Banco Nacional de Crédito, C.A., Banco Universal · The accompanying notes are an integral part of the financial statements 1 Banco Nacional de Crédito, C.A., Banco Universal Balance

Banco Nacional de Crédito, C.A.,Banco Universal

Report of Independent Accountantsand Financial StatementsDecember 31 and June 30, 2012

The accompanying notes are an integral part of the financial statements

1

Banco Nacional de Crédito, C.A., Banco UniversalBalance sheetDecember 31 and June 30, 2012

December 31, June 30,2012 2012

(In bolivars)

AssetsCash and due from banks (Notes 3, 4 and 29) 5,703,778,981 4,016,330,948

Cash 737,253,973 364,058,911Central Bank of Venezuela 4,350,091,834 2,890,758,618Venezuelan banks and other financial institutions 123,110 143,801Foreign and correspondent banks 95,261,299 252,117,349Pending cash items 521,048,765 509,252,269

Investment securities (Note 5) 8,051,421,105 4,759,818,786

Deposits with the BCV and overnight deposits 1,010,939,000 -Investments in available-for-sale securities 3,444,407,131 1,638,028,205Investments in held-to-maturity securities 2,787,127,754 2,330,649,916Restricted investments 16,422,282 16,410,925Investments in other securities 792,605,344 774,810,146(Provision for investment securities) (80,406) (80,406)

Loan portfolio (Note 6) 11,682,646,923 9,587,800,957

Current 11,941,485,358 9,805,019,256Rescheduled 34,151,571 33,049,065Overdue 21,421,120 25,679,031In litigation - 9,798,584(Allowance for losses on loan portfolio) (314,411,126) (285,744,979)

Interest and commissions receivable (Note 7) 197,536,983 146,263,681

Interest receivable on investment securities 120,626,364 76,143,759Interest receivable on loan portfolio 103,527,566 92,033,829Commissions receivable 890,821 610,393(Provision for interest receivable and other) (27,507,768) (22,524,300)

Investments in subsidiaries, affiliates and branches (Note 8) - -

Available-for-sale assets (Note 9) 72,005,556 68,594,931

Property and equipment (Note 10) 488,059,504 403,819,313

Other assets (Notes 11 and 12) 233,808,348 187,511,873

Total assets 26,429,257,400 19,170,140,489

Memorandum accounts (Note 22)Contingent debtor accounts 779,712,523 595,110,949Assets received in trust 971,641,295 787,135,059Debtor accounts from other special trust services

(Housing Loan System) 479,233,604 354,214,463Other debtor memorandum accounts 42,288,981,218 28,053,448,525

44,519,568,640 29,789,908,996


2

Banco Nacional de Crédito, C.A., Banco UniversalBalance sheetDecember 31 and June 30, 2012


(In bolivars)

Liabilities and EquityCustomer deposits (Note 13) 24,286,435,309 17,592,988,123

Demand deposits 14,026,432,023 9,907,855,350

Non-interest-bearing checking accounts 11,403,462,235 7,756,548,057Interest-bearing checking accounts 2,622,969,788 2,151,307,293

Other demand deposits 4,993,093,866 4,171,980,470Savings deposits 4,596,193,615 2,691,770,792Time deposits 572,293,969 650,396,364Securities issued by the Bank 98,421,836 -Restricted customer deposits - 170,985,147

Borrowings (Note 14) 23,206,607 1,765,183

Venezuelan financial institutions, up to one year 1,125,280 1,151,823Foreign financial institutions, up to one year 22,081,327 613,360

Other liabilities from financial intermediation (Note 15) 20,350,594 32,723,687

Interest and commissions payable (Note 16) 12,969,545 13,646,949

Expenses payable on customer deposits 12,347,352 13,182,403Expenses payable on borrowings 33,610 -Expenses payable on other liabilities 588,583 464,546

Accruals and other liabilities (Note 17) 388,605,540 270,563,905

Total liabilities 24,731,567,595 17,911,687,847

Equity (Note 25)Capital stock 428,503,396 345,403,396Convertible bonds (Note 24) 100,000,000 100,000,000Paid-in surplus 74,377,322 74,377,322Capital reserves 312,649,819 236,392,637Retained earnings 570,919,744 403,097,284Exchange gain from holding foreign currency assets and

liabilities 133,767,875 133,111,483Net unrealized gain (loss) on investments in

available-for-sale securities (Note 5) 77,471,649 (33,929,480)

Total equity 1,697,689,805 1,258,452,642

Total liabilities and equity 26,429,257,400 19,170,140,489


3

Banco Nacional de Crédito, C.A., Banco UniversalIncome statementSix-month periods ended December 31 and June 30, 2012


(In bolivars)

Interest income 1,284,884,477 996,796,072

Income from cash and due from banks 28,665 49,132Income from investment securities 304,197,508 231,856,631Income from loan portfolio 891,447,488 688,855,421Income from other accounts receivable 89,188,607 76,034,888Other interest income 22,209 -

Interest expense (383,215,297) (307,547,860)

Expenses from customer deposits 374,521,450 298,907,089Expenses from borrowings (Note 14) 86,599 39,731Expenses from convertible bonds (Note 24) 8,367,471 8,311,726Other interest expense 239,777 289,314

Gross financial margin 901,669,180 689,248,212

Income from financial assets recovered (Note 6) 5,469,496 6,454,603Expenses from uncollectible and impaired financial assets

Expenses from uncollectible loans and other accounts receivable (Notes 6 and 7) (51,409,571) (140,661,664)

Net financial margin 855,729,105 555,041,151

Other operating income (Note 19) 171,880,620 241,526,813Other operating expenses (Note 20) (61,174,890) (106,827,318)

Financial intermediation margin 966,434,835 689,740,646

Operating expenses (598,077,089) (471,865,591)

Salaries and employee benefits (Note 2-j) 166,661,545 140,063,772General and administrative expenses (Note 21) 317,327,240 238,317,061Fees paid to the Social Bank Deposit Protection Fund (Note 27) 103,832,542 85,840,431Fees paid to the Superintendency of Banking Sector Institutions (Note 28) 10,255,762 7,644,327

Gross operating margin 368,357,746 217,875,055

Income from available-for-sale assets (Note 9) 2,865,945 312,965Sundry operating income (Note 19) 6,317,786 4,335,432Expenses from available-for-sale assets (Note 9) (15,087,539) (9,813,011)Sundry operating expenses (Note 20) (28,344,026) (22,655,296)

Net operating margin 334,109,912 190,055,145

Extraordinary income 85,617 1,570,561Extraordinary expenses (4,637,838) (2,026,967)

Gross income before tax 329,557,691 189,598,739

Income tax (Note 18) (651,032) (1,083,584)

Net income 328,906,659 188,515,155

Appropriation of net incomeLegal reserve 65,781,332 37,703,031Retained earnings 263,125,327 150,812,124

328,906,659 188,515,155

Provision for the Law on Narcotic and Psychotropic Substances (LOSEP)(Notes 1 and 20) 3,347,542 1,922,375


4

Banco Nacional de Crédito, C.A., Banco UniversalStatement of changes in equitySix-month periods ended December 31 and June 30, 2012

Exchangegain (loss)

from holding UnrealizedShare Retained earnings foreign gain (loss) on

Paid-in premium Non currency investmentcapital Convertible and paid-in Capital Unappropriated Restricted distributable assets and securities Totalstock bonds surplus reserves surplus surplus surplus Total liabilities (Note 5) equity

(In bolivars)

Balances at December 31, 2011 345,403,396 100,000,000 74,377,322 188,629,256 73,698,060 180,945,028 5,975,406 260,618,494 133,767,875 19,472,773 1,122,269,116

Exchange loss from holding foreign currencyassets and liabilities (Notes 4 and 25) - - - - - - - - (656,392) - (656,392)

Gain on sale of investments and adjustments ofinvestments in available-for-sale securities tomarket value - - - - - - - - - (53,402,253) (53,402,253)

Net income - - - - 188,515,155 - - 188,515,155 - - 188,515,155Appropriation to the legal reserve (Note 25) - - - 37,703,031 (37,703,031) - - (37,703,031) - - -Creation of the social contingency fund (Note 25) - - - 1,727,016 - - - - - - 1,727,016Reclassification of net income of the Curacao branch

(Note 25) - - - - (5,316,575) - 5,316,575 - - - -Reclassification to restricted surplus of 50% of

net income for the period (Note 25) - - - - (72,747,775) 72,747,775 - - - - -Reserve fund for convertible bonds (Note 24) - - - 8,333,334 (8,333,334) - - (8,333,334) - - -

Balances at June 30, 2012 345,403,396 100,000,000 74,377,322 236,392,637 138,112,500 253,692,803 11,291,981 403,097,284 133,111,483 (33,929,480) 1,258,452,642

Capital increase (Note 25) 83,100,000 - - - (41,550,000) (41,550,000) - (83,100,000) - - -Exchange loss from holding foreign currency

assets and liabilities (Notes 4 and 25) - - - - - - - - 656,392 - 656,392Gain on sale of investments and adjustments of

investments in available-for-sale securities tomarket value - - - - - - - - 111,401,129 111,401,129

Net income - - - - 328,906,659 - - 328,906,659 - - 328,906,659Appropriation to the legal reserve (Note 25) - - - 65,781,332 (65,781,332) - - (65,781,332) - - -Creation of the social contingency fund (Note 25) - - - 2,142,517 (3,869,534) - (3,869,534) - - (1,727,017)Reclassification of net income of the Curacao branch

(Note 25) - - - - (33,870,641) - 33,870,641 - - - -Reclassification to restricted surplus of 50% of

net income for the period (Note 25) - - - - (114,627,343) 114,627,343 - - - - -Reserve fund for convertible bonds (Note 24) - - - 8,333,333 (8,333,333) - - (8,333,333) - - -

Balances at December 31, 2012 428,503,396 100,000,000 74,377,322 312,649,819 198,986,976 326,770,146 45,162,622 570,919,744 133,767,875 77,471,649 1,697,689,805

Net income per share (Note 2-n)

Six-month periods endedDecember 31, June 30,

2012 2012

Weighted average of outstanding shares 428,503,396 345,403,396

Income per share 0.768 0.546


5

Banco Nacional de Crédito, C.A., Banco UniversalCash flow statementSix-month periods ended December 31 and June 30, 2012


(In bolivars)

Cash flows from operating activitiesNet income 328,906,659 188,515,155Adjustments to reconcile net income to net cash provided by

(used in) operating activitiesAllowance for losses on loan portfolio 51,362,434 140,661,664Provision for interest receivable and other 47,137 -Provision for other assets 50,276 2,866,960Depreciation of property and equipment and amortization ofavailable-for-sale and other assets 51,428,552 36,327,269

Accrual for length-of-service benefits 19,346,451 18,655,306Transfers to trust fund and payment of length-of-service benefits (16,946,451) (13,614,721)Income tax provision 2,516,165 1,817,689Deferred tax asset (1,865,133) (734,105)Net change inOvernight deposits (1,010,939,000) -Interest and commissions receivable (57,065,566) (65,262,792)Other assets (63,863,260) (32,151,898)Accruals and other liabilities 111,081,440 48,617,497

Net cash provided by (used in) operating activities (585,940,296) 325,698,024

Cash flows from financing activitiesNet change in

Customer deposits 6,693,447,186 3,820,823,952Borrowings 21,441,424 (212,729)Other liabilities from financial intermediation (12,373,093) (64,048,330)Interest and commissions payable (677,404) (8,023,612)

Net cash provided by financing activities 6,701,838,113 3,748,539,281

Cash flows from investing activitiesLoans granted during the period (9,949,133,621) (8,873,812,663)Loans collected during the period 7,810,714,378 6,564,206,282Net change in

Investments in available-for-sale securities (1,694,684,682) 214,538,693Investments in held-to-maturity securities (456,114,561) (1,252,985,379)Restricted investments (11,357) (3,467,749)Investments in other securities (19,522,215) (405,881,146)Available-for-sale assets (18,430,590) (34,599,917)Property and equipment (101,267,136) (71,123,540)

Net cash used in investing activities (4,428,449,784) (3,863,125,419)

Cash and due from banksNet change 1,687,448,033 211,111,886

At the beginning of the period 4,016,330,948 3,805,219,062

At the end of the period 5,703,778,981 4,016,330,948

Supplementary information on non-cash activitiesWrite-off of loan principal 14,907,130 152,000,685Write-off of interest receivable on loans 805,845 11,619,921Reclassification of excess in (Notes 6 and 7)

Allowance for losses on loan portfolio to provision for interest receivable and other (5,742,176) (6,864,531)Allowance for losses on loan portfolio to provision for contingent loans (2,044,030) (718,225)

Net change in unrealized gain (loss) on investments inavailable-for-sale securities 111,401,129 (53,402,253)

Creation of the social contingency fund 1,727,017 1,727,016Effect of exchange fluctuations on

Investments in available-for-sale securities (281,598) 281,598Investments in held-to-maturity securities (363,277) 363,277Interest receivable on investment securities (11,517) 11,517

Banco Nacional de Crédito, C.A., Banco UniversalNotes to the financial statementsDecember 31 and June 30, 2012

6

1. Activities and regulatory environment

Banco Nacional de Crédito, C.A., Banco Universal (the Bank) was authorized to operate as acommercial bank in Venezuela in February 2003 under the name Banco Tequendama, C.A. and as auniversal bank on December 2, 2004. Its business objective is to provide financial intermediationconsisting in the procurement of funds for the purpose of granting credits or loans and investing insecurities.

The Bank is incorporated and domiciled in the Bolivarian Republic of Venezuela. Its legal address is:Avenida Vollmer, Torre Sur del Centro Empresarial Caracas, Urbanización San Bernardino, ZP 1010.

Most of the Bank’s assets are located in the Bolivarian Republic of Venezuela. At December 31, 2012,the Bank has 155 offices and external counters, a branch in Curacao, a main office, four regionaloffices and 2,612 employees.

The Bank’s shares are traded on the Caracas Stock Exchange (Note 25).

As indicated in Note 26, the Bank conducts transactions with related companies.

The Bank’s financial statements at December 31 and June 30, 2012 were approved for issue by theBoard of Directors on January 9, 2013 and July 11, 2012, respectively.

In August 2003, the Superintendency of Banking Sector Institutions (SUDEBAN) issued ResolutionNo. 202-03 dated August 4, 2003, published in Official Gazette No. 37,748 on August 7, 2003,authorizing the Bank’s fiduciary operations.

The Law on Banking Sector Institutions was issued by the Venezuelan government on December 28,2010 and amended and reissued on March 2, 2011. According to the temporary provisions of the newLaw, banks have a 135-day deadline to submit to SUDEBAN a plan to conform to the new legislation.On May 11, 2011, the Bank filed the Adjustment Plan with SUDEBAN. Through Notice No. SBI-II-GGIBPV-GIBPV2-15590 of June 3, 2011, SUDEBAN made some observations regarding theAdjustment Plan presented by Bank management and clarified certain issues set out in the Law. OnDecember 21, 2011, the Bank informed SUDEBAN about its progress in the implementation of theAdjustment Plan and requested a 180-day extension to comply with certain articles of the Law.Through Notice No. SIB-II-GGIBPV-GIBPV2-01873 of January 20, 2012, SUDEBAN granted theextension requested by the Bank. In July 2012, the Bank sent SUDEBAN a status report on theAdjustment Plan, which is in the final stages.

The Bank’s activities are ruled by the Law on Banking Sector Institutions and the Stock Market Law, aswell as the rules and instructions of SUDEBAN, the Higher Authority of the National Financial System(OSFIN), the Central Bank of Venezuela (Banco Central de Venezuela - BCV) and the VenezuelanSecurities Superintendency (SNV).

The Law of the National Financial System is aimed at regulating, supervising, controlling andcoordinating the National Financial System in order to ensure that financial resources are used andinvested for the public interest and for economic and social development with a view to creating asocial and democratic State ruled by Law and Justice. The National Financial System is formed by thegroup of public, private and communal financial institutions and any other form of organizationoperating in the banking sector, the insurance sector, the stock market and any other sector or groupof financial institutions that the policy-making body deems should form part of the system. Individualsand corporations that are users of the financial institutions belonging to the system are also included.


7

The National Financial System establishes rules for citizens to participate in the supervision of thefinancial management and social controllership of the parties to the National Financial System, protectsuser rights, and promotes collaboration among the sectors of the productive economy, including thepopular and communal sectors.

Curacao BranchThe banking activities of the Bank’s Curacao Branch (the Branch) are regulated by the Law of Banks ofCuracao and St. Maarten. The Branch is not an economically independent entity and conductstransactions following the Bank’s guidelines. The Branch operates under an off-shore license grantedby the Federal Control Office for the Credit Banking System of Curacao and St. Maarten andSUDEBAN in Venezuela. Capital assigned to the Branch has been contributed by the Bank (Note 8).

Other laws that regulate the Bank’s activities are described below:

Agricultural Loan LawThe Agricultural Loan Law requires the People’s Power Ministry for the Economy and Finance and thePeople’s Power Ministry for Agriculture and Land to jointly fix within the first month of each year theminimum percentage of the loan portfolio to be earmarked by each universal bank to financeagriculture.

On February 16, 2012, through a joint Resolution, the aforementioned ministries established theminimum percentages of the loan portfolio to be earmarked by each universal bank to financeagriculture during 2012. This percentage is calculated based on the gross loan portfolio at December31, 2011 and 2010 of each universal bank, and must be applied as follows: 20% in February; 21% inMarch and April; 22% in May; 24% in June; 25% in July, August, September, October and November;and 24% in December (Note 6).

The total amount of the quarterly agricultural loan portfolio of each public or private universal bankmust be distributed as follows:

Area Activity Percentage

Strategic Primary agricultural production 49.00 minimumAgroindustrial investments 10.50 maximumMarketing 10.50 maximum

Non-strategic Primary agricultural production 21.00 maximumAgroindustrial investments 4.50 maximumMarketing 4.50 maximum

Total agricultural portfolio 100.00

This Resolution also established that commercial and universal banks must grant medium and long-term loans representing a least 10% of the total agricultural loan portfolio.

In addition, this Resolution requires the number of new individual and company borrowers of theagricultural loan portfolio to be increased by 30% with respect to total agricultural borrowers at prioryear end. Of this percentage, at least half must be individual borrowers. Universal banks mustdistinguish between agricultural loan borrowers maintained at prior year end and new borrowers for agiven year subject to measurement. Moreover, the Resolution establishes how the total quarterlybalance of each bank’s agricultural loan portfolio must be distributed among strategic and non-strategicareas (Note 6).


8

According to the Resolution, only 5% of loans earmarked for strategic primary agricultural productionmay be granted without guarantees to borrowers meeting the following conditions:

1. Borrowers must be individuals who are small producers.

2. Borrowers may not have another current agricultural loan with any public or private universal bankat the loan application date.

3. The primary production project must be viable.

To comply with the aforementioned percentages, financial institutions may alternatively place fundswith public banks or contribute them to the Fund for Social Agricultural Development (FONDAS) in theform of capital contributions to the Sociedad de Garantías Recíprocas para el Sector Agropecuario,Forestal, Pesquero y Afines, S.A. (S.G.R. SOGARSA, S.A.), provided that the receiving entityultimately uses the funds to grant agricultural loans, in accordance with the terms and conditionsapproved by the Agricultural Loan Monitoring Committee. Any such funds that are not used directly bythe receiving entity for agricultural loans may be returned at the Bank’s request after it has solved theloan deficit that motivated the contribution of funds in the first place, but in no event before the financialinstrument agreed between the parties matures.

Public and private universal banks that deposited or invested money in the previously mentionedinstitutions must inform SUDEBAN within the first 15 continuous days of the following month. Also,these banks must keep up to date and available to the regulatory body all files and informationregarding these transactions.

Law on Benefits and Payment Facilities for Agricultural Debts on Strategic Crops for FoodSecurity and SovereigntyThe Law on Benefits and Payment Facilities for Agricultural Debts on Strategic Crops for Food Securityand Sovereignty was enacted on August 3, 2009. Subsequently, on September 17, 2009 and onApril 1, 2011, through a joint Resolution, the People’s Power Ministry for Planning and Finance and thePeople’s Power Ministry for Agriculture and Land established the special terms and conditions for debtrestructuring and the procedures and requirements for filing and issuing response notices for debtrestructuring requests.

Agricultural Aid LawOn May 23, 2012, the Venezuelan President enacted the Agricultural Aid Law to meet the needs ofproducers, farmers and fishermen who were affected by the floods that hit the country in late 2010.

This Law will benefit individuals or legal entities that had received agricultural loans to sow crops,purchase raw materials, machinery, equipment and livestock, build and improve infrastructure,reactivate distribution centers and finance working capital in relation to the production of strategiccrops.

The beneficiaries who received loans to finance the strategic crops defined under the Law shall begranted partial or full debt relief by public and private banks.

Law for Creating, Supporting, Promoting and Developing the Microfinancial Business SectorThis Law establishes that the Bank must earmark 3% of its gross loan portfolio at prior semesterclosing for microcredits or contributions to institutions that create, support, promote and develop themicrofinancial and small business sector in Venezuela.


