KOMERCIJALNA BANKA A.D. BANJA LUKA

Transcription

1 KOMERCIJALNA BANKA A.D. BANJA LUKA Financial Statements for the year ended 31 December 2009 with Independent Auditors Report 2 March 2010

2 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 C O N T E N T S : Page Independent Auditors Report 1-2 Financial Statements Income Statement 3 Balance Sheet 4 Statement of Changes in Equity 5 Cash Flow Statement

3 ABCD KPMG d.o.o. Beograd Kraljice Natalije Belgrade Serbia Telephone: Fax: Internet: Agencija za privredne registre BD 7113 Matični broj Račun Raiffeisen banka a.d. Beograd PIB TO THE SHAREHOLDERS OF T R A N S L A T I O N KOMERCIJALNA BANKA A.D. BANJA LUKA Independent Auditors Report We have audited the accompanying financial statements of Komercijalne banke a.d. Banja Luka ( the Bank ), which comprise the balance sheet as at 31 December 2009, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Law on Accounting and Auditing of the Republic of Srpska (as published in the Official Gazette of the Republic of Srpska no. 67/05), Banks Law of the Republic of Srpska ("Official Gazette of the RS", no. 44/03 and 74/04) and other relevant bylaws issued by Agency for Banking of the Republic of Srpska, which regulates operation and reporting of banking sector. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We have conducted our audit in accordance with the Law on Accounting and Auditing of the Republic of Srpska (as published in the Official Gazette of the Republic of Srpska no. 67/05) and International Standards on Auditing as issued by the International Federation of Accountants, as well as in accordance with the Decision on minimum scope, form and content on economic-financial audit of banks (as published in the Official Gazette of the Republic of Srpska no. 12/03, 85/04 and 18/06) and Decision on minimum standards for banks internal and external audit function (as published in the Official Gazette of the Republic of Srpska no. 12/03). Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements KPMG d.o.o. Beograd, a Serbian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Upisani osnovni kapital Društva od EUR ,42 uplaćen, odnosno unet je u celosti. KPMG d.o.o. Beograd je jednočlano društvo.

4 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Bank as at 31. December 2009, and of its financial performance and its cash flows for the year then ended, in accordance with the Law on Accounting and Auditing of the Republic of Srpska (as published in the Official Gazette of the Republic of Srpska 67/05), Banks Law of the Republic of Srpska ("Official Gazette of the RS", no. 44/03 and 74/04) and other relevant bylaws issued by Agency for Banking of the Republic of Srpska, which regulates operation and reporting of banking sector. 2 March 2010 EI Audit d.o.o. Banja Luka Stana Jovanović Certified Auditor Tamara Stojanović Certified Auditor This is a Translation of the Original Independent Auditors Report issued in Serbian Language. We are responsible for the translation of the Independent Auditors Report and not for any other documents. 2

5 Financial Statements INCOME STATEMENT FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2009 In thousands of KM Note Interest income 3(a), 4 12,539 11,889 Interest expenses 3(a), 4 (5,470) (4,564) Net interest income 7,069 7,325 Fee and commission income 3(b), 5 3,234 3,621 Fee and commission expenses 3(b), 5 (559) (470) Net fee and commission income 2,675 3,151 Foreign exchange gains and losses, net 3(d), (285) Other income 49 9 Total 150 (276) Gross profit 9,894 10,200 Impairment and long-term provisions, net 3(g), 7 (616) (1,961) Salaries, fringe benefits and other personal expenses 8 (3,673) (3,015) Depreciation 3(e), 14 (915) (840) Other operating expenses 9 (4,472) (3,874) Profit before taxation Tax 3(i), 10 - (119) NET PROFIT The notes on pages 7 to 26 form an integral part of these Financial statements. Independent Auditors Report pages 1 and 2. 3

