ,302 (955) ,087 As at 1 January 306, ,673 24, ,389 (783) 463,791 Total comprehensive income for the year Profit for 28 48, ,898 Other comprehensive income Net change in fair value of available-for-sale financial assets, net of tax Translation difference from foreign operations 28 9, , Total comprehensive income for the year Profit for 28 43, ,988 Other comprehensive income Net change in fair value of available-for-sale financial assets, net of tax Translation difference from foreign operations 28 2,456 2, (172) (172) Total comprehensive income for the year 9,931 48, ,241 Total comprehensive income for the year 2,456 43,924 (172) 64 46,272 Transaction with owners, recorded directly in equity Transaction with owners, recorded directly in equity Transfer to legal reserve fund 28 4,544 (4,544) Transfer to legal reserve fund 7,011 (7,011) Dividends to shareholders (30,117) (30,117) Increase in share capital 28 60,000 60,000 Sale of shares in subsidiary 28 3,046 3,046 Sale of subsidiary 28 2,903 (107) 2,796 Other 28 (20) (25) (45) Non-controlling interests on net assets of subsidiary Other transactions related to share issue (57) (57) Total transactions with owners 4,524 (31,783) 2,939 (24,320) Total transactions with owners 60,000 (57) 7,011 (7,011) 81 60,024 At 31 December 366, ,060 35, ,247 (594) 3, ,008 At 31 December 366, ,129 31, ,302 (955) ,087 The notes on pages 45 to 133 are an integral part of these consolidated financial statements. The notes on pages 45 to 133 are an integral part of these consolidated financial statements

23 Consolidated statement of cash flows Year ended 31 December Cash flows from operating activities Notes Profit before changes in operating assets and liabilities , ,163 Decrease in trading assets 264 8,124 Increase in hedging derivatives (930) Decrease/(increase) in compulsory minimum reserves (204,163) 193,611 (Increase) in loans and advances to banks (676) (1,399) (Increase)/decrease in loans and advances 82,013 (487,960) Change from revaluation of financial investments (12,795) Decrease/(increase) in other assets (14,305) 2,592 (Decrease)/increase in trading liabilities 46 (1,413) Increase/(decrease) in deposits by banks (9,545) 5,846 (Decrease)/increase in customer accounts (50,047) 289,194 Increase in other liabilities 6,237 1,210 Income tax paid (36,829) (5,105) Net cash flow from operating activities (71,148) 162,863 Cash flows from investing activities Purchase of property and equipment (4,075) (6,698) Proceeds from sale of property and equipment and intangible assets Purchase of intangible assets (5,102) (6,468) Sales of investment securities 104, ,560 Sale/(Acquisition) of subsidiary 6 2,720 (2,000) Net cash from investing activities 99,128 96,092 Cash flows from financing activities Dividends paid to shareholders (30,109) Loans received 1,796 Increase of share capital in the bank 60,000 Other transactions related to share issue (57) Repayment of loans (50,727) Net cash from/(used in) financing activities (28,340) 9,216 Net increase/(decrease) in cash and cash equivalents (360) 268,171 Cash and cash equivalents at the beginning of year 336,737 68,566 Cash and cash equivalents at the end of year 7 336, ,737 The notes on pages 45 to 133 are an integral part of these consolidated financial statements. Notes to the consolidated financial statements Year ended 31 December 1. General information Poštová banka, a. s. ( the Bank ) was incorporated in the Commercial Register on 31 December 1992 and commenced activities on 1 January The registered office of the Bank is Dvořákovo nábrežie 4, Bratislava. The Bank s identification ( IČO ), tax ( DIČ ) and value added tax ( IČ DPH ) numbers are as follows: IČO: DIČ: IČ DPH: SK The Bank is registered as VAT member of Poštová banka Group. Principal activities The principal activities of the Group are as follows: Accepting and providing deposits in euro and in foreign currencies; Providing loans and guarantees in euro and foreign currencies; Providing other retail banking services to the public; Providing services on the capital market; Providing investment management services; Providing life and general insurance services; Providing leasing, rentals and factoring services. The Bank operates through 45 branches located in Banská Bystrica, Bánovce nad Bebravou, Bardejov, Bratislava, Brezno, Dubnica nad Váhom, Dunajská Streda, Humenné, Komárno, Košice, Levice, Lučenec, Malacky, Martin, Michalovce, Nitra, Nové Mesto nad Váhom, Nové Zámky, Pezinok, Poprad, Prešov, Prievidza, Rožňava, Sečovce, Skalica, Spišská Nová Ves, Topoľčany,Trebišov, Trenčín, Trnava, Vranov nad Topľou, Zvolen, Žiar nad Hronom and Žilina. In addition, under an agreement with Slovenská pošta, the Bank sells its products and services through 1,540 post offices and selected bank services through 43 offices of Pošta-Partner, located throughout the country. The Bank extended its activities to the Czech Republic in Poštová banka, a. s. pobočka Česká republika ( the Branch ) was registered in the Commercial Register of the Czech Republic on 18 November The Branch commenced its activities on 1 March At 31 December, the Bank had the following subsidiaries and jointly controlled entity: Activity Share % Dôchodková správcovská spoločnosť Poštovej banky, d. s. s., a. s. Management of pension funds 100 PB Finančné služby, a. s. Financial and operational leasing and factoring 100 PB IT, a. s. IT services 100 PB PARTNER, a..s. Financial intermediary 100 POBA Servis, a. s. Real estate administration 100 Poštová poisťovňa, a. s. Insurance 80 PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. Asset management 100 Jointly controlled entity: SPPS, a. s. Payment services 40 All entities are resident in the Slovak Republic. The Bank acts as a founder of the following non-profit oriented organisation as at 31 December : NADÁCIA POŠTOVEJ BANKY Charitable foundation 100 % The Foundation is not included in the consolidated financial statements of Poštová banka, a.s

24 Shareholders of the Bank at 31 December Members of the Supervisory Board Name Address Total numbers of shares Share capital ownership in % Mario Hoffmann Jozef Salaj chairman board member J&T FINANCE GROUP SE Ministerstvo dopravy, výstavby a regionálneho rozvoja SR Pobřežní 297/14, Prague, Czech Republic Námestie slobody 6, Bratislava, Slovak Republic 213, Vladimír Ohlídal Jozef Tkáč Tomáš Drucker board member board member board member PBI, a.s. Slovenská pošta, a.s. UNIQA Versicherungen AG Pobřežní 297/14, Prague, Czech Republic Partizánska cesta 9, Banská Bystrica, Slovak Republic Untere Donaustrasse 21, 1029 Wien, Austria 112, , The consolidated financial statements of the Group for the preceding accounting period, the year ended 31 December, were approved on 28 April by the Board of Directors. The Group s financial statements are included in the consolidated financial statements of J&T FINANCE GROUP SE, Pobřežní 297/14, Praha, Czech Republic. 330, The consolidated financial statements are available at the registered office of J&T FINANCE GROUP SE. All shares are ordinary held in a dematerialized form and are registered. The nominal value of a share is Eur 1,107 (in : Eur 1,107). Shareholders of the Bank at 31 December 2. Basis of preparation of the consolidated financial statements (a) Statement of compliance Name Address Total numbers of shares Share capital ownership in % The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union. ISTROKAPITAL SE J&T BANKA, a.s Klimentos Street, 1061 Nicosia, Cyprus Pobřežní 297/14, Prague, Czech Republic 27, , These financial statements are prepared as consolidated financial statements under Section 22 of the Slovak Act on Accounting 431/2002, as amended. (b) Basis of preparation of financial statements J&T FINANCE GROUP SE Ministerstvo dopravy, výstavby a regionálneho rozvoja SR Slovenská pošta, a.s. Pobřežní 297/14, Prague, Czech Republic Námestie slobody 6, Bratislava, Slovak Republic Partizánska cesta 9, Banská Bystrica, Slovak Republic 174, , These financial statements have been prepared on the historical cost basis except for the following that are measured at fair value: derivative financial instruments are measured at fair value; financial instruments at fair value through profit or loss are measured at fair value; available-for-sale financial assets are measured at fair value. UNIQA Versicherungen AG Untere Donaustrasse 21, 1029 Wien, Austria (c) Going concern assumption 330, On 27 March, 10,473 shares representing 3.16 % of the total amount of shares were transferred between J&T FINANCE GROUP SE and J&T BANKA, a.s. The company ISTROKAPITAL SE sold shares which represent 8.45 % of the total amount of shares to J&T FINANCE GROUP SE on 28 December. A transfer of shares between J&T BANKA, a.s. and PBI, a.s. (part of J&T FINANCE GROUP SE) representing 34 % of the total amount of shares was made on 23 December. The financial statements were prepared using the going concern assumption that the Group will continue in operation for the foreseeable future. (d) Functional and presentation currency These financial statements are presented in euro ( ), which is the Group s functional currency. Except as otherwise indicated, financial information presented in euro thousands and has been rounded, except when stated differently. Members of the Board of Directors (e) Use of estimates and judgements Andrej Zaťko chairman (from 12 August ) Marek Tarda chairman (till 12 August ) Daniela Pápaiová board member Ján Nosko board member Slavomír Varcholík board member (from 12 January ) The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Peter Hajko board member (from 3 December ) Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial Peter Krištofovič board member (till 19 March ) statements is provided in notes 3 and

25 3. Significant accounting policies The accounting policies set out below have been applied consistently in all periods presented in these consolidated financial statements. These consolidated financial statements does not include reporting according segments due the reason, that the Bank does not fullfil the criteria in accordance of requirements of IFRS 8 Operating segments for reporting of details of segment reporting. (a) Basis for consolidation The consolidated financial statements comprise the financial statements of the Bank, its subsidiaries and jointly controlled companies (refer to Note 1) for the year ended 31 December. Since 1 January IFRS 12 Disclosure of Interests in Other Entities is effective. The standard requires additional disclosure about significant judgments and assumptions which are used to define character of investments in the company or an agreement, investments in subsidiaries, joint-agreements and affiliates and in non-consolidated structured units. Based on the analysis performed by management, the Group does not have any interest in consolidated structured entities, nor in unconsolidated structured entities. Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. (i) Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. (iv) Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other component of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when the control is lost. (v) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (vi) Method of consolidation The Bank has assessed the shares and control of a subsidiary with respect to IFRS 10 and IFRS 12. Subsidiaries are consolidated using the full consolidation method. The joint venture SPPS, a.s., is in accordance of IFRS 11 consolidated using the equity method. Name of subsidiary Shares in % Method of consolidation Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a.s. 100 % Full consolidation PB Finančné služby, a.s. 100 % Full consolidation PB IT, a.s. 100 % Full consolidation PB PARTNER, a.s. 100 % Full consolidation POBA Servis, a.s. 100 % Full consolidation Poštová poisťovňa, a.s. 80 % Full consolidation PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. 100 % Full consolidation SPPS, a. s. 40 % Equity method The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree s employees (acquiree s awards), then all or a portion of the amount of the acquirer s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree s awards and the extent to which the replacement awards relate to pre-combination service. (ii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. In, the Bank sold 20 % shares in Poštová poisťovňa, a.s. to Slovenská pošta, a.s. A subsidiary of Poštová banka, a.s., PB Partner, a.s. sold its 100 % share in the company Salve Finance, a.s. (see point 6) (b) Foreign currency (i) Foreign currency transactions Transactions denominated in foreign currencies are translated into euro at the exchange rates valid on the date of the transaction. Monetary assets and liabilities are translated at the rates of exchange valid at the balance sheet date. All resulting gains and losses are recorded in Net trading income in profit or loss. (ii) Foreign operations The assets and liabilities of foreign operations are translated to euro at spot exchange rates at the balance sheet date. The income and expenses of foreign operations are translated to euro at spot exchange rates on the date of the transactions. Exchange rate differences on the translation of foreign operations are recognised in other comprehensive income. Foreign exchange rate gains or losses arising from monetary items of receivables or payables of foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognised in other comprehensive income in the translation reserve. (iii) Non-controlling interests (NCI) NCI are measured at their proportionate share of the acquiree s identifiable net assets at the date of acquisition. Changes in the Group s interest in a subsidiary that do not result in a loss of control are 48 accounted for as equity transactions. 49

26 (c) Interest income and expense Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. The effective interest rate is determined on initial recognition of the financial asset and liability and is not revised subsequently. The calculation of the effective interest rate includes all fees paid or received, transaction costs and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or retirement of a financial asset or liability. Interest income and expense from financial assets and liabilities through profit or loss are presented as part of Interest income and expense, and changes in the fair values of such instruments are presented at fair value in Net trading income. Interest income and expense in the income statement include: Interest on financial assets and liabilities at amortised cost calculated on an effective interest basis; Interest on investment securities and trading securities calculated on an effective interest basis; Interest income on assigned receivables is recognised when received. (d) Fees and commissions Fees and commission income and expenses that are integral to the effective interest rate of a financial asset or liability, are included in the calculation of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised when the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and commissions relate mainly to transaction costs and service fees, which are recognised as the services are received. (e) Net trading income Net trading income comprises gains and losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes and foreign exchange rate differences. (f) Dividends Dividend income is recognised when the right to receive income is established. (g) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. (h) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except for items recognised directly in equity, or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (i) Financial assets and liabilities (i) Recognition The Group initially recognises loans and advances, deposits by banks, customer accounts, loans received and debt securities on the date they are originated. All purchases and sales of securities are recognised on the settlement day. Derivative instruments are initially recognised on the trade date, at which the Group becomes a party to the contractual provisions of the instrument. A financial asset or financial liability is measured initially at fair value plus transaction costs that are directly attributable to its acquisition or issue (for items that are not valued at fair value through profit or loss). (ii) Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all 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 derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. The Group also derecognises certain assets when it writes off assets deemed to be uncollectible. (iii) Offsetting Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Right to offset financial assets and financial liabilities are applicable only if it is not contingent on a future event and is enforceable by all counterparties in the normal course of business, as well as in the event of insolvency and bankruptcy. Compensation refers mainly to supplier-customer relations, accounted for only based on supported evidence of offsetting

27 Income and expenses are presented on a net basis only when permitted by the reporting standards, or for gains and losses arising from a group of similar transactions such as in the Bank s trading activity. (iv) Amortised cost measurement The amortised 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 amortisation, using the effective interest method, of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. (v) Fair value measurement IFRS 13 Fair Value Measurement was adopted by the EU on 11 December 2012 (effective for reporting periods starting on or after 1 January 2013). It does not change when an entity should use fair value, but rather prescribes how the entity, under this standard, should use fair value in situations when it is necessary or possible to use fair value. The application of this standard has no impact on the financial situation of profit or loss of the Group. The definition of the Fair Value according to IFRS 13 reads as follows: 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. The determination of the fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded on active markets. For all other financial instruments, fair value is determined by using valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market-observable prices exist and valuation models. The Group uses widely recognised valuation models for determining the fair value of the more common financial instruments like options and interest rate and currency swaps. For these financial instruments, inputs into models are taken from market. A fair value hierarchy is monitored in relation to the valuation of quoted market prices, the valuation models with input data directly from the market, and input data that cannot be observed on the market. book value of the financial asset and the present value of estimated future cash flows discounted at the asset s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss. Impairment losses on available-for-sale investment securities are recognised by transferring the difference between the amortised acquisition cost and current fair value that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. When a subsequent event causes the amount of impairment loss on an available-for-sale debt security to decrease, the impairment loss is reversed through profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. Changes in impairment losses attributable to time value are reflected as a component of Net interest income. (j) Cash and cash equivalents Cash and cash equivalents comprises cash, unrestricted balances held with the National Bank of Slovakia and highly liquid financial assets with original maturities of less than three months, which are subject to an insignificant risk of changes in their fair value and are used by the Group in the management of short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position. (k) Trading assets and liabilities Trading assets and liabilities are those assets and liabilities that the Group acquired or incured principally for the purpose of selling or repurchasing in the near term, or held as part of a portfolio that is managed together with achieving short-term profit or maintaining position. (vi) Identification and measurement of impairment At each end of a reporting period, the Group assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows of the asset that can be reliably estimated. The Group considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed individually for impairment. Assets that are not individually significant are also collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. Objective evidence that financial assets (including investment securities) are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as a deterioration in economic conditions or adverse changes in the payment status of borrowers or issuers in that group. In assessing collective impairment, the Group uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lower than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly compared to actual outcomes to ensure that they remain appropriate. Impairment losses on assets carried at amortised cost are calculated as the difference between the Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position with transaction costs taken directly to profit or loss. All changes in fair value are recognised as part of Net trading income in the income statement. Trading assets and liabilities are not reclassified subsequent to their initial recognition except that non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition may be reclassified out of the fair value through profit or loss category if they are no longer held for the purpose of being sold or repurchased in the near term and the following conditions are met: If the financial asset would have met the definition of loans and receivables, and it had not been required to be classified as held for trading at initial recognition, then it may be reclassified if the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If the financial asset would not have met the definition of loans and receivables, then it may be reclassified out of the trading category only in rare circumstances (l) Derivatives held for risk management purposes Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value in the statement of financial position. The treatment of changes in their fair value depends on their classification into the following categories: Hedging derivatives Under the bank strategy hedging derivatives are designed to secure and manage selected risks and fullfil all requirements of IAS 39 standard.

