KOMERCIJALNA BANKA A.D. BANJA LUKA

Transcription

1 KOMERCIJALNA BANKA A.D. BANJA LUKA Financial Statements For the year ended 31 December 2007 with Report on the Financial Statements thereon 14 March 2008

2 FINANCIAL STATEMENTS FOR THE PERIOD ENDED 31 DECEMBER 2007 WITH REPORT ON THE FINANCIAL STATEMENTS THEREON C O N T E N T S : Page Report on the Financial Statements 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 Studentski trg Belgrade Serbia Telephone: Fax: Internet: info@kpmg.co.yu Agencija za privredne registre BD 7113 Matični broj Račun Raiffeisen banka a.d. Beograd PIB T R A N S L A T I O N TO THE SHAREHOLDERS OF KOMERCIJALNA BANKA A.D. BANJA LUKA Report on the Financial Statements We have audited the accompanying balance sheet of Komercijalna banka a.d., Banja Luka (hereinafter: the Bank) as at 31 December 2007 and the related statement of income, cash flows and changes in shareholders equity for the year then ended, and a summary of significant accounting policies and other explanatory notes. The opening balances are based on the statutory financial statements of the Bank as at and for the period ended 31 December 2006, which were audited by another auditor whose report dated 27 February 2007 expressed an unqualified opinion on those statements. 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. 74/02 and 44/03) 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) 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 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, a Swiss cooperative. 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 ABCD T R A N S L A T I O N 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. 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 2007, and the results of its operations and 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. 74/02 and 44/03) and other relevant bylaws issued by Agency for Banking of the Republic of Srpska, which regulates operation and reporting of banking sector. 14 March 2008 KPMG d.o.o. Beograd EI Audit d.o.o. Banja Luka Nina Bulatović Certified Auditor Tamara Stojanović Certified Auditor This is a Translation of the Original Report on the Financial Statements issued in Serbian Language. We are responsible for the translation of the Report on the Financial Statements and not for any other documents. 14 March 2008 KPMG d.o.o. Beograd Nina Bulatović Certified Auditor 2

5 Financial Statements INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 In thousands of KM Note Interest income and similar income 3.a, 4 8, Interest expenses and similar expenses 3.a, 4 (3,087) (280) Net interest income and similar income 5, Foreign currency operation income 3.b, Fees and commissions from loan administration business 3.b, Fees and commissions from guarantee business 3.b, Service fees 3.b, Other operating income 3.b, 5 4, Total operating income 6, Reserves for general loan risk and potential loan and other losses 3.g, 6 (3,400) (700) Other operating and direct expenses (303) (104) Total operating and other expense (3,703) (804) Salaries and contributions 7 (2,510) (526) Office space, other fixed assets and overheads 7 (2,449) (470) Other operating expenses 7 (1,207) (371) Total operating expenses (6,166) (1,367) Total non-interest bearing expenses (9,869) (2,171) Profit/(Loss) before taxation 2,375 (1,878) Tax 3.i (432) - Net profit/(loss) 1,943 (1,878) The notes on pages 7 to 23 form an integral part of these Financial statements. Report on the Financial Statements pages 1 and 2. 3

6 Financial Statements BALANCE SHEET AS AT 31 DECEMBER 2007 In thousands of KM Note ASSETS Cash and cash equivalents and deposits with the Central Bank 3.h, 8 44,141 47,698 Loans and advances to banks 7 - Loans, leasing investments and due receivables 3.f, 9 134,864 27,685 Property and other fixed assets 3.e, 10 3,742 3,047 Other assets Total 183,662 78,648 Long term reserves for potential losses 3.g, 6 (3,202) (636) Total assets 180,460 78,012 LIABILITIES AND EQUITY Deposits 3.l, ,283 58,397 Other obligations 12, 6 4,112 1,493 Total liabilities 160,395 59,890 Equity 3.k, 13 Common shares 20,000 20,000 Undistributed profit 1,943 - Uncovered loss (1,878) (1,878) Total equity 20,065 18,122 Total liabilities and equity 180,460 78,012 Off-balance sheet items ,390 2,296 Banja Luka, 28 February 2008 Srđan Šuput Director The notes on pages 7 to 23 form an integral part of these Financial statements. Report on the Financial Statements pages 1 and 2. 4