6 Financial Statements BALANCE SHEET AS AT 31 DECEMBER 2009 In thousands of KM Note ASSETS Cash and cash equivalents and deposits with the Central Bank 3(h), 11 85,026 71,840 Loans and advances to banks and other financial institutions 3(f), ,575 Loans and advances to customers 3(f), , ,408 Fixed and intangible assets 3(e), 14 3,163 3,404 Other assets 2,568 1,153 TOTAL ASSETS 215, ,380 LIABILITIES AND EQUITY Liabilities Deposits and borrowings from banks and other financial institutions 3(l), 15 17,098 16,217 Deposits from customers 3(l), , ,036 Other liabilities 17 2,945 2,552 Provisions 3(g), 18 5,227 5,119 Total liabilities 194, ,924 Equity 3(k), 19 Share capital 20,000 20,000 Reserves from profit Retained earnings Total equity 20,674 20,456 TOTAL EQUITY AND LIABILITIES 215, ,380 Off-balance sheet items 20 15,835 20,547 Banja Luka, 2 March 2010 Srđan Šuput Director The notes on pages 7 to 26 form an integral part of these Financial statements. Independent Auditors Report pages 1 and 2. 4

7 Financial Statements STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2009 In thousands of KM Share capital Reserves Retained earnings Total Balance as at 1 January , ,065 Profit distribution - 65 (65) - Net profit for Balance as at 31 December , ,456 - Balance as at 1 January , ,456 Profit distribution 391 (391) - Net profit for Balance as at 31 December , ,674 The notes on pages 7 to 26 form an integral part of these Financial statements. Independent Auditors Report pages 1 and 2. 5

8 Financial Statements CASH FLOW STATEMENT FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2009 Interest receipts 12,539 11,889 Fee and commission receipts 3,234 3,620 Receipt from written-off loans Cash inflows from operating activities 15,860 15,572 Interest payments (5,471) (4,564) Payments to employees and suppliers (10,196) (8,749) Cash outflows from operating activities (15,667) (13,313) Net cash inflows from operating activities before changes in placement and deposits 193 2,259 Decrease in loans and placements 18,474 - Increase in deposits from customers - 34,971 Decrease in placements and increase in deposits 18,474 34,971 Increase in loans and placements (8,104) Decrease in deposits from customers (6,612) - Increase in placements and decrease in deposits from customers (6,612) (8,104) Net cash inflows from operating activities before income tax 12,055 29,126 Income tax paid (72) (396) Net cash inflows from operating activities 11,983 28,730 Short-term placements to financial institutions - (8) Interest receipts - 19 Purchase of fixed assets (689) (757) Net outflow from investment activity (689) (746) Receipts from financing activities 1,791 - Net inflow from financing activity 1,791 - Net increase in cash and cash equivalents 13,085 27,984 Cash and cash equivalents at beginning of the year 71,840 44,141 Net foreign exchange differences 101 (285) CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 85,026 71,840 The notes on pages 7 to 26 form an integral part of these Financial statements. Independent Auditors Report pages 1 and 2. 6

9 1. Bank s foundation and operating policy Komercijalna banka a.d., Banja Luka was established in September 2006 and on 15 September 2006 was duly registered in accordance with the Decision of the Court of Banja Luka number REG The Bank s founders are Komercijalna banka a.d. Beograd (99.995%) and the Serbia and Montenegro Export Credit Agency, Belgrade (0.005%). On 23 May 2009, when the Act on the termination of the Fund for insurance and financing foreign trade operations ( "Official Gazette. Gazette of the Republic of Serbia, no. 36/09) came into the force, the Agency for insurance and financing export business of the Republic of Serbia took over business operations, as well as all assets and liabilities from the Fund s for insurance and financing foreign trade operations business operations. In the process of the Bank s registration, all conditions defined by the regulatory authorities with respect to the performance of principal banking activities were fulfilled. The Republic of Srpska Banking Agency, in accordance with its Decision number /2006 of 28 August 2006, issued to the Bank its operating license, and pursuant to Decision numbered /2006 of 25 September 2006, the Agency issued to the Bank its license to conduct international payment transactions. The Bank officially began its activities on 26 September On 1 December 2006, the Bank obtained the legal status of a member Bank of the Program for Deposit Insurance and received a certificate of membership in the Deposit Insurance Agency of Bosnia and Herzegovina. In the Republic of Srpska, the Bank is licensed to perform activities that include payment transfers, credit and deposit operations in the country and abroad and, in accordance with the Republic of Srpska banking legislation, the Bank performs its activities in accordance with liquidity, solvency and profitability principles. The Bank conducts its business from its headquarters in Banja Luka, no. 6 Veselina Masleše Street, and trough 8 branches and 7 agencies. As at 31 December 2009 the Bank had commenced operations in eight branch offices situated in the cities of: Gradiška, Brčko, Bijeljina, Pale, Trebinje, Sarajevo, Mrkonjić Grad and Tuzla, and also in its seven bank agencies, within branch offices, in the cities of: Zalužani, Nova Topola, Vlasenica, Malta, Jahorina, Laktaši and Mrkonjić Grad. Managing bodies of the Bank are: the Shareholders Assembly, the Supervisory Board and the Managing Board. As at 31 December 2009 the Bank had 128 employees (2008: 114 employees). 2. Basis for preparation of the financial statements 2.1. The financial statements of the Bank are prepared in accordance with the accounting policies disclosed in Note 3 to the financial statements which are in conformity with the accounting regulations and decrees of the Republic of Srpska, the Association of Accountants and Auditors of the Republic of Srpska, tax regulations of the Republic of Srpska and the Agency for Banking of the Republic of Srpska Decisions, based on International Accounting Standards (International Financial Reporting Standards). 7