28 Main bank criteria for classification of hedging derivatives are as follows: relationship between hedging and hedged instrument, in meaning of risk characteristics, function, target and strategy of hedging are formally documented at origination of the transaction, together with method, which is used for assessment of effectiveness of hedging relationship; relationship between hedging and hedged instrument is formally documented at the origination of the hedging transaction and bank expects that it will decrease the risk of hedged instrument; during the term of the hedging relationship the hedging is highly effective. Bank considers hedging as highly effective, if the changes in fair value relating to the hedged risk during the period covered compensate changes in the fair value of the hedging instrument in the range of 80 % to 125 %. The effectiveness of any hedging relationship is assessed prospectively and retrospectively. (i) Fair value hedge The Bank uses financial derivatives to manage the level of risk in relation to interest rate risk. The Bank uses hedging derivatives to hedge the fair value of recognized assets (bonds with fixed income denominated in euros). As the purchase of assets bonds with fixed income increased the interest rate risk of the Bank, the Bank entered into interest rate swaps to hedge the changes in fair value caused by changes in risk-free interest rates, and pays a fixed and receives a floating rate. Nominal and fair value of the aforementioned hedging derivatives are described in Note 8. Changes in the fair value without interest component (clean price) of hedging instruments are presented in the consolidated income statement line as Net trading income. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognised in profit or loss as Net trading income. Interest expense and interest income from the hedging instruments are presented together with interest income and expense items in consolidated income statement under Net interest income. Positive value of hedging instruments is recognized in consolidated statement of financial position as an asset Hedging derivatives. Negative value of hedging instruments is recognized as a liability Hedging derivatives. Summary of hedging derivatives is presented in Note 8. If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for fair value hedge accounting, or the designation is revoked, hedge accounting is discontinued. Any adjustment up to that point to a hedged item for which the effective interest method is used is amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life. (iii) Other non-trading derivatives When a derivative is not held for trading and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profit or loss as a component of net income from financial operations. (iv) Embedded derivatives Derivatives may be embedded in another contractual arrangement (a host contract ). The Bank accounts for embedded derivatives separately from the host contract when the host contract is not itself carried at fair value through profit or loss and the characteristics of the embedded derivative are not clearly and closely related to the host contract. Separated embedded derivatives are accounted for depending on their classification and are presented in the statement of financial position together with the host contract. (m) Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the near term. When the Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of an asset to the lessee, the agreement is presented within receivables. When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date ( reverse repo or stock borrowing ), the agreement is accounted for as a loan or advance, and the underlying asset is not recognised in the Group s financial statements. Loans and advances are initially measured at fair value plus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method. (n) Debt securities included in portfolio of loans and receivables Debt securities included in portfolio of loans and receivables are non-derivative financial assets with fixed or determinable payments that are not listed at an active market other than: the debt securities held with intention to sell immediately or in short time and the debt securities the entity defines as valued at fair value through profit or loss at initial recognition; the debt securities the entity classified as available for sale at initial recognition. (ii) Cash flow hedge When a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same income statement line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the derivative expires or is sold, terminated or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount previously recognised in other comprehensive income and presented in the hedging reserve remains there until the forecast transaction affects profit or loss. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in other comprehensive income is recognised immediately in profit or loss. Such securities are measured at their amortized cost. (o) Investment securities Investment securities are initially measured at fair value plus incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity or available-for-sale. (i) Held-to-maturity Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity and which are not designated at fair value through profit or loss or available-for-sale. Held-to-maturity investments are carried at amortised cost using the effective interest method. Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity, except for sales or reclassifications in accordance with IAS 39.9, would result in the reclassification of all held-to-maturity investments as available-for-sale and prevent the Group from classifying investments securities as investments held-to-maturity for the current and the following 54 two financial years. 55

29 If as a result of changes in intent or ability it is no longer appropriate to classify an investment as held to maturity, such investment is reclassified to the available for sale category and carried at fair value in accordance with paragraphs of IAS 39. Based on an assessment and analysis performed, the Bank will decide whether there are reasons for reclassification of the whole Held-to-maturity portfolio to Available-for-sale portfolio. (ii) Available-for-sale Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Available-for-sale investments are carried at fair value. Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Group becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss. Fair value changes are recognised in other comprehensive income and presented in the revaluation reserve in equity until the investment is sold or impaired and the cumulative gain or loss is then recognised in profit or loss. (p) Property, equipment and intangible assets (i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. 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 capitalised as part of the cost of that equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property. (ii) Subsequent costs The cost of replacing part of an item of property is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be reliably measured. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows: The estimated useful lives for the current and comparative periods are as follows: Buildings Furniture, fittings and equipment Motor vehicles Software 40 years, straight line 4 to 15 years, straight line 4 years, straight line 4 to 7 years, straight line (q) Intangible assets Software Software is carried at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight line basis over the estimated useful life of the software, which is reassessed on yearly basis. Goodwill Goodwill arising on a business combination is measured as the excess of the cost of the acquisition of the subsidiary over the interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is recognised in the statement of financial position in Intangible assets. Goodwill is stated at cost less accumulated impairment losses. Amortisation is not charged. Instead, goodwill is reviewed at each reporting date for impairment and an impairment loss is recognised in profit or loss when the carrying amount of goodwill exceeds its recoverable value. Value of business acquired (VOBA) Expected rights and obligations arising from agreements on pension saving funds ( PSF ) acquired in business combinations are measured at fair value at the time of acquisition. The difference between the fair value of acquired rights and obligations under those agreements and the value of intangible assets measured in accordance with accounting principles applicable to the Group (deferred transaction costs) are capitalized as intangible assets (present value of the acquired portfolio of active contracts VOBA). VOBA is amortized on a straight line basis over the life of the contracts acquired. The present value of an active portfolio of contracts is subject to assessment for impairment test as at the date of the financial statements. The fair value of the rights and obligations arising from PSF contracts acquired is defined as the present value of net future cash flows over the remaining life of the acquired contracts. Estimates of the best conditions for cancellations, costs, fees and mortality adjusted for appropriate risk premium are used for calculating the present value of the acquired portfolio of active contracts. (r) Assets acquired through finance lease contracts Leases under which the Group assumes substantially all the risks and rewards of ownership, are classified as finance leases. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to the initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. All other leases are operating leases and the assets are not recognised on the Group s statement of financial position. (s) Impairment of non-financial assets The carrying amounts of the Group s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Depreciation commences when the asset is put into use. Depreciation methods, useful lives and residual values are reassessed each reporting date. Impairment losses are recognised directly in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis

30 The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (t) Deposits, customer accounts, loans received and subordinated debt Deposits, customer accounts, loans received and subordinated debt are the Group`s sources of debt funding. Deposits, customer accounts, loans received and subordinated debt are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost, including accrued interest, using the effective interest method. When the Group sells a financial asset and simultaneously enters into a repo or stock lending agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Group s financial statements. (u) Provisions A provision is recognised if, as a result of a past event, the Group 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. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. (v) Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they are due. (ii) Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. (iii) Short-term benefits Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be reliably estimated. (w) Insurance and investment contracts Insurance contracts in non-life insurance Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder are classified as insurance contracts. Insurance risk is risk other than financial risk. Financial risk is the risk of a possible future change in interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating, credit index or other variable provided that the variable is not specific to a party to the contract. Insurance contracts may also contain certain financial risk. Contracts under which the transfer of insurance risk from the policyholder to the Group is not significant are classified as investment contracts. Revenue (premium) Gross premium written comprises the amounts of premium arising from insurance contracts due in the accounting period regardless of whether these amounts relate fully or partially to future periods (unearned premium). Premium written includes estimates for premium from insurance contracts with the beginning of insurance coverage in the accounting period, which may not be delivered at the end of the reporting period, and adjustments to estimates of premium written in previous years. Written premium are recognised net of bonuses and similar discounts offered on contract conclusion or renewal. Premium from co-insurance is the proportional part of total premium from the co-insurance contracts due to the Group and is recognised as revenue. The earned proportion of premium is recognised as revenue. Premium are earned from the date of attachment of risk, over the coverage period, based on the pattern of the risks underwritten. Unearned premium provision The provision for unearned premium ( UPR ) comprises the portion of gross premium written which is estimated to be earned in the following or subsequent financial years, computed separately for each insurance contract using the daily pro rata method (365 method), adjusted, if necessary, to reflect any variation in the incidence of risk during the period covered by the contract. Claim costs Claims incurred comprise the settlement and handling costs of paid and outstanding claims arising from events occurring during the financial year together with adjustments to prior and current year claims provisions. Claim costs are decreased by the amount of recourses. Claim provisions Claims outstanding comprise provisions for the estimate of the ultimate cost of settling all claims incurred but unpaid at the end of the reporting period whether reported or not, and related internal and external claims handling expenses and an appropriate prudential margin. Claims outstanding are assessed by reviewing individual claims and making allowance for claims reported but not yet settled ( RBNS ) and claims incurred but not yet reported ( IBNR ), taking into account the effect of both internal and external foreseeable events, such as changes in claims handling procedures, inflation, judicial trends, legislative changes and past experience and trends. When the claim payments are made in the form of annuities, the provision is determined using actuarial methods. Provisions for claims outstanding (excluding annuities) are not discounted. Unexpired risk provision Provision is made for unexpired risks arising from non-life insurance contracts where the expected value of claims and expenses attributable to the unexpired periods of contracts in force at the end of the reporting period exceeds the unearned premiums provision in relation to such policies after the deduction of any deferred acquisition costs. The provision for unexpired risks is calculated 58 59

31 by reference to classes of business which are managed together, after taking into account the future investment return on investments held to back the unearned premiums and unexpired claims provisions. The unexpired risk provision is the result of a liability adequacy test in non-life insurance. Insurance contracts in life insurance Revenue (premiums) Gross premiums written comprise premiums due in the accounting period, estimates for premiums and adjustments to estimates of premiums written in previous years. The earned portion of premiums is recognised as revenue. Premiums are earned from the date of attachment of risk, over the coverage period, based on the pattern of the risks underwritten. Unearned premiums provision The provision for unearned premiums comprises the portion of gross premiums written which is estimated to be earned in the following or subsequent financial years, computed separately for each insurance contract using the daily pro rata method (365 method), adjusted, if necessary, to reflect any variation in the incidence of risk during the period covered by the contract. Claims Claims include maturities, annuities, surrenders and death claims, policyholder bonuses allocated in anticipation of a bonus declaration and claim payments from riders. Maturity and annuity claims are recognised as an expense when due for payment. Surrender claims are recognised when paid together with release of claim provision. Death claims and claims from riders are recognised when notified by creation of RBNS. Claim provisions Claims outstanding comprise provisions for the estimate of the ultimate cost of settling all claims incurred but unpaid at the end of the reporting period, whether reported or not. These represent the claim payments from contracts classified as insurance contracts or investment contracts with discretionary participation feature ( DPF ) and claim payments from related riders. It includes appropriate internal and external expenses related to settlement. Claims outstanding are assessed by reviewing individual claims and making allowance for claims reported but not yet settled ( RBNS ) and claims incurred but not yet reported ( INBR ), taking into account the effect of both internal and external foreseeable events, such as changes in claims handling procedures, inflation, judicial trends, legislative changes and past experience and trends. When the claim payments are made in the form of annuities, the provision is determined using actuarial methods. Provisions for claims outstanding (excluding annuities) are not discounted. (x) Pension saving funds Contracts that are concluded in accordance with the Act on pension saving funds are classified as service contracts under IAS 18 (pension saving funds). These are pension saving funds (hereinafter PSF ) that are concluded by the subsidiary DSS Poštová banka, a.s. with its clients. Deferred acquisition costs of acquisition of PSF contracts Transaction costs related to acquisition of PSF contracts are deferred by the subsidiary. Transaction costs are represented by commissions paid to intermediaries and organizers of the network of PSF brokers. Direct transaction costs are deferred up to the amount of their expected returns from future revenues associated with these contracts. Commissions paid are recognized as deferred transaction costs. If this expense does not meet the requirements of IAS 38 (the likelihood that it will bring economic benefit in the future is low, or it is not directly attributable to a particular PSF contract), it is accounted for as costs in its full amount when it occurs. Deferred transaction costs recognized in the financial statements, are part of the brokerage commissions for PSF contracts paid that are deferred to future periods. Deferred costs of acquisition of PSF contracts are amortized using the straight-line basis over the expected life of the contract. At the termination of the contract a one-time write-off is made. The subsidiary tests deferred transaction costs for impairment on a regular basis (as at the date of the financial statements). (y) Financial information for previous period * In the Group reviewed the presentation of the consolidated financial statements. Based on this review the Group changed the presentation of certain items of income and expenses. Changes in the presentation are in accordance with International Financial Reporting Standards and provide reliable and more relevant information to users of financial statements. Due to changes in the presentation of the financial statements corresponding amounts have been reclassified in the consolidated income statement for the year ended 31 December. Changes in presentation and more detailed information for the prior period are marked with an asterisk * or text after changes. Comparison of the consolidated income statement for the year ended 31 December before and after adjusting the presentation is as follows: Before change Change of presentation After change Life assurance provision The life assurance provision represents the actuarial estimate of the Group s liabilities from traditional life insurance contracts. Life assurance provisions are calculated for each individual policy separately using the prospective Zillmer method, taking into account all guaranteed future benefits, already allocated profit-sharing and future Zillmer premium paid by policyholders. The provision is calculated using the same assumptions as used for the calculation of premiums. Changes in the life assurance provision are recognised in the period the change occurs. Provision for premium deficiency A liability adequacy test is performed as the reporting date. The test is performed by using actual actuarial assumptions (appropriately adjusted to include a risk margin) at the time of the test and the discounted cash flow methodology. If such test indicates that the initially determined life assurance provision is deficient as compared to the result of the liability adequacy test, an additional provision for premium deficiency is created as an expense of the current period. Fees and commission expense (41,205) 2,414 (38,791) Net other income/ (expense) (9,467) 5,833 (3,634) Administrative expenses (82,151) (8,247) (90,398) Total (132,823) (132,823) Other items in the consolidated income statement for the year ended 31 December remain unchanged. (z) New standards and interpretations not yet adopted IFRS 9 Financial Instruments (Effective for annual periods beginning on or after 1 January 2018; to be applied retrospectively with some exemptions. The restatement of prior periods is not required, and is permitted only if information is available without the use of hindsight. Early application is permitted). This standard is not accpeted by European Union yet

32 This Standard replaces IAS 39, Financial Instruments: Recognition and Measurement, except that the IAS 39 exception for a fair value hedge of an interest rate exposure of a portfolio of financial assets or financial liabilities continues to apply, and entities have an accounting policy choice between applying the hedge accounting requirements of IFRS 9 or continuing to apply the existing hedge accounting requirements in IAS 39 for all hedge accounting. A financial asset is measured at amortized cost if the following two conditions are met: the assets is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and, its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. The impairment model in IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss model, which means that a loss event will no longer need to occur before an impairment allowance is recognised. IFRS 9 includes a new general hedge accounting model, which aligns hedge accounting more closely with risk management. The types of hedging relationships fair value, cash flow and foreign operation net investment remain unchanged, but additional judgment will be required. The Group expects that the new Standard IFRS 9, when initially applied, will have a significant impact on the financial statements, since the classification and the measurement of the Group s financial instruments are expected to change. The application of the new Standard IFRS 9 will also, in case of credit risk, have a significant impact on the financial statements, since the creation of impairment allowances in time and amount will change. IFRS 15 Revenue from contracts with customers (Effective for annual periods beginning on or after 1 January Earlier application is permitted.) The new Standard provides a framework that replaces existing revenue recognition guidance in IFRS. Entities will adopt a five-step model to determine when to recognise revenue, and at what amount. The new model specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognised: over time, in a manner that depicts the entity s performance; or at a point in time, when control of the goods or services is transferred to the customer. The Group does not expect that the new Standard, when initially applied, will have material impact on the financial statements. The timing and measurement of the Group s revenues are not expected to change under IFRS 15 because of the nature of the Group s operations and the types of revenues it earns. Amendments to IAS 1 (Effective for annual periods beginning on or after 1 January Early application is permitted.) Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (Effective for annual periods beginning on or after 1 January 2016; to be applied prospectively. Early application is permitted.) These Amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business. Business combination accounting also applies to the acquisition of additional interests in a joint operation while the joint operator retains joint control. The additional interest acquired will be measured at fair value. The previously held interests in the joint operation will not be remeasured. It is expected that the Amendments, when initially applied, will not have a material impact on the Group s financial statements. IFRS 3 Business combinations Amendments to IFRS 3 Business Combinations (and Subsequent amendments to other standards) make it clear that if a contingent consideration is a financial instrument and its classification as a liability or equity should be determined under IAS 32 and not under another standard. It also clarifies that contingent consideration that is classified as an asset or liability has to be valued at fair value at each reporting date of the financial statements. The Bank expects that the amendments will not have a significant impact on the presentation of the financial statements of the Bank when initially applied. 4. Use of estimates and judgements These disclosures supplement the commentary on financial risk management. Key sources of estimation uncertainty Allowances for impairment Assets accounted for at amortised cost are evaluated for impairment on the basis described in accounting policies and accounting methods 3 (i)(vi). The specific counterparty component of the total allowances for impairment applies to receivables evaluated individually for impairment and is based on management s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about the counterparty s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits and the workout strategy and estimate of cash flows considered recoverable. The head of the Risk Management Division is responsible for the assessment of the extent of impairment of individually assessed receivables and for determining the amount of any impairment loss. The Amendments to IAS 1 include the following narrow-focus improvements to the disclosure requirements contained in the standard. The guidance on materiality in IAS 1 has been amended to clarify that: Immaterial information can detract from useful information. Materiality applies to the whole of the financial statements. Materiality applies to each disclosure requirement in an IFRS. The guidance on the order of the notes (including the accounting policies) have been amended, to: Remove language from IAS 1 that has been interpreted as prescribing the order of notes to the financial statements. Clarify that entities have flexibility about where they disclose accounting policies in the financial statements. The Group expects that the amendments, when initially applied, will not have a material impact on The valuation of collateral that is part of the calculation takes into account the conclusions of the professional evaluation performed by the Group s expert valuators. The baseline for the valuation, according to the current methodology of the Group, is the actual Group`s value that reflects the valuation of collateral in case of forced realization achievable on the market (irrespective of the costs relating to acquisition and sale). The Group also takes into account the depreciation of the movable assets (machinery technological devices, vehicles) by discounting with a coefficient of 5 % p.a. for the period from the calculation of the allowance for impairment until the expected date of realization of the collateral. Subsequently, the Group estimates the percentage loss from realization of the collateral as well as the expected date of realization. Collectively assessed impairment allowances cover credit losses inherent in portfolios of receivables with similar economic characteristics when there is objective evidence to suggest that they contain impaired receivables, but the individual impaired items cannot yet be identified. In assessing the 62 the presentation of the financial statements of the Group. need for collective loan loss allowances, management considers factors such as credit quality, 63