7 Financial Statements STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 In thousands of KM Share capital Accumulated result Total New share issuance 20,000-20,000 Net profit(loss) for (1,878) (1,878) Balance as at 31 December ,000 (1,878) (18,122) Balance as at 1 January ,000 (1,878) 18,122 Net profit(loss) for ,943 1,943 Balance as at 31 December , ,065 The notes on pages 7 to 23 form an integral part of these Financial statements. Report on the Financial Statements pages 1 and 2. 5

8 Financial Statements CASH FLOW STATEMENT FOR PERIOD FROM 1 JANUARY TO 31 DECEMBER 2007 In thousands of KM Operating activity Interest receipts 8, Fee and commission receipts 2, Cash payments from operating activities 10, Interest payments (2,301) (280) Fees and commission payments (6,424) (590) Cash outflows from operating activities (8,725) (870) Net cash inflows from operating activities before changes in placement and deposits 1,711 (589) Increase in deposits from banks and other financial institutions - 44,581 Increase in deposits from customers 99,452 13,816 Increase in other liabilities 1, Decrease in placements and increase in deposits from customers 100,866 59,122 Increase in loans and advances to banks and other financial institutions (1,294) (892) Increase in loans and advances to customers (105,892) (26,793) Decrease in deposits from banks and other financial institutions (1,566) - Increase in other assets (690) (41) Increase in placements and decrease in deposits from customers (109,442) (27,726) Net cash inflows/(outflows) from operating activities before income tax (6,865) 30,807 Income tax paid - - Net cash inflows/(outflows) from operating activities (6,865) 30,807 Purchase of property, equipment and intangible assets (1,487) (3,119) Net outflow from investing activity (1,487) (3,119) Inflows from financing 4,890 - Inflow from increase in equity - 20,000 Net cash inflow from investing activities 4,890 20,000 Net increase/(decrease) in cash and cash equivalents (3,462) 47,688 Cash and cash equivalents at beginning of the year 47,698 - Net foreign exchange gains/(losses) (95) 10 CASH AND CASH EQUIVALENTS AT THE AND OF THE YEAR 44,141 47,698 The notes on pages 7 to 23 form an integral part of these Financial statements. Report on the Financial Statements pages 1 and 2. 6

9 1 Bank s foundation and operating policy Komercijalna banka A.D., Banja Luka was established in September of 2006 and on 15 September 2006 was duly registered in accordance with the Decision of the Court of Banja Luka numbered REG The Bank s founders are Komercijalna banka a.d. Beograd (99.995%) and the Serbia and Montenegro Export Credit Agency, Belgrade (0.005%). 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 as in accordance with the Republic of Srpska banking legislation, the Bank is to operate based upon the principles of liquidity, solvency and profitability. The Bank conducts its business from its headquarters in Banja Luka, no. 6 Veselina Masleše Street, and trough 7 branches and 6 agencies. Until 31 December 2006 the Bank had commenced operations in six branch offices situated in the cities of: Gradiška, Brčko, Bijeljina, Pale, Trebinje and Sarajevo, and also commenced operations in its three bank agencies in the cities of: Zalužani, Nova Topola and Vlasenica. In 2007 its network was extended with three new branch offices in Mrkonjić Grad and Tuzla, and the bank agencies in Jahorina, Malta and Laktaši. The bodies that manage the Bank are: Shareholders Assembly, Supervisory Board and the Management. At 31 December 2007 the Bank had 99 employees (at the end 2006 the Bank had 76 employees). 2 Basis for preparation of the financial statements 2.1 On 30 June 2005 the Parliament of the Republic of Srpska adopted the new Law on Accounting and Auditing of the Republic of Srpska (hereinafter: the Law ), published in the Official Gazette of RS no. 67/05 on 21 July In accordance with this Law, all legal entities situated on the territory of the Republic of Srpska are under obligation to fully apply the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) applicable as of 31 December 2005, the Code of Ethics for Professional Accountants with directions, explanations and guidelines as adopted by the International Federation of Accountants (IFAC), for financial statements for periods starting from 1 January 2006 or later. 7