10 The figures in the accompanying financial statements have been expressed in thousands of convertible marks (KM). The convertible mark is the official currency in the Republic of Srpska The presentation of the financial statements requires the Bank s management to make best estimates and reasonable assumptions that affect the: assets and liabilities amounts, the disclosure of contingent liabilities and receivables as of the date of preparation of the financial statements, as well as the income and expenses arising during the accounting period. These estimates and assumptions are based on information available to us, as of the date of preparation of the financial statements. However, actual results may vary from these estimates. 3 Summary of significant accounting policies Summary of significant accounting polices applied in the preparation of financial statements for 2009 are presented below. (a) Interest Income and Expenses Interest income and expenses, including penalty interest and other income and expenses related to interest bearing assets and liabilities, are computed based on the accrual principle resulting from contractually agreed terms between the Bank and the client. (b) Fee and Commission Income and Expense Fees from approval or management of loans and guarantees in domestic currency are accrued over the loan period using the straight line method. Other fees and commissions are recognized at the time of provision of service. (c) Suspended interest In accordance with effective regulations, suspended interest represents the accrued, but uncollected interest payments on assets which are classified as impaired assets (i.e., assets classified as sub-standard, doubtful and/or inherent loss). Upon classification of risk-bearing assets as impaired assets, the Bank writes down the full amount of the accrued but uncollected interest, and reverses it by forming an allowance for loan losses which is charged to the Income Statement. The Bank ceases to accrue further unpaid interest amounts on the impaired assets in its accounting records, and the accruals of the interest amounts due are booked on its offbalance sheet records, up to the moment in which the principal is fully collected. The only exception to this practice may occur in the case in which the impaired assets have been secured by first-class or quality collateral, and are concurrently in the process of being collected. (d) Foreign Currency Transactions Business transactions in foreign currencies are translated into KM at the official exchange rates prevailing at the date of each transaction. Assets and liabilities denominated in foreign currencies are translated into KM at the balance sheet date by applying the official rates of exchange in effect on that date. Contingent liabilities in foreign currencies are translated into KM at the official exchange rates prevailing at the balance sheet date. 8

11 Foreign exchange gains or losses arising upon translation are charged to revenues or expenses. Official exchange rates used in translating balance sheet items at day 31 December 2009 for significant currencies are: Currency USD CHF EUR (e) Fixed and intangible assets Fixed and intangible assets are carried at cost. Cost represents the prices billed by suppliers together with all costs incurred in bringing an asset to the location and condition necessary for its intended use. Depreciation and amortization are calculated on a straight-line basis at the following prescribed, annual minimum rates in order to write off the assets over their estimated useful lives. Description % Computer equipment 25 Furniture and other equipment Investments in other entity s fixed assets Intangible assets 20 The Bank s management believes that the amortization and depreciation rates that have been applied, fairly reflect the economic useful life of the fixed assets. The depreciation and amortization of fixed and intangible assets commences on the first date of the month following the month when assets have been activated. (f) Loans Loans are stated in the balance sheet at the amount of loans granted less principal repaid, as required by effective regulations. Policy on assessment of provisions for potential losses is presented in Note 3 (g). (g) Provisions for potential losses The provision for potential losses and contingent liabilities is based upon the risk assessment of loans, interest receivable, including penalty interest on non-performing loans, fees and other receivables, as well as on the risk-bearing balance and non-balance assets. These items are classified into categories according to their deemed recoverability, which is based on the level of overdue receivables, on the assessment of the borrower s financial position, and on the quality of any collateral secured. Provisions for potential losses and contingent liabilities are charged against income and are shown in the balance sheet as liability under long-term reserves for balance sheet and off balance sheet investments. The Supervisory Board adopted the Program of Minimum Standards for the Management of Bank Loan Risk Exposure and Categorization of Assets which prescribes rates for calculating potential losses from 2%, 5% to 15%, 16% to 40%, 41% to 60% and 100% for performing 9