33 portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters based on historical experience and current economic conditions. The accuracy of the allowances depends on how well these estimate future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances. The Group creates the collective impairment losses based on the probability of default ( PD ) and loss given default ( LGD ). A change of the LGD parameter by +/- 5 % or +/- 10 %, would result in a change in the allowances for impairment by +/ % (in absolute numbers +/- 6,548 thousand), or +/ % (in absolute numbers +/- 13,096 thousand). Back-testing carried out by the Bank in confirmed the adequacy of LGD settings in loans and debits. PD values are recalculated and recalibrated regularly on monthly basis and they represent changes in impairment losses in particular portfolios. Insurance provisions The Group also uses estimates, assumptions and judgments when determining insurance technical provisions (in particular IBNR provisions and life assurance provisions). A set of assumptions is used when estimating future cash flows arising from the existence of insurance contracts and investment contracts with discretionary participation features ( DPF ). It cannot be assured that actual development will not significantly differ from the development predicted based on assumptions. All assumptions are estimated based on the Group s own experience. All provisions arising from insurance contracts and investment contracts with DPF are subject to a liability adequacy test, in which the carrying amount of technical provisions and liabilities is compared to the present value of future cash flows arising from these contracts. The present value of future liabilities is determined using the best estimate assumptions at the time of the test. Summary of assumptions and margins for assumptions used in the liability adequacy test: Assumption Cancellation rate Assumption category Test as at 31 December Test as at 31 December Margin*) in the first year of insurance 10 % 51 % 10 % 55 % -10 % in the second year of insurance 9 % 49 % 9 % 65 % -10 % in the next years of insurance 5 % 49 % 6 % 60 % -10 % Costs fixed (in ) 9 EUR 20 EUR 8 EUR 19 EUR 10 % Cost inflation % 1.78 % 0.03 % 1.79 % 10 % Investment yield Discount rate Coefficient of payment out of pension contracts for the following year 0.02 % 0.07 % 0,25 % for next years 0.30 % 2.23 % 0.23 % 2.17 % 0,25 % for the following year % 0.09 % -0,25 % for next years % 2.23 % 0.14 % 2.19 % -0,25 % in a lump sum 85 % 85 % annuity 15 % 15 % *) In case of discount rate and investment yield, the margin is additive, in other cases it is multiplicative. The company performs test of adequacy individually for main covers (death and contract maturity) of life insurance contracts together with supplementary insurance to credit insurance for invalidity (where products are divided into eight homogeneous groups of products, as shown in the table below) and individually for all other supplementary insurances to life insurance (within the test of adequacy in non-life insurance). Inadequacy of provisions of particular groups of products in not covered by adequacy of provisions in other groups of products. The results of the test of adequacy for main covers of life insurance contracts and for supplementary insurance to credit insurance for invalidity: Group of products Risk insurance with supplementary invalidity insurance Endowment insurance and mixed insurance Provision for life insurance including deferred acquisition costs Unearned premium provision Provision for reported but not settled claims Total of provisions tested for adequacy Present value of future cash flows ( ) Minimum required provision Inadequacy of provision (1,406) 1, ,818 1,953 1, Pension insurance Insurance for funeral costs 5, ,209 3,981 3,981 Universal capital life insurance Investment life insurance Children s insurance Risk insurance (144) 15 (129) (451) Total 8, ,982 5,938 7, Results of the test of adequacy of other supplementary insurances to life insurance: The test has shown that future payments from supplementary insurances are sufficient to cover future costs of insurance claims and future administration costs for supplementary insurances. Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy 3(i)(v). For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Determining the fair value of such instruments is also influenced by the assessment of credit risk of the counterparty in accordance with the principles and procedures stated in point 5(b) Management of financial risks credit risk. Further information about the values of financial instruments at fair value, analyzed according to the valuation methodology (broken down into individual valuation levels), are included later in this note. Critical judgements in applying the Group s accounting policies Critical accounting judgements made in applying the Group s accounting policies include: Classification of insurance contracts Contracts are classified as insurance contracts, if significant insurance risk is transferred from the policyholder to the Group. For some contracts, the Group assesses whether the extent of insurance risk transferred is significant. This is mostly the case when a contract also includes a savings component. The significance of insurance risk is assessed according to whether there may be situations in which the Group would be required to pay significant additional benefits compared to comparable savings product. In assessing whether a scenario exists under which these additional benefits would be payable and significant, the whole duration of the contract is taken into account as well as all insurance risks, which the contract transfers, including negotiated riders. A contract that classifies as an insurance contract remains an insurance contract until it expires

34 Some contracts include the right to a profit share. The Group assesses whether additional benefits under this right are likely to be a significant portion of the total contractual benefits and whether the amount and timing of allocation are at the discretion of the Group, and thus whether they are considered to be contracts with DPF. Such an assessment is made at the time of inception of the contract. Financial asset and liability classification The Group s accounting policies provide scope for assets and liabilities to be designated at inception into different accounting categories in certain circumstances: In classifying financial assets or liabilities as at fair value through profit or loss, management determines if the Group meets the description of trading assets and liabilities set out in note 3 (k). In classifying financial assets as held-to-maturity, management determines if the Group has both the positive intention and ability to hold the assets until their maturity date as required by accounting policy, note 3 (o)(i). Impairment of investments in equity securities Investments in equity securities are evaluated for impairment on the basis described in accounting policy 3(i)(vi). For an investment in an equity security, a significant or prolonged decline in its fair value below its cost is considered to be objective evidence of impairment. The Group regards a decline in fair value in excess of 20 % to be significant and a decline in a quoted market price on an active market that persist for nine months or longer to be prolonged. Valuation of financial instruments The Group s accounting policies and methods for fair value measurement are discussed under note 3(i)(v). The Group measures fair values using the following hierarchy: Quoted market price in an active market for an identical instrument (Level 1). Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data (Level 2). Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant effect on the instrument s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments (Level 3). Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices. For all other financial instruments, the Group determines fair values using valuation techniques. prices and model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter derivatives like interest rate swaps. The availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. The availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. For more complex instruments, the Group uses proprietary valuation models, which are usually developed based on recognised valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions. Example of instruments involving significant unobservable inputs include certain over-the-counter structured derivatives, certain loans and securities for which there is no active market and certain investments in subsidiaries. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in determination of fair value. Management judgement and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows from the financial instrument being valued, determination of the probability of counterparty default and prepayments and selection of appropriate discount rates. The Group has an established control framework with respect to the measurement of fair values. This framework includes a control function performed by the Market Risks Department, which is independent from front office management. Specific controls include: verification of observable pricing inputs and reperformance of model valuations; a review and approval process for new models and changes to models; calibration and back-testing of models against observed market transactions; analysis and investigation of significant daily valuation movements; and review of significant unobservable inputs and valuation adjustments. Basic parameters entering into the valuation model to determine the fair value of equity financial instruments are forecast economic results and equity of the company, market multiples indicators such as EBITDA, sales etc. for comparable companies, which are published by reputable companies for different sectors. For fair value measurement of debt financial instruments the Group uses models based on net present value. The key estimation parameter is the discount interest rate. Determination of the discount interest rate is based on the risk free market rate, which corresponds to the incremental maturity of particular financial instruments and on a risk premium. The risk premium is determined to be consistent with regular market practice. Even though these valuation techniques are considered to be appropriate and in compliance with market practice, still the estimations in discount interest rate and changes of basic assumptions in future cash flows can lead to a different fair value of financial instruments. Transfers of financial instruments between particular levels can occur only if market activity changed. Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date, that would have been determined by market participants acting at arm s length. The Group uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only 66 observable market data and require little management judgement and estimation. Observable 67

35 The reported amounts of financial instruments at fair value analysed according to valuation methodology were as follows: 31 December Assets 31 december Assets Note Note Level 1 Quoted market prices in active markets Level 1 Quoted market prices in active markets Level 2 Valuation techniques: observable inputs Level 2 Valuation techniques: observable inputs Level 3 Valuation techniques: unobservable inputs Level 3 Valuation techniques: unobservable inputs Total Trading assets 8 1, ,106 Hedging derivatives 8 1,242 1,242 Investment securities Available-for-sale Liabilities ,576 23,558 57, , ,132 25,350 57, ,963 Trading liabilities Hedging derivatives The following table shows a reconciliation of the opening balance to the closing balance of fair values in particular categories (Level 3). Valuation techniques unobservable inputs: Investment securities At 1 January 128, ,619 Total gains or losses: in profit or loss (31) 7,180 9,139 in other comprehensive income 2,226 3,363 Settlements (maturities and sales) (97,385) (219,159) Purchases 15,000 96,526 Transfers into the category 5,201 Transfers out of the category (85,213) Other 1,984 At 31 December 57, , In regards to the fair value assessment of equity financial instruments the Bank has simulated changes of income multiplicator by +/- 10 % against their expected value. As at 31 December, the change Total of these parameters would have an unfavourable effect on recognised fair value amounting to 225 thousand. In the case of an opposite movement, the favourable effect would be 225 thousand. In regards to the fair value assessment of debt financial instruments, the Group has simulated changes of credit risk premiums by +/- 200 bp against their current value. As at 31 December, the change of these parameters would have an unfavourable effect on recognised fair value amounting to 3,598 thousand. In the case of an opposite movement, the favourable effect would be 3,892 thousand. Trading assets 8 1, ,370 Investment securities Available-for-sale , , ,773 Liabilities 697, , ,143 Trading liabilities Financial instrument type Debt financial instruments Equity instruments Valuation technique Discounted cash flow Comparative method Fair value as at 31 December 51,125 (: 118,799) 6,356 (: 7,433) Significant unobservable input Credit premium Sales multiple change Range employed 2.00 % (: 2.00 %) % (: 10 %) Sensitivity to reported fair value Credit premium increase will cause decrease of fair value and vice versa. Sales multiple increase will cause increase of fair value and vice versa. The following table shows information regarding the investment movements between all categories of valuation methods during. Trading assets Level 1 Quoted market prices in active markets Level 2 Valuation techniques: observable inputs Level 3 Valuation techniques: unobservable inputs Transfers into the category Transfers from the category Investment securities Transfers into the category 50,302 Transfers from the category (50,302) Total 50,302 (50,302) 68 69

36 5. Financial, operational and insurance risk management (a) Introduction The Group has exposure to the following risks: credit risk, liquidity risk, market risk, operational risk, insurance risk. The Board of Directors of each company in the Group is responsible for risk management. Information on the exposure to each of the above risks; the objectives, policies and processes for measuring and managing risk; and on the management of the Bank s capital is set out below. Risk management framework The ultimate body responsible for risk management in the Bank is the Board of Directors. The Board of Directors has overall responsibility for the establishment and oversight of the Bank s risk management framework. Some responsibilities are delegated to special advisory bodies Assets-Liabilities Committee (ALCO), Credit Committee, Investment Committee, Operational Risk Management Committee (ORCO), Program and Project Committee (PPV), Management of Development requirements and changes APV BITCO, Product Committee, Compensation Committee (NK), Disposal Committee (VK) and Risk Management Committee. The Bank s risk management policies are based on the Risk Management Strategy, which is the primary document for risk management. The Strategy has been approved by the Board of Directors, and is regularly reassessed and updated. The risk management process is a dynamic and constant process of identification, measurement, monitoring, control and reporting of risks within the Bank. The process involves establishing limits and processes to monitor risks and adherence to those limits. Risk management policies and systems are reviewed and amended regularly to reflect changes in legislation, market conditions, products and services offered. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Bank s Supervisory Board which covers functions of Audit Committee is responsible for monitoring the effectiveness of the internal control and risk management systems. Its activities cover also a review of the external auditor s independence and evaluation of the findings from the audit of the financial statements by the external auditor. They monitor Bank`s compliance with the financial accounting standards. The Audit Committee is assisted in these functions by Internal Audit. (b) Credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank s loans and advances to customers, the provisions of guarantees, the issuance of documentary credits, loans and advances to other banks and the purchase of investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of its credit risk exposure (such as individual obligor default risk, management failure, country risk, sector and concentration risk). assessing limits for clients, economically connected parties, including monitoring portfolio concentration, assessing limits for counterparties, countries, banks and sectors, mitigation of risk by various forms of collateral, continuous monitoring of the loan portfolio development and prompt decision-making to minimise possible losses. In order to mitigate credit risk the Bank assesses the creditworthiness of the client/ deal using a rating tool with parameters specific to each client segment when providing the loan as well as during the life of the credit/ loan trade. The Bank has various rating models depending on the type of business. The Group use for analysis of client/transaction: Country rating, Bank rating, Sector rating, Client and deal rating, Project assessment tool, Scoring for retail loans. The approval process of active bank transactions includes a review of the individual applicant of the transactions, credit limit of the counterparty and collateral in order to mitigate credit risk. The Bank monitors the development of the portfolio of active bank transactions yearly or more often if necessary, to ensure that prompt action can be taken to minimize potential risks. Credit risk limits are generally determined on the basis of an economic analysis of the client, sector, region or country. Their design and evaluation is in the responsibility of the Corporate Banking Risk Management (ORKB) and are approved by the relevant authority. The procedure of determining individual limits is part of the Bank s internal guidelines. To mitigate credit risk, the Bank uses the following types of limits: Financial involvement limits of client or economically connected entities (clients), Country limits, Limits on banks Limits on sectors. For corporate loans the Bank currently uses three rating system for the evaluation of clients, who prepare financial statements according to Slovak Accounting Standards, Czech Accounting Standards and International Financial Reporting Standards. The rating system evaluates quantitative and qualitative indicators of economic activities (eg. liquidity ratio, profitability, gearing etc.) and compares them to the subjective assessment of the client by the bank. In addition collateral accepted by the bank is also reflected in the deal rating. The Bank categorizes clients into rating levels from the best to the worst, the worst level representing the highest probability of default. The Bank has established a process of setting up the ratings and their regular updating and a control process of assigning of the rating and these are defined in the Bank`s internal guidelines. The bank continuously monitors, assesses and evaluates the compliance with the limits on country, maximum exposure, sector group and related parties and translates these into its activities. For retail loans at the bank uses multiple rating models depending on the segment. Credit risk management within the Bank is the responsibility of the Retail Banking Risk Management Division ( ORR ) and of the Specialized unit of Corporate Banking Risk Management ( SU CRB ). The Board of Directors has delegated responsibility for the oversight of credit risk to its Credit Committee and Investment Committee in compliance with the competence order. Credit risk management includes: examination of the clients creditworthiness, 70 71

37 Loans and advances, excluding debt securities, were granted to customers in the following sectors (gross amount): Loans and advances were made to customers in the following countries (gross amount): Individuals 681, ,998 Financial services 472, ,645 Other services (accommodation services, real estate investment activities) 403, ,507 Manufacturing companies 260, ,599 Trading companies 170, ,415 Transport and telecommunication 34,239 15,969 Real estate constructions 16,091 24,110 Agriculture Health care and public services ,039,232 2,227,338 Slovak Republic 1,216,091 1,295,826 Other member countries of EU: 823, ,512 Out of which: Cyprus 392, ,154 Czech Republic 236, ,808 Poland 88,433 89,588 Luxembourg 88,323 Netherlands 8,900 11,102 Bulgaria 8,330 9,860 Romania 20,000 2,039,232 2,227,338 The Bank presents a more detailed analysis of debt securities from the portfolio of loans and receivables, as well as comparative data for 31 December in the table below. Debt securities in the portfolio of loans and receivables by sector (gross): Financial services 85,397 Debt securities in the portfolio of loans and receivables by country of issuer (gross): Slovak Republic 144,179 32,718 Other member countries of EU 85, ,737 from which: Cyprus 85,397 85,224 Czech Republic 75,513 Classification of receivables 229, ,455 Individually significant receivables are classified into five categories (standard, standard receivables with a qualification, non-standard, doubtful and loss receivables), which, for the purposes of monitoring and reporting, are further classified into the following categories: non-impaired, impaired impairment not more than 20 %, impairment more than 20 %, but not more than 50 %, impairment more than 50 %, but not more than 95 %, impairment more than 95 %, out of which: defaulted. Receivables that are not individually significant, which are assessed on a portfolio basis, are classified based on the number of overdue days, as follows: Non-impaired overdue 0 days Impaired overdue 1 90 days Defaulted overdue more than 90 days The Group sets the level of significance at 166 thousand. The loans and advances with a value equal or higher than 166 thousand are assessed individually. Loans and receivables to clients individually assessed impaired Impaired receivables: Gross Net Gross Net Impaired not more than 20 % 49,537 49,415 94,852 87,359 Impaired and defaulted: Impairment more than 20 %, but not more than 50 % 85,681 73, ,780 86,139 Impairment more than 50 %, but not more than 95 % 32,059 31,597 Impairment more than 95 % 66,804 29,198 46,905 27, , , , ,608 Manufacturing companies 64,716 85,660 Other services (accommodation, real estate investments activities) 79,463 Trading companies 107, , ,