10 2.2 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. On the basis of Supervisory Council s Decision no. NO-30/ , the Bank has adopted accounting policies in accordance with innovated IAS/IFRS, which were applied for preparation of financial statements for the year ending 31 December 2007, except in the following materially important aspects of financial reporting, where legal and sub legal acts of Republic of Srpska were not in accordance with IAS/IFRS: The Bank s management estimates allowances for the impairment of financial instruments in accordance with the relevant Agency for Banking of the Republic of Srpska Regulations (Note 3.g). Such a policy may result in significant departures from the amounts which would be determined, if allowances for the impairment of financial instruments were estimated based on discounted expected future cash flows by using the original effective interest rate, as required under IAS 39, Financial Instruments: Recognition and Measurement. Loans and other financial instruments issued by the Bank and the financial instruments heldto-maturity are presented in the balance sheet at the principal amounts outstanding from customers. This policy departs from IAS 39 Financial Instruments: Recognition and Measurement which prescribes the valuation of these types of financial instruments at their amortized cost using the effective interest rate method. In the Republic of Srpska, sufficient market experience, stability and liquidity do not exist for the purchase and sale of loans and other financial assets or liabilities, for which published market information is not readily available. Accordingly, fair value cannot readily be determined in the absence of an active market, as required by IAS 32, Financial Instruments: Presentation and Disclosure, and IAS 39, Financial Instruments: Recognition and Measurement. Income tax expense is assessed based on the statutory tax regulations, which do not recognize either deferred tax assets or liabilities. This policy is not in accordance with the provisions of IAS 12, Income Taxes. Due to the potential effect which the above-mentioned departures may have upon the fairness of the financial statements of the Bank for 2007, they can not be treated as financial statements prepared in accordance with the International Accounting Standards and International Financial Reporting Standards. 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. 2.3 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 estimations 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. 8

11 3 Summary of significant accounting policies Basic accounting polices applied in the preparation of financial statements for 2007 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 the 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 the classification of risk-bearing assets as impaired assets, the Bank writes down the full amount of the accrued but unpaid 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 an instance 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. Foreign exchange gains or losses arising upon translation are charged to revenues or expense. Official exchange rates used in translating balance sheet items at day 31 December 2007 for significant currencies are: Currency USD CHF EUR

12 e. Business Premises and Other Fixed Assets Fixed and intangible assets are carried at cost. Cost represents the prices billed by suppliers together with all costs incurred in bringing the 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 20 Furniture and other equipment 7 16,5 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 principal outstanding, as required by the effective regulations. g. Provisions for Potential Losses The provision for potential losses and contingent liabilities is based upon the risk evaluation of loans, interest receivable, including the 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 an 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 negative items in assets, or a liability under long-term reserves for 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 assets, watch-list assets, substandard assets, doubtful assets. 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 the decision of the court, agreement between interested parties, or Supervisory Board s decisions. h. Cash and Cash Equivalents For the purposes of the Cash Flow Statement, 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. 10

13 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% 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 Tax Law. Such adjustments primarily consist of adding back certain disallowed expenses and of deducting investments in property and equipment, in its own shares or in those of another legal entity, as well as of deducting a portion of the total tax liability that is proportionate to the percentage of a foreign entity s participation in total Bank equity. The income tax amount may be decreased by certain tax facilities envisaged under the effective income tax regulations. On 20 September 2006, the new Law on Income Taxes was adopted (Official Gazette of the Republic of Srpska, no. 91/06) effective eight days from its publication, and which is applied from 1 January The new Law prescribes that tax losses represent 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. j. Fair Value The accompanying financial statements are prepared on an 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 reliably be determined. In the opinion of the 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 and Accumulated results. Shareholders equity is formed from founder s stakes in cash. The Bank uses equity for banking operations and risk coverage. 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 as at 31 December