9

Special Law for Home Mortgagor ProtectionThis Law requires banks and other financial institutions regulated by the Law on Banking SectorInstitutions to grant mortgage loans for acquisition, construction or subcontracted construction,enlargement or remodeling of primary residences, based on a percentage of their annual loan portfolio,excluding loans granted under the Housing Loan Law. Under this Law, loans will bear a social interestrate.

The BCV, through an Official Notice, established special social interest rates applicable as fromSeptember 2011 for primary residence mortgages and construction loans, granted or to be grantedfrom the financial institutions’ own resources as follows:

a. The maximum annual social interest rate applicable to loans granted under the Special Law forHome Mortgagor Protection is 11.42%.

b. The maximum annual social interest rate applicable to mortgage loans for the acquisition ofprimary residences, granted or to be granted from the financial institutions’ own resources variesbetween 4.66% and 9.16%, depending on the monthly family income.

c. The maximum annual social interest rate applicable to mortgage loans for the construction ofprimary residences, granted or to be granted from the financial institutions’ own resources, is10.50%.

d. The maximum annual social interest rate applicable to mortgage loans for improvements to primaryresidences varies between 1.40% and 2.40%, depending on the monthly family income.

e. The maximum annual social interest rate applicable to mortgage loans granted under the HousingLoan Law varies between 1.40% and 4.60%, depending on the monthly family income.

The People’s Power Ministry for Housing established that maximum monthly installments for mortgageloan payments shall not exceed 35% of the monthly family income.

Mortgage loans may be granted for up to the full value of the real property pledged, based on itsappraisal value and the monthly family income.

Through Official Gazette No. 39,890 of March 23, 2012, the People’s Power Ministry for Housing fixedthe minimum percentage of the annual gross loan portfolio to be earmarked by each universal bankfrom its own resources for mortgage loans at 15% for the construction, acquisition, improvement,


10

expansion or subcontracted construction of primary residences. This percentage shall be distributedbased on the gross loan portfolio at December 31, 2011 as follows:

RequiredFinanced activity Monthly family income Market %

Construction of housing Earmarked placements 5.45Between three and six minimum salaries - 1.78Between six and eight minimum salaries - 1.56Between eight and fifteen minimum salaries - 1.11

Acquisition of primary residence Between three and six minimum salaries Primary 2.20Between three and six minimum salaries Secondary 0.70Between six and fifteen minimum salaries Primary 0.75Between six and fifteen minimum salaries Secondary 0.25

Improvement and expansion ofprimary residence Under or equal to five minimum salaries - 0.72

Subcontracted construction ofprimary residence Under five minimum salaries - 0.48

Total mortgage portfolio 15.00

The distribution of the percentage for the construction of residences shall be defined by the HigherAuthority of the National Housing System.

The measurement of long-term mortgage loans for the acquisition of primary residences is calculatedbased on: a) the balances of long-term mortgage loans granted at December 31 of the year precedingthe year subject to measurement and b) loans actually granted in 2012. The measurement of short-term mortgage loans granted for construction of primary residences is calculated based on actualpayments made during 2012.

On August 2, 2011, the People’s Power Ministry for Housing issued Resolution No. 121 containing theguidelines for granting loans for the subcontracted construction, expansion or improvement of primaryresidences.

In addition, this Resolution establishes the financing conditions for each type of loan regardless of thesource of funds. Some of these conditions are: maximum debt capacity of the loan applicant or co-applicant, required guarantees, and the general requirements for the loan applicant and co-applicant.On September 6, 2011, the People’s Power Ministry for Planning and Finance set the annual socialinterest rates at between 1.4% and 4.66%.

Compliance with and distribution of the aforementioned percentages are measured at December 31 ofeach year.

Tourism LawThe Tourism Law was published in Official Gazette No. 39,251 on August 27, 2009. The Tourism Lawrequires the People’s Power Ministry for Tourism to fix within the first month of each year thepercentage of the gross loan portfolio to be earmarked by banks to finance tourism, ranging between2.5% and 7%. Short, medium and long-term loans must be included in the loan portfolio percentage.The interest rate may only be modified for the benefit of the loan applicant and loans shall be repaid inequal consecutive monthly installments.

In addition, this Law establishes amortization periods between 5 and 15 years depending on theactivities to be conducted by loan applicants. This Law also establishes special conditions in respectof terms, interest rates and subsidies, among others, for projects to be executed in tourist areas,potential tourist areas or endogenous tourist development areas.


11

In addition, tourism guarantees are created within the National System for Reciprocal Guarantees forloans granted.

The total monthly balance of each bank’s tourism loan portfolio must be distributed as follows:

RequiredSegment percentage

A 40B 35C 25

Through a Resolution issued on February 23, 2012 (February 28, 2011 at December 31, 2011), thePeople’s Power Ministry for Tourism established at 3% the minimum percentage of the gross loanportfolio to be earmarked by each universal bank to finance tourism. This percentage is calculatedbased on the gross loan portfolio balance at December 31, 2011 and 2010, and must be applied asfollows: 1.5% at June 30, 2012 and 3% at December 31, 2012 (Note 6).

Through a joint Resolution on April 13, 2010, published in Official Gazette No. 39,402, the People’sPower Ministries for Tourism and for Planning and Finance established the grace periods for tourismloans. These grace periods range from one to three years depending on the activity that is beingfinanced. Loans for tourism projects to be developed in tourist areas will have the maximum graceperiods considering the type of activity to be developed.

Manufacturing loansThe Manufacturing Loan Law published on April 17, 2012 requires the people’s power ministries incharge of finance and industries to jointly fix within the first month of each year, and with the bindingopinion of SUDEBAN and the BCV, the terms, conditions, periods and minimum percentage of the loanportfolio to be earmarked by each universal bank to finance manufacturing activities. In no event maythe minimum percentage fall below 10% of each bank’s gross loan portfolio for the immediately prioryear.

BCV regulationsThe BCV has established regulations on lending and deposit rates to be applied by banks andrestrictions on certain service fees. In July 2011 the BCV established maximum rates to be chargedfor commissions, fees or surcharges on each type of transaction.

Regarding lending rates, the BCV established that banks may not charge for lending operations,except for consumer loans, an annual interest or discount rate higher than the rate periodically set bythe BCV’s Board of Directors for discount, rediscount, repurchase and advance operations, reduced by5.5%, except in the case of agricultural, tourism, manufacturing and mortgage loans for primaryresidences (Note 6). As from June 5, 2009, the annual interest rate to be charged by the BCV ondiscount, rediscount and advance operations, except as regards operations conducted under specialregimes, was set at 29.5%.

Regarding deposit rates, the BCV established that the interest rate to be paid by banks on savingsdeposits, including liquid asset accounts, shall not be lower than 12.5% per annum. In addition, interestrates to be paid by banks on time deposits and certificates of deposit may not be lower than 14.5% perannum, regardless of their maturity. This rate will not be applicable to time deposits received bydevelopment banks whose main objective is to foster, finance or promote microfinancial activities whenthe depositor is another bank or financial institution.


12

The BCV established that banks may not charge commissions, fees or surcharges to their customersfor transactions, operations or services directly related to savings accounts. Banks may charge acommission amounting to the existing balance of dormant savings and current accounts that havebeen closed if it is below Bs 1. In addition, banks may not charge commissions, fees or surcharges foroperations other than those published by the BCV.

Through Resolution No. 10-11-01 of November 23, 2010 and Resolution No. 11-07-01 of July 13,2011, the BCV established that banks may only charge their customers up to Bs 5 for the second plussavings account books issued in the year. Likewise, banks may fix by mutual agreement with theircustomers the amounts to be charged for commissions, fees or surcharges for providing specializedproducts or services, as defined in these Resolutions. However, the BCV must approve all amountsbefore collection.

In July 2007, the Constitutional Chamber of the Supreme Tribunal of Justice ruled partly in favor of thelawsuit filed by the National Users’ and Consumers’ Alliance (ANAUCO) against the VenezuelanBanking Association (ABV), the National Banking Council (CBN), SUDEBAN and the BCV. As part ofthis process, the BCV established that banks may not charge an annual interest rate in excess of 29%or under 17% for credit card lending operations. Moreover, banks may not charge customerscommissions, fees or charges for maintaining or renewing credit cards, collecting balances owed,issuing statements or issuing classic or similar credit cards, or for claims filed by credit card holders,whether legitimate or otherwise. Furthermore, the aforementioned Resolution requires banks to pay onamounts credited in excess of the total credit card debt or on any amounts in favor of the cardholder(except for prepaid instruments) annual interest not below that established by the BCV for savingsdeposits.

The BCV established the maximum discount rates and commissions to be charged by banks toaffiliated businesses for authorizing and processing point-of-sale operations through credit, debit andprepaid cards or any other financing or electronic payment instrument.

Through Resolution No. 10-10-02 issued on June 30, 2011, the BCV reduced by 3 percentage pointsthe 17% minimum legal reserve that banks are required to maintain at the BCV, as per the previousResolution of October 26, 2010, provided that they use the available resources to purchaseinstruments issued within the framework of Venezuela’s Great Housing Mission. The terms andconditions of these investments will be as established by the BCV.

Through Resolution No. 10-06-01 published in June 2010, the BCV issued the rules for conductingexchange operations. According to these rules, the trading in bolivars of securities denominated inforeign currency issued or to be issued by the Bolivarian Republic of Venezuela, its decentralizedagencies or any other issuer may only be conducted through the System for Transactions withSecurities in Foreign Currency (SITME). These purchase and sale transactions in bolivars shall beconducted within a certain price band by universal banks, commercial banks, and savings and loaninstitutions following the terms and conditions established by the BCV. In August 2010, ResolutionNo. 10-08-01 was issued to allow the BCV’s participation in foreign currency trading operations.

Subsequently, through Circular No. SBIF-II-GGNR-GNP-08555 of June 14, 2010, SUDEBAN decidedto establish a regulatory exception for authorization requests provided for in the Accounting Manual forBanks, Other Financial Institutions, and Savings and Loan Entities (Accounting Manual) relating to theassignment of National Public Debt Bonds in foreign currency issued by the Bolivarian Republic ofVenezuela, its decentralized agencies or any other issuer in circumstances other than those expresslydescribed in the Accounting Manual. This regulatory exception only applies to held-to-maturitysecurities negotiated through SITME. To qualify for the exception, the transactions must be notified toSUDEBAN, which must receive documentation supporting the transactions together with the approvalof the institution’s Treasury Committee or whoever may be acting in its stead (Note 5).


13

Through Resolution No. 10-09-01, the BCV established that duly authorized universal banks mayoperate as brokers or intermediaries on the currency market and advertise this activity, in accordancewith the BCV’s guidelines, terms and conditions.

Other regulationsLaw for the Advancement of Science, Technology and InnovationThis Law establishes that the country’s major corporations will annually earmark 0.5% of gross incomegenerated in Venezuela in the prior year. For the six-month periods ended December 31 and June 30,2012, the Bank recorded expenses in this connection of Bs 3,266,966 for each semester, includedunder sundry operating expenses (Note 20).

In December 2010, the Venezuelan government enacted the Reform of the Law for the Advancementof Science, Technology and Innovation, which became effective on December 16, 2010. This legalinstrument creates the National Fund for Science, Technology and Innovation (FONACIT), which shallbe responsible for managing, collecting, controlling, verifying, and quantitatively and qualitativelydetermining the contributions for science, technology and innovation and their applications. Likewise,the Reform indicates that taxpayers may apply to use the contributions to science, technology andinnovation, provided that they develop annual projects, plans, programs and activities for the priorityareas defined by the national authority responsible for matters related to science, technology andinnovation and their applications and submit them within the third quarter of each year. Subsequently,also within the third quarter of each year, users of the contributions for science, technology andinnovation must submit to FONACIT a technical and administrative report of the activities conducted inthis connection during the prior year.

The partial regulations of the Law for the Advancement of Science, Technology and Innovation werepublished on November 8, 2011. These regulations govern the contributions, financing and its results,and research, technology and innovation ethics, and require the payment and declaration ofcontributions within the second quarter after the closing of the period in which gross income wasgenerated.

Antidrug LawThe Antidrug Law was published in Official Gazette No. 39,510 on September 15, 2010. This Lawrequires all private corporations, consortia and business-oriented public entities with 50 or moreemployees to contribute 1% of their annual operating income to the National Antidrug Fund (FONA)within 60 days of their respective year end. Companies belonging to economic groups will makecontributions on a consolidated basis.

The FONA shall use these contributions to finance plans, projects and programs for the prevention ofillegal drug traffic.

The contributions to the FONA shall be distributed as follows: 40% for prevention projects for thecontributor’s employees and their families; 25% for child welfare protection programs; 25% for antidrugtraffic programs; and 10% to finance the FONA’s operating costs. In addition, companies are requiredto employ rehabilitated individuals to facilitate their social reintegration.

The Antidrug Law repeals the Law on Narcotic and Psychotropic Substances published in OfficialGazette No. 38,337 on December 16, 2005, and its Partial Regulations of June 5, 1996, published inOfficial Gazette No. 35,986 on June 21, 1996. Resolution No. 004-2011 was published in OfficialGazette No. 39,643 on March 28, 2011 to establish the regulations for payment of contributions andspecial contributions according to applicable laws. This Resolution also established that the AntidrugLaw will be effective for periods beginning after September 15, 2010 when the Law was enacted, andfor periods that began before that date the Law on Narcotic and Psychotropic Substances will apply.


14

For the six-month periods ended December 31 and June 30, 2012, the Bank recorded expenses in thisconnection of Bs 3,347,542 and Bs 1,922,375, respectively, included under sundry operating expenses(Note 20).

Exchange Offenses LawA Reform of the Exchange Offenses Law was published on May 17, 2010 to include in the legaldefinition of foreign currency securities denominated in foreign currency or which can be traded insuch. The Reform also grants the BCV exclusive control over foreign currency trading, regardless ofthe amount of the transaction, whether through money or the purchase of securities that are intendedto be sold prior to their maturity date.

Law against Organized Crime and Terrorism FinancingThe Law against Organized Crime and Terrorism Financing was published in Official GazetteNo. 39,912 on April 30, 2012 to prevent, investigate, prosecute, typify and punish offenses involvingorganized criminal groups and terrorism.

Sports and Physical Education LawThe Sports and Physical Education Law was passed in August 2011. This Law seeks to regulatephysical education and the sponsorship, organization and management of sporting activities as publicservices. Companies subject to this Law must contribute 1% of their net income to the activitiescontemplated therein. The first Partial Regulations to this Law were published on February 28, 2012 toestablish the method for declaring and paying this contribution, the former within 190 days of periodend. Through Circular No. SIB-II-GGR-GNP-12159 of May 4, 2012, SUDEBAN established regulationson how this contribution must be paid and recorded.

New Labor LawThe new Labor Law was published in Official Gazette No. 39,916 on May 7, 2012. This Lawincorporates certain changes to the previous Labor Law of June 19, 1997 and its reform of May 6,2011, particularly with respect to the calculation of certain employee benefits, such as vacation bonus,profit sharing, maternity leave, and the retrospective accrual of length-of-service benefits. In addition,the new Law reduces working hours and extends job security for new parents. This Law becameeffective upon its publication in the Official Gazette. Through Notice No. SIB-II-GGR-GNP-38442 ofNovember 27, 2012, SUDEBAN clarified that, in accordance with the Accounting Manual, banks mustapply International Accounting Standards as supplemental guidance for issues not treated in saidAccounting Manual, prudential regulations or prevailing accounting principles generally accepted inVenezuela issued by the Venezuelan Federation of Public Accountants (FCCPV), such as the liabilityarising from the new labor legislation. SUDEBAN also indicated that the methodology used todetermine this liability must be applied consistently, must be contemplated in the Bank’s rules andpolicies, and must be approved by the Board of Directors. As reflected in Minutes No. 218 of the Boardof Directors’ Meeting on February 6, 2013, the Bank will use a simplified calculation, which has beenduly approved, to determine its liability with respect to length-of-service benefits. Such liability shall bethe greater of the sum of 15 days of salary deposited quarterly in employee trust funds plus twoadditional days of salary for each year of service–amount that had already been recorded as salariesand employee benefits–and the sum of 30 days of salary for each year of service or fraction over sixmonths, calculated based on the last salary earned by the employee. At December 31, 2012, the Bankhas set aside a provision of Bs 6,274,709 in this connection, recorded against expenses for the six-month period ended December 31, 2012 (Bs 5,930,754 at June 30, 2012) (Note 17).


15

2. Basis of preparation

The accompanying financial statements at December 31 and June 30, 2012 have been preparedbased on the accounting rules and instructions of SUDEBAN included in the Accounting Manual, whichdiffer in certain material respects from generally accepted accounting principles (VEN NIF) publishedby the Venezuelan Federation of Public Accountants (FCCPV), of mandatory application in Venezuelaas from January 1, 2008. VEN NIF are mainly based on International Financial Reporting Standards(IFRS) issued by the International Accounting Standards Board (IASB), except for certain criteriaconcerning adjustments for inflation and the valuation of foreign currency assets and liabilities, amongothers.

Through Resolution No. 648.10 of December 28, 2010, SUDEBAN deferred the presentation ofconsolidated or combined financial statements prepared under VEN NIF as supplementary informationand established that, until otherwise stated, consolidated or combined financial statements and theirnotes must continue to be presented as supplementary information in accordance with generallyaccepted accounting principles in effect at December 31, 2007 (VEN GAAP).

At December 31 and June 30, 2012, the main differences identified by management between theaccounting rules and instructions of SUDEBAN and VEN NIF that affect the Bank are the following:

1) VEN NIF Adoption Bulletin No. 2 (BA VEN NIF 2) establishes criteria for applying InternationalAccounting Standard No. 29 (IAS 29), “Financial reporting in hyperinflationary economies” inVenezuela and requires that the effects of inflation on the financial statements be recognized inaccordance with IAS 29, provided that inflation for the year exceeds one digit. SUDEBAN hasstipulated that inflation-adjusted financial statements must be provided as supplementaryinformation. For purposes of additional analysis, the Bank has prepared inflation-adjusted financialstatements using the General Price Level (GPL) method. The inflation rate for the six-month periodended December 31, 2012 was 11.70% (7.49% for the six-month period ended June 30, 2012)(Note 34).

2) The Accounting Manual establishes that interest earned on overdue or in-litigation loans shall notbe recognized as income but shall be recorded under memorandum accounts, as shall allsubsequent interest earned. VEN NIF establish that for financial instruments carried at amortizedcost, the amount of the impairment is the difference between the instrument’s carrying amount andthe present value of estimated future cash flows generated by the instrument, discounted at theoriginal effective interest rate. Impairment exists when the present value of an instrument’s futurecash flows is lower than the carrying amount, in which case interest income shall be recognizedtaking into account the discount rate applied to future cash flows for determining impairmentlosses.

3) The Accounting Manual establishes that loans whose original repayment schedule, term, or otherconditions have been modified at the request of the debtor must be reclassified within rescheduledloans. VEN NIF provide no specific guidance. However, they do state that impairment losses onfinancial assets carried at amortized cost shall be charged to the results for the period in whichthey are incurred.

In addition, the Accounting Manual establishes that loans classified as overdue must be written offwithin 24 months after inclusion in this category. Loans in litigation must be fully provided for after24 months in the in-litigation category. In addition, overdue monthly loan installments that havebeen repaid must be classified to the category to which they pertained before being classified asoverdue. Likewise, when a debtor repays pending loan installments of a loan in litigation, thereby


16

terminating the lawsuit, the loan must be reclassified to the category to which it pertained beforebeing classified as in litigation or overdue. According to VEN NIF, accounts receivable arerecorded based on their recoverable amount.

4) Assets received as payment are recorded at the lower of cost and market value and amortizedusing the straight-line method over one to three years. Idle assets must be written out of assetaccounts after 24 months. In accordance with VEN NIF, assets received as payment are stated atthe lower of cost and market value, and are classified as available-for-sale assets or investmentproperty depending on their use. Investment properties are depreciated over their expectedincome-generating term.

5) The Accounting Manual establishes that property and equipment is initially recorded at acquisitionor construction cost, as applicable. However, VEN NIF allows property and equipment to berevalued, and any increase in value is credited to equity under revaluation surplus.

6) Significant leasehold improvements are recorded as amortizable expenses and included underother assets. According to VEN NIF, they must be shown as part of property and equipment.Gains or losses on the sale of personal and real property are shown in the income statement.

7) The Bank computes a deferred tax asset or liability in respect of temporary differences betweenthe tax bases and carrying amounts in the financial statements, except for provisions for losses onother than high risk or unrecoverable loans. A deferred tax asset is not recognized for any amountexceeding future taxable income. In accordance with VEN NIF, a deferred tax asset is recognizedin respect of all temporary differences between the carrying amount of assets and liabilities andtheir tax bases, provided that its realization is assured beyond any reasonable doubt.

8) The Bank presents convertible bonds as part of equity (Note 24). In accordance with VEN NIF,convertible bonds must be presented as a financial instrument forming part of the Bank’s liabilities.

9) Other assets include deferred expenses incurred by the Bank during the currency redenominationprocess, which are amortized as from April 2008 using the straight-line method (Note 12). Otherassets also include deferred personnel, general, administrative and operating expenses related tothe acquisition of Stanford Bank, S.A., which will be amortized over 15 years as fromJanuary 1, 2010 (Note 11). In accordance with VEN NIF, these types of costs may not be deferredand must be recorded in the income statement as incurred.