38 The gross amounts of individually impaired loans and advances to customers, banks and investment debt securities by risk grade are as follows: As at 31 December Individually assessed Loans and advances to customers Loans and advances to central banks Investment debt securities Bank guarantee and credit lines Not impaired 1,400,551 1,459, , ,803 1,129,508 1,265, , ,791 Out of which Overdue, but not impaired 3,146 2,224 Impaired, out of which: 202, ,596 13, defaulted 152, ,743 3, Out of total amount of individually assessed restructured loans 95, ,493 Book value 1,602,573 1,757, , ,803 1,129,508 1,265, , ,670 Allowance for impairment (49,611) (65,988) Net book value 1,552,962 1,691, , ,803 1,129,508 1,265, , ,670 Collectively assessed Not significant 666, , , ,168 Book value 666, , , ,168 Allowance for impairment (85,175) (71,091) Net book value 581, , , ,168 Total net book value 2,134,022 2,283, , ,803 1,129,508 1,265, , ,838 Individually assessed loans and advances The Group uses an internal rating system for providing and monitoring loans and advance granted to corporate clients. The rating is given based on the assessment of the economic health, prospect and the client market share. The receivables are reported as not impaired if they do not present any of the following triggers of impairment: a) significant financial difficulty of issuer or debtor, b) breach of contract, e.g. default or delay in repayment of principal or interests, c) lender granting to a borrower a concession due to economic or legal reasons that the lender would not otherwise consider, d) borrower will enter bankruptcy or other financial reorganisation. Loans with renegotiated terms Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower s financial position and where the Group has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring. The Group distinguishes between performing and non-performing receivables, where the monitored features are the number of days overdue and the probability of default, without the realization of collateral. To consider receivable as non-performing, it is sufficient to meet at least one of these criteria. Performing receivables are subsequently divided to performing without relief, performing with relief refinanced and performing with relief in the form of conditions modification. The Group assesses receivable as performing with relief refinanced when the loan was provided for full or partial repayment of the original loan. The Group assessed receivables as performing with relief in the form of conditions modification when there are changes in the contract`s conditions made and the loan is not refinanced. These changes would not be made if the client`s financial position did not deteriorate (while not refinanced receivables). The loans which do not have any of the characteristics above are assessed by the Group as performing without relief. Receivables as at 31 December Non-performing Receivables as at 31 December Gross receivables Gross receivables Impairment allowances Impairment allowances Net receivables Without relief 127,496 79,027 48,469 With relief refinanced 77,871 29,090 48,781 With relief in form of conditions modification 38,508 4,306 34,202 Non-performing total 243, , ,452 Performing: Without relief 1,970,766 19,909 1,950,857 With relief refinanced 47,046 2,369 44,677 With relief in form of conditions modification 7, ,036 Performing total 2,024,933 22,363 2,002,570 Total 2,268, ,786 2,134,022 Net receivables Non-performing 300, , ,873 Impaired loans and securities Impaired loans and securities are loans and securities for which the Group determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). Past due but not impaired loans Loans and securities where contractual interest or principal payments are past due but the Group believes that impairment is not appropriate on the basis of accepted collateral or status of repayments of amounts owed to the Group. Non-performing total 300, , , Performing: Without relief 1,908,899 14,595 1,894,304 With relief refinanced 7, ,092 With relief in form of conditions modification 204,261 6, ,446 Performing total 2,120,379 21,537 2,098,842 Total 2,420, ,079 2,283,715

39 Allowances for impairment The Group creates an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loan loss allowances that relate to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment. Provisions In accordance with International Accounting Standard IAS 37 the Group creates provisions for off balance sheet liabilities (valid credit lines, bank guarantees and letters of credit) if it expects emergence of potential credit risk. The Group creates provisions in accordance with materiality levels separately for individual off-balance sheet liabilities over 166 thousand and portfolio off-balance sheet liabilities below 166 thousand. For individually assessed liabilities the Group sets the percentage of loss to the same level as for undrawn lines of credit. Write-off policy The loan/security balance (and any related allowances for impairment losses) is written off when the Group discovers that the loans/securities are uncollectible. This decision is reached after considering information such as the occurrence of significant changes in the borrower/issuer s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances of standardised loans, the write-off decision is generally based on a number of days past-due specific for a given product. The exposure according to client types (internal classification) is as follows: Retail clients: Gross amount Impairment allowances Carrying amount Gross amount Impairment allowances Carrying amount Better payment (Lepšia splátka) 340,202 32, , ,593 22, ,996 Housing loans 77,155 11,085 66, ,151 11, ,121 Good loan (Dobrá pôžička) 149,432 8, , ,561 3, ,820 Available loan (Dostupná pôžička) 65,195 28,754 36, ,846 30,150 89,696 Overdrafts at personal accounts 24,239 3,855 20,384 25,437 3,148 22,289 Practical mortgage (Praktická hypotéka) 10, ,143 15, ,691 Other 1, ,125 5, ,676 Corporate clients: 667,765 85, , ,323 71, ,289 Large clients 1,266,949 23,166 1,243,783 1,314,034 35,979 1,278,055 Foreign currency loans 143,571 8, ,265 49, ,313 REPO deals 80,943 80,943 Overdrafts 117,189 9, , ,891 28, ,181 Small clients Other receivables Sold receivables 49,773 7,815 41,958 24, ,430 Leasing 23, ,866 22, ,937 1,601,043 49,702 1,551,341 1,752,471 66,045 1,686,426 Total 2,268, ,786 2,134,022 2,420, ,079 2,283,715 Collateral The Group holds collateral against loans and advances to customers in the form of mortgage interests over property and other registered securities over assets and guarantees. Estimates of fair values are based on the value of collateral assessed at the time before executing the deal and are reassessed in compliance with the internal methodology of the Bank. Generally, collateral is not held on loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. The Group s assessment of the net realisable value of the collateral is based on independent expert appraisals, which are reviewed by bank specialists, or internal evaluations prepared by the Bank. The net realisable value of collateral is derived from this value using a correction coefficient that is the result of the current market situation and reflects the Group s ability to realize the collateral in case of involuntary sale for a price that is possibly lower than the market price. The Group, at least annually, updates the values of the collateral and the correction coefficient

40 An estimate of the fair value of collateral and other security enhancement held to secure financial assets is shown below: Loans and advances to customers Against individually not impaired loans Real estate 216, ,592 Movables 28,663 31,765 Debt securities 6,737 Equity securities 157, ,536 Other 154,752 62, , ,195 Department. The Legal Department takes the necessary steps to obtain the maximum recovery from default receivables including realization of collateral and acts as the Group s representative in creditor committees when the debtor is in bankruptcy. Recovery of retail receivables is the responsibility of the Retail Banking Risk Division (ORR) Department of Retail Loan Claiming (OVR). In the retail segment, the recovery process for overdue receivables is defined and centrally operated by workflow systems (the workflow system in the Bank s environment is based on a system provided by the company Loxon. The system provides complex evidence of delinquent receivables, uses segmented strategy of recovery and also processes numerous task flows, automated collection tasks, etc.), which initiate activities for early recovery by the ORR OVR. The Bank also uses outsourcing services from collection companies. The Retail Banking Risk Division is responsible for defining the procedures for recovery and measurement, as well as the measurement of their effectiveness. Settlement risk Against individually impaired loans Real estate 117, ,155 Movables 13,852 27,398 Bank guarantees 319 Other 4,552 9,231 Against collectively assessed loans 136, ,103 Real estate 9,136 16,951 Movables 66 Other ,229 17,156 Spolu 702, ,454 Assets obtained by taking possession of collateral As at 31 December the Bank did not account for assets obtained by taking possession of collateral pledged in favour of the bank for loans. As at 31 December the bank acquired into its assets receivables in amount of 336 thousand by taking possession. The receivables were valued by an independent external expert. As noted above, to mitigate credit risk before providing loans to corporate clients, the Bank generally requires collateral. The following collateral types are accepted: Cash, State guarantees, Securities, First-class receivables, Bank guarantees, Guarantees issued by a reputable third party, Real estate, Machinery and equipment. The Bank s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed. For certain types of transactions the Bank mitigates this risk by conducting settlements through a settlements /clearing agents to ensure that a trade is settled only when both parties have fulfilled their contractual obligations. Settlement limits form part of the credit approval/limit monitoring process. Acceptance of settlement risk on free settlement trades requires transaction-specific or counterparty-specific approval from the Risk Management Division. Credit risk for the asset management company is defined as non-fulfilment of an issuer s or a counterparty s debt. The potential impact of credit risk on the value of assets is considered to be moderate. Mutual funds minimise credit risk through trading with securities mainly by making deals with the units fund s assets in compliance with the law, so that the principle delivery against payment in terms usual on the organised market is used. Risk management consists of verifying the credibility of the issuer or counterparty, setting the limit for the issuer or counterparty in terms of elimination and distribution of risks, inputting this limit to the information system of PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a.s. and its subsequent recalculation. Country risk The Group monitors country risk in accordance with internal guidelines and in compliance with national legislation. Detailed information on concentration of portfolio of government securities can be found in Note 11 Investment securities. (c) Liquidity risk Liquidity risk arises from the type of financing of the Group s activities and the management of its positions. It includes financing the Group s assets with instruments of appropriate maturity and the Group s ability to dispose of its assets for acceptable prices within acceptable time periods. The Group promotes a conservative and prudent approach to liquidity risk management. The Group has a system of limits and indicators consisting of the following elements: Short-term liquidity management is performed by the Group s Dealing Department by monitoring Recovery of delinquent receivables the liabilities and receivables due, and fulfilling the compulsory minimum reserves, Long-term liquidity risk management is based on a model of core deposits using the Value at Receivables whose repayment is threatened are administered by the Legal Services Division Risk method, or VaR, 78 79

41 Long-term liquidity management is also performed using GAP Analysis (the classification of assets and liabilities based on their maturity into different maturity ranges) and evaluation of indicators of the net statement of financial position in euro. Management of liquidity risk The Group s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group s reputation. The Group finances its assets mostly from primary sources. In addition, the Group has open credit lines from several financial institutions and is also able to finance its assets from interbank deposits. Due to its suitable structure of assets the Group has at its disposal sufficient amount of bonds that are, if necessary, acceptable for acquiring additional resources through refinancing operations organised by the European Central Bank. The Finance Division s specialised ALM Department is responsible for liquidity management. The Financial market Division receives information from other departments regarding the liquidity profile of their financial assets and liabilities and details about other projected cash flows arising from projected future business. The Financial market Division then maintains a portfolio of short-term liquid assets, made up of loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole. The daily liquidity position is monitored and monthly liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. The Group also has an emergency plan and crisis communication plan that describes the principles and procedures of management in extraordinary conditions and secures the availability of financial back-up sources. All liquidity policies and procedures are subject to review and approval by ALCO. Reports on the liquidity position of the Group are produced daily. A summary report, including any exceptions and remedial action taken, is submitted to ALCO at least once a month. The ratios are defined in the Provision of the National Bank of Slovakia No. 18/2008 on Bank liquidity. Liquidity coverage ratio was implemented through NBS Decree (Narodnej banky Slovenska) No. 11/ with effectiveness as of 1 December, therefore there are no comparable data for. As at 31 December, liquidity coverage ratio was The remaining period to maturity of financial assets and liabilities as at 31 December and 31 December are set out in the following tables, which shows the undiscounted cash flows on the basis of their earliest contractual maturity in liabilities and the latest in assets. The Group s expected cash flows may vary from this analysis. 31 December Assets Cash and deposits at central banks Trading assets, out of which: Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Contractual cash flows Total 570, , ,697 securities 1, ,643 1,678 derivative instruments cash in , ,738 cash out (265,265) (265,265) Hedging derivatives cash in 1, ,583 17,483 5,320 26,431 cash out (57) (2,693) (17,920) (4,511) (25,181) Exposure to liquidity risk Loans and advances to banks 2,482 2,482 2,482 The key measures used by the Group for managing liquidity risk are: the liquidity ratio of fixed and illiquid assets, the ratio of liquid assets, the ratio of primary liquidity, liquidity coverage ratio, modified liquidity gap ratio and net stable funding ratio. Details of the Group s liquidity ratios at the reporting date and during the reporting period were: The liquidity ratio of fixed and illiquid assets 31 December 31 December Loans and advances 2,134, , ,713 1,412, ,303 3,096,299 Investment securities 1,326,283 79, , , , ,775 1,444,321 Deferred tax asset 14,273 2,975 11,298 14,273 Tax receivable 4,253 4,253 4,253 Other assets 77,557 67,864 9, ,557 4,132,915 1,025, ,975 2,219,334 1,155, ,775 5,213,283 End of the period Average for the period Maximum for the period Minimum for the period Ratio of coverage of liquid assets End of the period 1.88 Average for the period 1.70 Maximum for the period 2.58 Minimum for the period

42 31 December Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Contractual cash flows Total 31 December Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Contractual cash flows Total Liabilities Trading derivative liabilities cash in (63,398) (63,398) cash out 84 63,495 63,495 Hedging derivatives cash in (181) (1,452) (5,850) (848) (8,331) cash out ,174 1,447 8,643 Deposits by banks 3,930 3,930 3,930 Customer accounts 3,506,955 2,576, , ,143 4, ,560,519 Loans received 6,820 6,820 6,820 Provisions 1,960 1,960 1,960 Provisions for insurance contracts 11,097 11,097 11,097 Deferred tax liability Tax liabilities Other liabilities 35,217 31,522 2,473 1,222 35,217 Subordinated debt 8, ,711 8,321 10,461 3,575,545 2,613, , ,400 13,301 13,292 3,631,570 The Group monitors the remaining periods to maturity on the basis of estimated withdrawals or expected maturity of each item in asset and liabilities. The liquidity gap up to 3 months comes essentially from Deposits and loans from customers, which are expected to be prolonged as shown by historical evidence. The remaining period to contractual maturity of commitments and contingencies items as at 31 December is set out in the following table: Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Contractual cash flows Total Commitments and contingencies Bank guarantees to 205, , ,503 national banks Guarantees to clients 54,198 24,146 6,341 13,294 10,417 54,198 Undrawn committed facilities Contractual/Notional amount of derivatives 301, , , , ,733 6,341 13,294 10, ,785 Assets Cash and deposits at central banks Trading assets, out of which: 366, , ,894 securities 1,881 1,881 1,881 derivative instruments cash in , ,000 cash out (103,479) (103,479) Loans and advances to banks 1,806 1,806 1,806 Loans and advances to customers 2,283, , ,981 1,414, , ,167,210 Investment securities 1,416,783 71,342 79, , , ,279 1,713,230 Deferred tax asset 21, ,021 21,834 Tax receivable Other assets 63,950 52,147 1, ,542 63, December Liabilities Trading derivative liabilities 4,149, , ,465 2,143,753 1,432, ,487 5,329,886 Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Contractual cash flows Total cash in 1,700 1,700 cash out 38 (1,741) (1,741) Deposits by banks 13,475 13,475 13,475 Customer accounts 3,557,002 2,555, , ,295 13,746 3,593,443 Loans received 5, ,000 5,051 Provisions Provisions for insurance contracts 8,805 8,805 8,805 Tax liabilities 16,779 16, ,779 Other liabilities 29,117 28, ,117 Subordinated debt 8, ,705 8,746 10,878 3,638,346 2,613, , ,000 8,746 22,794 3,677,655 Currency swaps 328, , ,760 Hedging derivatives 203,610 79, , , , ,760 79, , ,

43 The Group monitors remaining maturity based on the expected maturity particular assets and liabilities. The liquidity gap up to 3 months comes essentially from Deposits and loans from customers, which are expected to be prolonged as shown by historical evidence. The remaining period to contractual maturity of commitments and contingencies items as at 31 December is set out in the following table: Total carrying amount Less than 3 months 3 months to 1 year 1 5 years More than 5 years Not specified Contractual cash flows Total Commitments and contingencies Guarantees to national 121, , ,180 banks Guarantees to clients 37,748 11,078 8,200 18, ,748 Confirmed credit lines 238, , , , ,168 8,200 18, ,838 This is considered to be a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period. A 99 % confidence level does not reflect losses that may occur beyond this level. Even within the model used there is a one percent probability that losses could exceed the VaR. VaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the trading day. The use of historical data as a basis for determining the possible range of future outcomes may not always cover all possible scenarios, especially those of an exceptional nature. The VaR measure is dependent upon the Bank s position and the volatility of market prices. The VaR of an unchanged position reduces if the market price volatility declines and vice versa. Daily reports of utilisation of VaR limits are submitted to Market Risk Management and regular summaries are submitted to ALCO. A summary of the VaR position of the Bank s trading portfolios as at 31 December is as follows: 31 December Average Maximum Minimum VaR position A summary of the VaR position of the Bank s trading portfolio as at 31 December is as follows: Notional amount of derivatives Currency swaps 105, , , , , , December Average Maximum Minimum Foreign exchange risk (d) Market risk Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor s/issuer s credit standing) will affect the Group s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Group separates its exposure to market risk between the trading and non-trading portfolios. Trading portfolios include proprietary position-taking, together with financial assets and liabilities that are managed on a fair value basis. Management of market risks Overall authority for market risk is vested in the ALCO. Members of ALCO are responsible for the decisions in relation to market risk management. The principal tool used to measure and control market risk exposure within the Bank s trading portfolios is Value at Risk (VaR). The VaR of a trading portfolio is the estimated loss that will arise on the portfolio over a specified period of time (holding period) from an adverse market movement with a specified probability (confidence level). The VaR model used by the Bank is based upon a 99 percent confidence level with 1 day holding period. The VaR model used is based mainly on historical simulation. Taking account of market data from the previous years, and observed relationships between different markets and prices, the model generates a wide range of plausible future scenarios for market price movements. Share price risk From 1 January the Bank started to use VaR model covering all market risks in the trading book replacing both individual VaR models for foreign exchange and equity risk. As a result of this change, there is no comparable data summarizing VaR for the year. The limitations of the VaR methodology are minimalized by supplementing limits for position and sensitivity and stop loss limits, including limits to address potential concentration risks within each trading portfolio. In addition, the Bank uses a wide range of stress tests to model the financial impact of a variety of exceptional market scenarios on individual trading portfolios and the Bank s overall position. Interest rate risk The main source of the Group s interest rate risk results from revaluation risk, which is due to timing differences in maturity dates (fixed rate positions) and in revaluation (variable rate positions) of banking assets and liabilities and positions in commitments, contingencies and derivative financial instruments. Other sources of interest rate risk are: Yield curve risk risk of changes in the yield curve due to the fact that a change in interest rates on the financial market will occur in different extents at different periods of time for interestsensitive financial instruments, Different interest base risk reference rates, to which active and passive transactions are attached, are different and do not move simultaneously, Risk from provisioning resulting from the decrease of interest sensitive exposure with increasing volume of impairment loss allowances. Reducing exposure affects bank interest sensitivity based on a short or long position. Although VaR is an important tool for measuring market risk, the assumptions on which the model is based do give rise to some limitations, including the following: A holding period assumes that it is possible to hedge or dispose of positions within that period