14 m. Segment Information 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 9. INCOME STATEMENT 4 Interest income and expenses, similar income and expenses Interest income and expenses relate to: In thousands of KM Balances with the Central Bank Balances with other Banks Loans to other corporate customers 4, Loans to retail customers 2, Interest income 8, Deposits from banks and corporate customers (2,712) (262) Deposits from retail customers (375) (18) Interest expenses (3,087) (280) Net interest income 5, Operating income Operating income relates to following items: In thousands of KM Fee and commission expense arising from foreign payment transfers Loan fees 32 4 Fees from off balance sheet operations Fees from services Other operating income 4, Total operating income 6, Other operating income relates mostly to donation from Komercijalna banka a.d. Beograd in the amount of KM 4,890 thousand for business network extension and optimizing Bank s market position. 12

15 6 Provision for potential losses and contingent liabilities 6.1 Structure of provision for potential losses and contingent liabilities is as follows: In thousands of KM Loans 3, Interest receivables and other risk-bearing assets Contingent liabilities Reserves for general loan risk and potential loan losses 3, Release of allowance for long-term provisions for potential losses (618) - Provisions for retirement benefits Total 3, Movements on long-term provisions for potential losses are presented in next table: In thousands of KM Loans Interest, fees and other riskbearing assets Contingent liabilities Total Balance as at 1 January Release of allowance for long-term provisions for potential losses (516) (102) - (618) Reserves for general loan risk and potential loan losses 3, ,860 Balance as at 31 December , ,924 Out of total amount of long-term provision for potential losses, provision for balance sheet assets amounts KM 3,202 thousand (presented as negative item in assets), while KM 722 thousand relates to long-term provision for off balance sheet items (presented with other liabilities). 13

16 7 Operating expenses Operating expenses structure is as follows: In thousands of KM Net wages and salaries 1, Taxes and contributions on salaries and fringe benefits Other expenses 8 8 Wages, salaries and contributions 2, Business premises rent and IT equipment 1, Depreciation costs Telephone services Other expenses Business premises, other fixed assets and overheads 2, Costs of securing assets Marketing and promotion expenses Costs of other non-production services Other expenses Other operating expenses 1, Total operating expenses 6,166 1,367 BALANCE SHEET 8 Cash and balances with the Central bank Cash and balances with the central bank contain: Thousands of KM Balances with the Central Bank 31,747 40,345 Cash on hand 3, In domestic currency 34,800 41,253 Deposit accounts at deposit institutions in country - 1,521 Deposit accounts at foreign deposit institutions 7,367 3,915 Cash on hand 1,972 1,009 Cash equivalents in process of collection 2 - In foreign currency 9,341 6,445 Total 44,141 47,698 14

17 In accordance with the Central Bank of Bosnia and Herzegovina s Decision of Reserve Requirement, the Bank is required to calculate and maintain an obligatory reserve for deposits and borrowed founds (which make basis for calculation of obligatory reserves) as calculated on a tenday average basis for the period of the previous ten-day period prior to the period of maintenance. Rate of obligatory reserves that is applied from the Central Bank of Bosnia and Herzegovina is 15%. This reserve is available for liquidity purposes. The Central Bank liquidate the amount of the obligatory reserve in the manner specified under the before mentioned requirement. Since 1 January 2008 mentioned rate will be 18%. As of 31 December 2007 bank have invested resources at Komercijalna bank a.d., Beograd, Deutsche Bank AG i Commerzbank AG. 9 Loans, leasing investments and due receivables 9.1 Structure of Loans, leasing investments and due receivables by maturity as at 31 December 2007 is as follows: Thousands of KM Matured loans 2, Loans with maturity up to one year 47,446 11,393 Loans with maturities over one year 85,186 16,277 Balance as at 31 December ,864 27, Structure of loan position, receivables based on leasing and due receivables by type of customer are as follows: Thousands of KM Loans to government and government institution 4,300 - Public and state owned companies 1, Financial institutions in country 2, Other legal entities 68,592 18,299 Foreign legal entities 5,887 - Individuals 51,824 6,953 Other customers 868 1,050 Balance as at 31 December ,864 27,685 Loans to enterprises are primarily granted at interest rates ranging from 5% to 12% for longterm and short-term placements Loans to retail customers are granted at interest rates ranging from 3.75% to 11.50% for longterm placements and at interest rates ranging from 4.45% to 10.5% for 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, with the exception of the above-described, are granted for residential housing purposes. Loans in foreign currency made 5% of total receivables for loans, and amount KM 6,805 thousand. 15