12 assets, watch-list assets, substandard assets, doubtful assets or inherent loss. The applied provisioning rates are in compliance with the Banking Agency s Decision pertaining to the Minimum Standards for the Management of Bank Loan Risk Exposure and Categorization of Assets. Uncollectible debts are written off based upon a court decision, agreement between interested parties, or Supervisory Board s decisions. (h) Cash and cash equivalents Cash, Balances with the Central Bank, Foreign currency accounts with foreign and domestic banks and Term deposits up-to-30 days held with foreign and domestic banks are all considered to be cash equivalents for the purposes of the Cash Flow Statement. (i) Income Taxes Income tax represents an amount calculated as prescribed under the Republic of Srpska Tax Law. The statutory tax base which is used to compute the income tax liability at a rate of 10% (2008:10%) is specified in the Bank s tax balance. The taxable income reported in the tax returns includes the profit shown in the statutory statement of income and any adjustments for permanent differences made thereto, as defined under the Republic of Srpska s Tax Law. The income tax amount may be decreased by certain tax facilities envisaged under the effective income tax regulations. In accordance with the Law on Income Tax of the Republic of Srpska, beginning from 1 January 2007 tax loss, representing the negative difference between income and expenses in the process of determining the tax base, will be transferred and recovered in subsequent periods up to five years through deduction from the tax base. (j) Fair Value The accompanying financial statements are prepared on a historical cost basis, including adjustments and provisions made to reduce assets to their estimated recoverable amounts. It is the Bank s policy to disclose the fair value information of those financial assets and financial liabilities for which published market information is materially different from their recorded amounts. Sufficient market experience, stability and liquidity do not exist for the purchase and sale of loans and other financial assets or liabilities, given that published market information is not readily available. Hence, fair value cannot be determined reliably. In the opinion of management, the reported recoverable amounts represent the most valid and useful reporting values, given the existing market conditions. (k) Equity Equity consists of shareholders equity, reserves and retained earnings. Shareholders equity is formed from founder s stakes in cash. The Bank uses equity for banking operations and risk coverage. 10

13 (l) Deposits Deposits are stated in the amount of received deposits that can be increased for the amount of calculated interest, depending on stipulated obligations between the depositor and the Bank. Deposits in foreign currencies are stated in KM using the average official exchange rate ruling at the balance sheet date. (m) Segment reporting The Bank performs most of its operations in the Republic of Srpska. Analysis of the Bank's placements to industry concentrations is presented in Note Net interest income Net interest income relate to: Interest income Balances with the Central Bank Balances with other banks 1, Loans to other corporate customers 7,245 7,143 Loans to retail customers 3,541 3,664 Total interest income 12,539 11,889 Interest expenses Balances with the Central bank (10) - Deposits and borrowings from banks and other financial institutions (590) (1,131) Deposits from corporate customers (4,117) (2,825) Deposits from retail customers (708) (570) Deposits from other customers (45) (38) Total interest expenses (5,470) (4,564) Net interest income 7,069 7,325 11