44 On the assets side of the statement of financial position, the Group manages interest rate risk mainly by providing a majority of loans with variable rates and by managing its investment securities portfolio mostly related to fixed rates. The Group continuously uses asset-liability management in its interest risk management. When purchasing bonds, the current interest position of the Group is taken into account, which then serves as a basis for purchase of fixed or variable bonds. The Bank uses interest swaps to hedge interest rates in fixed bonds in Available-for-sale portfolio. The Group uses currency swaps for hedging of interest rate risk related to financial assets with fixed interest rate. The priorities of the Bank for interest rate risk management of liabilities comprise: Stability of deposits, especially over longer time periods, Fast and flexible reactions to significant changes in inter-bank interest rates through adjustments to interest rates on deposit products, Continuously evaluating interest rate levels offered to clients compared to competitors and actual and expected development of interest rates on the local market, Management of the structure of liabilities in compliance with the expected development of money market rates in order to optimise interest revenues and minimise interest rate risk. Management of interest rate risk Limits, indicators and methods of interest rate risk management are defined in accordance with the principles described in the Market Risk Management Strategy. The Bank identifies, monitors and reports interest rate risk through the following methods: Stress and back testing, Sensitivity of the economic value of the Bank, Gap analysis, VaR analysis, Basis Point Value analysis. The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The ALCO is the monitoring body for compliance with these limits and is assisted by Risk Management in its day-to-day monitoring activities. ALCO is responsible for setting interest rates for the Bank s products. The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that considered influence on change of economic value of the Bank are calculated monthly and includes a 200 basis point increase or decrease. Sensitivity of the Bank s economic value due the movement in interest rates: 31 December 200 bp parallel increase 200 bp parallel decrease As at 31 December (21,267) 4,095 Average for the period (49,084) 15,759 Maximum for the period (68,133) 30,833 Minimum for the period (17,967) 3, December As at 31 December (64,414) 27,709 Average for the period (55,461) 39,436 Maximum for the period (65,339) 50,020 Minimum for the period (47,391) 27,709 The Bank s Economic Value represents the difference between the fair value of the interest rate sensitive assets recorded in the bank book and the fair value of interest rate sensitive liabilities recorded in the bank book. Interest rate sensitive assets and liabilities are assets and liabilities for which fair value is variable depending on changes in market interest rates. Particular assets and liabilities are divided into re-pricing gaps based on their contractual re-pricing period, volatility of interest margins (for selected liability products) or roll forward (for assets and liabilities where it is not possible to use statistical models). In case the asset or the liability does not bear interest risk, it is assigned a 1 day maturity. The change in the Bank s Economic Value reflects the impact of a parallel interest shock on the value of interest sensitive assets and liabilities of the Bank. The table above shows that an increase in the interest curve decreases the Bank s value and vice versa. It should be emphasized that this measure highlights the effect of a shift in interest curves on the present structure of assets and liabilities, and excludes assumptions on future changes in the structure of the balance sheet. Sensitivity of reported equity to interest rate movements: 31 December 200 bp parallel increase 200 bp parallel decrease As at 31 December (43,532) 43,532 Average for the period (52,656) 52,656 Maximum for the period (58,655) 58,655 Minimum for the period (43,532) 43, December As at 31 December (53,409) 53,409 Average for the period (43,807) 43,807 Maximum for the period (53,755) 53,755 Minimum for the period (31,678) 31,

45 Sensitivity of reported equity to interest rate movements Interest rate movements affect reported equity in the following ways: Profit for the period arising from increases or decreases in net interest income and the fair value changes reported in profit or loss, Revaluation reserves arising from increases or decreases in fair values of available-for-sale financial instruments reported directly in equity, Hedging reserves arising from increases or decreases in fair values of hedging instruments designated in qualifying cash flow hedge relationships. Share price risk Share price risk is the risk of movements in the prices of equity instruments held in the Group s portfolio and financial derivatives derived from these instruments. The main source of the Group s share price risk is speculative positions held in shares and positions held for strategic reasons. When investing in shares, the Group: Follows an investment strategy which is updated on a regular basis, Has a preference for publicly traded stocks, Monitors limits to minimise share price risk (stop loss limits, asset concentration and VaR indicators) Performs risk analysis, which usually includes forecasts of the development of the share price, various models and scenarios for the development of external and internal factors with an impact on the income statement, asset concentration and the adequacy of own resources. Limits, indicators and methods of share price risk management are defined in accordance with principles described in the Market Risk Management Strategy. The Group uses the following limits and indicators in the management of share price risk: Credit risk limits relating to share price risk (limits for industries, countries, banks and individual issuers), Stop loss limits for shares, Portfolio limits, Limits for shares resulting from the Regulation (EU) No 575/2013 of the European Parliament and of the Council and from the Provision of the National bank of Slovakia No 23/, VaR indicator. The Group identifies, monitors and reports share price risk using the following methods: Overview of the current share positions of the Bank, Equity VaR calculation (historical simulation method), Stress and back testing. The Group identifies, monitors and reports the Group s foreign exchange risk using the following methods: Report on unsecured foreign exchange position of the Group, Monitoring the structure of foreign currency assets and liabilities by particular currencies, VaR indicator, Stress and back testing. The Group performs daily stress and back testing of market risk for VaR model. The Group subsequently verifies the impact of the results of stress testing. The results of stress testing are taken into consideration when setting procedures and limits for risk exposures. The Group had the following assets and liabilities denominated in foreign currencies at 31 December : Assets Cash and deposits at central banks Czech crown US dollar Other Total 208,875 3,829 1, ,148 Loans and advances 138,052 9, ,235 Investment securities 8,037 8,037 Tax receivable Deferred tax asset 9 9 Other assets , ,594 Liabilities 355,830 28,486 1, ,763 Deposits by banks ,070 Customer accounts 73,753 9,834 1,252 84,839 Other liabilities ,663 10,682 1,255 86,600 Foreign exchange risk The main source of foreign exchange risk is the difference between assets and liabilities denominated in different currencies. The main source of foreign exchange risk in the banking book is from loans provided in foreign currency, while the Group obtains the necessary resources from currency derivatives on the inter-bank market. The Group aims to hedge these positions in the banking book to the maximum extent possible through hedging instruments (e.g. currency derivatives), and thereby to minimise the foreign exchange risk. The Group reduces its foreign exchange risk through limits on unsecured foreign exchange positions and maintains an acceptable level for its size and business activities. The main currencies in which the Group holds positions are the Czech crown and US dollar. Limits, indicators and methods of foreign exchange risk management are defined in accordance with the principles described in the Market Risk Management Strategy

46 The Group had the following assets and liabilities denominated in foreign currencies at 31 December : Assets Cash and deposits at central banks Czech crown US dollar Other Total 130,944 2,232 1, ,996 Loans and advances 115, ,583 Investment securities 7,800 7,800 Tax receivable Deferred tax asset Other assets 259 6,240 6,499 Compliance with the Group s standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the relevant managers, with summaries submitted to the Supervisory Board (also cover the functions of Audit Committee) and the Board of Directors. Legal risk Legal risk forms part of operational risk and is the loss arising from unenforceable contracts, threats of unsuccessful legal cases or verdicts with negative impact on the members of the Group. In the environment of the Bank, it can be also the risk of sanctions from regulators which may be connected with reputational risk. Legal risk management is the responsibility of the Legal Services Department. Risks related to outsourcing Liabilities 254,683 8,478 1, ,983 Deposits by banks Customer accounts 134,929 6,691 1, ,345 Tax liability 1,674 1,674 Other liabilities (e) Operational risk 137,778 6,779 1, ,288 Operational risk is the risk of loss, including the damage caused by the Group s processes, to the Group by inappropriate or incorrect procedures, human factor failure, failure of used systems and from external factors other than credit, market and liquidity risks. A part of the operational risk is legal risk arising from unenforceable contracted receivables, unsuccessful legal cases or verdicts with negative impact on the Group. Operational risk arises from all of the Group s operations and is faced by all business entities. From 31 December, the Group uses a standardized approach for measuring and managing operational risk. The Group continuously aims to improve implemented process of operational risk identification, usage of KRI indicators, self-evaluation procedures, planning of unforeseeable events and aims to secure business continuity and manage operational risk of the Group on a consolidated basis. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management in each division. This responsibility is supported by the development of overall standards for the management of operational risk in the following areas: requirements for the reconciliation and monitoring of transactions, compliance with regulatory and other legal requirements, documentation of controls and procedures, requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified, requirements for the reporting of operational losses and proposed remedial action, development of contingency plans, training and professional development, ethical and business standards, risk mitigation, including insurance where this is effective. Outsourcing activities present a separate group of operational risks. Outsourcing involves the long-term performance of activities by a third party, which support the banking activities and are carried out on a contractual basis in order to increase the efficiency of Bank`s activities. Risk management relating to outsourcing is part of the overall bank risk management. It is in the responsibility of the Board of Directors and include: managing strategy for the risks associated with outsourcing, which is approved by the Board of Directors, as well as other particular internal regulations relating to outsourcing, security crisis plans for individual outsourced activities, or plans of the Bank when ceasing outsourced activities. Examination of the quality of service providers before and during the outsourcing Regular inspections of performance of outsourcing companies by Department of Internal control and internal audit, minimization of the risk related to outsourcing when extraordinary events occur. (f) Insurance risk Poštová poisťovňa, a.s. (insurance company) as the insurance company is exposed to insurance risk and to underwriting risk arising from the life and non-life insurance products. Internal guidelines are used to manage the risk relating to the development and valuation of products, determination of technical provisions, reinsurance determination and also to establish the rules for underwriting insurance. Life insurance is exposed to insurance risk of morbidity, mortality, longevity and risk of concentration in case of epidemics and disasters. To eliminate these risks medical and financial underwriting or reinsurance (which then brings a credit risk from the reinsurer) are used. In non-life insurance, the company is exposed to particularly the risk of the adequacy of future premiums (due to the unexpected development of future claims, administrative costs, increased rates of cancellation, etc.), risk of extreme events (catastrophic risk) and the sufficiency of reserves for claims (due to unexpected development of already incurred claims, lawsuits, etc.). Claims development Claims development information is provided in the following tables in order to illustrate the risks arising from insurance contracts. The tables compare the development of the estimated ultimate loss on an accident-year basis. The first part of the table provides a review of current estimates of cumulative claims and demonstrates how the estimated claims have changed at subsequent accounting year-ends. The estimate is increased or decreased as losses are paid and more information becomes known about the frequency and severity of unpaid claims. The second part of the table shows the amount of claims paid according to the year of the insured event

47 Various factors may influence the re-estimated provisions and the cumulative excess or deficit presented in each table. These include inadequate information when reporting an insured event, problems with settlement etc. The information in the table provides a historical perspective on the adequacy of unpaid claims estimates, and may not be a reliable base for extrapolating surpluses or deficits of past provisions to current unpaid loss balances. The Group assumes that the expectation of unpaid claims at the year-end is appropriate. Analysis of claims development gross of reinsurance Estimate of cumulative claims At the year-end when the claim occurred < ,922 1, one year later 3,035 1, two years later 2, three years later 2, four years later 2, five years later 2, six years later 2, seven years later 2, eight years later 2, nine years later 2,919 Estimate of cumulative claims Total 2, ,980 Cumulative payments 2, ,867 Cumulative claims provision (RBNS+IBNR) Risks arising from life insurance contracts Summary of provisions resulting from insurance contracts in life insurance: 31 December Traditional life insurance for death and endowment Current and deferred pensions Investment contracts with discretionary participation features Supplementary insurances Before reinsurance 9, ,246 After reinsurance 9, , December Traditional life insurance for death and endowment Current and deferred pensions Investment contracts with discretionary participation features Supplementary insurances Before reinsurance 6, ,964 After reinsurance 6, ,948 Summary of reserves from non-life insurance before and after reinsurance is as follows: Amount of reserve as at 31 December Liability Loss of employment Property Motor vehicles Health/ accident, other Before reinsurance After reinsurance Travel Total Total Total Analysis of claims development net of reinsurance Estimate of cumulative claims < Total Amount of reserve as at 31 December Liability Loss of employment Property Motor vehicles Health/ accident, other Travel Total At the year-end when the claim occurred 2, one year later 2, two years later 2, three years later 2, four years later 2, five years later 2, Before reinsurance After reinsurance Other risks Other risks associated with insurance contracts with discretionary participation features ( DPF ) are persistency risk, market risk, expense risk and expense inflation risk. six years later 2, seven years later 2, eight years later 2, nine years later 2,251 Estimate of cumulative claims 2, ,504 Cumulative payments 2, ,430 Cumulative claims provision (RBNS+IBNR) Persistency risk is the risk that the client cancels the contract or stops paying new premiums into the contract, thereby exposing the insurance company to a loss resulting from an adverse movement in the actual experience compared to that expected in the product pricing. The insurance company manages this risk by making appropriate charges for early surrender where possible and by maintaining high levels of customer care. The insurance company is exposed to diminishing investment management revenues in line with the decline in asset values. Market risk is the risk of loss in fair value resulting from adverse fluctuations in interest and foreign currency exchange rates and equity prices, and the consequent effect that this has on the value of charges earned by the Group and on any guarantees in the contracts

48 The risk of expense inflation is the risk that the actual costs of the insurance company will be higher than cost calculation of the products in relation to the expected sale of contracts, long term development of all insurance contracts in the portfolio, price levels, etc. Financial risk The insurance company is exposed to financial risk through its life insurance contracts, financial assets, financial liabilities (including investment contracts with DPF) and reinsurers share on insurance provisions arising from insurance contracts. As stated above, the goal of the insurance company is to invest assets relating to liabilities from insurance and investment contracts with DPF into assets that face equal or similar risks. This principle ensures that the insurance company can meet its contractual liabilities when they become due. The insurance company is exposed to residual financial risk mainly due to the following: It is not possible to perfectly match financial assets to liabilities from insurance. This relates mainly to non-life insurance, traditional and general life insurance contracts and to pension life insurance contracts. Additional risks relate to guarantees and options embedded in insurance and investment contracts with DPF. The insurance company invests part of the capital into financial assets, which is not matched to liabilities from insurance and financial liabilities from investment contracts with DPF. Existing credit risk relating to reinsurers share on provisions resulting from insurance contracts. Solvency Under the Act No. 39/ Coll. (Act on Insurance) as amended, the insurance company has an obligation to continuously maintain a minimum required solvency margin. The method of calculation and presentation of the solvency margin was set out by the NBS in Provision No. 25/2008 that was later amended by the NBS Provision No. 2/2013. The insurance company maintained the required margin throughout the year. The actual solvency margin in was in amount of 14,806 thousand (: 14,537 thousand) while the required solvency amount as of 31 December was in amount of the guarantee fund which is set by decree to a minimum amount of 7,400 thousand. Concentration of risk in non-life insurance Majority of underwritten risks are located in Slovak republic whereas the insurance company focuses on household insurance and non-life insurance of individuals and therefore is not exposed to significant concentration of risk considering the insurance contract. Insurance objects are evenly distributed and thus there is no significant geographical concentration of risk. Concentration of mortality risk Contracts covering mortality risk are not exposed to significant geographical concentration of risk however concentration of insurance amounts could have influence on damage volatility (and therefore also on profit and loss) if the insurance company concludes small amount of contracts with high insurance amounts. The below table illustrates concentration risk based on six groups of contracts defined according to the amount of insurance at death for each insured life (traditional endowment insurance, death insurance and investment contracts with DPF classified as life insurance). Liquidity risk from insurance and investment contracts with DPF. Negative difference in expected cash flows is covered by prolongation of term deposits and purchase of bonds from funds received as insurance premium. Expected cash flows of the insurance company are stated below. For non-life insurance contracts net expected insurance payments after reinsurance from insured events that arose up to the date as at preparation of the financial statements are stated since these are expected in shortterm. For life insurance contracts net cash flows including future expected insurance payments, administrative expenses and received insurance premium from existing contracts are stated. (g) Regulatory requirements of the asset management company The asset management company is obliged to comply with regulatory requirements of the National Bank of Slovakia ( NBS ) which are set out under Act No. 203/2011 on collective investment and according to the NBS Provision No 7/2011 on capital resources of asset management companies. These include limits and restrictions on capital adequacy. These requirements apply to all asset management companies in Slovakia and their compliance is determined on the basis of reports submitted by the asset management company under statutory legal regulations. The requirements applicable since 1 January 2012 are as follows: Share capital of management company is at least 125,000. The management company is obliged to comply with adequacy requirements for its own funds. The own funds of the management company are considered appropriate under this Act, unless they are below: a) 125 thousand plus 0.02 % of the value of the assets in the funds managed by the company exceeding 250,000 thousand. This amount is not further increased when it reaches 10,000 thousand. b) One quarter of the average general operating costs of the management company for the previous calendar year. If the management company exists for less than one year, a quarter of the amount of general operating costs according to its business plan. The management company may not acquire into the funds assets or its own assets when acting jointly with any managed funds more than 10 % of the total nominal value of shares with voting rights issued by a single issuer. The management company acting jointly with standard funds may not acquire into the funds assets shares with voting rights which would entitle the management company to have a significant influence over the management of a issuer that is established in the Slovak republic, or in a non EU member State. The management company is required to comply with restrictions on the acquisition of significant influence on the management of an issuer that is established in a Member State, according to the laws of that Member State, taking into account the assets managed in standard funds. The management company must ensure elimination of the risk imposed on the fund s unit holders interest or its clients by a conflict of interest between the management company and its clients, between two of its clients mutually, between one of its clients and unit holders of a share fund or between the unit holders or unit holders of the European fund or between the shareholders of unit funds and European funds mutually. Capital adequacy The management company regularly and on a timely basis informs the NBS about the amount of initial capital, its own resources and their structure according to the NBS Provision No. 7/2011 on capital resources of asset management companies and reports the information about proportionality of its own resources in accordance with the Act no. 203/2011 on collective investments as amended. (h) Regulatory requirements of the pension funds management company An important part of assets and liabilities management of the insurance company is to secure sufficient amount of cash for payment of due payables. The insurance company holds cash and The pension funds management company, when administering and creating of pension funds is liquid deposits for everyday requirements for payment of its liabilities. Normally majority of insured obliged to comply with regulatory requirements of the National Bank of Slovakia, as stated in the events are settled by funds received from the insured and investors. Act No. 43/2004. on pension saving funds (hereinafter Act on PSF ). These requirements apply to all pension funds management companies in Slovakia. 94 In long term the insurance company monitors predicted liquidity by estimation of future cash flows 95