10) In conformity with SUDEBAN rules, the Bank sets aside the general allowance for the loan portfoliowith a charge to the results for the period. VEN NIF require that these allowances be recorded asa restricted amount of retained earnings in equity, provided that they do not meet conditionsestablished in IAS 37, “Provisions, contingent liabilities and contingent assets.”

11) At December 31 and June 30, 2012, the Bank, in conformity with SUDEBAN rules, maintains ageneral 1% allowance of the loan portfolio balance, except for the balance of the microcreditportfolio, for which it maintains a general 2% allowance. VEN NIF require that the Bank firstassess whether objective evidence of impairment exists individually for loans that are individuallysignificant, or collectively for loans that are not individually significant. Impairment losses shall berecognized in the results for the period.

12) SUDEBAN rules require foreign currency balances and transactions to be measured at theprevailing official exchange rate established by the BCV of Bs 4.30/US$1, except for foreigncurrency securities issued by the Bolivarian Republic of Venezuela or by state-owned companies,which are measured at the average exchange rate of securities traded through SITME the last dayof each month. In conformity with VEN NIF, foreign currency transactions and balances shall be


17

measured and recorded taking into consideration a comprehensive assessment of the entity’sfinancial position, its monetary position in foreign currency and the financial impact of theapplicable exchange regulations. In addition, instructions issued by the FCCPV on this matter statethat:

- Foreign currency items shall be measured: a) at the official exchange rates established in thedifferent exchange agreements issued by the BCV and the Venezuelan government, or b) onthe basis of best estimates of future cash flows in bolivars expected to be required or receivedto settle liabilities or realize assets at the transaction or balance sheet date, using the exchangeor settlement mechanisms permitted under Venezuelan law (e.g., SITME).

- Assets in foreign currency required to be sold to the BCV shall be measured at the officialexchange rates established by the BCV.

- Assets in foreign currency not required to be sold to the BCV shall be measured: a) on thebasis of the liabilities that are not reasonably expected to be settled with foreign currencypurchased from the Venezuelan government at the official exchange rate, or b) on the basis ofbest estimates of future cash flows in bolivars expected to be received to realize these assetsat the transaction or balance sheet date, using the exchange or settlement mechanismspermitted under Venezuelan law (e.g., SITME).

13) Investments in trading securities may not remain in this category for more than 90 days after theyhave been classified. In conformity with VEN NIF, these investments may remain in this categoryindefinitely.

14) In accordance with SUDEBAN rules, available-for-sale assets reclassified to the held-to-maturitycategory are recorded at their fair value at the reclassification date. Unrealized gains or losses aremaintained separately in equity and are amortized over the investment’s remaining life as anadjustment to yield.

In conformity with VEN NIF, the fair value of the investment at the reclassification date becomesthe new amortized cost basis, and any gain or loss previously recognized in equity is accounted foras follows: a) gains or losses on fixed maturity investments, as well as any difference between thenew amortized cost and value at maturity, are taken to profit and loss and amortized over theinvestment’s remaining life, and b) gains or losses on non-maturing investments will remain inequity until the asset is sold or otherwise disposed of, when it shall be recognized in profit or loss.Any subsequent impairment losses recorded in equity shall be recognized in the results for theperiod.

15) Discounts or premiums on held-to-maturity investments are amortized over the term of the securitywith a debit or credit to gain or loss on investment securities under other operating income or otheroperating expenses, respectively. In conformity with VEN NIF, discounts or premiums must beaccounted for as part of the security’s yield and, therefore, must be recognized under interestincome.

16) Subsequent recoveries of permanent losses arising from impairment in the fair value of investmentsecurities do not affect the new cost basis. VEN NIF allow recovery of impairment losses on debtsecurities.


18

17) The Accounting Manual establishes timeframes to record provisions for bank reconciling items,matured securities, pending items and accounts receivable forming part of other assets, loaninterest suspension, interest receivable and derecognition of certain assets, among others.VEN NIF do not establish timeframes for creating provisions for these items; provisions arerecorded based on best estimates of collection or recovery.

18) Other assets include the difference between the purchase price and the book value of StanfordBank’s assets and liabilities, which will be amortized using the straight-line method over 15 years.According to VEN NIF, goodwill should not be amortized but tested for impairment annually orwhenever events or circumstances indicate that the value of the respective reporting unit may beimpaired. Impairment is determined by comparing the carrying amount of the cash generating unitto its recoverable amount, and if the carrying amount exceeds the recoverable amount, animpairment loss is recognized in the income statement.

19) At December 31 and June 30, 2012, other assets include deferred expenses of Bs 10,848,455 andBs 16,320,460, respectively, related to disbursements for the new chip-based credit and debitcards. These disbursements include advisory, training and other personnel expenses, advertising,and client education on the adequate use of electronic payment services, accommodation ofphysical spaces, and replacement of debit and credit cards. They will be amortized beginningJanuary 2011 using the straight-line method (Note 12). In accordance with VEN NIF, theseexpenses may not be deferred but must be recorded in the income statement when incurred.

20) SUDEBAN established that gains and losses resulting from foreign exchange fluctuations must berecorded in equity. Under VEN NIF, gains and losses resulting from foreign exchange fluctuationsmust be recorded in the income statement for the period in which they occur. During the six-monthperiod ended December 31, 2012, the Bank did not record exchange fluctuations with regard to itsforeign currency assets and liabilities (Notes 4 and 25-c).

21) For purposes of the cash flow statement, the Bank considers as cash equivalents cash and duefrom banks. VEN NIF consider as cash equivalents investments and deposits maturing within 90days.

22) SUDEBAN established that expenses incurred in relation to the social contribution provided inArticle No. 48 of the Law on Banking Sector Institutions shall be recorded as a prepaid expensewithin other assets and amortized during the six-month period in which the contribution was paid.Under VEN NIF, this contribution must be expensed as incurred.

23) SUDEBAN established that expenses incurred in relation to the contribution under the Sports andPhysical Education Law shall be expensed when paid. Under VEN NIF, this contribution must beexpensed as incurred.

24) The Accounting Manual establishes that transfers between investment categories or sales ofinvestments for reasons other than those established in said Accounting Manual must beauthorized by SUDEBAN. The sale or transfer of held-to-maturity investments shall not beconsidered to be inconsistent with their original classification under the following circumstances:

a) a significant deterioration in the issuer’s creditworthiness;

b) a change in tax law that eliminates or reduces the tax-exempt status of interest on the debtsecurity;


19

c) a major business combination or major disposition that necessitates the sale or transfer of thesecurity to maintain the enterprise’s existing interest rate risk position or credit risk policy;

d) a change in statutory or regulatory requirements significantly modifying either what constitutesa permissible investment or the maximum level of investments in certain kinds of securities;

e) a significant increase by the regulator in the industry’s capital requirements; and

f) a significant increase in the risk weights of debt securities used for regulatory risk-basedcapital purposes. Changes in circumstances and other events that are isolated, nonrecurringand unusual and that could not have been reasonably anticipated may cause an entity to sellor transfer held-to-maturity investments without calling into question the entity’s intent to holdother securities to maturity.

According to VEN NIF, if an entity sells or reclassifies more than an insignificant proportion ofheld-to-maturity investments before maturity, the entity may not classify any financial asset asheld-to-maturity for two years from the date the sale or transfer occurred. In addition, anyremaining held-to-maturity securities must be reclassified as available for sale and measured atfair value.

The accounting policies followed by the Bank are:

a) Foreign currencyForeign currency transactions and balances are recorded at the official exchange rate in effect at thetransaction date. Foreign currency balances at December 31 and June 30, 2012 are shown at theofficial exchange rate of Bs 4.30/US$1, except for foreign currency securities issued by the BolivarianRepublic of Venezuela or by state-owned companies, which since October 2011 are recorded at theaverage implicit exchange rate of securities traded through SITME the last day of each month. AtDecember 31, 2012, the SITME rate was Bs 5.30/US$1 (Note 4). Exchange gains and losses otherthan those resulting from the official currency devaluation are included in the results for the period(Note 25).

The Bank does not engage in hedging activities in connection with its foreign currency transactions andbalances. The Bank is exposed to foreign exchange risk.

b) Translation of financial statements in foreign currencyAssets, liabilities and income accounts of the Curacao Branch were translated at the official exchangerate of Bs 4.30/US$1, except for foreign currency securities issued by the Bolivarian Republic ofVenezuela or by state-owned companies, which were translated at the average implicit exchange rateof securities traded through SITME the last day of each month. The adjustment resulting fromtranslating the financial statements of the Branch into bolivars is shown in the income statement underother operating income (in equity at June 30, 2012) (Notes 19 and 25).

c) Investment securitiesInvestment securities are classified upon acquisition, based on their intended use, as overnightdeposits, investments in trading securities, investments in available-for-sale securities, investments inheld-to-maturity securities, restricted investments and investments in other securities.

All transfers between different investment categories or sales of investments under circumstancesother than those established in the Accounting Manual must be authorized by SUDEBAN.


20

Deposits with the BCV and overnight depositsExcess liquidity deposited in overnight deposits and debt securities issued by Venezuelan financialinstitutions maturing within 60 days are included in this account.

Investments in trading securitiesInvestments in trading securities are recorded at fair value and comprise investments in debt andequity securities which may be converted into cash within 90 days of their acquisition. Unrealizedgains or losses resulting from differences in fair values are included in the income statement. Gainsand losses from fluctuations in the exchange rate are included in equity.

These securities, regardless of their maturity, must be negotiated and written out of this account within90 days of their classification, i.e., they may not remain in this category for more than 90 days.

Investments in available-for-sale securitiesInvestments in available-for-sale debt and equity securities are recorded at fair value and unrealizedgains or losses, net of income tax, resulting from differences in fair value are included in equity. Ifinvestments in available-for-sale securities correspond to instruments denominated in foreign currency,the fair value will be determined in foreign currency and then translated at the official exchange rate ineffect. Gains or losses from fluctuations in the exchange rate are included in equity. Permanentlosses from impairment in the fair value of these investments are recorded in the income statementunder other operating expenses for the period in which they occur. Any subsequent recovery in fairvalue is recognized as an unrealized gain, net of income tax, in equity (Note 5-a).

These investments may not remain in this category for more than one year, except for securities issuedand guaranteed by the Venezuelan government and investments in shares of mutual guaranteecompanies.

Investments in held-to-maturity securitiesInvestments in debt securities that the Bank has the firm intention and ability to hold until maturity arerecorded at cost, which should be consistent with market value at the time of purchase, subsequentlyadjusted for amortization of premiums or discounts. Discounts or premiums on acquisition areamortized over the term of the securities as a credit or debit to other operating income and otheroperating expenses. The book value of investments denominated in foreign currency is adjusted at theexchange rate in effect at period end. Gain and losses from fluctuations in the exchange rate areincluded in equity.

The Bank assesses at each balance sheet date, or sooner if circumstances require it, whether there isany objective evidence that a financial asset or group of financial assets is impaired. An impairment inthe fair value of held-to-maturity and available-for-sale securities is charged to the results for the periodwhen management considers that it is other than temporary. Certain factors identified as indicators ofimpairment are: 1) a prolonged period where fair value remains substantially below cost, 2) thefinancial difficulty of the issuer, 3) a fall in the issuer’s credit rating, 4) the disappearance of an activemarket for the security, and 5) the Bank’s intention and ability to hold the investment long enough toallow for recovery of fair value, among others. For the six-month periods ended December 31 andJune 30, 2012, the Bank has identified no permanent impairment in the value of its investments(Note 5-b).

Sales or transfers of investments in held-to-maturity securities do not affect the original intention forwhich these securities were acquired when: a) the sale occurs so close to their maturity date thatinterest rate risk is extinguished (i.e., changes in market interest rates will not significantly affect therealizable value of the investment) or b) the sale occurs after the entity has collected a substantialportion (more than 85%) of the outstanding principal at the transaction date, in addition to all otherconditions established in the Accounting Manual.


21

Restricted investmentsRestricted investments originating from other investment categories are measured using the samecriteria used to record those investments from which they are derived. Securities or loans which theBank contractually sells and commits to repurchase at an agreed date and price, i.e., for which theBank acts as the reporting entity, are valued using the same criteria as for investments in tradingsecurities.

Investments in other securitiesInvestments in other securities include investment trusts, as well as investments not classified underany other category.

The Bank uses the specific identification method to determine the cost of securities and this samebasis to calculate realized gains or losses on the sale of trading or available-for-sale securities.

d) Loan portfolioCommercial loans and term, mortgage and credit card loan installments are classified as overdue ifrepayment is more than 30 days past due. In conformity with SUDEBAN rules, advances on negotiatedletters of credit are classified as overdue if not repaid within 270 days after they were granted by theBank. Furthermore, when any related installment is more than 90 days past due, the entire principalbalance is classified as overdue.

In addition, the entire balance of microcredits, payable in weekly or monthly installments, is consideredpast due if repayment of at least one weekly installment is 14 days overdue or one monthly installmentis 60 days overdue. Rescheduled loans are those whose original repayment schedule, term, or otherconditions have been modified based on a refinancing agreement and certain terms and conditions setout in the Accounting Manual. Loans in litigation are those in the legal collection process.

Loans classified as overdue must be written off within 24 months after inclusion in this category. Loansin litigation must be fully provided for after 24 months in the in-litigation category. In addition, overduemonthly loan installments that have been repaid must be reclassified to the category to which theypertained before being classified as overdue. Likewise, when an individual repays pending loaninstallments of a loan in litigation, thereby terminating the lawsuit, the Bank must reclassify the loan tothe category to which it pertained before being classified as in litigation or overdue.

e) Use of estimates in the preparation of financial statementsThe preparation of financial statements in conformity with SUDEBAN rules requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities at the date of the financial statements and the amounts ofincome and expenses during the reporting period. Actual results may differ from those estimates.Below is a summary of the main estimates used in the preparation of the financial statements:

Investment securitiesInvestment securities and interest not collected 30 days after maturity date are provided for in full.

Loan portfolio and contingent loansThe Bank performs a quarterly review of at least 90% of its loan portfolio and contingent loans todetermine the specific allowance for possible losses on each loan. This review takes into accountfactors such as economic conditions, client credit risk and credit history. Moreover, each quarter theBank calculates an allowance for losses on loans not individually reviewed, equivalent to the riskpercentage resulting from the specific review of loans. In addition, in accordance with SUDEBAN rules,


22

the Bank maintains a general 1% allowance of the loan portfolio balance, except for the balance of themicrocredit portfolio, for which it maintains a general 2% allowance, plus any additional generalallowances deemed necessary. General or specific allowances may not be released without theauthorization of SUDEBAN.

Other assetsThe Bank assesses collectibility of items recorded under other assets using the same criteria, whereapplicable, as those applied to the loan portfolio. Furthermore, the Bank sets aside provisions for thoseitems that require them due to their nature or aging.

Provision for legal and tax claimsThe Bank sets aside a provision for legal and tax claims considered probable and reasonablyquantifiable based on the opinion of its legal advisors. Based on this opinion, management believesthat the outcome of legal and tax claims outstanding at December 31 and June 30, 2012 will befavorable to the Bank (Note 30). However, this opinion is based on events to date; the outcome ofthese lawsuits could differ from that expected.

f) Available-for-sale assetsPersonal and real property received as payment is recorded at the lower of assigned value, bookvalue, market value or appraisal value not older than one year, and is amortized using the straight-linemethod over one to three years, respectively. The remaining available-for-sale assets are recorded atthe lower of cost and realizable value. Gains or losses from the realization of available-for-sale assetsare included in the income statement.

Other available-for-sale assets and assets idle for more than 24 months must be written out of assetaccounts.

g) Property and equipmentProperty and equipment is recorded at cost, net of accumulated depreciation. Depreciation iscalculated using the straight-line method over the estimated useful lives of the assets. Significantleasehold improvements are recorded as amortizable expenses and included under other assets.Gains or losses on the sale of personal and real property are shown in the income statement.

h) Deferred expensesDeferred expenses mainly include start-up, leasehold improvement and software license costs. Theseexpenses are recorded at cost, net of accumulated amortization. Amortization is calculated using thestraight-line method over four years.

Expenses incurred during the currency redenomination process related to advisory, training, travel andother personnel, advertising, software and security expenses will be amortized as from April 2008using the straight-line method over one to six years (Note 12).

Deferred expenses related to the Stanford Bank merger shall be amortized using the straight-linemethod over 15 years as from January 2010 (Notes 11 and 12).

The difference between the purchase price and the book value of Stanford Bank’s assets and liabilitiesis amortized using the straight-line method over 15 years as from June 2009 (Notes 11 and 12).

Deferred expenses related to the project for the new chip-based credit and debit cards will beamortized using the straight-line method over one to six years as from January 2011 (Note 12).


23

i) Income taxThe Bank’s tax year ends on December 31. The tax provision is based on management’s projection oftax results. The Bank records a deferred tax asset when, in the opinion of management, there isreasonable expectation that future tax results will allow its realization. In addition, according to theAccounting Manual, the amount by which the deferred tax asset exceeds tax expense for the year isnot recognized (Note 18).

j) Employee benefitsAccrual for length-of-service benefitsThe Bank accrues for its liability in respect of length-of-service benefits, which are a vested right ofemployees, based on the provisions of the new Labor Law (LOTTT) (Note 1) and the prevailingcollective labor agreement and deposits amounts accrued in a trust fund on behalf of each employee.

The Bank does not have a pension plan or other post-retirement benefit programs for its employees; itdoes not grant stock purchase options.

Profit sharingUnder the collective labor agreement, the Bank is required to pay a share of its annual profits to itsemployees of up to 120 days of salary. Expenses incurred in this connection during the first six-monthperiod of each year are paid in April and July, and the remaining liability in November. At December31 and June 30, 2012, the Bank has recorded Bs 23,684,119 and Bs 18,742,072, respectively, in thisconnection, shown under salaries and employee benefits.

Vacation leave and vacation bonusThe new Labor Law and the collective labor agreement grant each employee a minimum of 15 days ofvacation leave each year and a vacation bonus based on length of service. The Bank accrues amountsaccordingly (Note 17).

k) Recognition of revenue and expensesInterest on loans, investments and accounts receivable is recorded as income when earned by theeffective interest method, except: a) interest receivable more than 30 days overdue, b) interest onloans overdue or in litigation, or loans classified as real risk, high risk or unrecoverable, and c) overdueinterest, all of which are recorded as income when collected. Interest collected in advance is includedunder accruals and other liabilities as deferred income and recorded as income when earned(Note 17).

Interest on current and rescheduled loan portfolios collectible after six months or more is recorded asdeferred income under accruals and other liabilities when earned and as income when collected.

Commissions from loans granted are recorded as income upon collection under income from otheraccounts receivable.

Income from financial leases and amortization costs of leased property are shown net in the incomestatement as interest income from the loan portfolio.

Interest on customer deposits, liabilities and borrowings is recorded as interest expense when incurredusing the effective interest method.

l) Residual valueResidual value is the estimated value of assets upon termination of the financial lease. The Bankrecognizes residual value as income when collected.


24

m) Assets received in trustAssets received in trust are valued using the same parameters used by the Bank to value its ownassets, except for investment securities, which are shown at cost and subsequently adjusted foramortization of premiums or discounts. Any permanent impairment in the value of these investments isrecorded in trust fund results for the period in which it occurs. During the six-month periods endedDecember 31 and June 30, 2012, no permanent losses were identified.

n) Net income per shareBasic net income per share has been determined by dividing net income for the six-month period bythe weighted average of shares outstanding during the period.

o) Cash flowsFor purposes of the cash flow statement, the Bank considers as cash equivalents cash and due frombanks.

p) Use of financial instrumentsThe Bank is mainly exposed to credit, foreign exchange, market, interest rate and liquidity risks. Belowis the risk policy used by the Bank for each type of risk:

Credit riskThe Bank assumes exposure to credit risk when a counterparty is unable to pay off its debts atmaturity.

The Bank monitors credit risk exposure by regularly analyzing payment capabilities of its borrowers.

The Bank structures the level of credit risk by establishing limits for individual and group borrowers.

The Bank requests fiduciary or mortgage guarantees, collateral or certificates of deposit afterassessing specific borrower characteristics.

Foreign exchange riskForeign exchange risk arises from fluctuations in the value of financial instruments due to changes inforeign currency exchange rates. The Bank’s transactions are mainly in bolivars. However, when theBank identifies short or medium-term market opportunities, investments might be deposited in foreigncurrency instruments, mainly in U.S. dollars.

Market riskThe Bank assumes exposure to market risk. Market risk arises from open positions in interest rate,currency and equity products, all of which are exposed to general and specific market movements.

The Bank evaluates market risk on a regular basis and the Board of Directors sets limits on the level ofrisk concentrations that may be assumed, which is regularly supervised.

Interest rate riskThe Bank assumes exposure from the effects of fluctuations in market interest rate levels on itsfinancial position and cash flows.

Interest margins may increase as a result of such changes but may diminish or lead to losses in theevent of unexpected movements.


25

The Bank analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulatedtaking into consideration renewal of existing positions, alternative financing and hedging. Based onthese scenarios, the Bank calculates the impact on profit and loss of a given interest rate shift.

Simulations are performed regularly. Based on various scenarios, the Bank manages its cash flowinterest rate risk.