18 The provision for potential losses based for above mentioned receivables for loans, also and belonging maturity interests, as at 31 December 2007 is KM 3,152 thousand, while for residual assets total provision amount KM 50 thousand. The geographic sector risk concentrations within the customer loan portfolio were limited solely to the Republic of Srpska. 10 Business premises and other fixed assets Business premises and other fixed assets with changes during 2007 are presented in next table: 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 , ,119 Purchases ,487 Movement to other equipment (136) (136) Balance as at 31 December , , ,470 Depreciation Balance as at 1 January Depreciation for the year Balance as at 31 December Net book value as at 31 December , ,742 Net book value as at 31 December , ,047 As at 31 December 2007, equipment is insured from fire. As at 31 December 2007, the Bank has no fixed assets under mortgage for securing loans. 16

19 11 Deposits 11.1 Deposit structure by currency and maturity is given in the next table: In thousands KM Demand deposits 37,176 9,730 Short-term deposits 42,765 40,382 Long-term deposits 15,317 1,315 Deposits in domestic currency 95,258 51,427 Demand deposits 8, Short-term deposits 34,065 1,618 Long-term deposits 18,130 4,554 Deposits in foreign currency 61,025 6,970 Balance as at 31 December 156,283 58, Deposits structure by customers is following: In thousands KM Banks and other financial institutions 43,616 44,582 Educational institutions and health care 2, Public and state owned enterprises 17,572 1,053 Government and government s institutions 38,941 - Other legal entities 27,965 5,304 Individuals 24,820 6,979 Non-residential legal entities and individuals Other customers Balance as at 31 December 156,283 58,397 Bank calculates annual interest rate of 0.25% on demand deposits of legal entities and individuals in both, domestic and foreign currency. Bank calculates annual interest rate of 2.80% to 5% on non-purpose short-term deposits, while interest rate on short-term deposits in foreign currency amounts 1.70% to 4.70% depending on currency. In accordance with business policy, on long-term deposits the Bank calculates annual interest rate of 2.65% to 5.90% depending on currency and maturity. 17

20 12 Other liabilities 12.1 Other liabilities include: In thousands of KM Specific provision for off balance sheet items General reserve for off balance sheet items Other 3,390 1,447 Total 4,112 1, Item Other has following structure: In thousands of KM Accrued expenses Accrued income Advances received Provision for pensions Income tax liabilities Suppliers Other liabilities Total 3,390 1, Equity 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 BAM 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 2007, the Bank s shareholders equity was 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 is comprised of outstanding ordinary shares of the A class stock (shares from the first issuance). The ownership structure of the Bank s share capital as per the Securities and Financial Exchange Commission of the Republic of Srpska statement as of 31 December 2007 is as follows: 18

21 Owners Thousands of Thousands of KM % KM % Komercijalna banka a.d. Beograd 19, , Serbia and Montenegro Export Credit Agency, Belgrade Balance as at 31 December , , 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 2007, the Bank s capital adequacy ratio was higher than prescribed minimum. 14 Commitments and contingent liabilities 14.1 Off- balance sheet items Off balance position are including: Thousands of KM Payable guaranty 7,938 - Performance bonds 2, Contracted liability based on unused approved loans 8, In KM 19,225 1,229 Payable guaranty 4, Performance bonds 2, Contracted liability based on unused approved loans Covered nostro acreditives for paying abroad In foreign currency 7,165 1,067 Total 26,390 2, Compliance with the Regulatory Requirements The Bank is required to maintain its activities in compliance with the Accounting Regulations Republic of Srpska, and with the Regulations prescribed by the Agency for Banking of the Republic of Srpska, serving as the supervisory body of the banking sector in the Republic of Srpska. At 31 December 2007 all of the requirements prescribed from the Agency for Banking of the Republic of Srpska Regulations were in prescribed border Litigation As of 31 December 2007, the Bank was not involved in any legal proceedings. 19