14 5 Net fee and commission income Net fee and commission income and expenses relate to: Fee and commission income Fee arising from payment transfers 1,063 1,116 Loan administration fees corporate 1,007 1,224 Loan administration fees retail Commissions from approved guarantees and other pledges Foreign exchange business Other bank services Total fee and commission income 3,234 3,621 Fee and commission expenses Fees to Central Bank (176) (144) Fees to Agency for banking business (163) (162) Fees for payment transfers (109) (121) Fees for business card operations (80) (41) Other fees (31) (2) Total fee and commission expenses (559) (470) Net fee and commission income 2,675 3,151 6 Foreign exchange gains and losses, net Foreign exchange gains and losses are presented as follows: Foreign exchange gains Cash and foreign accounts Deposits Foreign exchange operations retail Other foreign exchange operations Total foreign exchange gains Foreign exchange losses Cash and foreign accounts (208) (344) Deposits (94) (205) Foreign exchange operations - retail (252) (254) Other foreign exchange operations (65) (248) Total foreign exchange losses (619) (1,051) Foreign exchange gains/(losses), net 101 (285) 12

15 7 Impairment and long-term provisions, net 7.1. Structure of impairment and long-term provisions is as follows: Loans 3,939 3,001 Interest receivables and other risk-bearing assets Potencijalne obaveze Impairment provision general and specific 5,248 3,197 Release of impairment provision (4,632) (1,321) Provision for retirement benefits - 85 Total 616 1, Movements on impairment provision are presented in the following table: In thousands of KM Loans Interest receivables and other risk-bearing asset Off-balance sheet assets Total Balance as at 1 January , ,858 Impairment provision 4, ,248 Release of allowance for long-term provisions for potential losses (3,533) (407) (692) (4,632) Other (439) (24) (26) (489) Balance as at 31 December , ,985 Out of total amount of long-term provision for potential losses, provision for balance sheet assets amounts KM 4,575 thousand (2008: KM 4,400 thousand), while KM 410 thousand (2008: KM 458 thousand) relates to long-term provision for off balance sheet items. Long-term provision for potential losses for balance sheet assets and off balance sheet items are presented with liabilities 8 Salaries, fringe benefits and other personal expenses Net wages and salaries 2,261 1,885 Taxes and contributions on salaries and fringe benefits 1,222 1,011 Other expenses Total 3,673 3,015 13

16 9 Other operating expenses Other operating expenses are presented in following table: Material costs Rental costs for business premises 1,495 1,346 Costs of maintenance for fixed assets Transportation costs money transport Telecommunication costs Other costs of production services Advertising and promotion costs Insurance premium General and administrative costs Sponsorship costs Other costs of non-production services Tax expenses Contribution costs Other expenses Total 4,472 3, Tax According to Bank s tax balance for the year ending 31 December 2009, Bank has liability for current income tax, presented as follows: Profit before taxation Adjustments of expenses (1,754) - Non deductable expenses Tax base (700) 1,193 Taxation at 10% (2008: 10%) Tax credit - - Tax liability as at 31 December

17 11 Cash and cash equivalents and deposits with the Central bank Cash and cash equivalents and deposits with Central bank comprise: In domestic currency Depository accounts at depository institutions in country 9 38 Obligatory reserve with the Central Bank 64,572 62,502 Cash on hand 2,063 2,311 Total in domestic currency 66,644 64,851 In foreign currency Deposit accounts at foreign deposit institutions 17,005 4,726 Cash on hand 1,359 2,244 Other Total in foreign currency 18,382 6,989 Balance as at 31 December 85,026 71,840 In accordance with the Central Bank of Bosnia and Herzegovina s Decision on Reserve Requirement, the Bank is required to calculate and maintain an obligatory reserve for deposits and borrowed funds. Obligatory reserve is calculated by applying prescribed rates on a ten-day average basis of deposits and borrowed funds in ten-day period prior to the period of maintenance. Obligatory reserve rate prescribed by the Central Bank of Bosnia and Herzegovina until 20 April 2009 was 14% for deposits and borrowings with maturity up to one year and 10% for deposits and borrowings with maturities over one year. Starting from 21 April 2009, the Central Bank of Bosnia and Herzegovina applies obligatory reserve rate of 14% for deposits and borrowings with maturity up to one year and 10% for deposits and borrowings with maturities over one year. This reserve are available for liquidity purposes. The Central Bank pays commission on the amount of the obligatory reserve deposited on the account with Central Bank in the manner specified under the Decision. 12 Loans and advances to banks and other financial institutions Loans and advances to banks and other financial institutions are as follows: Matured loans Loans with maturity up to one year 60 2,001 Current portion of long-term loans Loans with maturities over one year Balance as at 31 December 392 2,575 15