Liquidity riskThe Bank reviews on a daily basis its available cash resources, overnight deposits, current accounts,maturing deposits and loans, as well as its guarantees and margins.

The Bank’s investment strategy is aimed at guaranteeing an adequate liquidity level. A large portion ofthe investment portfolio includes securities issued by the Bolivarian Republic of Venezuela and otherhighly liquid obligations.

Operational riskThe Bank considers exposure to operational risk arising from direct or indirect losses that result frominadequate or defective internal processes, human error, system failures or external events.

The structure used by the Bank to measure operational risk is based on a qualitative and quantitativeapproach. The first identifies and analyzes risks before related events occur; the second mainly relieson the analysis of events and experiences gained from them.

Fiduciary activitiesThe Bank acts as custodian, administrator and manager of third-party investments. As a result, incertain cases, the Bank purchases and sells a wide range of financial instruments. These trust fundassets are not included in the Bank’s assets. At December 31, 2012, trust fund assets amount toBs 971,641,295 (Bs 787,135,059 at June 30, 2012), shown under memorandum accounts (Note 22).

3. Cash and due from banks

At December 31, 2012, the balance of the account with the BCV mainly includes Bs 3,070,135,180 inrespect of the legal reserve deposit in local currency (Bs 1,964,240,629 at June 30, 2012) (Note 29).

In addition, at December 31, 2012, the account with the BCV includes Bs 1,279,956,654 in respect ofdemand deposits held by the Bank at the BCV (Bs 926,517,989 at June 30, 2012).

At December 31 and June 30, 2012, pending cash items relate to clearinghouse operations conductedby the BCV and other banks.

4. Foreign currency assets and liabilities

In February 2003, the Venezuelan government established an exchange control regime coordinated,managed and controlled by the Commission for the Administration of Foreign Currency (CADIVI).

On January 8, 2010, the Venezuelan government and the BCV enacted Exchange Agreement No. 14to introduce an exchange rate of Bs 2.60/US$1 applicable to priority imports, and Bs 4.30/US$1applicable to all other imports.


26

On December 30, 2010, the Venezuelan government and the BCV enacted Exchange AgreementNo. 14 to eliminate, as from January 1, 2011, the two-tiered exchange rate system and reinstate asingle exchange rate of Bs 4.2893/US$1 (purchase) and Bs 4.30/US$1 (sale).

In January, July and August 2010, SUDEBAN established the guidelines for the accounting treatmentof gains and losses resulting from the effect of the variation in the official exchange rate established inExchange Agreement No. 14. These gains or losses shall be recorded in equity under exchange gain(loss) from holding foreign currency assets and liabilities. Furthermore, the SUDEBAN Resolutionrestricts the use of exchange gains to: a) cover any losses incurred until September 30, 2010 from thetrading of Venezuelan Government National Public Debt Bonds through SITME; b) set aside provisionsfor contingencies or cover deficit balances; and c) increase capital.

Through a Circular issued on January 4, 2011, the BCV informed commercial and universal banksparticipating in the System for the Electronic Custody of Securities (SICET) and the System forCollateral and Credit Lines (SIGALC) that secondary market transactions with Principal and InterestCovered Bonds (TICCs) would be settled at the exchange rate of Bs 4.30/US$1, and related couponspayable for interest due would be settled at the exchange rate in effect two bank days prior to thecoupon starting date.

Subsequently, on October 14, 2011, the BCV established that public-sector securities in foreigncurrency would be measured and recorded at the average value date exchange rate at the last day ofeach month for transactions conducted through SITME managed by the BCV.

In January and October 2011, SUDEBAN established the guidelines for the accounting treatment ofgains and losses resulting from the effect of changes in the official exchange rate established inExchange Agreement No. 14 and Resolution No. 11-10-01. These gains shall be recorded in equitywithin exchange gain (loss) from holding foreign currency assets and liabilities. Furthermore, thisResolution restricts the use of exchange gains to: a) absorb operating losses or deficit maintained inequity accounts at June 30, 2011; b) cover deficit balances through asset contingency provisions, andmake adjustments or record losses as determined by SUDEBAN until March 31, 2012; c) offsetdeferred expenses based on special plans approved by SUDEBAN until December 31, 2011, as wellas costs and goodwill generated until March 31, 2012; d) absorb other losses incurred from applyingthe adjustment plan established in the temporary provisions of the Law on Banking Sector Institutions,approved by SUDEBAN, until March 31, 2012; and e) increase capital stock when exchange gains arerealized.

The Bank’s balance sheet with its Curacao Branch at December 31 and June 30, 2012 includes thefollowing foreign currency balances denominated mainly in U.S. dollars (US$) and stated at the officialexchange rates mentioned above:

December 31, 2012US$

Curacao EquivalentBank Branch Eliminations Total in bolivars

AssetsCash and due from banksCash 999,005 - - 999,005 4,295,721Foreign and correspondent banks 12,925,381 21,698,261 (12,469,855) 22,153,787 95,261,284

Investment securities 15,842,715 31,648,847 - 47,491,562 246,045,663Loan portfolio, net of provisionCurrent loan portfolio - 25,817,574 - 25,817,574 111,015,568Outstanding letters of credit issued and negotiated 32,804,064 - - 32,804,064 141,057,475

Interest and commissions receivable 394,083 823,611 - 1,217,694 6,299,520Investments in subsidiaries, affiliates andbranches and agencies abroad 1,000,000 - (1,000,000) - -

Property and equipment - 24,130 24,130 103,759Other assets, net of provision 1,318,887 4,675 - 1,323,562 5,691,317

Total assets 65,284,135 80,017,098 (13,469,855) 131,831,378 609,770,307


27

December 31, 2012US$


LiabilitiesCustomer deposits - 73,865,484 (12,469,855) 61,395,629 264,001,205Borrowings 5,000,000 - - 5,000,000 21,500,000Other liabilities from financial intermediation 4,732,694 - - 4,732,694 20,350,584Interest and commissions payable 7,816 22,034 - 29,850 128,355Accruals and other liabilities 2,183,354 527,268 - 2,710,622 11,655,675

Total liabilities 11,923,864 74,414,786 (12,469,855) 73,868,795 317,635,819

EquityAssigned capital - 1,000,000 (1,000,000) - -

11,923,864 75,414,786 (13,469,855) 73,868,795 317,635,819

Other debtor memorandum accounts (Note 22)Foreign currency purchases 7,768,459 - - 7,768,459 33,404,374Foreign currency sales (7,768,459) - - (7,768,459) (33,404,374)

June 30, 2012US$


AssetsCash and due from banksCash 656,489 - - 656,489 2,822,903Foreign and correspondent banks 8,838,152 49,872,449 (78,659) 58,631,942 252,117,349

Investment securities 10,588,778 7,569,879 - 18,158,657 92,628,045Loan portfolio, net of provisionCurrent loan portfolio - 12,604,082 - 12,604,082 54,197,553Outstanding letters of credit issued andnegotiated 25,419,901 - - 25,419,901 109,305,574

Interest and commissions receivable 267,196 142,958 - 410,154 2,110,110Investments in subsidiaries, affiliates andbranches and agencies abroad 1,000,000 - (1,000,000) - -

Property and equipment - 28,302 - 28,302 121,699Other assets, net of provision 2,271,022 11,283,607 (11,278,932) 2,275,697 9,785,497

Total assets 49,041,538 81,501,277 (12,357,591) 118,185,224 523,088,730

LiabilitiesCustomer deposits - 77,946,078 (11,357,591) 66,588,487 286,330,494Borrowings 7,610,160 - - 7,610,160 32,723,688Other liabilities from financial intermediation - 8,068 - 8,068 34,692Interest and commissions payable 2,310,358 142,467 - 2,452,825 10,547,143

Accruals and other liabilities 9,920,518 78,096,613 (11,357,591) 76,659,540 329,636,017

Total liabilities

EquityAssigned capital - 1,000,000 (1,000,000) - -

9,920,518 79,096,613 (12,357,591) 76,659,540 329,636,017

Other debtor memorandum accounts (Note 22)Foreign currency purchases 8,943,258 - - 8,943,258 38,456,023Foreign currency sales (8,943,258) - - (8,943,258) (38,456,023)

At December 31, 2012, the Bank has a net monetary asset position in foreign currency ofUS$53,360,271, equivalent to Bs 243,071,748 (US$39,121,020, equivalent to Bs 176,464,786, at June30, 2012), calculated based on the rules laid down by the BCV. This amount does not exceed themaximum limit set by the BCV, which at December 31 and June 30, 2012 is 30% of the Bank’s equity,equivalent to US$118,132,119 and US$84,552,525, respectively. At December 31 and June 30, 2012,the calculation of this limit includes convertible bonds of Bs 100,000,000 since SUDEBAN allowed theirinclusion in the Bank’s equity structure.


28

At December 31, 2012, calculation of the net foreign currency position does not include balances of theCuracao Branch or TICCs with a par value of US$90,489,793 (US$90,484,193 at June 30, 2012),bonds issued by Petróleos de Venezuela, S.A. (Petrobonos 2013, 2014, 2015 and 2016) andInternational Sovereign Bonds 2019, 2022, 2024 and 2031 with a par value of US$16,629,500(US$28,129,000 at June 30, 2012) and interest receivable in connection with these securities ofUS$1,437,137 (US$1,512,691 at June 30, 2012), as they are not required for this calculation.

At December 31 and June 30, 2012, the Bank has other liabilities from financial intermediation arisingfrom letters of credit.

During the six-month period ended December 31, 2012, the Bank recorded exchange gains and lossesof Bs 34,872,525 and Bs 19,346,900, respectively (Bs 20,877,343 and Bs 14,172,293, respectively,during the six-month period ended June 30, 2012), arising from exchange fluctuations of the U.S. dollarwith respect to other foreign currencies (Notes 19 and 20).

During the six-month period ended December 31, 2012, the Bank recorded US$1,953,546, equivalentto Bs 8,400,248 (US$1,721,280, equivalent to Bs 7,401,504, at June 30, 2012) in respect of servicefees, mainly from client transactions with CADIVI (Note 19).

Subsequent eventOn February 8, 2013, the Venezuelan government and the BCV amended Exchange AgreementNo. 14 and established, as from that date, a single exchange rate of Bs 6.2842/US$1 (purchase) andBs 6.30/US$1 (sale). Where certain conditions are met, some transactions will be liquidated at theofficial exchange rate established in Exchange Agreement No. 14 of December 30, 2010 ofBs 4.30/US$1.

Article No. 12 of this Exchange Agreement provides for the creation of the Office for the Optimization ofthe Currency Exchange System (OSOSC). This agency was created on February 8, 2013 throughDecree No. 9,381, published in Official Gazette No. 40,108, with the task of designing, planning andexecuting the government’s currency exchange strategies to achieve maximum transparency andefficiency in the allocation of foreign currency among the country’s economic sector.

In addition, through an Official Notice published in Official Gazette No. 40,109 of February 13, 2013,the BCV informed financial institutions authorized to trade foreign currency-denominated securities forbolivars on the secondary market that, as from February 9, 2013, purchase or sale bids for securitieswill no longer be processed through SITME.

The accounting effect for the Bank of measuring and recording its foreign currency balances atFebruary 8, 2013 at the exchange rate of Bs 6.2842/US$1, including securities issued by the nationalpublic sector denominated in foreign currency and TICCs for US$119,398,493, was an increase inassets, liabilities and equity of Bs 310,308,686, Bs 20,431,229 and Bs 289,877,457, respectively,which will be recorded in the financial statements at February 28, 2013.


29

5. Investment securities

Investments in debt securities, shares and other have been classified in the financial statements basedon their intended use as shown below:


(In bolivars)

InvestmentsDeposits with the BCV and overnight deposits 1,010,939,000 -Available-for-sale 3,444,407,131 1,638,028,205Held-to-maturity 2,787,127,754 2,330,649,916Restricted 16,422,282 16,410,925Other securities 792,605,344 774,810,146Provision for investment securities (80,406) (80,406)

8,051,421,105 4,759,818,786

a) Investments in available-for-sale securitiesThese investments are shown at fair value and comprise the following:

December 31, 2012Net Book value

unrealized (equivalentAcquisition gain to fair

cost (loss) value)

(In bolivars)Securities issued or guaranteed by the Venezuelan governmentVebonos, with a par value of Bs 842,494,085, annual yield at between

10.93% and 17.70%, maturing between April 2013 and May 2021 924,902,326 36,089,837 960,992,163 (1)Fixed Interest Bonds (TIF), with a par value of Bs 1,342,388,161, annual yield at

between 9.90% and 18.00%, maturing between April 2014 and 2019 1,479,228,412 46,261,914 1,525,490,326 (1)Treasury Notes, with a par value of Bs 556,616,000, annual yield at between

0.92% and 3.54%, maturing between January and October 2013 550,331,973 3,765,717 554,097,690 (2)Principal and Interest Covered Bonds (TICC), payable in bolivars, with a reference

par value of US$22,321,966, annual yield at between 5.25% and 8.63%,maturing between November 2013 and March 2019 (Note 4) 92,258,482 (5,402,292) 86,856,190

Sovereign Bonds in foreign currency, with a par value of US$124,500, annual yield atbetween 7.75% and 12.75%, maturing between October 2019 and

August 2031 (Note 4) 637,330 101,765 739,095 (1)Global Bonds, with a par value of US$33,707,800, annual yield at between 5.75% and

13.63%, maturing between September 2013 and 2027 (Note 4) 175,251,105 1,119,772 176,370,877 (1)Agriculture Bonds, with a par value of Bs 104,400,000, 9.10% annual yield,

maturing between March 2013 and 2014 (Note 6) 104,836,096 (436,096) 104,400,000 (1)

3,327,445,724 81,500,617 3,408,946,341

Bonds and debt securities issued by Venezuelan non-financial public-sectorcompanies (Note 4)Petrobonos issued by Petróleos de Venezuela, S.A., with a par value of US$512,000,

fixed annual yield at between 5.13% and 8.00%, maturing betweenNovember 2013 and October 2016 2,490,894 257,137 2,748,031 (1)

PDVSA Bonds issued by Petróleos de Venezuela, S.A., with a par value ofUS$5,452,000, annual yield at between 5.25% and 12.75%, maturingbetween April 2017 and 2037 28,518,669 3,429,498 31,948,167 (1)

31,009,563 3,686,635 34,696,198

Bonds and debt securities issued or guaranteed by foreign countries (Note 4)Argentine Government National Public Debt Bonds, with a par value of

US$103,900, maturing in October 2015 393,575 13,132 406,707 (1)

Equity in Venezuelan non-financial private-sector companiesCommon shares

Sociedad de Garantías Recíprocas (SGR) del Estado Aragua, C.A.,10,128 common shares with a par value of Bs 10 each, 1.7% owned 101,280 6,063 107,343 (3)

Sociedad de Garantías Recíprocas (SGR) del Estado Falcón C.A., 10,000 commonshares with a par value of Bs 10 each, 2.77% owned 100,000 (47,437) 52,563 (3)

S.G.R.- SOGAMIC, S.A., Sociedad de Garantías Recíprocas del Sector Microfinanciero,17,500 common shares with a par value of Bs 10 each, 3.10% owned 175,000 (11,722) 163,278 (3)

S.G.R.- SOGARSA, S.A., Sociedad de Garantías Recíprocas para el SectorAgropecuario Forestal Pesquero y Afines S.A., 3,000 shares with a par value ofBs 10 each, 0.028% owned 30,000 4,701 34,701 (3)

406,280 (48,395) 357,885

3,359,255,142 85,151,989 3,444,407,131

Unrealized loss on transfer of available-for-sale securities as perSUDEBAN Notice No. SIB-II-CCD-36481 (7,680,340)

77,471,649


30

June 30, 2012Net Book value

unrealized (equivalentAcquisition gain to fair

cost (loss) value)

(In bolivars)ASecurities issued or guaranteed by the Venezuelan governmentVebonos, with a par value of Bs 159,711,425, annual yield at between

10.32% and 17.37%, maturing between April 2013 and June 2020 166,277,898 (6,713,367) 159,564,531 (1)Fixed Interest Bonds (TIF), with a par value of Bs 734,744,625, annual yield at

between 9.5% and 18%, maturing between December 2012 and August 2018 800,495,358 (14,149,352) 786,346,006 (1)Treasury Notes, with a par value of Bs 166,000,000, annual yield at between

2.85% and 3.27%, maturing between July 2012 and May 2013 164,115,426 1,053,421 165,168,847 (2)Principal and Interest Covered Bonds (TICC), payable in bolivars, with a reference

par value of US$22,316,366, annual yield at between 5.25% and8.63%, maturing between November 2013 and March 2019 (Note 4) 92,245,874 (495,078) 91,750,796 (2)

Sovereign Bonds in foreign currency, with a par value of US$171,000, annualyield at between 7.75% and 12.75%, maturing between October 2019and August 2031 (Note 4) 736,766 (13,733) 723,033 (1)

Global Bonds, with a par value of US$4,240,800, annual yield at between7% and 13.63%, maturing between September 2013 and 2027 18,899,076 (1,575,814) 17,323,262 (1)

Agriculture Bonds, with a par value of Bs 114,000,000, 9.1% annual yield,maturing between September 2012 and March 2014 (Note 6) 114,836,096 (436,096) 114,400,000 (1)

1,357,606,494 (22,330,019) 1,335,276,475

Bonds and debt securities issued by Venezuelan non-financial public-sectorcompanies (Note 4)Petrobonos issued by Petróleos de Venezuela, S.A., with a par value of

US$11,965,000, fixed annual yield at between 4.9% and 8%,maturing between November 2013 and October 2016 63,394,943 (303,359) 63,091,584 (1)

PDVSA bonds issued by Petróleos de Venezuela, S.A., with a par value ofUS$5,477,700, annual yield at between 5.25% and 12.75%, maturing betweenApril 2017 and 2037 28,484,018 (1,612,711) 26,871,307 (1)

Debt securities with Fondo de Desarrollo Nacional Fonden, S.A., with a par value ofBs 200,000,000, 9.1% annual yield, maturing between April 2015 and 2017 218,741,450 (9,554,100) 209,187,350 (1)

310,620,411 (11,470,170) 299,150,241

Bonds and debt securities issued or guaranteed by foreign countries (Note 4)Argentine Government National Public Debt Bonds, with a par value of

US$102,600, maturing between August 2012 and October 2015 369,970 6,931 376,901 (1)

Debt securities issued by foreign banks and other financial institutions (Note 4)Bancolombia, S.A., with a par value of US$200,000, 4.25% annual yield,

maturing in January 2016 873,330 (33,540) 839,790 (1)Central American Bank, with a par value of US$250,000, 5.38% annual yield,

maturing in September 2014 1,161,000 (17,737) 1,143,263 (1)BBVA Banco Comercial, S.A., with a par value of US$200,000,

7.25% annual yield, maturing in April 2020 920,200 (36,550) 883,650 (1)

2,954,530 (87,827) 2,866,703

Equity in Venezuelan non-financial private-sector companiesCommon shares

Sociedad de Garantías Recíprocas (SGR) del Estado Aragua, C.A.,10,128 common shares with a par value of Bs 10 each, 1.7% owned 101,280 6,063 107,343 (3)

Sociedad de Garantías Recíprocas (SGR) del Estado Falcón C.A., 10,000common shares with a par value of Bs 10 each, 2.77% owned 100,000 (47,437) 52,563 (3)

S.G.R.- SOGAMIC, S.A., Sociedad de Garantías Recíprocas del Sector Microfinanciero,17,500 common shares with a par value of Bs 10 each, 3.10% owned 175,000 (11,722) 163,278 (3)

S.G.R.- SOGARSA, S.A., Sociedad de Garantías Recíprocas para el Sector AgropecuarioForestal Pesquero y Afines S.A., 3,000 shares with a par value of Bs 10 each,0.028% owned 30,000 4,701 34,701 (3)

406,280 (48,395) 357,885

1,671,957,685 (33,929,480) 1,638,028,205

(1) Estimated fair value is determined from trading operations on the secondary market per valuation screens or yield curves. The fair value of investments denominatedin foreign currencies issued by the Venezuelan government is their equivalent amount in bolivars calculated at the SITME exchange rate.

(2) Value is determined based on the present value of estimated future cash flows in conformity with the Accounting Manual. The fair value of TICCs is their equivalentamount in bolivars at the official exchange rate.

(3) Equity value, considered as fair value, is based on unaudited financial statements.

Through Notice No. SIB-II-GGIBPV2-40535 of December 13, 2012, SUDEBAN informed the Bank thatsince the Reuters and Bloomberg services—which offer reference prices for all key global financialmarkets—do not provide reference prices for the Bank’s available-for-sale investments, the Bank mustuse similar services or, if unavailable, must apply the present value (yield curve) to measure itsavailable-for-sale investments, as required by the Accounting Manual. The Bank followed theseguidelines to measure its available-for-sale portfolio at December 31, 2012.