49 Among the important requirements of the Act on PSF are: The share capital of the pension funds management company is at least 9,950 thousand. The pension funds management company shall meet specific capital requirements. Equity is adequate when: a) it is not less than 25 % of general operating expenses for the previous year. If the pension funds management company is operating less than one year, 25 % of the amount of general operating expenses stated in its commercial and financial plan and b) the ratio of the difference between liquid assets and liabilities and receivables to the value of assets in all pension funds under management is not less than (according to the Act No. 43/2004 Section 60 as amended). The manager of assets in the pension fund is obliged to act with due care and diligence in the best interests of savers and pensioners and the interest of their protection in compliance with generally binding legal regulations, the statutes of the pension fund and the decisions of the National Bank of Slovakia. The pension funds management company can buy and sell property, which may be subject to investment only if it does not conflict with the interests of savers and pensioners. The pension funds management company may not put its interest over the interest of savers and pensioners. The pension funds management company s property or assets in the pension funds under management, may not acquire more than 5 % of the total nominal value of shares issued by one issuer. The pension funds management company may not acquire shares with voting rights which would enable the management company to exercise a significant influence over the management of the issuer to own assets or assets in the pension funds under management. (i) Capital management In implementing current capital requirements, the Group is required to maintain a prescribed ratio of total capital to total risk-weighted assets and a ratio of TIER1 capital to total risk-weighted assets. The Bank s position of own funds as at 31 December according to the Capital Requirement Regulation is displayed in the following table. Regulatory capital Tier I Capital Share capital and share premium 367, ,043 Reserve funds and other funds created from profit 35,163 30,782 Selected components of accumulated other comprehensive income 15,416 5,082 Profit or loss of previous years 126, ,978 Intangible assets (24,710) (26,701) Additional valuation adjustments (1,522) (918) Additional filters and adjustments (6,037) Total Tier I Capital 517, ,229 Tier II Capital Subordinated debt (note 25) 8,000 8,000 Total Tier II Capital 8,000 8,000 Regulatory capital total 525, ,229 The Group is obliged to calculate share capital in accordance with CRR since 1 January. The Group uses the standardised approach to credit risk, the standardized method for credit valuation adjustment and standardized approach to operational risk. Capital Resources Requirements Capital required to cover: The Group s regulatory capital is analysed into two tiers: Tier 1 capital includes ordinary share capital, share premium, reserve funds and other funds created from profit, retained profit from previous years after deduction of losses for the current year, intangible assets and other specified deductible items. Tier 2 capital includes the approved part of subordinated debt with original maturity over five years Banking operations are categorised in either a banking book or trading book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and contingent liabilities. The Group has complied with all externally imposed capital requirements throughout the year. Own funds of the consolidated group take into consideration the capital position of the group under the prudential consolidation rules that can differ from the scale of accounting consolidation rules. The difference can arise primarily from not including some entities into the scope of prudential consolidation since these entities do not meet conditions defined by the CRR. Credit risk 215, ,899 Risk on value adjustments to receivables 226 Risks from debt financial instruments, capital instruments, foreign exchange and commodities Operational risk 34,927 34,465 Total capital requirements 251, ,507 Capital ratios Total capital level as a percentage of total risk weighted assets % % Tier 1 capital as a percentage of total risk weighted assets % % 96 97

50 6. Changes in group consolidation On 5 May Poštová banka, a.s. (the seller) and Slovenská pošta, a.s. (the buyer) transferred 20 % of ordinary shares of Poisťovna Poštovej banky, a. s. Poisťovňa Poštovej banky, a.s. has changed its name to Poštová poisťovňa, a.s. the 20 % share of Slovenská pošta is presented under non-controlling interests. Considering that the group has not lost control, under IFRS 10 it was a transaction within the equity. PB Partner, a.s., a subsidiary of Poštová banka, a.s., sold 100 % of its share in Salve Finance, a.s. on 24 June. Salve Finance, a.s. was a % subsidiary of Poštová banka group and its main activity was mediation of sale of financial products. As at 30 June Salve Finance, a.s. was deconsolidated from the Poštová banka group. Analysis of assets and liabilities of Salve Finance, a.s.: Statement of financial position of Salve Finance, a.s.: Assets 30 June ** Cash and cash equivalents 6 4 Receivables from clients Investments 5 5 Tangible assets 27 9 Other assets 1,783 2,073 Total assets 1,934 2,295 Liabilities Received loans Provisions 30 Tax liabilities 16 Other liabilities 1,426 1,951 Total liabilities 1,745 2,002 Equity Share capital Legal reserve fund Retained earnings (Loss)/profit (76) 129 Acquisition of subsidiary as at 31 December PB Partner, a.s., 100 % owned by Poštová banka, a.s., purchased % share of share capital of Salve Finance, a.s. as at 5 August. The purchase of shares was agreed on 2,000 thousand. Through this transaction Salve Finance, a.s. became % subsidiary of Poštová banka, a.s. Main activity of Salve Finance, a.s. is sale brokering of financial products. As at 5 August Net book value Fair value Cash and cash equivalents 5 5 Investments 5 5 Tangible assets 9 9 Other assets 2,467 2,467 Assets 2,486 2,486 Loans received 1 1 Other liabilities 2,285 2,285 Liabilities 2,286 2,286 Share capital Legal reserve fund Retained earnings (141) (141) Loss for the year Share capital Liabilities and share capital 2,486 2,486 Acquisition cost and goodwill are as follows: Acquisition cost 2,000 Fair value of assets 2,486 Fair value of liabilities and contingent liabilities (2,286) Net assets 200 Share of PB Partner 100 Goodwill 1,900 Total equity Total liabilities and equity 1,934 2,295 ** Assets and liabilities as at 30 June of Salve Finance, a. s. are not significantly different from assets and liabilities as at 24 June. Result from sale of the subsidiary Salve Finance, a.s. is presented in the consolidated income statement within Net profit from financial operations

51 7. Cash and deposits at the central bank 8. Trading assets and liabilities and hedging derivatives Cash in hand 21,864 19,986 Balances at the central banks Compulsory minimum reserves 234,320 30,157 Term deposits 207, ,646 Other deposits 10,606 6,527 Loans and advances to banks with contractual maturity of 3 months or less (note 9) 96, , , ,894 The account Compulsory minimum reserve contains funds from the payment system as well as funds that the Group is obliged to maintain in average in order to fulfill requirements of the National Bank of Slovakia. Therefore, the account balance of Compulsory minimum reserve may significantly vary depending on the amount of incoming and outgoing payments. Compulsory minimum reserves are maintained at a level set by requirement of the National Bank of Slovakia. The amount of set reserve depends on the amount of deposits accepted by the Group and is calculated by multiplying particular items of the basis by the valid rate for calculation of the compulsory minimum reserve. The Group, during the reporting period, fulfilled the set amount of compulsory minimum reserves, which in December represented 30,766 thousand. Cash and cash equivalents are as follows: Cash in hand 21,864 19,986 Balances at the central banks Term deposits 207, ,646 Other deposits 10,606 6,527 Loans and advances to banks with contractual maturity of 3 months or less (note 9) 96, , , ,737 Trading assets Securities (a) 1,556 1,881 Derivative instruments (b) Hedging derivatives 2,106 2,370 Hedging derivatives (c) 1,242 Trading liabilities Derivative instruments (b) Hedging derivatives Hedging derivatives (c) 312 (a) Securities European Union bonds Greece 1,111 Equity securities 1, Reclassification of financial assets from trading portfolio 1,556 1,881 In 2008, following the issuance of Reclassification of Financial Assets, the amendments to IAS 39 and IFRS 7 (stated in note 3(o)), the Group reclassified certain trading assets to available-for-sale investment securities portfolio. The Bank identified financial assets eligible under the amendments, for which it had changed its intent so that it no longer held these financial assets for the purpose of selling in the short term. For the trading assets identified for reclassification, the Group determined that the deterioration of the financial markets during 2008 constituted rare circumstances that permitted reclassification out of the trading category. Under the amendment to IAS 39 the reclassifications were made with effect from 1 July 2008 at fair value as at that date. The financial assets reclassified and their carrying and fair values were as in the table below. Fair values are the same as carrying values. In and, both fair values and carrying amounts are zero. Carrying/Fair value Fair/carrying value 2013 Fair/carrying value 2012 Fair/carrying value Reclassified assets from trading portfolio to available-for-sale portfolio 8 5, ,218 The remaining part of the reclassified securities was sold during the year

52 During 2009 and there were no reclassifications of financial assets. In a reclassification of financial assets from Held to maturity portfolio to Available for Sale portfolio was done, please see note 11. The tables below set out the amounts actually recognised in profit or loss and equity as at 31 December and as at 31 December in respect of financial assets reclassified out of trading assets in 2008: Period before reclassification: Profit or loss 2009 Trading assets reclassified to available for-sale investment securities: Reclassification in 2008 Other comprehensive income 2009 Profit or loss 2008 Other comprehensive income 2008 Net trading loss (6,686) Period after reclassification: Profit or loss Trading assets reclassified to available for-sale investment securities: Reclassification in 2008 Other comprehensive income Profit or loss Other comprehensive income Dividend income Net change in fair value (6) (b) Derivative instruments Derivatives Contract/ notional amount Fair value Assets Liabilities Contract/ notional amount Fair value Assets Liabilities Currency swaps 328, , c) Hedging derivatives Hedged items are selected fixed-interest bonds from the Available for sale portfolio and hedging instruments are interest rate swaps for which the Bank pays fixed interest rate and receives floating interest rate. As at 31 December, the hedge was effective in hedging the fair value exposure to interest rate movements. Changes in the fair value of these interest rate swaps due to changes in interest rates substantially offset changes in the fair value of the hedged bonds caused by changes in interest rates. In, the Bank reported a net loss on the hedging instruments in the amount of 1,130 thousand (: 0) and net gain on hedged items relating to hedged risk of 1,130 thousand (: 0). Both items are presented on the line Net profit from financial operations. During, interest and similar income from hedged securities from Available for sale portfolio since the origin date of hedging, amounting to 181 thousand (: 0) were offset by interest expense from interest rate swaps which represent hedging instruments in the amount of 102 thousand (: 0). The contracted or nominal amounts and positive and negative fair values of unpaid positions of hedging derivatives as at 31 December are shown in the following table. The contracted or nominal amounts represent the volume of unpaid transactions at a certain point in time; do not represent the potential gain or loss associated with market risk or credit risk of these transactions. Impairment loss (5) 5 Sale of security 1 Foreign exchange gain/(loss) (4) (1) Fair value hedge Contracted/ nominal value Fair value Assets Liabilities Contracted/ nominal value Fair value Assets Liabilities Reclassification of financial assets The table below sets out the amounts that would have been recognised during the years and if the reclassifications had not been made. Interest rate swaps 203,610 1, ,610 1, Reclassification in 2008 Profit or loss Profit or loss Trading assets reclassified to available-for-sale securities: Net change in fair value (6) Foreign exchange gain Net trading loss (6)

53 Offsetting of financial assets and liabilities Following table shows financial assets which could be offset under master netting agreements or similar agreements (legally enforceable): Currency derivatives Hedging derivatives Possible effect of master netting agreements, which do not fulfill requirements for offsetting in balance sheet () Financial assets/gross Offset gross values Presented net values of financial assets Financial instruments Accepted cash collateral Accepted non-cash financial collateral Net values after possible offsetting ,242 1,242 1,242 Total 1,792 1,792 1, Following table shows financial liabilities which could be offset under master netting agreements: or similar agreements (legally enforceable): Currency derivatives Hedging derivatives Currency derivatives Possible effect of master netting agreements, which do not fulfill requirements for offsetting in balance sheet () Financial assets/gross Possible effect of master netting agreements, which do not fulfill requirements for offsetting in balance sheet () Financial assets/gross Offset gross values Offset gross values Presented net values of financial assets Presented net values of financial assets Financial instruments Financial instruments Provided cash collateral Accepted cash collateral Provided non-cash financial collateral Accepted non-cash financial collateral Net values after possible offsetting Total Following table shows financial assets which could be offset under master netting agreements: or similar agreements (legally enforceable): Net values after possible offsetting Total Following table shows financial liabilities which could be offset under master netting agreements: or similar agreements (legally enforceable): Currency derivatives Possible effect of master netting agreements, which do not fulfill requirements for offsetting in balance sheet () Financial assets/gross Offset gross values Presented net values of financial assets Financial instruments Provided cash collateral Provided non-cash financial collateral Net values after possible offsetting Total Loans and advances to banks Repayable on demand 93, ,207 Other loans and advances to banks by contractual maturity: - 3 months or less 3,233 81,371-1 year or less but over 3 months 1,366 - over 1 year 2, Less amounts with original contractual maturity up to 3 months (note 6) 98, ,384 (96,306) (181,578) Total 2,482 1, Loans and advances a) Receivables from customers Repayable on demand 195, ,944 Other loans and advances to customers by contractual maturity: Up to 3 months 1,127 6,372 1 year or less but over 3 months 46, ,127 5 years or less but over 1 year 555, ,646 over 5 years 1,241,049 1,154,250 2,039,232 2,227,339 Allowances for impairment (134,786) (137,079) Loans and receivables debt securities 229, ,455 2,134,022 2,283,

54 Impairment losses on loans and advances The movements in impairment losses on loans and advances to customers were as follows: Individual allowances for impairment: As at 1 January 65,999 30,430 Movement resulting from change of foreign exchange rate Net charge to profit or loss 36,516 54,496 Release of impairment losses on assigned loans (52,951) (18,941) As at 31 December 49,611 65,999 Collective allowances for impairment: As at 1 January 71,080 69,737 Movement resulting from change of foreign exchange rate (17) Net charge to profit or loss 31,164 25,225 Release of impairment losses on assigned loans (17,052) (23,882) As at 31 December 85,175 71,080 (a) Securities held to maturity Slovak government bonds 442, ,471 Government bonds of EU member countries 6, ,539 Mortgage bonds 14,991 Corporate bonds , ,010 As at 31 December, the Group pledged securities with a carrying value of 231,105 thousand (: 138,700 thousand) out of which held-to-maturity amounted to 207,547 thousand (: 138,700 thousand). The Group did not realize any collateralized transactions with the central bank as at 31 December. The market price of securities held-to-maturity as at 31 December amounted to 521,207 thousand (: 688,721 thousand). As at 31 December, held-to-maturity investment securities with a carrying value of 348,277 thousand are expected to be recovered after more than twelve months from the reporting date (: 511,307 thousand). Impairment allowances total 134, ,079 (i) Greek government bonds The Group has assigned receivables to a recovery agency. If the Bank retained substantially the most of the risk and rewards related to ownership of assigned receivables through maintaining the right to participate on the recovery amount after assignment of receivables, the Bank recognize them as assigned receivables up to the amount of ongoing commitment. These receivables, before allowances for impairment, amounted to 4 thousand (: 1,792 thousand) and an impairment loss of 4 thousand (: 744 thousand) was recognised. b) Debt securities Debt securities Corporate bonds 144,179 85,660 Bills of exchange 85, , , ,455 As at 31 December the Group does not own any Greek government bonds. The table below summarizes the Group s holding of Greek government bonds at the date of initial recognition and as at 31 December (comparable period): Securities portfolio Value at initial recognition Carrying value Market value Impairment loss Trading securities 1,905 1,111 1,111 n/a Held-to-maturity securities 37,925 49,848 86,091 Available for sale securities 87,489 Total 127,319 50,959 87, Investment securities Securities held to maturity (a) 464, ,010 Securities available for sale (b) 861, ,773 1,326,283 1,416,783 In 2012, the Greek government performed a restructuring of its debt (Private Sector Involvement or PSI ) replacing old Greek government bonds issued under Greek legislation by new securities. The replacement was completed on 12 March In light of the above, on 12 March 2012 the account of the Group was credited with newby issued Greek and EFSF bonds with a total nominal value of 246,548 thousand and with so called GDPlinked (derivative instrument that was booked into the trading portfolio at its fair value). The new Greek bonds were booked at their first fair value in the amount of 127,319 thousand