22 15 Related parties transactions Related parties transactions, except donation from founder Komercijalna banka a.d. Beograd, are part of every day business and include investments, loans, deposits, liabilities from operations and services given. Balance on assets and liabilities as at 31 December 2007 as well as income and expenses for the year ending at that day, with related parties are as follows: In thousands of KM Related party Komercijalna banka a.d., Beograd Interest, fee and other income Donation 4,890 - Income 4, Interest, fee and other expenses Expenses Cash and cash equivalents 781 3,915 Assets 781 3,915 Term deposits 14,669 3,912 Liabilities for interest 24 - Liabilities 14,693 3,912 Remunerations paid to members of Board of directors and Audit board for the year 2007 amounted KM 68 thousand gross. 16 Liquidity risk Maturity analysis of Assets and liabilities from balance sheet date to maturity date by contract 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. 20

23 Liquidity structure of assets and liabilities as at 31 December 2007 is presented in the following table: 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 Central bank 44, ,141 Loans to other banks Loans, leasing investments and due receivables 3,330 9,773 36,575 85, ,864 Business premises and other fixed assets ,742 3,742 Other assets Total 47,894 9,813 36,718 89, ,662 Long-term provisions for potential losses (3,202) (3,202) Total assets 47,894 9,813 36,718 86, ,460 Liabilities Deposits 46,006 8,410 68,420 33, ,283 Other liabilities 3, ,214 Long-term provisions Total liabilities 49,220 8,410 68,420 34, ,395 Net exposure to liquidity risk as at 31 December 2007 (1,326) 1,403 (31,702) 51,690 20,065 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 2007 shows incompatibility for assets and liabilities maturing up to 1 month 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. 21

24 17 Risk of interest rate changes 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 is a summary of the Bank s interest and non-interest bearing assets and liabilities, as of 31 December 2007: In thousands of KM Interest bearing items Non-interest bearing assets Total ASSETS Cash and cash equivalents Deposits with the Central Bank 39,158 4,983 44,141 Loans and advances to banks Loans, leasing investments and due receivables 134, ,864 Investment property and Fixed assets - 3,742 3,742 Other assets Total 174,022 9, ,662 Long term reserves for potential losses (3,202) - (3,202) Total assets 170,820 9, ,460 LIABILITIES Deposits 154,369 1, ,283 Other liabilities - 3,214 3,214 Long-term reserves Total liabilities 154,369 6, ,395 Net exposure to risk of interest rate fluctuation as at 31 December ,451 3,614 20,065 22

25 18 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. Balance of foreign currency assets and liabilities as at 31 December 2007 with Net Balance Sheet position is presented in next table: In thousands of KM In EUR In other foreign currencies In KM Total ASSETS Cash, cash equivalents and Deposits with Central bank 8,082 1,259 34,800 44,141 Loans to other banks Loans in foreign currency 6,805-32,313 39,118 Loans with foreign currency clause 95, ,746 Business premises and other fixed assets - - 3,742 3,742 Other assets Total 110,678 1,260 71, ,662 Long-term provisions for potential losses - - (3,202) (3,202) Total assets 110,678 1,260 68, ,460 LIABILITIES Deposits in foreign currency 59,834 1,191 51, ,034 Deposits with foreign currency clause 47, ,043 Other liabilities Long-term provisions Total liabilities 107,145 1,343 51, ,395 Net currency gap 3,533 (83) 16,615 20, Events after the balance sheet date There were no adjusting events after the balance sheet date. Report on the Financial Statements pages 1 and 2. 23