18 13 Loans and advances to customers Structure of loans and advances to customers as at 31 December 2008 is as follows: Matured loans 2,912 2,816 Loans with maturity up to one year 23,750 30,139 Current portion of long-term loans 24,968 22,184 Loans with maturities over one year 72,500 85,269 Balance as at 31 December 124, , Structure of loans and advances to customers by type of customer is presented as follows: Loans to government and government institution 4,870 4,578 Public and state owned companies 2,684 1,835 Other legal entities 62,962 76,437 Foreign legal entities 4,889 5,003 Individuals 48,593 52,555 Other customers Balance as at 31 December 124, ,408 Loans to enterprises are primarily granted at interest rates ranging from 2.00% to 14.45% for long-term and short-term placements Loans to retail customers are granted at interest rates ranging from 3.00% to 14% for longterm and short-term placements. Short-term loans to retail customers are primarily granted for the purpose of general consumption and the small portion are granted for financing of activities, while long-term loans, are granted for residential housing purposes. Loans in foreign currency represent only 3.93% (2008: 8.35%) of total receivables for loans, and amount KM 4,907 (2008: 11,730 thousand). The impairment provision for above presented loans, as well as for the interest receivables as at 31 December 2009 is KM 4,486 thousand (2008: KM 4,343 thousand), while for the other assets impairment provision amounts to KM 89 thousand (2008: KM 57 thousand). The geographic sector risk concentrations within the customer loan portfolio were limited mainly to the Republic of Srpska. 16

19 14 Fixed and intangible assets Movements on fixed and intangible assets in 2009 are presented as follows: In thousands of KM Licenses and similar rights Investments in other s property Computers Other equipment Investments in progress Total Cost Balance as at 1 January , , ,963 Purchases Transfer from/to (501) - Write-offs - - (8) (5) - (13) Balance as at 31 December , , ,631 Accumulated depreciation Balance as at 1 January ,559 Depreciation Write-offs - - (6) - - (6) Balance as at 31 December ,468 Net book value as at 31 December , ,163 Net book value as at 31 December , ,404 As at 31 December 2009, equipment is insured from fire. As at 31 December 2009, the Bank has no fixed assets under mortgage for securing loans. 17

20 15 Deposits and borrowings from banks and other financial institutions Deposit structure by currency and maturity is given in the following table: Deposits in domestic currency Demand deposits 1,335 1,535 Short-term deposits 4,400 1,299 Current portion of long-term deposits 3,076 11,400 Long-term deposits 5,749 1,100 Total deposits in domestic currency 14,560 15,334 Deposits in foreign currency Demand deposits Current portion of long-term deposits Long-term deposits Total deposits in foreign currency Borrowings 1,791 - Balance as at 31 December 17,098 16,217 Interest rate on deposits from banks and other financial institutions was in the range from 0% to 6.20%. Borrowings in the amount of KM 1,7091 thousands (2008.: nill) represent loans approved on the basis of the Framework Agreement on bussiness-tehnical cooperation, which the Bank has signed on 15 July 2008 with the Investment and Development Bank of Republic of Srpska a.d. Banja Luka. Loans from these funds are granted to companies and individuals in accordance with the Framework Agreement and the Rules on loans granting, which determinate loan terms. However, separate loan contract should be signed for each loan granted from these funds. Interest rate on these loans range from 2% to 3.2% annually. 18

21 16 Deposits from customers Deposit structure by currency and maturity is given in the following table: Deposits in domestic currency Demand deposits 54,623 59,731 Short-term deposits 13,047 20,000 Current portion of long-term deposits 2,094 15,855 Long-term deposits 23,774 2,301 Total deposits in domestic currency 93,538 97,887 Deposits in foreign currency Demand deposits 9,054 36,194 Short-term deposits 52,051 38,107 Current portion of long-term deposits Long-term deposits 14,164 2,623 Total deposits in foreign currency 75,797 77,149 Balance as at 31 December 169, , Deposits structure by customers is following: Educational institutions and health care 2,516 2,108 Public and state owned enterprises 37,195 33,526 Government and government s institutions 43,363 33,923 Other legal entities 50,790 81,926 Individuals 34,250 22,509 Non-residential legal entities and individuals Other customers Balance as at 31 December 169, ,036 Bank calculates annual interest rate of 0.25% on demand deposits of legal and private persons at domestic currency. Bank calculates annual interest rate of 2.80% to 5.90% on non-purpose short-term deposits, while interest rate on short-term deposits in foreign currency amounts 0.42% to 5.88% depending on currency. In accordance with business policy, on long-term deposits the Bank calculates annual interest rate of 2.65% to 6.20% depending on currency and maturity. 19