31

Through Notice No. SIB-II-CCD-36481 of November 12, 2012, SUDEBAN instructed the Bank totransfer the balances of non-convertible bearer bonds (2012 issue) issued by Fondo de DesarrolloNacional FONDEN, S.A. for Bs 209,187,351 and those issued by Petróleos de Venezuela, S.A. forBs 91,359,660 from the available-for-sale portfolio to the held-to-maturity portfolio, in conformity withCircular No. SIB-II-GGR-GNP-CCD-15075 of May 30, 2012. At December 31, 2012, the Bankcalculated the fair value of the available-for-sale investments at the date of transfer and recorded anunrealized loss on these investments of Bs 7,680,340 in a separate equity account, which will beamortized until these securities mature, as required by the Accounting Manual (Note 2).

TICCs issued by the Bolivarian Republic of Venezuela, payable in local currency and referenced to theU.S. dollar at the official exchange rate of Bs 4.30/US$1, have foreign exchange indexing clauses atvariable quarterly yields.

At period end, the Bank records fluctuations in the market value of these investments as an unrealizedgain or loss on investments in available-for-sale securities in equity. These unrealized gains or lossescomprise the following:


(In bolivars)

Unrealized gainSecurities issued or guaranteed by the Venezuelan government in local currency 86,117,468 1,053,421Securities issued or guaranteed by the Venezuelan government in foreign currency 1,221,537 -Bonds and debt securities issued by Venezuelan non-financial public-sector companies 3,686,635 -Bonds and debt securities issued or guaranteed by foreign countries 13,132 6,931Equity in Venezuelan non-financial private-sector companies 10,764 10,764

91,049,536 1,071,116

Unrealized lossSecurities issued or guaranteed by the Venezuelan government in local currency (436,096) (21,298,815)Securities issued or guaranteed by the Venezuelan government in foreign currency (5,402,292) (2,084,625)Bonds and debt securities issued by Venezuelan non-financial public-sector companies - (11,470,170)Bonds and debt securities issued or guaranteed by foreign countries - (87,827)Equity in Venezuelan non-financial private-sector companies (59,159) (59,159)

(5,897,547) (35,000,596)

85,151,989 (33,929,480)

Unrealized loss on transfer of available-for-sale securities as perSUDEBAN Notice No. SIB-II-CCD-36481 (7,680,340) -

Net unrealized gain (loss) on available-for-sale securities 77,471,649 (33,929,480)

Below is the classification of investments in available-for-sale securities according to maturity:

Fair valueDecember 31, June 30,

2012 2012

(In bolivars)

Up to six months 623,926,558 167,692,618Six months to one year 88,412,925 84,671,128One to five years 1,422,197,947 808,850,018Over five years 1,309,511,816 576,456,556Without maturity 357,885 357,885

3,444,407,131 1,638,028,205

During the six-month period ended December 31, 2012, the Bank sold investments in available-for-salesecurities amounting to Bs 5,006,728,645 (Bs 11,760,963,434 during the six-month period ended June30, 2012), resulting in gains and losses of Bs 23,816,309 and Bs 7,744,273, respectively


32

(Bs 140,207,451 and Bs 71,207,498, respectively, during the six-month period ended June 30, 2012),shown under other operating income and other operating expenses, respectively (Notes 19 and 20).

At December 31 and June 30, 2012, the Bank has Agriculture Bonds of Bs 104,400,000, considered asinvestments in the agricultural sector to meet the minimum legal percentage that it is required toearmark in this connection (Note 6).

b) Investments in held-to-maturity securitiesInvestments in held-to-maturity securities are shown at amortized cost and comprise debt securitiesthat the Bank has the firm intention and ability to hold until maturity. These securities comprise thefollowing:

December 31, 2012Acquisition Amortized Fair

cost cost value

(In bolivars)

Securities issued or guaranteed by the Venezuelan governmentVebonos, with a par value of Bs 243,401,807, annual yield at between10.92% and 12.97%, maturing between May 2013 and April 2018 225,910,920 227,871,434 244,399,348 (1)

Fixed Interest Bonds (TIF), with a par value of Bs 1,303,837,836, annual yieldat between 9.63% and 18.00%, maturing between May 2013 and October 2020 1,506,334,958 1,446,570,344 1,449,568,728 (3)

Sovereign Bonds in foreign currency, with a par value of US$15,993,000,annual yield at between 7.75% and 8.25%, maturing between October2019 and 2024 (Note 4) 114,893,718 106,785,060 78,851,213 (1)

Principal and Interest Covered Bonds (TICC), payable in bolivars, with a reference parvalue of US$68,167,827, annual yield at between 5.25% and 8.63%, maturingbetween November 2013 and March 2019 (Note 4) 280,945,772 288,543,313 290,049,715 (3)

2,128,085,368 2,069,770,151 2,062,869,004

Bonds and debt securities issued by Venezuelan non-financial public-sector companiesDematerialized Participation Certificate issued by Fondo Simón Bolívar para laReconstrucción, S.A., with a par value of Bs 233,458,108, 3.75% annualyield, maturing in May 2015 233,458,108 233,458,108 233,458,108 (2)

Global Bonds issued by La Electricidad de Caracas, C.A., with a par value ofUS$250,000, 8.5% annual yield, maturing in April 2018 (Note 4) 610,063 747,022 950,300 (1)

Agriculture Bonds issued by Fondo de Desarrollo Nacional Fonden, S.A., with a parvalue of Bs 350,000,000, 9.10% annual yield, maturing between April2015 and July 2017 (Note 6) 373,028,500 370,299,431 365,534,650 (1)

PDVSA Bonds issued by Petróleos de Venezuela, S.A., with a par value ofUS$2,316,900, annual yield at between 5.38% and 8.5%, maturing betweenNovember 2017 and April 2037 (Note 4) 12,010,219 12,011,158 12,081,422 (1)

Agriculture Bonds issued by Petróleos de Venezuela, S.A. with a par value ofBs 90,000,000, 9.1% annual yield, maturing between July 2015 and2017 (Note 6) 91,359,660 91,319,812 91,359,660 (1)

710,466,550 707,835,531 703,384,140

Debt securities issued by foreign non-financial private-sector companies (Note 4)AES Andre B.D. Dominicana, with a par value of US$200,000, 9.5% annual yield,maturing in November 2020 920,200 908,129 935,250

Telemovil Finance Co. Ltd., with a par value of US$200,000, 8% annual yield, (1)maturing in October 2017 903,000 890,384 920,200

Cemex S.A.B. de C.V., with a par value of US$200,000, 9% annual yield, (1)maturing in January 2018 870,320 867,415 937,400

2,693,520 2,665,928 2,792,850 (1)

Debt securities issued by foreign financial private-sector companies (Note 4)Banco Bradresco S.A. Grand Cayman Branch, with a par value of US$250,000,8.75% annual yield, maturing in October 2013 1,236,250 1,122,105 1,128,664

Ford Motor Credit Company, with a par value of US$400,000, annual yield at (1)between 7% and 8.7%, maturing between January 2014 and April 2015 1,917,800 1,802,396 1,921,919

BBVA Bancomer S.A., with a par value of US$200,000, 6% annual yield, (1)maturing in May 2022 872,900 870,658 894,400

Braskem Finance LTD, with a par value of US$200,000, 7% annual yield, (1)maturing in May 2020 900,850 892,208 971,800

BanColombia, S.A, with a par value of US$200,000, 4.25% annual yield, (1)maturing in January 2016 858,710 859,218 853,550

International Cooperative UA, with a par value of US$100,000, 10.38% annual yield, (1)maturing in September 2020 435,590 434,456 363,350

Morgan Stanley, with a par value of US$200,000, 4.2% annual yield,maturing in November 2014 890,874 875,103 878,954 (1)

7,112,974 6,856,144 7,012,637 (1)

2,848,358,412 2,787,127,754 2,776,058,631


33

June 30, 2012Acquisition Amortized Fair

cost cost value

(In bolivars)

Securities issued or guaranteed by the Venezuelan governmentVebonos, with a par value of Bs 265,960,107, annual yield at between10.3% and 12.7%, maturing between August 2012 and April 2018 262,575,077 264,388,250 249,268,354 (1)

Fixed Interest Bonds (TIF), with a par value of Bs 1,326,111,214, annual yieldat between 9.5% and 18%, maturing between December 2012 and October 2020 1,527,563,739 1,487,742,615 1,423,951,863 (3)

Sovereign Bonds in foreign currency, with a par value of US$15,993,000,annual yield at between 7.75% and 8.25%, maturing between October 2019and 2024 (Note 4) 114,893,718 108,039,528 62,830,500 (1)

Principal and Interest Covered Bonds (TICC), payable in bolivars, with a referencepar value of US$68,167,827, annual yield at between 5.25% and 8.63%,maturing between November 2013 and March 2019 (Note 4) 280,945,774 287,357,910 274,612,010 (3)

Agriculture Bonds, with a par value of Bs 103,305,500, 9.1% annual yield,maturing between April 2015 and 2017 (Note 6) 112,993,454 112,823,412 107,927,858 (1)

2,298,971,762 2,260,351,715 2,118,590,585

Bonds and debt securities issued by Venezuelan non-financial public-sectorcompanies (Note 4)Global Bonds issued by La Electricidad de Caracas, C.A., with a par value ofUS$250,000, 8.5% annual yield, maturing in April 2018 610,063 715,934 755,188 (1)

Debt securities with Fondo de Desarrollo Nacional Fonden, S.A., with a par value ofBs 46,694,500, 9.1% annual yield, maturing in April 2015 50,847,696 50,696,034 48,419,442 (1)

PDVSA bonds issued by Petróleos de Venezuela, S.A., with a par value ofUS$2,316,900, annual yield at between 5.38% and 8.5%, maturing betweenNovember 2017 and April 2037 8,371,891 9,292,005 10,006,652 (1)

59,829,650 60,703,973 59,181,282

Debt securities issued by foreign non-financial private-sector companies (Note 4)AES Andre B.D. Dominicana, with a par value of US$200,000, 9.5% annual yield,maturing in November 2020 920,200 911,190 885,800 (1)

Telemovil Finance Co. Ltd., with a par value of US$200,000, 8% annual yield,maturing in October 2017 903,000 893,583 885,800 (1)

Cemex S.A.B. de C.V., with a par value of US$200,000, 9% annual yield,maturing in January 2018 870,320 868,153 772,925 (1)

2,693,520 2,672,926 2,544,525

Debt securities issued by foreign financial private-sector companies (Note 4)Banco Bradesco, S.A. Grand Cayman Branch, with a par value of US$250,000,8.75% annual yield, maturing in October 2013 1,236,250 1,151,043 1,163,193 (1)

Ford Motor Credit Company, with a par value of US$400,000, annual yieldat between 7% and 8.7%, maturing between January 2014 and April 2015 1,917,800 1,831,695 1,911,350 (1)

BBVA Bancomer, S.A., with a par value of US$200,000, 6% annual yield,maturing in May 2022 872,900 871,227 842,800 (1)

Braskem Finance Ltd., with a par value of US$200,000, 7% annual yield,maturing in May 2020 900,850 894,398 942,990 (1)

BanColombia, S.A., with a par value of US$200,000, 4.25% annual yield,maturing in January 2016 858,710 859,089 839,790 (1)

International Cooperative UA, with a par value of US$100,000, 10.38% annual yield,maturing in September 2020 435,590 434,743 339,700 (1)

Morgan Stanley, with a par value of US$200,000, 4.2% annual yield,maturing in November 2014 890,874 879,107 864,988 (1)

7,112,974 6,921,302 6,904,811

2,368,607,906 2,330,649,916 2,187,221,203

(1) Estimated fair value is determined from trading operations on the secondary market or the present value of estimated future cash flows. The fair value ofinvestments denominated in foreign currencies issued by the Venezuelan government is their equivalent amount in bolivars calculated at the SITMEexchange rate.

(2) Shown at par value, which is considered as fair value.

(3) Estimated market value based on the present value of estimated future cash flows or yield curves.


34

Below is the classification of held-to-maturity securities according to maturity:

December 31, 2012 June 30, 2012Amortized Fair Amortized Fair

cost value cost value

(In bolivars)

Less than one year 331,436,738 328,004,744 106,236,879 105,615,986One to five years 2,251,255,979 2,282,153,705 1,449,337,851 1,390,161,911Five to ten years 110,794,026 93,593,544 720,399,926 661,031,926Over ten years 93,641,011 72,306,638 54,675,260 30,411,380

2,787,127,754 2,776,058,631 2,330,649,916 2,187,221,203

The Accounting Manual establishes that all sales of held-to-maturity securities for reasons other thanthose indicated in the Accounting Manual must be authorized by SUDEBAN (Note 2). On December14, 2012, the Curacao Branch sold a held-to-maturity security for US$2,265,627, maturing onNovember 17, 2017, without SUDEBAN’s authorization. On January 9, 2013, the Bank informedSUDEBAN that the Branch had made an honest mistake and that when the Branch became aware ofit, it immediately purchased another security of identical characteristics at the same sale price of theoriginal security (97.825%), and recorded it in account 123 “held-to-maturity securities” at the newacquisition cost. The Bank also informed SUDEBAN that the gain on sale of US$465,099 was recordedin the liability account “other deferred income” until the security is paid at maturity (Note 17). ThroughNotice No. No. SIB-II-GGIBPV-GIBPV2-04502 issued on February 18, 2013, SUDEBAN informed theBank that the transaction was duly noted while stressing the obligation to comply with the AccountingManual as regards authorization from SUDEBAN for this type of transaction.

At December 31, 2012, the Bank has agriculture bonds issued by Fondo Nacional de DesarrolloNacional FONDEN, S.A. and Petróleos de Venezuela, S.A. for Bs 370,299,431 and Bs 91,319,812,respectively (Bs 112,823,412 issued by Fondo Nacional de Desarrollo Nacional FONDEN, S.A. at June30, 2012). Through Notice No. SIB-II-CCD-36481 of November 12, 2012, SUDEBAN informed theBank that the maximum amount of agriculture bonds that may be included in the agricultural loanportfolio, as per Notice No. 093 of July 31, 2012 issued by the People’s Power Ministry for Agricultureand Land, is Bs 958,981,100. At December 31, 2012, the Bank has agriculture bonds issued by FondoNacional de Desarrollo Nacional FONDEN, S.A. totaling Bs 357,191,917 (Bs 112,823,412 at June 30,2012), which may be computed as part of the agricultural loans that the Bank is required to grant(Note 6).

At December 31, 2012, the Bank has Dematerialized Participation Certificates issued by Fondo SimónBolívar para la Reconstrucción, S.A. for Bs 233,458,108, which may be deducted from the legalreserve amount required of financial institutions (Note 29). The Bank has the ability and intention tohold these securities to maturity.

At December 31, 2012, unrealized losses of Bs 32,698,628 (Bs 144,037,722 at June 30, 2012) onheld-to-maturity securities issued by the Bolivarian Republic of Venezuela are considered temporarysince management believes that from the standpoint of the issuer’s credit risk, interest rate risk andliquidity risk, the decrease in these securities’ fair value is temporary. In addition, the Bank has theintention and ability to hold these securities to maturity. Accordingly, the Bank has identified noimpairment in the value of these investments.


35

c) Overnight depositsThese investments are recorded at realizable value, representing cost or par value, and comprise thefollowing:


(In bolivars)

Certificate of deposit with the Central Bank of Venezuela (BCV), with a par value ofBs 1,010,939,000, annual yield at between 6% and 7%, maturing betweenJanuary and February 2013 1,010,939,000 -

d) Restricted investmentsThese investments are shown at par value, which is considered as fair value, and comprise thefollowing:



(In bolivars)

Other restricted investmentsCertificates of depositJP Morgan Chase Bank, with a par value ofUS$1,002,294 (Note 4) 4,309,865 4,309,865 4,310,654 4,310,654 (1)

PNC Bank, with a par value of US$1,611,945 (Note 4) 6,931,366 6,931,366 6,919,220 6,919,220 (1)Social Contingency Fund (Note 25) 5,181,051 5,181,051 5,181,051 5,181,051 (1)

16,422,282 16,422,282 16,410,925 16,410,925

(1) Par value is used as fair value. Securities denominated in foreign currency are shown at the official exchange rate.

At December 31 and June 30, 2012, the certificates of deposit with JP Morgan Chase Bank and PCNBank are used as collateral to guarantee VISA and MasterCard credit card operations, respectively.

e) Investments in other securitiesThese investments are shown at par value and comprise the following


(In bolivars)

Liabilities from investment trusts issued by financial institutionsCertificates of participation issued by

Banco de Desarrollo Económico y Social de Venezuela (BANDES),with a par value of Bs 251,289,000, 3.75% annual interest, maturing inJune 2014 251,289,000 251,289,000 (1)

Other liabilitiesSpecial mortgage securities issued by Banco Nacional de Vivienda y Hábitat

(BANAVIH), with a par value of Bs 117,640,000, 2% annual yield, maturingin November 2021 117,640,000 117,640,000 (1)

Simón Bolívar Dematerialized Participation Certificates, with a par value ofBs 233,458,108, 3.75% annual yield, maturing in May 2015 - 233,458,108 (1)

Bolivarian Housing Securities issued by the Fondo Simón Bolívar para laReconstrucción, S.A., with a par value of Bs 418,557,594 (Bs 167,423,038 at June 30,2012), 4.66% annual yield, maturing in June and October 2020 418,557,594 167,423,038 (1)

Deposits of the microfinancial sectorBancrecer S.A. Banco Microfinanciero, with a par value of Bs 5,118,750,9.5% annual yield, maturing in January 2013 (par value of Bs 5,000,000,8% annual yield, maturing in July 2012 at June 30, 2012) 5,118,750 5,000,000 (1)

792,605,344 774,810,146

(1) Par value is considered as fair value.


36

At December 31, 2012, the Bank has Bolivarian Housing Securities issued by Fondo Simón Bolívarpara la Reconstrucción, S.A. for Bs 418,557,594 (Bs 167,423,038 at June 30, 2012). These securitieswere awarded progressively as follows: 40% in June 2012, 30% in August 2012 and 30% in November2012. These deposits were imputed to the construction mortgage loan portfolio compliance (Note 6).The Bank has the intention and ability to hold these securities to maturity.

At December 31 and June 30, 2012, the Bank, acting as trustee, has certificates of participation forBs 251,289,000 issued by Banco Nacional de Desarrollo Económico y Social de Venezuela(BANDES). These funds arise from the decrease by three percentage points in the legal reserve atJune 30, 2011, and have been earmarked for programs under “Venezuela’s Great Housing Mission.”In September 2011, Petróleos de Venezuela, S.A. (PDVSA) signed an agreement to guaranteeBANDES the availability of the resources needed to settle these liabilities. The Bank has the intentionand ability to hold these securities to maturity.

At June 30, 2012, the Bank had Dematerialized Participation Certificates issued by Fondo SimónBolívar para la Reconstrucción, S.A. for Bs 233,458,108, which could be deducted from the legalreserve amount required of financial institutions (Note 29), as authorized by SUDEBAN through NoticeNo. SBI-II-GGR-GNP-24064 of August 8, 2012. Subsequently, through Notice No. SIB-II-GGR-GNP-30919 of September 27, 2012, SUDEBAN instructed the Bank to record these Participation Certificateswithin the held-to-maturity portfolio. The Bank reclassified Bs 233,458,108 in this connection onOctober 1, 2012 (Note 5-b).

At December 31 and June 30, 2012, the Bank maintains special mortgage securities forBs 117,640,000 with long-term mortgage loan guarantees issued by Banco Nacional de Vivienda yHábitat, which were computed in the construction loan portfolio at December 31, 2011 (Note 6). TheBank has the intention and ability to hold these securities to maturity.

At December 31, 2012, the Bank has deposits in the microfinancial sector for Bs 5,118,750(Bs 5,000,000 at June 30, 2012), which are considered for compliance with the minimum percentage ofthe mandatory portfolios (Note 6).

The Bank’s control environment includes policies and procedures to determine investment risks byentity and economic sector. At December 31, 2012, the Bank has investment securities issued orguaranteed by the Venezuelan government of Bs 8,019,673,815, representing 99.61% of its investmentsecurities portfolio (Bs 4,725,292,550, representing 99.27% of its investment securities portfolio at June30, 2012).