55 Reclassification of Greek government bonds from held-to-maturity portfolio during Overview of Greek government bonds after reclassification from held-to-maturity portfolio as at 30 June : Securities portfolio Carrying value Market value Impairment loss Trading securities Held-to-maturity securities Available for sale securities 62,476 62,476 Total 63,046 63,046 Securities in the trading portfolio represented the GDP linked (derivative instrument that was booked into the trading portfolio at its fair value). In October the Bank sold this security. As at 30 June the Bank reclassified financial asset, Greek government bonds, from the held-to-maturity portfolio to the available-for-sale portfolio. The reasons for the reclassification were based on a detailed analysis of the extraordinary situation that arose in Greece, characterised by the following: inability (reluctance) of Greece to repay funds to the IMF, introduction of capital controls, declaration of bank holidays and restrictions of foreign transactions, limitations of cash withdrawals, closing down of the Athenian stock exchange, increase of credit spreads on bonds portfolio, not increasing the emergency liquid assistance (ELA) for Greece banks, further decrease of Greece rating. All these factors confirmed significant credit quality deterioration of the issuer of the bonds and substantially increased the probability of default of Greece as a debtor. In accordance with the IAS 39 rules the Bank identified financial assets where the intention changed and which could not be further classified as asset held to maturity. Such financial assets were reclassified to the available-for-sale portfolio and were revalued to fair value. In accordance with the rules defined in IAS 39 the Bank reached a conclusion that the credit quality of the issuer had been significantly deteriorated that this happened outside of the Bank s control and that Bank could not have reasonably anticipated it and that by reclassification of the Greek government bonds from the held-to-maturity portfolio the tainting rule has not been breached and there was no contamination of the remaining part of the financial assets in the held-to-maturity portfolio. Reclassification of the Greek government bonds was initially presented with effect on 30 June at fair values as at this date. The reclassified financial assets and its book and fair values as at the date of reclassification were as follow: The amounts reported in the statement of profit or loss and other comprehensive income as at 30 June in relation to the reclassification of financial assets from held-to-maturity portfolio were as follows: Reclassification: Financial assets reclassified to available-for-sale portfolio: Profit or loss acccount 30 June Other comprehensive income 30 June Revaluation to fair value 12,174 Sale of the reclassified Greek government bonds in In July the bank sold all the Greek government bonds which has been reclassified to the available-for-sale portfolio on 30 June. In respect of this sale the bank cumulatively reclassified profit from the sale in amount of 4,246 thousand from the Revaluation reserve to profit or loss. Arbitration proceedings Poštová banka, a.s. entered into international arbitration proceedings (filed motion on 3 May 2013, registered by ICSID on 20 May 2013) against the Greek Republic (ICSID Case No. ARB/13/8) on the basis of an international treaty between the Government of the Czech and Slovak Federal Republic and the Government of the Greek Republic on the Promotion and Reciprocal Protection of Investments from 3 June International arbitration was conducted at the International Centre for Settlement of Investment Disputes registered in Washington DC, USA. The reason for the litigation brought to international arbitration is the forced exchange of Greek government bonds in March 2012, for which the basis was a change in the Greek national legislation, which unilaterally and retrospectively changed the conditions of government bonds issuance (the CAC clause). On 9 April, the International Centre for Settlement of Investment Disputes (ICSID), set up at the World Bank, decided in the dispute between Poštová banka, a.s., ISTROKAPITAL SE and the Greek Republic. The arbitral tribunal decided that it has no authority to decide on the dispute because, based on the Agreement between the Government of the Hellenic Republic and the Government of the Czech and Slovak Federal Republic for the Promotion and Reciprocal Protection (the Slovakia- Greece BIT ), Greek bonds cannot be regarded as an investment. As a result, the proceedings were terminated. Poštová banka, a.s. considers this decision to be contrary to the terms of the Slovakia-Greece BIT agreement and prior arbitrary practice, whereby sovereign debt is regarded as an investment. The whole loss of the Bank from the Greek Republic bonds was accounted for in the financial statements for the year ended 31 December 2012 after prior period adjustment. On 31 July Poštová banka, a.s. filed a proposal to cancel the decision issued by The International Centre for Settlement of Investment Disputes, established by the World bank from 9 April under No. ARB/13/8. 30 June Carrying value 30 June Fair value Reclassified assets from held-to-maturity portfolio to available-for-sale portfolio 50,302 62,476 50,302 62,

56 b) Securities available for sale Debt securities: Equity securities: Slovak government bonds 212, ,192 Government bonds of EU member countries 375, ,774 Mortgage bonds 23,558 Corporate bonds 53, , , ,494 Corporate equity securities and mutual funds 191, ,161 Other 5, , ,284 Less allowances for impairment (5) 196, , , ,773 Summary financial information of the jointly controlled entity***: Statement of financial position Current assets 1,760 out of which cash and cash equivalents 1,070 Non-current assets 278 Total assets 2,038 Current liabilities 1,079 out of which current financial liabilities Non-current liabilities 2 out of which non-current financial liabilities Total liabilities 1,081 Net assets 957 Group s share on net assets 383 Income statement Revenues 3,051 out of which interest income Expenses (2,631) 12. Investment in jointly controlled entity A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. On 10 February 2012 new jointly controlled entity of Poštová banka, a.s. with 40 % share and Slovenská pošta with 60 % share on share capital, SPPS, a.s. was established. The company provides mainly modern payment system services. The jointly controlled entity is revalued using the equity method. out of which depreciation and amortization (79) out of which interest expense (15) Profit before tax 420 Income tax (92) Profit after tax 328 Total comprehensive income for the year 328 Group s share on profit after tax 131 *** Preliminary unaudited financial statements for are not significantly different to audited statements

57 13. Property and equipment Cost Land and buildings Furniture, fittings and equipment Motor vehicles Assets not yet in use Total As at 1 January 22,295 24,468 4,777 1,424 52,964 Additions 4,075 4,075 Transfers 1,843 3, (4,652) 646 Disposals (5,805) (1,422) (720) (7,947) Wasted investment (7) (7) As at 31 December 18,333 26,410 4, ,731 Accumulated depreciation As at 1 January (11,934) (16,757) (2,653) (31,344) Depreciation for the year (1,642) (2,356) (919) (4,917) Disposals 6, ,314 Impairment loss allowance (686) (686) As at 31 December (7,870) (18,805) (2,958) (29,633) Net book value As at 31 December 10,463 7,605 1, , Intangible assets Cost Goodwill VOBA Software Assets not yet in use DAC Total As at 1 January 10,435 3,168 40,852 2,089 8,879 65,423 Additions 5,102 5,102 Transfers 5,813 (5,510) 1,209 1,512 Disposals (1,900) (31) (1,848) (3,779) As at 31 December 8,535 3,168 46,634 1,681 8,240 68,258 Accumulated amortisation At 1 January (2,924) (1,368) (28,113) (3,866) (36,271) Amortisation (378) (4,112) (1,228) (5,718) Disposals Impairment release As at 31 December (2,924) (1,746) (32,201) (4,230) (41,101) Net book value As at 31 December 5,611 1,422 14,433 1,681 4,010 27,157 The Group uses fully depreciated tangible assets with acquisition cost of 12,322 thousand (in : 14,396 thousand) as at 31 December. Property and equipment is insured against natural disasters, malicious damage, theft and robbery. Motor vehicles are insured through motor third-party liability and casco insurance. Property and equipment is insured up to 22,307 thousand (in : 23,785 thousand). The Group s property is not pledged. Cost Land and buildings Furniture, fittings and equipment Motor vehicles Assets not yet in use Total As at 1 January 22,842 23,118 4, ,328 Acquisition through Business Combination 9 9 Additions 6,698 6,698 Transfers 809 2, (4,440) Disposals (1,356) (1,419) (883) (1,413) (5,071) As at 31 December 22,295 24,468 4,777 1,424 52,964 Accumulated depreciation As at 1 January (12,087) (15,005) (2,578) (29,670) Depreciation for the year (922) (2,967) (931) (4,820) Disposals 1,075 1, ,146 As at 31 December (11,934) (16,757) (2,653) (31,344) Net book value The Group tests goodwill for impairment once a year. As at 31 December the goodwill was not impaired based on the financial results of subsidiaries. The Group uses fully depreciated intangible assets with acquisition cost of 20,062 thousands (in : 16,105 thousands). Cost Goodwill VOBA Software Assets not yet in use DAC Total As at 1 January 8,535 3,168 34,075 4,801 8,549 59,128 Acquisition through Business Combination 1,900 1,900 Additions 5,130 1,338 6,468 Transfers 7,899 (7,842) 57 Disposals (1,122) (1,008) (2,130) As at 31 December 10,435 3,168 40,852 2,089 8,879 65,423 Accumulated amortisation At 1 January (2,924) (990) (26,236) (2,790) (32,940) Amortisation (378) (3,088) (652) (4,118) Disposals 1,211 1,211 Impairment creation (424) (424) As at 31 December (2,924) (1,368) (28,113) (3,866) (36,721) Net book value As at 31 December 7,511 1,800 12,739 2,089 5,013 29,152 As at 31 December 10,361 7,711 2,124 1,424 21,620 The value of business acquired (VOBA) relates to an acquisition of a subsidiary in

58 Goodwill PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s. 4,137 4,137 Poisťovňa Poštovej banky, a. s. 1,474 1,474 Salve Finance, a.s. 1,900 As of 31 December 5,611 7,511 Goodwill related to Prvá penzijná správcovská spoločnosť, a.s. includes goodwill related to a majority (100 %) shareholding of 9,230 thousand. The amount of goodwill when purchasing the shares amounted to 7,061 thousand, after recognition of impairment in 2006 its amount is 4,137 thousand. Goodwill related to Poštová poisťovňa, a.s. includes goodwill related to a majority (100 %) shareholding of 11,411 thousand arisen in 2008 on the acquisition of this subsidiary operating in the field of insurance. The initial amount of goodwill amounted to 1,474 thousand. On 24 June PB Partner, a.s. sold its share in Salve Finance, a.s. which resulted in decrease of goodwill of 1,900 thousand. Goodwill is tested for impairment annually or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. Management considers both companies to be separate cash generating units for the purposes of impairment testing. The basis on which the recoverable amount was determined for both subsidiaries is value in use. Value in use is estimated from the expected future cash flow projections based on the most recent budgets approved by senior management. The discount rate applied to future cash flows projections are adjusted by a projected growth rate. The discount rate and projected growth rate were determined with respect to the field and the territorial scope of business. The following discount rates are used by the Group: PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s % 7.25 % Poisťovňa Poštovej banky, a. s % % Salve Finance, a. s % 15. Deferred tax asset Recognised deferred tax asset and deferred tax liabilities The deferred tax asset and deferred tax liabilities for the Group`s subsidiaries in Slovakia are calculated using a corporate income tax rate of 22 % (: 22 %) are as follows: Deferred tax asset Deferred tax asset Assets/(liabilities) Assets/(liabilities) Assets/(liabilities) Property and equipment (369) (179) Bonuses Provisions for litigations and claims 29 Provision for off-balance sheet liabilities 431 Impairment losses on receivables 8,086 11,727 Impairment losses on other receivalbes 62 Impairment losses for investment in subsidiaries 217 Discount on assigned receivables Discount on rental contracts Discount from sale of share 8 Investment securities available for sale (4,449) (1,939) Tax losses carried forward 7,296 10,931 Other 1, As at 31 December 14,265 21,817 The deferred tax asset and deferred tax liabilities for the Branch in the Czech Republic (calculated using a corporate income tax rate of 19 %) are as follows: Assets/(liabilities) Property and equipment (2) (2) Bonuses As at 31 December 8 17 Projected growth rate was estimated at 3% for both entities. The calculation of value in use for the subsidiaries considers the following key assumptions: interest margins, discount rates, risk margins market share during the forecast period, projected growth rates used to extrapolate cash flows beyond the forecast period. Discount rates were determined using the Capital asset pricing model ( CAPM ). The impairment calculation is most sensitive to market interest rates, expected cash flows and projected growth rate. Deferred tax liabilities for the Group are calculated using a corporate income tax rate of 22 % (: 22 %): Deferred tax asset Assets/(liabilities) Assets/(liabilities) Property and equipment 7 Securities available-for-sale 291 Other 19 As at 31 December

59 Movements in deferred tax: 16. Tax receivable Tax receivable 4, A part of tax receivable is a tax receivable of the Czech branch in the amount of 740 thousands. 17. Other assets As at 1 January 21,834 21,624 Through profit or loss (note 41) (5,065) 902 Charged to other comprehensive income (note 41) (2,813) (692) As at 31 December 13,956 21,834 Factoring 30,021 15,763 Other debtors 14,252 16,019 Items from clearing from post offices 9,717 17,522 Deferred expenses 9,538 10,367 Prepayments 6,002 1,631 Receivable from transfer of business share 3,345 Other 2, Receivables from funds 1,140 1,276 Insurance receivable 1, Accrued income Assets from reinsurance Inventories Receivables from real estate companies Operational leasing ,497 65,192 Allowances for impairment (1,940) (1,242) 77,557 63, Deposits by banks Repayable on demand 2,590 13,475 Collateral 1,340 As at 31 December 3,930 13, Customer accounts Repayable on demand 1,506,659 1,307,177 Other deposits with original contractual maturity dates or periods of notice, by agreed maturity: - up to 3 months 1,030,521 1,018,039-3 months to 1 year 356, ,701-1 year to 5 years 611, ,724 - above 5 years 1,315 1,361 As at 31 December 3,506,955 3,557, Received loans Loan from bank 4,650 5,000 Received loans 2, As at 31 December 6,820 5,051 A loan in amount of 4,650 thousand was granted by Eximbanka, a.s. to the company PB Finančné služby, a.s. with interest rate of 1M EURIBOR %. The loan maturity is on 28 April 2016, prolongation of the loan on annual basis is being prepared. OTP Bank Slovensko, a.s. provided loan in amount of 2,170 thousand to PB Finančné služby, a.s. with interest rate 1M EURIBOR %. The loan maturity is on 6 May 2016, prolongation of the loan on annual basis is being prepared. 21. Provisions for off balance sheet liabilities Items from clearing from post offices comprise deposits and other transactions of the Bank s customers that have been made in post offices and not received by the Bank at the end of the reporting period. Generally, these items clear within three days. The movements in provisions were as follows: The movements of allowances for impairment were as follows: As at 1 January 1,242 1,213 Increase As at 31 December 1,940 1,242 As at 1 January Creation 2, Release of provisions (144) (46) As at 31 December 1, Provisions were created for off balance sheet financial liabilities

60 22. Provisions for insurance contracts The movements on the social fund account included in Liabilities to employees were as follows: Life insurance provision 9,683 7,481 Unearned premium provision Claim provision As at 31 December 11,097 8,805 The movements in provisions were as follows: 23. Tax liabilities 24. Other liabilities Income tax payable ,779 At 1 January 8,805 6,888 Release of provisions: - Unearned premium (note 36) Life insurance (note 39) 2,203 1,950 - Claims (note 39) 49 (99) As at 31 December 11,097 8,805 Other creditors 23,953 13,950 Liabilities to employees 6,200 4,399 VAT, payroll and other tax liabilities 1,766 2,159 Withholding taxes payable 1,469 1,760 Other liabilities 1, Advances received 298 1,428 As at 1 January Creation of social fund Usage of social fund (861) (368) As at 31 December Subordinated debt 26. Share capital Subordinated debt 8,000 8,000 Accrued interest ,013 8,013 The Group entered into a subordinated debt agreement with J&T BANKA, a.s. on 21 September 2011 for 8,000 thousand. This loan will mature in 2021 and bears interest of 5.34 % p. a. In the event of bankruptcy or liquidation of the Group, the loan will be subordinated to the claims of all other creditors of the Group. As at 1 January 366, ,305 Increase in share capital 60,000 As at 31 December 366, , Share premium As at 1 January Usage of share premium (57) As at 31 December Liabilities from insurance and reinsurance Accrued income 117 4,642 Liabilities from finance leases 84 Liabilities to shareholders 8 As at 31 December 35,217 29,

61 28. Reserves and retained earnings Revaluation reserve Legal reserve fund Retained earnings Translation reserve Total 29. Contingencies, commitments and derivative financial instruments Contingencies: Guarantees to customers 205, ,180 Guarantees to banks 54,198 37,748 As at 1 January 4,673 24, ,389 (783) 156,691 Transfer to legal reserve fund 7,011 (7,011) Revaluation gain on securities Available-for-sale 2,456 (2,456) Translation difference from foreign operations (172) (172) Profit for the year 43,924 43,924 As at 31 December 7,129 31, ,302 (955) 202,899 As at 1 January 7,192 31, ,302 (955) 202,899 Irrevocable letters of credit 16,800 18,900 Other commitments: Confirmed credit lines 301, ,910 Derivative financial instruments (note 7) Liabilities from trading derivatives 328, ,229 Liabilities from hedging derivatives 203,610 1,109, ,967 Transfer to legal reserve fund 4,544 (4,544) Paid dividends to shareholders (30,117) (30,117) Revaluation gain on securities available for sale 9,931 9,931 Translation difference from foreign operations Minority shares sale of subsidiary 2,903 2,903 Other movements (20) (25) (45) The breakdown of contingencies and commitments by country is as follows: Guarantees to clients Irrevocable letters of credits Confirmed credit lines Guarantees to clients Irrevocable letters of credits Confirmed credit lines Profit for the year 48,728 48,728 As at 31 December 17,060 35, ,247 (594) 234,660 a) Legal reserve fund Under the Slovak Commercial Code, all companies are required to maintain a legal reserve fund to cover future adverse financial conditions. The Group is obliged to contribute an amount to the fund each year which is not less than 10 % of its annual net profit until the aggregate amount reaches a minimum level equal to 20 % of the issued share capital. The legal reserve fund is not readily distributable to shareholders. Slovak Republic 247,684 16, , ,491 18, ,749 Czech Republic 7,206 24,179 2,749 64,404 European Union countries Other European countries 4, ,688 2,757 6 Total 259,701 16, , ,928 18, ,910 b) Revaluation reserve The revaluation reserve represents the cumulative net change in the fair value of available-for-sale investment securities net of deferred tax. c) Translation reserve of foreign operations The translation reserve comprises all foreign exchange rate differences arising from the translation of the financial statements of foreign operations