22 17. Other liabilities Other liabilities include: Accrued expenses 1, Deferred income 1, Advances received Suppliers Other liabilities Balance as at 31 December 2,945 2, Provisions Provisions include: General and specific provision for balance sheet assets 4,575 4,400 General and specific provision for off balance sheet items Provision for retirement benefits Provision for lawsuits 6 6 Balance as at 31 December 5,227 5, Equity Equity structure as at 31 December 2009 is as follows: Share capital 20,000 20,000 Reserves from profit Retained earnings Balance as at 31 December 20, On 24 April 2009, the Shareholders Assembly made a Decision to distribute retained earnings from 2008 to reserves from profit in amount KM 391 thousands. 20

23 19.2. The ownership structure of the Bank, as registered with Securities Exchange Commission of Republic of Srpska, as at 31 December 2009 is as follows: Owner In thousands of KM % In thousands of KM % Komercijalna banka a.d. Beograd 19, , Agency for insurance and financing export business Balance as at 31 December 20, , The Bank s share capital was created from the initial investments of its principal shareholders and it is invested in cash in the amount of KM 20 million. The ordinary shareholders are legally entitled to the following entitlements: to take part in the management of the Bank; to take part in the distribution of the Bank s profit (dividends); the right to receive a distribution on liquidation or bankruptcy of the Bank - preemptive right to acquire newly-issued shares up to the percent of its ownership, and if within 30 days period following the announcement of the new share issue statement on purchase of shares is signed. As at 31 December 2009, the Bank s shareholders equity comprised of 20,000 shares, with an individual par value of KM 1,000. With regard to the type of shares in issue, the Bank s share capital comprised of outstanding ordinary shares of the A class stock (shares from the first issuance) The Bank is required to maintain a minimum capital adequacy ratio of 12%, as established by the Agency for Banking of the Republic of Srpska, pursuant to the Basel Accord. As of 31 December 2009, the Bank s capital adequacy ratio was higher than prescribed minimum. 21

24 20. Commitments and contingent liabilities Off-balance sheet items Off-balance sheet items include: In KM Payment guarantees 3,678 7,611 Performance guarantees 2,233 1,997 Unused approved loans 6,402 8,164 Total in KM 12,313 17,772 In foreign currency Payment guarantees 3,384 2,773 Performance guarantees 94 - Uncovered letters of credit 44 2 Total in foreign currency 3,522 2,775 Balance as at 31 December 15,835 20, Compliance with the Regulatory Requirements The Bank is required to maintain its activities in compliance with the accounting regulations of Republic of Srpska, and with the regulations prescribed by the Agency for Banking of the Republic of Srpska, as the supervisory body of the banking sector in the Republic of Srpska. As at 31 December 2009, all ratios prescribed by the Agency for Banking of the Republic of Srpska were within prescribed border Litigation On 31 December 2009 there are two lawsuits taken against the Bank in the total amount of KM 23 thousands, while the Bank has 74 lawsuits against its debtors in the total amount of KM 2,110 thousand, mainly for loan collection of receivables. 21. Related parties transactions Related parties transactions, is part of everyday business and include placements, deposits and other liabilities from operations and services given. Balance on assets and liabilities as at 31 December 2009 as well as income and expenses for the year ending at that day, with related parties are as follows: 22