6. Loan portfolio

The loan portfolio is classified by economic activity, guarantee, maturity and type of loan as follows:

December 31, 2012Current Rescheduled Overdue In litigation Total

(In bolivars)

Economic activityWholesale and retail trade, restaurants and

hotels 5,578,129,081 1,132,210 1,580,597 - 5,580,841,888Financial businesses, insurance, real estate

and services 962,996,601 - 5,444,213 - 968,440,814Agriculture 1,331,877,119 31,712,524 12,547,361 - 1,376,137,004Construction 850,558,262 232,222 19,044 - 850,809,528Transportation, warehousing and communications 342,065,901 69,066 - - 342,134,967Utilities 597,441 - - - 597,441Communal, social and consumer services 1,503,467,171 1,005,549 1,804,461 - 1,506,277,181Manufacturing 537,262,953 - 11,859 - 537,274,812Mining and oil 118,331,474 - - - 118,331,474Sundry activities 716,199,355 - 13,585 - 716,212,940

11,941,485,358 34,151,571 21,421,120 - 11,997,058,049

Allowance for losses on loan portfolio (314,411,126)

11,682,646,923


37

December 31, 2012Current Rescheduled Overdue In litigation Total

(In bolivars)

GuaranteeEndorsement 3,784,890,441 10,361,158 3,229,842 - 3,798,481,441Real property mortgage 1,241,874,261 4,351,389 8,429,109 - 1,254,654,759Other guarantees 626,559,584 62,500 211,141 - 626,833,225Collateral 1,722,474,019 13,754,916 6,277,908 - 1,742,506,843Pledge 141,095,858 549,999 - - 141,645,857Chattel mortgage 65,650,771 160,487 190,811 - 66,002,069Written instruments 28,647,169 - - - 28,647,169Non-possessory pledge 58,002,043 901,500 - - 58,903,543Unsecured 4,272,291,212 4,009,622 3,082,309 - 4,279,383,143

11,941,485,358 34,151,571 21,421,120 - 11,997,058,049

MaturityUp to 30 days 1,869,822,654 607,045 3,344,116 - 1,873,773,81531 to 60 days 1,393,516,796 33,333 217,897 - 1,393,768,02661 to 90 days 1,085,061,212 34,822 33,332 - 1,085,129,36691 to 180 days 1,967,254,518 107,996 3,480,637 - 1,970,843,151181 to 360 days 1,358,558,401 1,142,138 246,613 - 1,359,947,152Over 360 days 4,267,271,777 32,226,237 14,098,525 - 4,313,596,539

11,941,485,358 34,151,571 21,421,120 - 11,997,058,049

June 30, 2012Current Rescheduled Overdue In litigation Total

(In bolivars)

Economic activityWholesale and retail trade, restaurants and

hotels 4,390,260,072 1,344,738 2,780,535 1,431,143 4,395,816,488Financial businesses, insurance, real estate

and services 712,436,645 - 10,505,226 306,842 723,248,713Agriculture 1,261,344,297 30,264,823 9,740,517 1,072,917 1,302,422,554Construction 668,162,626 482,667 1,165,982 - 669,811,275Transportation, warehousing and communications 356,585,022 127,155 18,755 - 356,730,932Utilities 228,869 - 39,967 - 268,836Communal, social and consumer services 941,015,287 829,682 1,120,466 416,351 943,381,786Manufacturing 556,273,997 - 68,334 4,890,869 561,233,200Mining and oil 129,398,736 - - - 129,398,736Sundry activities 789,313,705 - 239,249 1,680,462 791,233,416

9,805,019,256 33,049,065 25,679,031 9,798,584 9,873,545,936

Allowance for losses on loan portfolio (285,744,979)

9,587,800,957

GuaranteeEndorsement 2,951,294,202 10,796,675 5,196,646 3,214,657 2,970,502,180Real property mortgage 1,032,370,378 4,592,670 11,290,868 773,590 1,049,027,506Other guarantees 475,314,254 90,650 1,034,189 - 476,439,093Collateral 1,315,502,722 12,444,917 5,702,906 5,639,619 1,339,290,164Pledge 53,895,897 - - - 53,895,897Chattel mortgage 63,864,868 240,657 287,739 - 64,393,264Written instruments 37,818,142 - - - 37,818,142Non-possessory pledge 11,622,878 943,750 687,050 - 13,253,678Unsecured 3,863,335,915 3,939,746 1,479,633 170,718 3,868,926,012

9,805,019,256 33,049,065 25,679,031 9,798,584 9,873,545,936

MaturityUp to 30 days 2,072,362,947 210,444 10,442,904 9,798,584 2,092,814,87931 to 60 days 1,022,727,672 - 209,539 - 1,022,937,21161 to 90 days 997,210,406 168,333 268,082 - 997,646,82191 to 180 days 1,659,193,005 823,335 477,473 - 1,660,493,813181 to 360 days 1,008,942,042 728,018 1,173,499 - 1,010,843,559Over 360 days 3,044,583,184 31,118,935 13,107,534 - 3,088,809,653

9,805,019,256 33,049,065 25,679,031 9,798,584 9,873,545,936


38

Below is a breakdown of the loan portfolio by type of loan:


(In bolivars)

Type of loanFixed term, includes US$26,138,903 (US$12,731,396 atJune 30, 2012) (Note 4) 5,146,108,438 4,551,431,620

Agriculture 1,376,137,004 1,302,422,554Mortgage 1,199,972,793 988,802,801Installment 1,674,034,487 1,156,532,651Manufacturing 895,657,250 768,754,670Vehicles 111,280,267 92,142,374Credit cards 278,157,962 216,718,954Letters of credit, includes US$32,804,067 (US$25,419,901

at June 30, 2012) (Note 4) 141,057,488 109,305,574Microcredits 402,364,815 307,595,013Tourism 191,218,350 142,158,105Factoring and discounts 351,142,785 167,911,372Financial leases 221,983,152 63,812,327Other (employee loans) 7,277,179 5,413,548Checking accounts 666,079 544,373

11,997,058,049 9,873,545,936

Through Resolution No. 33,211 of December 22, 2011, SUDEBAN established the parameters to setaside provisions for loans or microcredits granted to individuals or corporations whose assets weresubject to expropriation, occupation or intervention from the Venezuelan government, effective fromDecember 1, 2011 to November 30, 2013. A modification of this Resolution was published in OfficialGazette No. 39,924 of May 17, 2012. At December 31, 2012, the Bank applied the aforementionedResolution to loans amounting to Bs 350,189,668 (Bs 212,980,197 at June 30, 2012).

At December 31, 2011, the Bank had overdue loans of Bs 125,310,000, of which Bs 95,059,000 was inrespect of agricultural loans with an economic group of companies currently subject to specialadministration regimes managed by the Venezuelan government, for which the Bank maintains aspecific 15% allowance. Through Notice No. SBIF-DSB-II-GGI-GIBPV2-15564 of August 27, 2010,SUDEBAN classified these loans as unrecoverable and assigned a specific allowance for these debtorsequivalent to 99% of loan balances. On January 25, 2011, the Bank sent a communication toSUDEBAN requesting that it reconsider this instruction since the amounts will be collected in full asthese companies are managed by the Venezuelan government. SUDEBAN, through NoticeNo. SBIF-II-GGIBPV-GIBPV2-07778 of March 30, 2011, notified the Bank that it has no objection inmaintaining these loans in the overdue loan portfolio with a specific 15% allowance. Based on theopinion of its legal advisors, management considered that the guidelines established in Resolution No.33,211 of December 22, 2011, described above, did not apply to loans maintained with thesecompanies due to the authorization previously received from SUDEBAN and considering that theassumption for applying this Resolution is the existence of expropriation, occupation or interventionmeasures from the Venezuelan government. During the six-month period ended June 30, 2012, theBank wrote off these loans against the allowance for losses on the loan portfolio.

In addition, in accordance with SUDEBAN rules, at December 31, 2012, the Bank maintains a generalallowance for losses on the loan portfolio of Bs 124,251,971 (Bs 101,811,409 at June 30, 2012),equivalent to 1% of the principal balance of the loan portfolio, except for the balance of the microcreditportfolio, for which it maintains a general 2% allowance (Note 2-d).


39

Below is the movement in the allowance for losses on the loan portfolio:


(In bolivars)

Balance at the beginning of the period 285,744,979 304,666,756Provided in the period 51,362,434 140,661,664Write-offs of uncollectible loans (14,907,130) (152,000,685)Reclassification to the provision for interest receivable and other (Note 7) (5,742,176) (6,864,531)Reclassification to the provision for contingent loans (Note 17) (2,044,030) (718,225)Other (2,951) -

Balance at the end of the period 314,411,126 285,744,979

At December 31, 2012, overdue and in-litigation loans on which interest is no longer accrued amountto Bs 21,421,120 (Bs 35,477,615 at June 30, 2012). In addition, at December 31, 2012, memorandumaccounts include Bs 11,754,285 (Bs 16,522,904 at June 30, 2012), in respect of interest notrecognized as income from loans on which interest is no longer accrued (Note 22).

During the six-month period ended December 31, 2012, the Bank wrote off loans of Bs 14,907,130(Bs 152,000,685 during the six-month period ended June 30, 2012) against the allowance for losses onthe loan portfolio.

At December 31, 2012, the Bank recovered loans written off in previous periods of Bs 5,469,496,shown in the income statement within income from financial assets recovered (Bs 6,454,603 during thesix-month period ended June 30, 2012). In addition, during the six-month period ended December 31,2012, the Bank received personal and real property worth Bs 21,827,760 (Bs 35,578,793 during thesix-month period ended June 30, 2012) in lieu of loan payments (Note 9).

At December 31, 2012, the Bank maintains an agricultural loan portfolio for Bs 1,376,137,004 andagriculture bonds issued by the Venezuelan government for Bs 461,591,917 (Notes 5-a and b),representing 29.12% of the average gross loan portfolio at December 31, 2011 and 2010(Bs 1,302,422,554 and Bs 227,223,412, respectively, representing 24.05% of the average gross loanportfolio at December 31, 2011 and 2010). The agricultural loan portfolio is distributed as follows:

December 31, 2012Balance Maintained Required

Financed sector Activity Bs % %

Strategic Primary agricultural production 932,229,990 67.75 49.0 minimumAgroindustrial investments 138,912,645 10.09 10.5 maximumMarketing 134,625,900 9.78 10.5 maximum

Non-strategic Primary agricultural production 28,420,797 2.07 21.0 maximumAgroindustrial investments 89,175,238 6.48 4.5 maximumMarketing 52,772,434 3.83 4.5

Total agricultural portfolio 1,376,137,004 100.00 100.0

June 30, 2012Balance Maintained Required

Financed sector Activity Bs % %

Strategic Primary agricultural production 791,796,927 60.80 49.0 minimumAgroindustrial investments 313,674,387 24.08 10.5 maximumMarketing 85,005,996 6.53 10.5 maximum

Non-strategic Primary agricultural production 40,754,590 3.13 21.0 maximumAgroindustrial investments 56,961,399 4.37 4.5 maximumMarketing 14,229,255 1.09 4.5 maximum

Total agricultural portfolio 1,302,422,554 100.00 100.0


40

Interest income for the six-month period ended December 31, 2012 includes Bs 1,841,788(Bs 2,782,066 for the six-month period ended June 30, 2012) for interest collected on loans overdueand in litigation that had been deferred in previous periods.

At December 31, 2012, the Bank has Bs 303,835,476 in medium and long-term agricultural loans,representing 20.06% of the total agricultural loan portfolio. Of this balance, Bs 3,155,542 is overdue(Bs 276,319,166, representing 21% of the total agricultural loan portfolio, of which Bs 9,740,517 isoverdue at June 30, 2012).

At December 31, 2012, the Bank has de 439 borrowers in the current agricultural loan portfolio (498borrowers at June 30, 2012), 62 are new borrowers, of which 44 are individuals (83 new borrowers, ofwhich 51 are individuals at June 30, 2012).

At December 31, 2012, the Bank has granted microcredits of Bs 402,364,815 and has deposits inmicrofinancial institutions of Bs 5,118,750 (Note 5-e), representing 4.15% of its gross loan portfolio atJune 30, 2012 (at June 30, 2012, Bs 307,595,013 and Bs 5,000,000, respectively, representing 4.07%of its gross loan portfolio at December 31, 2011). In addition, at December 31, 2012, the microcreditportfolio comprises 2,053 debtors (1,712 debtors at June 30, 2012) and 2,676 loans were grantedduring the period (2,537 loans during the six-month period ended June 30, 2012).

At December 31, 2012, the Bank’s mortgage loan portfolio amounted to Bs 1,199,972,793(Bs 988,802,801 at June 30, 2012) and it has special mortgage securities of Bs 418,557,594 (Note 5-e)(Bs 167,423,038 at June 30, 2012). At December 31, 2012, the Bank’s mortgage loan portfoliocomprises 2,408 debtors and 128 loans were granted during the period.

At December 31, 2012, effective disbursements of mortgage loans amount to Bs 1,161,731,596,equivalent to 15.10% of the gross loan portfolio at December 31, 2011. Compliance percentagesestablished in BANAVIH Form BANAVIH-GCVH-03/2011 for the six-month period ended December31, 2012 are as follows:

Balance Maintained RequiredFinanced activity Monthly family income Market Bs % %

Construction of housing Earmarked placements 418,557,594 5.45 5.45Between three and six minimum salaries - 11,004,245 0.14 1.78Between six and eight minimum salaries - 75,619,831 0.98 1.56Between eight and fifteen minimum salaries - 289,404,824 3.76 1.11

Acquisition of primary residence Between three and six minimum salaries Primary 75,647,345 0.98 2.20Between three and six minimum salaries Secondary 27,153,690 0.35 0.70Between six and fifteen minimum salaries Primary 148,033,907 1.93 0.75Between six and fifteen minimum salaries Secondary 116,310,160 1.51 0.25

Improvement and expansion ofprimary residence Under or equal to five minimum salaries - - - 0.72

Subcontracted construction ofprimary residence Under five minimum salaries - - - 0.48

Total mortgage portfolio 1,161,731,596 15.10 15.00


41

At June 30, 2012, the Bank’s mortgage loan portfolio comprises 2,365 debtors and 105 loans weregranted during the period. Compliance percentages established in BANAVIH Form BANAVIH-GCVH-03/2011 for the six-month period ended June 30, 2012 are as follows:

Balance Maintained RequiredFinanced activity Monthly family income Market Bs % %

Construction of housing Earmarked placements 167,423,038 2.18 5.45Between three and six minimum salaries - 8,990,608 0.12 1.78Between six and eight minimum salaries - 43,757,389 0.57 1.56Between eight and fifteen minimum salaries - 98,548,857 1.28 1.11

Acquisition of primary residence Between three and six minimum salaries Primary 93,815,540 1.22 2.20Between three and six minimum salaries Secondary 235,831,767 3.07 0.70Between six and fifteen minimum salaries Primary - - 0.75Between six and fifteen minimum salaries Secondary - - 0.25

Improvement and expansion ofprimary residence Under or equal to five minimum salaries - - - 0.72

Subcontracted construction ofprimary residence Under five minimum salaries - - - 0.48

Total mortgage portfolio 648,367,199 8.44 15.00

At December 31, 2012, the Bank has granted tourism loans for Bs 191,218,350, representing 3.03% ofits average gross loan portfolio at December 31, 2011 and 2010 (Bs 142,158,105, representing 2.25%at June 30, 2012). The tourism loan portfolio is distributed as follows:

December 31, 2012Balance Maintained Required

Segment Bs % %

A 1,613,116 0.84 40B 12,153,500 6.36 35C 177,451,734 92.80 25

191,218,350

June 30, 2012Balance Maintained Required

Segment Bs % %

A 1,062,785 0.75 40B 7,896,114 5.55 35C 133,199,206 93.70 25

142,158,105

At December 31, 2012, the tourism loan portfolio comprises 17 debtors and 6 new loans were grantedduring the period (15 debtors and 6 loans granted during the six-month period ended June 30, 2012).

At December 31, 2012, the Bank has granted manufacturing loans for Bs 895,657,250, representing11.65% of its gross loan portfolio at December 31, 2011 (Bs 768,754,670, representing 10% at June30, 2012). In addition, at December 31, 2012, the manufacturing loan portfolio comprises 128 debtors(98 debtors at June 30, 2012) and 605 new loans were granted during the period (49 loans during thesix-month period ended June 30, 2012).

The Bank’s control environment includes policies and procedures to determine credit risks by clientand economic sector. Concentration of risk is limited since loans are granted to a variety of economicsectors over a broad customer base. At December 31 and June 30, 2012, the Bank does not havesignificant risk concentrations in respect of individual customers, groups of related companies oreconomic sectors.


42

7. Interest and commissions receivable

Interest and commissions receivable comprise the following:


(In bolivars)

Interest receivable on investment securitiesAvailable for sale 65,910,131 35,172,589Held to maturity 47,257,850 39,839,890Other securities 7,458,383 1,131,280

120,626,364 76,143,759

Interest receivable on loan portfolioCurrent 92,730,065 83,177,003Rescheduled 367,978 3,797,412Overdue 6,818,526 2,845,041Microcredits 2,796,694 1,533,488Agricultural 814,303 680,885

103,527,566 92,033,829

Commissions receivableTrust fund 890,821 610,393

225,044,751 168,787,981

Provision for interest receivable and other (27,507,768) (22,524,300)

197,536,983 146,263,681

At December 31, 2011, the Bank had overdue interest on the loan portfolio of Bs 10,120,133receivable from companies that have been intervened by the Venezuelan government (Note 6). TheBank had set aside a provision for the full amount of interest receivable in this connection with acharge to the equity account exchange gain (loss) from holding foreign currency assets and liabilities,in conformity with an authorization granted by SUDEBAN through Notice No. SBII-DSB-II-GGI-GI8-04461 of May 26, 2010 and Notice No. SBII-DSB-II-GGI-BPV-GIBPV2-13090 of August 6, 2010.During the six-month period ended June 30, 2012, the Bank wrote off the loans with theaforementioned companies.

The Bank has provisions for losses on interest receivable and other meeting the minimumrequirements set by SUDEBAN.

Below is the movement in the provision for interest receivable and other:


(In bolivars)

Balance at the beginning of the period 22,524,300 27,279,690Provided in the period 47,137 -Write-off of interest receivable on loans (805,845) (11,619,921)Reclassification from the allowance for losses on loan portfolio (Note 6) 5,742,176 6,864,531


During the six-month period ended December 31, 2012, the Bank wrote off interest receivable forBs 805,845 (Bs 11,619,921 at June 30, 2012) against the provision for interest receivable and other.


43

8. Investment in subsidiaries, affiliates and branches

In October 2008, the Bank requested authorization from SUDEBAN to open a branch in Willemstad,Curacao. SUDEBAN, through Notice No. SBIF-DSB-II-GGTE-GEE-07154 of May 18, 2009, and theCentral Bank of Curacao and St. Maarten, through Communication No. Lcm/ni/2009-001159 ofNovember 5, 2009, authorized the opening of this branch.

At a Board of Directors’ meeting on November 25, 2009, it was resolved to contribute US$1,000,000 tothe new branch’s capital stock. This amount was fully paid in January 2010.

Below is a summary of the financial statements of the Curacao Branch included in the Bank’s financialstatements:

Balance sheet

December 31, 2012 June 30, 2012Equivalent Equivalent

US$ in bolivars US$ in bolivars

AssetsCash and due from banks 21,698,261 93,302,523 49,872,449 214,451,529Investment securities 31,648,847 165,256,142 7,569,879 36,968,318Loan portfolio 25,817,574 111,015,565 12,604,082 54,197,553Interest and commissions receivable 823,611 4,210,882 142,958 693,973Property and equipment 24,130 103,760 28,302 121,700Other assets 4,675 20,101 11,283,607 48,519,509

80,017,098 373,908,973 81,501,277 354,952,582

Liabilities and EquityCustomer deposits 73,865,484 317,621,586 77,946,078 335,168,137Interest and commissions payable 22,034 94,746 8,068 34,690Accruals and other liabilities 527,268 2,267,252 142,467 612,606

74,414,786 319,983,584 78,096,613 335,815,433

Capital assigned 1,000,000 4,300,000 1,000,000 4,300,000Capital reserves 847,368 3,643,682 418,521 1,799,644Retained earnings 3,740,076 41,518,943 2,024,686 9,492,340Exchange gain from holding foreign currencyassets and liabilities - 4,387,021 - 3,730,629

Unrealized gain (loss) on investments in available-for-salesecurities 14,868 75,743 (38,543) (185,464)

5,602,312 53,925,389 3,404,664 19,137,149

80,017,098 373,908,973 81,501,277 354,952,582

Income statement

December 31, 2012 June 30, 2012Equivalent Equivalent

US$ in bolivars US$ in bolivars

Interest income 1,685,308 7,553,252 823,301 3,789,117Interest expense (141,880) (610,083) (67,715) (291,175)Expenses from uncollectible and impairedfinancial assets (220,197) (946,845) (55,414) (238,280)

Other operating income 1,091,832 29,062,977 594,120 3,108,754Other operating expenses (106,985) (484,148) (68,786) (312,545)Operating expenses (154,438) (664,080) (171,566) (737,736)Sundry operating expenses - - (474) (2,038)Sundry operating income 10,927 46,989 4,225 18,168Extraordinary expenses (16,571) (71,256) - -Income tax expense (3,759) (16,165) (4,114) (17,690)

Net income for the period 2,144,237 33,870,641 1,053,577 5,316,575


44

The equivalent amounts in bolivars shown in the above financial statements at December 31 and June30, 2012 have been translated at the official exchange rate of Bs 4.30/US$1, except for securitiesissued by the Bolivarian Republic of Venezuela or by state-owned companies, which are shown at theaverage implicit exchange rate of securities traded through SITME on the last day of each month(Note 2-b). At December 31, 2012, the SITME rate is Bs 5.30/US$1.

9. Available-for-sale assets

Available-for-sale assets comprise the following:

December 31, 2012 June 30, 2012Accumulated Accumulated

Cost amortization Net Cost amortization Net

(In bolivars)

Real property received as payment 100,675,990 (29,186,294) 71,489,696 83,272,987 (14,881,795) 68,391,192Personal property and equipment receivedas payment - - - 137,040 (59,653) 77,387

Idle construction in progress 650,945 (135,085) 515,860 126,352 - 126,352

101,326,935 (29,321,379) 72,005,556 83,536,379 (14,941,448) 68,594,931

During the six-month period ended December 31, 2012, the Bank recorded amortization expenses ofBs 15,019,965 (Bs 9,192,240 during the six-month period ended June 30, 2012), shown in the incomestatement under expenses from available-for-sale assets. In addition, at December 31, 2012,expenses from available-for-sale assets include Bs 67,574 (Bs 12,281 at June 30, 2012) in respect ofexpenses incurred from the sale of assets received as payment during the period and Bs 608,490 forthe disposal of a share in a club at June 30, 2012.