62 The breakdown of contingencies and commitments by sector is as follows: 31. Interest expense Guarantees to clients Irrevocable letters of credits Confirmed credit lines Guarantees to clients Irrevocable letters of credits Confirmed credit lines Deposits by banks (93) (161) Customer accounts (40,301) (46,534) Debt securities and Bills of exchange (301) (618) Central Bank and banks 30. Interest income 205,503 1, ,180 Energy 5,686 1,857 Telecommunications 15,350 17,520 Wholesale 3,017 36,798 1,948 2,635 Retail 9,526 13,140 Manufacturing 12, ,440 Construction 11,664 6,339 1, Services and good sale 3,394 16,800 49,802 4,176 18,900 66,685 Financial services 20,162 57,724 9,787 11,584 Healthcare Rent 27, Households 105, ,060 Total 259,701 16, , ,928 18, ,910 Deposits at the Central bank Deposits at the banks Loans and advances to customers 186, ,057 Financial investments held to maturity 20,389 29,364 Financial investments available for sale 11,743 23,793 Trading assets Debt securities and bills of exchange 12,610 6,051 Hedging derivatives interest risk (102) Other , ,255 Accrued interest for impaired loans of 12,403 thousands for the period ended 31 December (: 9,713 thousand) is also included under interest income caption. Subordinated debt (427) (427) Other (46) (42) 32. Fee and commission income (41,168) (47,782) Administration and custody of securities 1,268 1,001 Loans, credit limits, guarantees and letters of credit 5,148 4,684 Clearing operations banks 2,971 2,082 Payments and accounts management 29,708 30,639 Activities related to management of investment and pension funds 14,989 12,989 Other 8,464 5, Fee and commission expense* 34. Net trading income 62,548 56,619 Administration and custody of securities (219) (234) Other transaction and settlement fees (25,291) (24,865) Special levy for banking institutions (7,183) (10,299) Resolution fund (1,573) Deposit protection fund (901) (3,393) (35,167) (38,791) Financial assets held for trading (3,117) 165 Financial assets available for sale 7,694 10,417 Foreign currency transactions 4, Results from hedging interest rates derivatives 1,130 Results from hedged items financial investments available for sale (1,130) Other (1,942) 20 6,656 11,

63 35. Net other (loss)/income* Net loss from assigned receivables (1,982) (14,313) Investments 20 Rental income 1,002 (542) Revenues from leasing* 1,205 1,424 Revenues from factoring* 1, Reimbursements received Net (loss)/profit from disposals of property and equipment Shortages and damages (404) (153) Other 2,657 9,157 The costs of services provided by the statutory auditor (including VAT) were as follows: 38. Depreciation and amortisation Audit (including other regulatory assurance services) (560) (626) Other advisory (43) (560) (669) Property and equipment (note 13) (4,917) (4,820) Intangible assets (note 14) (5,718) (4,118) (10,635) (8,938) 36. Net earned premium 3,871 (3,634) 39. Claim costs 37. Administrative expenses Gross premium written 11,829 10,805 Change in unearned premium provision ('UPR') (note 22) (40) (66) Written premium ceded (596) (569) Reinsurers' share in the change in UPR ,194 10,186 Wages and salaries (including bonuses) (35,208) (34,610) Social expenses (11,619) (11,770) Personnel costs (46,827) (46,380) Marketing expenses (4,752) (5,622) Services (15,775) (12,348) Rent (8,163) (5,865) Other administrative expenses (2,117) (5,272) Material expenses (2,246) (2,575) Operating expenses (996) (4,976) Other services (2,438) (7,360) (83,314) (90,398) Average number of employees for the period 1,393 1,364 of which, management Claims paid (1,860) (1,489) Claims paid ceded Change in claim provisions (note 22) (49) 99 Change in claim provisions ceded (18) (58) Change in life insurance provision (note 22) (2,203) (1,950) 40. Impairment losses and creation of provisions (4,073) (3,307) Impairment losses on loans and advances (note 10) (67,680) (79,724) Impairment losses on investment securities (note 11) (5) Impairment losses on tangible assets (note 13) (686) Reversal of impairment losses on intangible assets (note 14) 424 (424) Impairment losses on other assets (note 17) (698) (29) Creation of provisions for off balance sheet liabilities (note 21) (1,894) (14) 41. Income tax (70,534) (80,196) Current income tax expense payable (16,942) (21,154) Correction of previous period (144) Deferred tax (note 15) (5,065) 902 Total income tax expense (22,151) (20,252) Tax is charged on the taxable profit for the year of each company in the Group at a rate of 22 % (: %). 125

64 Income tax recognised in other comprehensive income: Reconciliation of the effective tax rate: Total income tax Tax base Tax at 22 % Tax base Tax at 22 % Profit before taxation 71,049 15,631 62,240 14,132 Tax deductible items: Available-for-sale financial assets (before tax) 11,665 3,148 Change of fair value of hedging derivatives (before tax) 1,130 Income tax (note 15) (2,813) (692) Net of tax 9,982 2,456 Dividend income (7,694) (1,693) (5,999) (1,320) Fees for loans and advances to clients taxed in previous periods Difference between tax and accounting depreciation (10) (2) (223) (49) Bonuses and provisions (3,569) (785) Other provisions (144) (32) Income from write-off of receivables (1,047) (230) (528) (116) Release of impairment loss allowances (48,538) (10,678) Other (7,226) (1,590) (4,162) (915) Total tax deductible items (68,228) (15,010) (10,912) (2,400) Tax non-deductible items: Impairment losses on loans and advances to clients, net 54,510 11,992 46,425 10,213 Difference between tax and accounting depreciation Bonuses and provisions 4, Other provisions 8,955 1,970 Other 22,254 4,896 11,864 2, Profit/(loss) before changes in operating assets and liabilities Profit after taxation 48,898 43,924 Adjustments for non-cash items: Depreciation and amortisation 10,635 8,938 Impairment losses on loans and advances to customers 67,680 79,724 Investment revaluation 12,795 3,148 Impairment of other assets Impairment losses on investment securities 5 Impairment losses on tangible assets 686 (Release)/creation of provision to intangible asset (424) 424 Profit on disposal of property and equipment (88) (40) Creation of provisions for off-balance sheet 1, Creation of provision for insurance contracts 2,292 1,917 Income tax 17,086 21,154 Change in deferred tax for 5,065 (902) Translation difference on foreign operations 361 (172) Other non-cash operations 2,004 Net cash flow from operating activities includes the following cash flows: 169, ,163 Interest received 261, ,146 Interest paid (48,997) (66,243) 212, ,903 Total non-deductible items 90,645 19,942 58,458 12,860 Income tax expense before utilizing tax losses 20,563 24, Lease commitments and receivables Utilization of tax losses (3,634) (3,614) Income tax expense 16,929 20,979 Minimum value of leasing payments Correction of previous period 144 Withholding tax Deferred tax 5,065 (902) Total income tax 22,151 20,252 Effective tax rate % % Many parts of Slovak tax legislation remain untested and there is uncertainty about the interpretation that the tax authorities may apply in a number of areas. The effect of this uncertainty cannot be quantified and will only be resolved as legislative precedents are set or when the official interpretations of the authorities are available. Receivables from leasing less than 1 year 3,659 12,120 more than 1 year but less than 5 years 7,696 5,002 more than 5 years Deduction of future financial income (unrealized income on finance leases) 12,042 18,111 (2,120) (3,418) Present value of future leasing payments 9,922 14,693 Impairment loss allowances (457) (389)

65 Present value of leasing payments Receivables from leasing up to 1 year 3,524 9,904 more than 1 year but less than 5 years 5,810 4,077 more than 5 years Present value of future leasing payments 9,922 14,693 Impairment loss allowances (457) (389) Lease commitments Present value of minimum lease payments: up to 1 year 3,769 3,669 up to 5 years Related party transactions 3,783 3,772 Parties are considered to be related if one party has the ability to control the other party or if it has through its financial and operational decisions significant influence over the other party. Related parties include subsidiaries and jointly controlled entity as well as key management personnel and their close persons. The following person or companies meet the definition of related parties: (a) Companies that directly or indirectly through one or more intermediaries control or are controlled have significant influence or are under joint control of the reporting company; (b) Affiliated company in which the parent company has significant influence and which is not a subsidiary nor a joint venture; (c) Individual owning directly or indirectly share in the voting right of the Group that gives them significant influence over the Group and any other individual who may be expected to influence or be influenced by that person in their dealings with the Group; (d) Key management personnel, i.e. persons having authority and responsibility for planning management and controlling activities of the Group including directors and managing employees of the Bank and persons related to them; (e) Companies in which a significant share of voting rights is owned directly or indirectly by any person described in point (c) or (d) or over which such party may have a significant influence. This includes companies owned by directors or major shareholders of the Group and companies that have key member of management common with the Group. a) Shareholders J&T FINANCE GROUP SE.; PBI, a.s. (J&T BANKA a.s. up to 28 December ) Loans and advances to customers Loans and advances to banks 30,141 32,475 Other assets 8 3,070 Liabilities from trading (17) Deposits banks (110) Customer accounts (2,018) (10,022) Subordinated debt (8,013) (8,013) Interest income 179 Other income 67 Net trading income 3,419 2,454 Loss from financial operations (4,900) (2,055) Interest expense (427) Fee and commission expense (7) (443) b) Companies related to Group shareholders Companies related to J&T FINANCE GROUP SE; PBI, a.s. (J&T BANKA a.s. up to 28 December ) Investment securities Loans and advances 52 Loans and advances to banks 32 Customer accounts (24) Other liabilities (2) Net profit from financial operations 81 Interest income 2,101 2,043 Interest expense (83) Operational expenses (13) Operational income (8) c) Jointly controlled entity SPPS, a. s. Other receivables Customer accounts (1,249) (782) Other income Fee and commission expense (1,723) (1,251)

66 d) Key management personnel (KMP) and related parties to KMP KMP e) Others Loans and advances to customers 8 Customer accounts (793) (664) Income 3 13 Expense (2,294) (3,271) Close persons to KMP Loans and advances to customers 29 Customer accounts (247) (316) Income 1 2 Expense (5) (4) Investment securities 1, Loans and advances to customers Customer accounts (2,727) (5 407) Net profit from financial operations 2 31 December Financial assets Carrying value Level 1 Level 2 Level 3 Fair value Cash and balances at central banks 570, , ,697 Trading assets 2,106 1, ,106 Hedging derivatives 1,242 1,242 1,242 Loans and advances to banks 2,482 2,482 2,482 Loans and advances to customers 2,134,022 2,284,766 2,284,766 Investment securities 1,326, , ,765 57,481 1,382,822 From which: Available for sale 861, ,576 23,558 57, ,615 From which: Held to maturity 464, , ,207 Investment in jointly controlled entity Other assets (only financial) 60,132 60,132 60,132 Financial liabilities Trading liabilities Hedging derivatives Deposits by banks 3,930 3,930 3,930 Customer accounts 3,506,955 3,520,816 3,520,816 Loans received 6,820 6,820 6,820 Subordinated debt 8,013 8,840 8,840 Other liabilities (only financial) 30,372 30,372 30,372 Interest income 4, Fees and commission income 1,861 Net loss from financial operations (151) Expenses (14) (29) 31 December Financial assets Carrying value Level 1 Level 2 Level 3 Fair value Total remuneration and bonuses paid to members of the Supervisory Board and Board of Directors in was 2,028 thousand (: 3,528 thousand). 45. Custodial services The Group administers assets received into its custody from customers totalling 218,627 thousand (: 135,638 thousand). The assets comprise securities and other valuables. 46. Fair values 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. The estimated fair values of the Group s financial assets and liabilities were as follows: Cash and balances at central banks 366, , ,894 Trading assets 2,370 1, ,370 Loans and advances to banks 1,806 1,806 1,806 Loans and advances to customers 2,283,715 2,551,047 2,551,047 Investment securities 1,416, , , ,476 1,512,494 From which: Available for sale 823, , , ,773 From which: Held to maturity 593, , ,721 Other assets (only financial) 52,480 52,480 52,480 Financial liabilities Trading liabilities Deposits by banks 13,475 13,475 13,475 Customer accounts 3,557,002 3,580,568 3,580,568 Loans received 5,051 5,051 5,051 Subordinated debt 8,013 8,033 8,033 Other liabilities (only financial) 18,494 18,494 18,

67 The following methods and assumptions were used in estimating the fair values of the Group s financial assets and liabilities: Cash and balances at the central banks Cash and balances at the central banks represent short-term assets with maturity less than three months. Fair value of cash and balances at the central banks is identical with accounting value. Trading assets The fair values of trading assets are calculated using quoted market prices or theoretical prices determined by discounting future cash flows by reference to the relevant interest rate for the term of the instrument. Hedging derivatives The fair value of hedging derivatives is determined using quoted market prices or theoretical prices determined by discounted future cash flows by reference interbank interest rate for the relevant period of the instrument. Loans and advances to banks The fair value of current accounts with other banks approximates to book value. For amounts with a remaining maturity of less than three months it is also reasonable to use book value as an approximation of fair value. The fair values of other loans and advances to banks are calculated by discounting the future cash flows using current interbank rates. book value as approximate fair value. Subordinated debt The fair values of subordinated debt are calculated by discounting the future cash flows using current market rates and an estimate of current risk margins. Other liabilities (only financial) Other liabilities include short-term liabilities with maturity up to three months. The fair value of other assets is the same as its carrying amount. 47. information on events occurring between the balance sheet date and the date of preparation of financial statements No events with material impacts that would require adjustment or disclosure in the Financial Statements as at 31 December occured after the date of preparation of the Financial Statements. Loans and advances Loans and advances are stated net of allowances for impairment. For loans and advances to customers with a remaining maturity of less than three months it is reasonable to use book value as an approximation of fair value. The fair values of other loans and advances to customers are calculated by discounting the future cash flows using current market rates and an estimate of current risk margins. Investment securities The fair values of held-to-maturity investment securities are calculated using quoted market prices. When quoted prices are not available securities are valued by discounting future cash flows using the capital asset pricing model. Other assets (only financial) Other assets include short-term assets with maturity up to three months. The fair value of other assets is the same as its carrying amount. Trading liabilities Trading liabilities are stated using quoted market prices or theoretical prices determined by discounting future cash flows by reference to the relevant interest rate for the term of the instrument. Deposits by banks The fair value of current accounts with other banks approximates to book value. For other amounts owed to banks with a remaining maturity of less than three months it is also reasonable to use book value as an approximation of fair value. The fair values of other deposits by banks are calculated by discounting the future cash flows using current interbank rates. Customer accounts The fair values of current accounts and term deposits with a remaining maturity of less than three months approximate their carrying amounts. The fair values of other customer accounts are calculated by discounting the future cash flows using current deposit rates. Loans received Fair values of loans are calculated by discounting future cash flows using effective interbank rates. For received loans with a remaining maturity of less than three months it is reasonable to regard their

68 Branch network Danubiana

69 10. Branch network 45 own commercial locations Bánovce nad Bebravou Nám. Ľudovíta Štúra 8/8B, Bánovce nad Bebravou Banská Bystrica Dolná 62, Banská Bystrica Bardejov Hviezdoslavova 3, Bardejov Bratislava Čachtická 25, Bratislava Gorkého 3, Bratislava Karloveská 34, Bratislava Ľudovíta Fullu 3, Bratislava Nám. SNP 35, Bratislava Odborárske nám. 2, Bratislava Prievozská 2/B, Bratislava Tomášikova 21, Bratislava Vlastenecké nám. 4, Bratislava Pajštúnska 7 (Skybox), Bratislava Dvořákovo nábrežie 4, Bratislava* Brezno Nám. M. R. Štefánika 7, Brezno Dubnica nad Váhom Nám. Matice slovenskej 12/1298, Dubnica nad Váhom Dunajská Streda Bacsákova ul. 1, Dunajská Streda Humenné Nám. slobody 3, Humenné Komárno Mederčská 4987/4, Komárno Košice Škultétyho 1, Košice Toryská 3, Košice Levice P. O. Hviezdoslava 2/A, Levice Lučenec T. G. Masaryka 19, Lučenec Malacky Zámocká 8, Malacky Martin Andreja Kmeťa 5397/23, Martin Michalovce Ul. kpt. Nálepku 26, Michalovce Nitra Štefánikova trieda 65, Nitra Sládkovičova 1, Nitra Nové Mesto nad Váhom Hviezdoslavova 19, Nové Mesto nad Váhom Nové Zámky Komárňanská 2, Nové Zámky Pezinok Meisslova 1/A, Pezinok Poprad Vajanského 71, Poprad Prešov Hlavná 114, Prešov Prievidza Bojnická cesta 15, Prievidza Rožňava Janka Kráľa 4, Rožňava Skalica Potočná 20, Skalica Spišská Nová Ves Letná 51, Spišská Nová Ves Topoľčany Námestie M. R. Štefánika 21, Topoľčany Trebišov M. R. Štefánika 52, Trebišov Trenčín Nám. sv. Anny 23, Trenčín Trnava Hlavná ulica 33, Trnava Vranov nad Topľou Námestie slobody 5, Vranov nad Topľou Zvolen T. G. Masaryka 955/8, Zvolen Žiar nad Hronom Nám. Matice slovenskej 2820/24, Žiar nad Hronom Žilina Na priekope 19, Žilina * commercial location dedicated to VIP clients points of sale of Slovenská pošta More than commercial locations make us the most accessible Bank in Slovakia

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