25 BALANCE SHEET Assets Komercijalna banka a.d. Beograd Cash and cash equivalents Equity and liabilities Komercijalna banka a.d. Beograd Demand deposits INCOME STATEMENT Income Komercijalna banka a.d. Beograd Interest, fee and other income 1, Komercijalna banka a.d. Budva Interest, fee and other income - 77 Expenses Komercijalna banka a.d. Beograd Interest, fee and other expenses Remunerations paid to members of Board of directors and Audit board for the year 2009 amounted KM 125 thousand (2008: KM 79 thousand). 22. Liquidity risk Maturity analysis of assets and liabilities from balance sheet date to contractual date is presented in the next table. Maturity of assets and liabilities as well as possibility of restructure of interest bearing liabilities on maturity date, with acceptable expenses, are very important for assessing Bank s liquidity and exposure to interest rate risk and currency risk. Liquidity structure of assets and liabilities as at 31 December 2009 is presented in the following table: 23

26 In thousands of KM Up to 1 month From 1 to 3 months From 3 to 12 months Over 1 year Total Assets Cash and cash equivalents and deposits with the Central Bank 85, ,026 Loans and advances to banks and other financial institutions Loans and advances to customers 2,933 10,788 37,909 72, ,130 Other assets 2, ,568 Total assets 90,028 10,828 38,411 72, ,116 Equity and liabilities Deposits and borrowings from banks 1,887 2,401 5,100 7,710 17,098 Deposits from customers 69,003 23,331 39,063 37, ,335 Other liabilities 1, ,945 Total equity and liabilities 72,724 25,781 44,674 46, ,378 Net exposure to liquidity risk as at 31 December ,304 (14,953) (6,263) 26,650 22,738 Net exposure to liquidity risk as at 31 December 2008 (13,537) (8,553) (27,120) 71,381 22,171 Bank s liquidity, as well as its capability to pay for liabilities at agreed dates, depends from balance sheet structure and harmonization of inflows and outflows. Maturity structure of assets and liabilities as at 31 December 2009 shows incompatibility for assets and liabilities maturing from 1 to 3 months and those maturing from 3 to 12 months. Bank s management believes that deposits diversity by number and type of customer, show good reason to believe deposits to be long-term and stable finance fund. 24

27 23. Interest rate risk The Bank is exposed to various risks associated with the effects of movements in the prevailing levels of market interest rates on its financial position and cash flows. The following table is a summary of the Bank s interest and non-interest bearing assets and liabilities, as of 31 December 2009: In thousands of KM Interest bearing assets Non-interest bearing assets Total Assets Cash and cash equivalents and deposits with the Central Bank 81,586 3,440 85,026 Loans and advances to banks and other financial institutions Loans and advances to customers 124, ,130 Other assets 565 2,003 2,568 Total assets 206,646 5, ,116 Equity and liabilities Deposits from banks 17,098-17,098 Deposits and borrowings from customers 168,168 1, ,335 Other liabilities 9 2,936 2,945 Total equity and liabilities 185,275 4, ,378 Net exposure to interest rate risk as at 31 December ,371 1,367 22,738 Net exposure to interest rate risk as at 31 December ,747 (576) 22, Currency risk Currency risk management policy defines currency risk as possibility of arising negative effects on Bank s result and equity as a result of exchange rates fluctuations. All balance sheet items in foreign currency are exposured to currency risk, as well as receivables and liabilities indexed in foreign currency. The aim of currency risk management is maximizing profits with acceptable currency risk exposure level. 25

28 Balance of foreign currency assets and liabilities as at 31 December 2009 with net currency position is presented in next table: In thousands of KM In EUR In other foreign currencies In KM Total Assets Cash and cash equivalents and deposits with the Central Bank 17, ,644 85,026 Loans and advances to banks and other financial institutions Loans and advances to customers 4, , ,130 Other assets 315-2,253 2,568 Total assets 23, , ,116 Equity and liabilities Deposits and borrowings from banks and other financial institutions ,351 17,098 Deposits from customers 73,841 1,956 93, ,335 Other liabilities ,356 2,945 Total equity and liabilities 75,160 1, , ,378 Net currency gap as at 31 December 2009 (52,144) (1,402) 76,284 22,738 Net currency gap as at 31 December 2008 (63,070) (73) 85,314 22,171 * Loans and advances with foreign clause are stated within loans and advances in KM. 25. Events after the balance sheet date There were no adjusting events after the balance sheet date. Independent Auditors Report - pages 1 and 2. 26