During the six-month period ended December 31, 2012, the Bank sold personal and real propertyreceived as payment with a book value of Bs 3,613,877, resulting in a gain on sale of Bs 2,865,945(Bs 312,965 at June 30, 2012), shown in the income statement under income from available-for-saleassets.

Below is the movement in the balance of available-for-sale assets for the six-month periods endedDecember 31 and June 30, 2012:

CostBalances at Balances at

June 30, Disposals December 31,2012 Additions and other 2012

(In bolivars)

Real property received as payment (Note 6) 83,272,987 21,827,760 (4,424,757) 100,675,990Personal property and equipment received as payment (Note 6) 137,040 - (137,040) -Idle construction in progress 126,352 989,264 (464,671) 650,945

83,536,379 22,817,024 (5,026,468) 101,326,935

Accumulated amortizationBalances at Balances at

June 30, Disposals December 31,2012 Additions And other 2012

(In bolivars)

Real property received as payment (14,881,794) (14,873,460) 568,960 (29,186,294)Personal property and equipment received as payment (59,654) (11,420) 71,074 -Idle construction in progress - (135,085) - (135,085)

(14,941,448) (15,019,965) (640,034) (29,321,379)


45


December 31, Disposals June 30,2011 Additions and other 2012

(In bolivars)

Real property received as payment (Note 6) 48,949,359 35,441,753 (1,118,125) 83,272,987Personal property and equipment received as payment (Note 6) 443,820 137,040 (443,820) 137,040Idle construction in progress 609,420 126,352 (609,420) 126,352

50,002,599 35,705,145 (2,171,365) 83,536,379

Accumulated amortizationBalances at Balances at

December 31, Disposals June 30,2011 Additions and other 2012

(In bolivars)

Real property received as payment (6,678,309) (9,035,802) 832,317 (14,881,794)Personal property and equipment received as payment (137,035) (156,438) 233,819 (59,654)

(6,815,344) (9,192,240) 1,066,136 (14,941,448)

10. Property and equipment

Property and equipment comprises the following:

Useful December 31, 2012 June 30, 2012life Accumulated Accumulated

(Years) Cost depreciation Net Cost depreciation Net

(In bolivars)

Land 29,356,256 - 29,356,256 41,809,947 - 41,809,947Buildings and facilities 40 255,642,338 17,909,897 237,732,441 190,256,366 14,202,489 176,053,877Computer hardware, includesUS$15,306 (US$20,282at June 30, 2012) (Note 4) 4 75,873,807 39,251,117 36,622,690 57,792,474 33,946,562 23,845,912

Furniture and equipment, includesUS$8,824 (US$8,020 atJune 30, 2012) (Note 4) 4-10 147,650,588 45,947,208 101,703,380 111,632,488 38,558,310 73,074,178

Vehicles 5 5,744,113 2,863,201 2,880,912 5,171,374 2,399,307 2,772,067Equipment for Chip project 10 2,240,224 305,794 1,934,430 2,240,224 193,782 2,046,442Construction in progress 77,242,006 - 77,242,006 83,629,501 - 83,629,501

593,749,332 106,277,217 487,472,115 492,532,374 89,300,450 403,231,924

Other property 587,389 - 587,389 587,389 - 587,389

594,336,721 106,277,217 488,059,504 493,119,763 89,300,450 403,819,313

During the six-month period ended December 31, 2012, the Bank recorded depreciation expenses ofBs 17,026,945 (Bs 12,813,629 during the six-month period ended June 30, 2012), shown in the incomestatement under general and administrative expenses (Note 21).

At December 31 and June 30, 2012, the balance of construction in progress is in respect ofconstruction and remodeling work to the Bank’s main office and to existing and new agencies.


46

Below is the movement in property and equipment for the six-month periods ended December 31 andJune 30, 2012:


June 30, Reclassifications December 31,2012 Additions Disposals and other de 2012

(In bolivars)

Land 41,809,947 - - (12,453,691) 29,356,256Buildings and facilities 190,256,366 5,735,984 - 59,649,988 255,642,338Computer hardware 57,792,474 18,460,814 (2,490) (376,991) 75,873,807Furniture and equipment 111,632,488 17,349,692 (138,781) 18,807,189 147,650,588Vehicles 5,171,374 79,939 - 492,800 5,744,113Other equipment for Chip project 2,240,224 - - - 2,240,224Construction in progress 83,629,501 62,824,706 (3,092,906) (66,119,295) 77,242,006Other property 587,389 - - - 587,389

493,119,763 104,451,135 (3,234,177) - 594,336,721

Accumulated depreciationBalances at Balances at

June 30, Depreciation Reclassifications December 31,2012 expense Disposals And other de 2012

(In bolivars)

Buildings and facilities 14,202,489 3,707,408 - - 17,909,897Computer hardware 33,946,562 5,354,733 (50,178) - 39,251,117Furniture and equipment 38,558,310 7,388,898 - - 45,947,208Vehicles 2,399,307 463,894 - - 2,863,201Other equipment for Chip project 193,782 112,012 - - 305,794

89,300,450 17,026,945 (50,178) - 106,277,217


December 31, Reclassifications June 30,2011 Additions Disposals and other 2012

(In bolivars)

Land 37,704,238 - - 4,105,709 41,809,947Buildings and facilities 184,584,557 11,077,518 (1,300,000) (4,105,709) 190,256,366Computer hardware 53,053,688 4,738,786 - - 57,792,474Furniture and equipment 95,782,460 9,287,122 (279,694) 6,842,600 111,632,488Vehicles 3,491,374 1,680,000 - - 5,171,374Other equipment for Chip project 1,708,224 532,000 - - 2,240,224Construction in progress 45,252,484 50,983,069 (5,763,452) (6,842,600) 83,629,501Other property 464,189 123,200 - - 587,389

422,041,214 78,421,695 (7,343,146) - 493,119,763


December 31, Depreciation Reclassifications June 30,2011 expense Disposals and other 2012

(In bolivars)

Buildings and facilities 11,871,874 2,330,615 - - 14,202,489Computer hardware 29,691,622 4,255,302 (362) - 33,946,562Furniture and equipment 32,767,855 5,835,084 (44,629) - 38,558,310Vehicles 2,092,090 307,217 - - 2,399,307Other equipment for Chip project 108,371 85,411 - - 193,782

76,531,812 12,813,629 (44,991) - 89,300,450


47

11. Acquisition and merger of Stanford Bank, S.A., Banco Comercial

On February 18, 2009, SUDEBAN, with the approval of the BCV’s Board of Directors and the HigherBanking Council and as authorized through Official Gazette No. 39,123, resolved to take control ofStanford Bank, S.A., Banco Comercial in Venezuela (hereinafter Stanford Bank). At a SpecialShareholders’ Meeting of Stanford Bank on April 29, 2009, it was resolved to issue 757,000 newcommon shares with a par value of Bs 100 each with a view to replenishing Stanford Bank’s capitalstock, which had been approved at a Special Shareholders’ Meeting on March 5, 2009. These shareswere fully subscribed by Banfoandes Banco Universal, C.A.

On May 5, 2009, SUDEBAN, through Notice No. SBIF-DSB-06532, notified the Bank that it wasqualified to participate in the auction for the acquisition of Stanford Bank to be held on May 8, 2009.Likewise, SUDEBAN, through Notice No. SBIF-DSB-06535 of the same date, informed the Bank thatthe auction winner would be awarded the following privileges:

a) A 15-year term over which to amortize expenses incurred during the first six months of operationsof Stanford Bank, such as personnel, administrative and operating expenses.

b) Authorization to maintain the accounting classification of loans that require rescheduling due toStanford Bank’s intervention resulting in a change of the original loan terms, provided that currentcredit conditions were maintained.

c) Reduction of requirements necessary for approval of the Merger Plan.

d) Inclusion in the purchasing entity’s books of Stanford Bank’s assets and liabilities once SUDEBANauthorized the merger. SUDEBAN would give such authorization within 120 days after the MergerPlan was submitted.

e) SUDEBAN would request the BCV’s cooperation to increase the credit line granted to the auctionwinner under the Reciprocal Payment Agreement of ALADI member countries by Stanford Bank’squota (US$3,500,000).

On May 8, 2009, the Bank won the bid to purchase Stanford Bank at an auction conducted at theheadquarters of the People’s Power Ministry for the Economy and Finance offering Bs 240,007,777.On that same date, the Bank and Banfoandes signed a stock sale agreement that sets forth, amongother things:

- The sale price of the 757,000 common shares was set at Bs 75,700,000.

- Regarding the difference between the offering price and the share price, the Bank would:a) approve and pay Bs 121,973,325 to absorb Stanford Bank’s losses and b) approve capitalcontributions of Bs 42,334,452 and record them under contributions pending capitalization inStanford Bank’s balance sheet.

- The Bank would conduct the merger by absorption of Stanford Bank under the terms set forth bySUDEBAN.

On May 14, 2009, Banfoandes sold and transferred 757,000 common shares of Stanford Bank to theBank, with a par value of Bs 100 each.

In addition, Stanford Bank’s Intervention Board, appointed by SUDEBAN through ResolutionNo. 139-09 of March 27, 2009, delivered Stanford Bank’s trial balance to the Bank at May 14, 2009.


48

Below is a summary of Stanford Bank’s (unaudited) balance sheet at May 14, 2009:

(In bolivars)

AssetsCash and due from banks 44,034,196Investment securities 42,015,988Loan portfolio 244,598,426Interest and commissions receivable 10,260,148Property and equipment 7,930,389Other assets 12,522,149

Total assets 361,361,296

Liabilities and EquityLiabilities

Customer deposits 326,110,212Borrowings 39,837,565Other liabilities from financial intermediation 24,177Interest and commissions payable 413,842Accruals and other liabilities 26,876,443

Total liabilities 393,262,239

Equity (deficit) (31,900,943)

Total liabilities and equity 361,361,296

Memorandum accountsContingent debtor accounts 41,537,662Assets received in trust 370,467Other debtor memorandum accounts 829,373,870

The merger by absorption of Stanford Bank into the Bank was approved at a Special Shareholders’Meeting of Stanford Bank held on May 14, 2009. Likewise, on May 21, 2009, SUDEBAN, throughOfficial Gazette No. 39,183, resolved to cease the intervention of Stanford Bank after it was acquiredby the Bank.

Subsequently, at a Special Shareholders’ Meeting of the Bank on May 26, 2009, the merger byabsorption of Stanford Bank, the Merger Plan and the merger balance sheet were approved. As aresult of the merger:

- Stanford Bank’s capital stock, assets and liabilities would be transferred to the Bank under universaltitle, in conformity with the Venezuelan Code of Commerce.

- The Bank’s capital and number of shares would remain the same.

- Stanford Bank would cease to exist as established under Article No. 340 of the Venezuelan Code ofCommerce.

At the aforementioned meeting, the Board of Directors was authorized to conduct the merger.

On May 27, 2009, the Bank sent a communication to SUDEBAN that included the minutes of theSpecial Shareholders’ Meeting held on May 26, 2009, the Merger Plan and a request for authorizationto make the merger effective at June 30, 2009. Subsequently, through Resolution No. 249.09published in Official Gazette No. 39,193 on June 4, 2009, SUDEBAN authorized the merger byabsorption of Stanford Bank into the Bank and indicated that the merger would become effective whenthe minutes were registered with the relevant Mercantile Registry. The merger became effective onJune 8, 2009.


49

A summary of the assets and liabilities absorbed by the Bank on June 8, 2009 is shown below:

(In bolivars)

AssetsCash and due from banks 292,675,637Investment securities 36,892,138Loan portfolio 243,018,374Interest and commissions receivable 14,362,791Property and equipment 7,930,389Other assets 13,200,492

Total assets 608,079,821

LiabilitiesCustomer deposits 283,034,115Other liabilities from financial intermediation 24,177Interest and commissions payable 1,088,217Accruals and other liabilities 109,883,205

Total liabilities 394,029,714

Total net assets 214,050,107

Through a communication sent to SUDEBAN on July 8, 2009, the Bank reported the balances of otherassets related to goodwill arising from the difference between the purchase price and the book value ofStanford Bank’s assets and liabilities at the merger date, and expenses incurred from the merger dateto June 30, 2009. The Bank also reported the balances of memorandum accounts related to unincurredprojected expenses from July 1 to December 8, 2009, recorded in conformity with the Merger Planauthorized by SUDEBAN.

Subsequently, through a communication sent to SUDEBAN on February 22, 2010, the Bank reportedall expenses incurred from the merger date to December 8, 2009. Below is a breakdown of thesebalances:

(In bolivars)

Deferred expensesSalaries and employee benefits 9,688,352General and administrative expenses 33,466,623Other operating expenses and sundry operating expenses 5,648,964Expenses from uncollectible loans and interest receivable 18,059,289

66,863,228

As a result of the purchase and subsequent merger by absorption of Stanford Bank, the Bank hasrecorded Bs 19,756,671 at December 31, 2012 under other assets (Bs 20,621,927 at June 30, 2012),related to goodwill arising from the difference between the purchase price and the book value ofStanford Bank’s assets and liabilities at the merger date, net of accumulated amortization ofBs 6,200,999 (Bs 5,335,743 at June 30, 2012), and deferred charges of Bs 52,754,278 for this entity’soperations after it was acquired by the Bank (Bs 54,952,373 at June 30, 2012), net of accumulatedamortization of Bs 13,188,568 (Bs 10,990,473 at June 30, 2012) (Note 12).

The difference in the purchase price and deferred charges, in conformity with the Merger Plansubmitted to SUDEBAN on May 11 and 13, 2009 and approved at a Special Shareholders’ Meeting onMay 26, 2009, and following the instructions contained in Notice No. SBIF-DSB-06535 issued bySUDEBAN on May 5, 2009 detailing the privileges that would be awarded to the Stanford Bank auctionwinner, will be amortized over 15 years from June 8, 2009 and January 1, 2010, respectively.


50

12. Other assets

Other assets comprise the following:


(In bolivars)

Deferred expensesLeasehold improvements, net of amortization 46,166,311 26,893,134Difference between the purchase price and the book value of Stanford Bank’sassets and liabilities, net of accumulated amortization of Bs 6,200,999(Bs 5,335,743 at June 30, 2012) (Note 11) 19,756,671 20,621,927

Chip project expenses (Note 2) 10,848,455 16,320,460Licenses 4,158,128 4,666,944Operating system (software) 4,376,157 4,786,906Currency redenomination expenses (Note 1) 9,410 20,702Other deferred expenses 329,114 304,660

85,644,246 73,614,733

Deferred expenses of Stanford Bank, net of accumulated amortization ofBs 13,188,568 (Bs 10,990,473 at June 30, 2012) (Note 11)General and administrative expenses 26,090,505 27,177,609Expenses from uncollectible loans 14,447,432 15,049,408Salaries and employee benefits 7,697,168 8,017,884Other operating expenses and sundry operating expenses 4,519,173 4,707,472

52,754,278 54,952,373

138,398,524 128,567,106

Resale agreements with Agroinvest Casa de Bolsa de ProductosAgrícolas, C.A., with a par value of Bs 56,867,535 and 13.5% annual yield 59,854,137 59,854,137

Guarantee deposits, includes US$4,675 (Note 4) 26,749,542 13,123,487In-transit operations 22,552,318 9,075,741Accounts receivable from the Mandatory Housing Savings Fund 10,321,068 29,134Stationery and office supplies 9,637,971 8,687,951Advances to suppliers 7,147,655 6,559,025Other sundry accounts receivable in local currency 6,127,287 3,994,209Prepaid insurance premiums, includes US$502,194(US$680,550, at June 30, 2012) (Note 4) 5,070,174 4,948,294

Deferred income tax (Note 18) 4,820,524 2,955,391Credit card-related accounts receivable and balance offsetting, includesUS$3,008 (US$61,713 at June 30, 2012) (Note 4) 4,050,288 2,992,040

Other prepaid expenses, includes US$20,195 (Note 4) 3,623,299 4,188,757Accounts receivable from employees 3,387,350 4,847,843Debit items pending reconciliation, includes US$703,830 and €9,080(US$818,118 and €9,048 at June 30, 2012) (Note 4) 3,286,382 3,837,316

Matured time deposit with Banco Real, Banco de Desarrollo, C.A., with a par value ofBs 1,800,000 and 15% annual yield 1,845,000 1,845,000

Prepaid taxes 1,491,822 1,785,533Other, includes US$34,300 and €32,799 (US$425,841 and €216,002 at June 30, 2012) (Note 4) 485,926 3,628,916Pending items 61,825 466,662Contribution required under the Law for the Advancement of Science, Technology and Innovation - 3,266,966

308,911,092 264,653,508

Provision for other assets (75,102,744) (77,141,635)

233,808,348 187,511,873

The Bank has a matured time deposit of Bs 1,800,000 and interest receivable of Bs 45,000 with BancoReal, Banco de Desarrollo, C.A., which is being liquidated by the Venezuelan government. The Bankhas recorded a provision for the full amount of this deposit with a charge to the equity accountexchange gain (loss) from holding foreign currency assets and liabilities, in conformity with SUDEBANinstructions contained in Notice No. SBII-DSB-II-GGI-G18-04461 of May 26, 2010 and NoticeNo. SBII-DSB-II-GGI-BPV-GIBPV2-13090 of August 6, 2010.

The Bank has an expired resale agreement with Agroinvest Casa de Bolsa de Productos Agrícolas,C.A. for Bs 56,867,535 and interest receivable in this connection for Bs 2,986,602, secured by pledgebonds issued by a company whose assets have been preventively seized. The Bank recorded aprovision for these amounts with a charge to the equity account exchange gain (loss) from holding


51

foreign currency assets and liabilities, in conformity with SUDEBAN instructions contained in NoticeNo. SBII-DSB-II-GGI-G18-04461 of May 26, 2010 and Notice No. SBII-DSB-II-GGI-BPV-GIBPV2-13090 of August 6, 2010.

Through a joint Resolution issued on July 29, 2011, the People’s Power Ministry for Planning andFinance and the People’s Power Ministry for Communes and Social Protection established themechanisms to assign resources for financing projects developed by communal councils or other formsof social organization. In accordance with this Resolution, banks will earmark 5% of their gross pre-taxincome to the National Communal Council Fund (SAFONACC) within 30 days of period end. OnAugust 22, 2011, SUDEBAN issued Resolution No. 233-11 to require banks to record this socialcontribution as a prepaid expense forming part of other assets and to amortize it at a rate of 1/6 permonth in the income statement within sundry operating expenses beginning in January or July, asappropriate to each six-month period. In July 2012 and January 2013, the Bank paid Bs 9,479,052 andBs 16,477,076, respectively, in this connection (Note 20).

Deferred expenses comprise the following:

December 31, 2012 June 30, 2012Accumulated Book Accumulated Book

Cost amortization value Cost amortization value

(In bolivars)

Leasehold improvements 102,887,328 56,721,017 46,166,311 75,683,234 48,790,100 26,893,134Difference between the purchase

price and the book value of StanfordBank’s assets and liabilities 25,957,670 6,200,999 19,756,671 25,957,670 5,335,743 20,621,927

Chip project expenses 20,010,773 9,162,318 10,848,455 19,480,937 3,160,477 16,320,460Licenses 8,511,651 4,353,523 4,158,128 7,870,207 3,203,263 4,666,944Operating system (software) 8,693,371 4,317,214 4,376,157 8,367,206 3,580,300 4,786,906Incorporation expenses 411,463 411,463 - 411,463 411,463 -Currency redenomination expenses 142,012 132,602 9,410 142,012 121,310 20,702Other deferred expenses 3,959,948 3,630,834 329,114 3,712,428 3,407,768 304,660Deferred expenses of Stanford Bank

General and administrative expenses 32,613,131 6,522,626 26,090,505 32,613,131 5,435,522 27,177,609Expenses from uncollectible loan

portfolio 18,059,289 3,611,857 14,447,432 18,059,289 3,009,881 15,049,408Salaries and employee benefits 9,621,462 1,924,294 7,697,168 9,621,462 1,603,578 8,017,884Other operating expenses and

sundry operating expenses 5,648,964 1,129,791 4,519,173 5,648,964 941,492 4,707,472

236,517,062 98,118,538 138,398,524 207,568,003 79,000,897 128,567,106

Through Resolution No. 262-10 of May 19, 2010, SUDEBAN modified the Accounting Manual torequire the recording of disbursements made in connection with the project for the new chip-basedcredit and debit cards. These disbursements include licenses, software, training and other personnelexpenses, accommodation of physical spaces, and replacement of debit and credit cards. Thedeadline for completing project stages is September 30, 2011. In addition, associated disbursementsmay be amortized beginning January 2011 using the straight-line method provided that the financialinstitutions have completed the project satisfactorily. The amortization terms are detailed below:

YearsItemsAdvisory 1Advertising and client information 2Training and other personnel expenses 2Accommodation of physical spaces 3Replacement of debit and credit cards 3Licenses 6Software 6

Subsequently, through Notice No. SIB-II-GGIR-GRF-31209 of September 29, 2011, SUDEBANextended the deadline for project completion until December 31, 2011, maintaining the initialamortization benefit for project-related expenses. At December 31 and June 30, 2012, deferredexpenses include Bs 10,848,455 and Bs 16,320,460, respectively, in this connection.


52

At December 31 and June 30, 2012, other sundry accounts receivable in local currency includeBs 1,833,820 in respect of tax on financial transactions reimbursed to tax exempt clients, withheld bythe Bank and paid to the Tax Authorities. The Bank has set aside a provision for the full amount of thisbalance.

At December 31 and June 30, 2012, in-transit operations include Bs 22,552,318 and Bs 9,075,741,respectively, related to in-transit cash remittances from customer deposits, which clear in the first daysof January 2013 and July de 2012, respectively.

At December 31, 2012, guarantee deposits include Bs 26,417,005 (Bs 12,722,450 at June 30, 2012) inrespect of real property purchased in Urbanización Campo Alegre, Caracas, Venezuela.

The balance of pending items comprises the following:


(In bolivars)

In-transit operations related to credit and debit cards 965 460,332Returned checks on credit card payments 13,051 -Shortfall 47,809 6,330

61,825 466,662

At December 31 and June 30, 2012, in-transit operations related to credit and debit cards are inrespect of electronic offsetting operations, most of which clear in the first days of January 2013 andJuly 2012, respectively.

Below is the movement in the provision for other assets:


(In bolivars)

Balance at the beginning of the period 77,141,635 74,640,898Provided in the period (Note 20) 50,276 2,866,960Write-offs of unrecoverable accounts (2,089,167) (366,223)


Below is the movement in deferred expenses for the six-month periods ended December 31 and June30, 2012:


June 30, December 31,2012 Additions Disposals 2012

(In bolivars)

Leasehold improvements 75,683,234 27,511,336 (307,242) 102,887,328Difference between the purchase price and the bookvalue of Stanford Bank’s assets and liabilities 25,957,670 - - 25,957,670

Chip project expenses 19,480,937 1,033,383 (503,547) 20,010,773Licenses 7,870,207 641,444 - 8,511,651Operating system (software) 8,367,206 326,165 - 8,693,371Incorporation expenses 411,463 - - 411,463Currency redenomination expenses 142,012 - - 142,012Other deferred expenses 3,712,428 247,520 - 3,959,948Deferred expenses of Stanford BankGeneral and administrative expenses 32,613,131 - - 32,613,131Expenses from uncollectible loans 18,059,289 - - 18,059,289Salaries and employee benefits 9,621,462 - - 9,621,462Other operating expenses and sundry operating expenses 5,648,964 - - 5,648,964

207,568,003 29,759,848 (810,789) 236,517,062


53


June 30, Amortization December 31,2012 expense Disposals 2012

(In bolivars)

Leasehold improvements 48,790,100 8,194,918 (264,001) 56,721,017Difference between the purchase price and the bookvalue of Stanford Bank’s assets and liabilities 5,335,743 865,256 - 6,200,999

Chip project expenses 3,160,477 6,001,841 - 9,162,318Licenses 3,203,263 1,150,260 - 4,353,523Operating system (software) 3,580,300 736,914 - 4,317,214Incorporation expenses 411,463 - - 411,463Currency redenomination expenses 121,310 11,292 - 132,602Other deferred expenses 3,407,768 223,066 - 3,630,834Deferred expenses of Stanford BankGeneral and administrative expenses 5,435,522 1,087,104 - 6,522,626Expenses from uncollectible loans 3,009,881 601,976 - 3,611,857Salaries and employee benefits 1,603,578 320,716 - 1,924,294Other operating expenses and sundry operating expenses 941,492 188,299 - 1,129,791

79,000,897 19,381,642 (264,001) 98,118,538


December 31, June 30,2011 Additions Disposals 2012

(In bolivars)

Leasehold improvements 69,177,777 8,191,429 (1,685,972) 75,683,234Difference between the purchase price and the bookvalue of Stanford Bank’s assets and liabilities 25,957,670 - - 25,957,670

Chip project expenses 14,289,857 7,059,240 (1,868,160) 19,480,937Operating system (software) 3,619,201 6,224,571 (1,476,566) 8,367,206Licenses 4,748,893 3,121,314 - 7,870,207Incorporation expenses 411,463 - - 411,463Currency redenomination expenses 142,012 - - 142,012Other deferred expenses 3,555,629 238,877 (82,078) 3,712,428Deferred expenses of Stanford BankGeneral and administrative expenses 32,618,842 - (5,711) 32,613,131Expenses from uncollectible loans 18,059,289 - - 18,059,289Salaries and employee benefits 9,621,462 - - 9,621,462Other operating expenses and sundry operating expenses 5,648,964 - - 5,648,964

187,851,059 24,835,431 (5,118,487) 207,568,003


December 31, Amortization June 30,2011 expense Disposals 2012

(In bolivars)

Leasehold improvements 42.173.296 6.981.097 (364.293) 48.790.100Difference between the purchase price and the bookvalue of Stanford Bank’s assets and liabilities 4,470,488 865,255 - 5,335,743

Chip project expenses 361,065 2,799,412 - 3,160,477Licenses 2,394,931 808,332 - 3,203,263Operating system (software) 3,285,767 294,533 - 3,580,300Incorporation expenses 411,463 - - 411,463Currency redenomination expenses 103,839 17,471 - 121,310Other deferred expenses 3,045,829 361,939 - 3,407,768Deferred expenses of Stanford BankGeneral and administrative expenses 4,353,150 1,082,372 - 5,435,522Expenses from uncollectible loans 2,407,905 601,976 - 3,009,881Salaries and employee benefits 1,282,862 320,716 - 1,603,578Other operating expenses and sundry operating expenses 753,195 188,297 - 941,492

65,043,790 14,321,400 (364,293) 79,000,897

Leasehold improvements include additions in the second semester of 2012 for Bs 27,511,336 mainly inrespect of improvements to the Bank’s agencies.


54

During the six-month period ended December 31, 2012, the Bank recorded amortization of deferredexpenses of Bs 19,381,642 (Bs 14,321,400 during the six-month period ended June 30, 2012), shownin the income statement under general and administrative expenses (Note 21).

13. Customer deposits

Customer deposits comprise the following:


(In bolivars)

Demand depositsNon-interest bearing checking accounts 11,403,462,235 7,756,548,057Interest-bearing checking accounts, at 0.25% annual interest 2,622,969,788 2,151,307,293

14,026,432,023 9,907,855,350

Other demand depositsPublic, State and Municipal Administration 540,723,467 888,555,969Non-negotiable demand deposits, bearing annual interest at between

0.12% and 14.5%, maturing in May 2013, includes US$2,346,989 (Note 4) 4,102,707,821 3,049,363,484Cashier’s checks 246,991,450 165,978,223Advance collections from credit card holders 3,525,164 2,089,928Advance deposits for letters of credit 50,041,077 51,556,100Trust liabilities (Note 22) 48,728,363 13,959,186Housing Savings Fund liabilities (Note 22) 376,524 477,580

4,993,093,866 4,171,980,470

Savings deposits, bearing 12.5% annual interest for deposits in bolivars(12.5% at June 30, 2012) and 0.125% for deposits in U.S. dollars,includes US$28,790,150 and €1,291 (US$29,481,064 and€7,781 at June 30, 2012) (Note 4) 4,596,193,615 2,691,770,792

Time deposits, bearing 14.5% annual interest for deposits in bolivarsand between 0.04% and 1.0295% for deposits in U.S. dollars(0.0438% and 1.5%, respectively, at June 30, 2012), includesUS$23,582,481 (US$30,785,233 at June 30, 2012) with the followingmaturities (Note 4)Up to 30 days 161,116,668 349,542,27031 to 60 days 115,293,563 114,781,54661 to 90 days 160,491,416 140,108,92391 to 180 days 63,490,370 31,640,631181 to 360 days 11,901,952 14,322,994Over 360 60,000,000 -

572,293,969 650,396,364

Securities issued by the Bank 98,421,836 -

Restricted customer depositsDormant checking accounts - 72,720,768Dormant savings accounts, includes US$5,812,663 at June 30, 2012 (Note 4) - 98,264,379

- 170,985,147

24,286,435,309 17,592,988,123


55

Deposits from the Venezuelan government and government agencies comprise the following:


(In bolivars)

Non-interest-bearing checking accounts 1,385,603,014 1,181,638,649Interest-bearing checking accounts, at 0.25% annual interest

(0.25% at June 30, 2012) 107,736,961 445,672,281Savings deposits, at 12.5% annual interest 23,794,709 102,085,293Non-negotiable demand deposits 540,723,467 888,555,969Time deposits, at 14.5% annual interest 1,685,900 19,104,226Dormant accounts - 7,899,245

2,059,544,051 2,644,955,663

At December 31, 2012, securities issued by the Bank for Bs 98,421,836 are mainly in respect of theissue of commercial paper with a par value of Bs 100,000,000, according to the minutes of the SpecialShareholder’s Meeting on September 28, 2011. This issue was approved by SUDEBAN throughNotice No. SIB-11-GGIBPV-GIBPV2-40721 of December 2, 2011 and by the SNV through ResolutionNo. 070-2012 of June 21, 2012.

14. Borrowings

Borrowings comprise the following:


(In bolivars)

Borrowings from Venezuelan financial institutions, up to one yearDemand deposits of financial institutions 1,125,280 1,151,823

Borrowings from foreign financial institutions, up to one yearDemand deposits

Checking account with Caracas International Banking Corporation, at0.25% annual interest (Note 26) 581,327 613,360

Borrowings in foreign currency (Note 4)Loan from Bancaribe Curacao Bank N.V., for US$5,000,000, at 2.96%

annual interest, maturing in January 2013 21,500,000 -

22,081,327 613,360

23,206,607 1,765,183

15. Other liabilities from financial intermediation

At December 31 and June 30, 2012, other liabilities from financial intermediation of US$4,732,694,equivalent to Bs 20,350,584, and US$7,610,160, equivalent to Bs 32,723,687, respectively,correspond to liabilities arising from operations with letters of credit (Note 4).


56

16. Interest and commissions payable

Interest and commissions payable comprise the following:


(In bolivars)

Expenses payable on customer depositsDeposits in interest-bearing checking accounts 39,479 31,459Non-negotiable demand deposits 8,282,852 7,225,468Time deposits, includes US$22,034 (US$8,068

at June 30, 2012) (Note 4) 4,025,021 5,925,476

12,347,352 13,182,403

Expenses payable on borrowingsBorrowings in foreign currency, includes US$7,816 (Note 4) 33,610 -

Expenses payable on convertible bonds (Note 24) 588,583 464,546

12,969,545 13,646,949

17. Accruals and other liabilities

Accruals and other liabilities comprise the following:


(In bolivars)

Pending items, includes US$1,684,032 and €13,073 168,989,747 83,725,480Deferred interest income, includes US$501,643 (US$38,159

at June 30, 2012) (Notes 2-k, 4 and 5-b) 39,575,038 35,393,093Suppliers and other sundry payables 25,643,250 21,961,855Other provisions (Note 30) 25,282,369 22,259,802Labor contributions and withholdings payable, includes US$1,885 24,272,727 19,647,671Tax withholdings, includes US$8,451 19,330,299 12,283,404Cashier’s checks 17,975,940 10,146,074Municipal and other taxes 14,694,600 8,349,190Accrual for length-of-service benefits (Notes 1 and 2-j) 9,755,631 9,411,677Provisions for contingent loans (Note 22) 7,797,125 5,753,095Professional fees payable, includes US$6,000 (US$8,000 at June 30, 2012) (Note 4) 7,298,315 6,871,103Vacation bonus (Note 2-j) 5,971,282 5,513,091Contribution for the prevention of money laundering 5,377,397 2,029,855Income tax provision, includes US$7,873 (US$4,114

at June 30, 2012) (Notes 4 and 18) 5,203,810 2,703,810Leases 4,571,291 4,689,944Sports and Physical Education Law (Note 1) 3,497,861 2,347,021Accounts payable in foreign currency, includes US$482,040

(US$276,768 at June 30, 2012) (Note 4) 2,072,771 1,190,104Other employee expenses 701,128 6,225,371Other, includes U$$3,302 447,641 322,195Advertising 83,511 98,410Profit sharing (Note 2-j) 63,807 9,641,660

388,605,540 270,563,905

Deferred interest income mainly relates to loan interest collected in advance, commissions anddeferred gain on sale of securities (Note 5-b).


57

At December 31, 2012, other provisions include Bs 6,450,000 in connection with accounts payable toCADIVI on credit card transactions abroad from 2006 to 2009 and the first ten days of January 2010,recorded in conformity with CADIVI’s Notice No. PREVECPGSCO-00001 of January 2, 2012.

Resolution No. 040, published in January 2011 by the People’s Power Ministry for Planning andFinance and the SNV, requires individuals regulated by the SNV who publicly trade shares andsecurities registered with the National Securities Registry to make a special annual contribution of 1.5%to finance SNV operations, including maintenance fees, fees to public arbitrators and defenders,technical upgrades, and human resource development and education.

In July 2011, the People’s Power Ministry for Planning and Finance and the SNV issued ResolutionNo. 121 to require SNV-regulated entities to pay 100 tax units for the special annual contribution. AtDecember 31, 2011, the Bank maintained a provision of Bs 1,336,205 in this connection. On January29, 2013, the Bank paid this contribution for the six-month period ended December 31, 2012, totalingBs 9,000.

At December 31 and June 30, 2012, accounts payable in foreign currency are mainly in respect ofinterest payable to clients for intermediation of securities in foreign currency.

At December 31 and June 30, 2012, suppliers and other sundry payables are mainly in respect ofaccounts payable for utilities and transportation of valuables.

Below is a breakdown of pending items:


(In bolivars)

In-transit operationsPoint-of-sale transactions payable 101,335,291 25,505,174Collection of government and municipal taxes 22,186,155 14,734,903Suiche 7B transactions payable 20,536,712 27,466,704Other 14,043,399 4,578,829Other credit items in foreign currency pending reconciliation, includes

US$860,523 and €13,073 (US$1,256,888 and €12,917 at June 30, 2012) (Note 4) 3,774,563 5,474,907Other credit items pending reconciliation, includes US$823,509 (US$837,900

at June 30, 2012) (Note 4) 3,547,749 3,603,194Other credit items pending reconciliation 1,600,243 1,383,113Other pending items 1,138,573 333,265Operations under ALADI Agreement 458,943 408,026Checks received from credit operations 329,960 195,581Cash surplus 33,640 27,520Private card transactions 4,119 14,264Cirrus transactions payable 400 -

168,989,747 83,725,480

Most in-transit operations cleared during January 2013 and July 2012.


58

Point-of-sale transactions payable correspond to the use of points of sale of other financial institutionsby Bank customers. Most of these transactions clear in the month following period closing.

At December 31 and June 30, 2012, the account collection of government and municipal taxesincludes national and municipal taxes paid by individuals and corporations to the Tax Authoritiesbetween January 2 and 4, 2013 and July 3 and 6, 2012, respectively.

18. Taxes

a) Income taxThe Bank’s tax year ends on December 31. The main differences between income/loss recognized foraccounting and tax purposes arise from provisions and accruals that are normally tax deductible insubsequent periods, tax-exempt income from National Public Debt Bonds and other securities issuedby the Venezuelan government and the net effect of the annual inflation adjustment.

Venezuelan Income Tax Law allows tax losses to be carried forward for three years to offset taxableincome, except those arising from the annual inflation adjustment, which may be carried forward foronly one year.

During the year ended December 31, 2012, the Bank estimated territorial tax losses of Bs 117,413,974and extraterritorial tax gains of Bs 7,615,119. The latter gave rise to a tax expense of Bs 2,544,140.

At December 31 and June 30, 2012, the Bank recorded estimated income tax of US$3,759 andUS$4,114, equivalent to Bs 16,165 and Bs 17,690, respectively. According to Tax Ruling No. UR 11-1611 issued by the Curacao Tax Authorities on December 9, 2011, the Curacao Branch must calculatetax payable on the basis of 7% of the costs of its activities (Note 8).

Below is the reconciliation between book income and net tax loss for the year ended December 31,2012:

(In bolivars)

Statutory tax rate 34%

Book income for 2012 before tax 517,421,813

Difference between book income and taxable incomeEffect of the annual inflation adjustment (243,327,202)Nondeductible provisionsLoan portfolio, net 23,848,687Interest on loan portfolio and other (2,887,661)Other assets 461,846Other provisions 52,341,424Tax-exempt income, net of related expenses (438,888,455)Social contributions 4,195,742Municipal taxes 4,979,927Other effects, net (35,560,095)

Territorial tax loss (117,413,974)

Tax loss from previous periods (45,347,551)

Extraterritorial tax gain 7,615,119

Extraterritorial tax loss from previous periods -

At December 31, 2012, the Bank has tax loss carryforwards from the annual inflation adjustment ofBs 45,347,552, which may be used until 2013.


59

The tax expense comprises the following:


2012 2012

(In bolivars)

Income tax 2,516,165 1,817,689Deferred income tax (1,865,133) (734,105)

651,032 1,083,584

b) Deferred income taxBank management recognizes a deferred tax asset in its financial statements when there is reasonableexpectation that future tax results will allow its realization. Furthermore, the Accounting Manualestablishes, among other things, that the Bank may not recognize a deferred tax asset for any amountexceeding taxable income (Note 2-i).

Bank management determined and evaluated the deferred tax asset recorded. The main differencesbetween the tax base and the carrying amount at December 31, 2012 relate to the provision for high-risk and uncollectible loans and interest receivable, property and equipment, deferred expenses andsundry provisions (Note 12). At December 31, 2012, the Bank recognized a deferred tax asset ofBs 1,865,133 (Bs 2,955,391 at June 30, 2012) in respect of the maximum amount allowed notexceeding taxable income.

c) Transfer pricingAccording to transfer-pricing regulations, taxpayers that conduct transactions with related partiesabroad are required to calculate income, costs and deductions applying the methodology set out in theLaw. The Bank conducts transactions with related parties abroad. In June 2012, the Bank filed thetransfer-pricing return (PT-99) for the year ended December 31, 2011.

19. Other operating income

Other operating income comprises the following:


2012 2012

(In bolivars)

Service fees (Notes 4 and 22) 100,023,366 73,870,687Exchange gain (Notes 4 and 25-c) 34,872,525 20,877,343Gain on sale of available-for-sale securities (Note 5-a) 23,816,309 140,207,451Income from amortization of discount on investments in held-to-maturitysecurities (Note 5-b) 8,107,825 2,630,467

Commissions on trust funds (Note 22) 5,060,595 3,940,865

171,880,620 241,526,813


60

Sundry operating income comprises the following:


2012 2012

(In bolivars)

Income from expenses recovered 5,901,945 4,312,558Other 415,841 22,874

6,317,786 4,335,432

20. Other operating expenses

Other operating expenses comprise the following:


2012 2012

(In bolivars)

Amortization of premiums on held-to-maturity securities (Note 2-c) 23,095,231 13,319,378Exchange loss (Note 4) 19,346,900 14,172,293Service fees (Note 4) 10,988,486 8,128,149Loss on sale of investments in available-for-sale securities (Note 5-a) 7,744,273 71,207,498

61,174,890 106,827,318

Sundry operating expenses comprise the following:


2012 2012

(In bolivars)

Provision for other contingencies (Notes 17 and 30) 12,200,090 6,953,350Contribution to the National Fund for Communal Councils (Note 12) 9,479,052 6,306,323Contribution for the prevention of money laundering (Note 1) 3,347,542 1,922,375Contributions for science and technology programs (Note 1) 3,266,966 3,266,966Provision for other assets (Note 12) 50,276 2,866,960Other 100 1,339,322

28,344,026 22,655,296


61

21. General and administrative expenses

General and administrative expenses comprise the following:


2012 2012

(In bolivars)

Outsourced services 112,503,877 83,910,011Maintenance and repairs 32,638,238 22,584,541Leases 29,862,707 26,737,793Advertising 26,936,205 15,781,011Taxes and contributions 24,264,264 18,919,283Transportation of valuables and communications 19,763,834 15,058,659Amortization of deferred expenses (Note 12) 19,381,642 14,231,400Depreciation and impairment of property and equipment (Note 10) 17,026,945 12,813,629Stationery and office supplies 15,351,623 14,966,843Sundry general expenses 11,806,259 7,165,074Insurance 1,998,584 1,815,295Public relations 1,848,811 1,385,225Other 1,844,927 1,039,072Utilities 1,091,383 1,193,247Legal fees 1,007,941 715,978

317,327,240 238,317,061

22. Memorandum accounts

Memorandum accounts comprise the following:


2012 2012

(In bolivars)

Contingent debtor accounts (Note 23)Guarantees granted 357,006,621 207,176,948Credit card lines 339,798,212 243,119,631Letters of credit issued but not negotiated 82,907,690 144,814,370

779,712,523 595,110,949

Assets received in trust 971,641,295 787,135,059

Debtor accounts from other special trust services (Housing Mutual Fund) 479,233,604 354,214,463

Other debtor memorandum accountsAssets held in custody, includes US$68,071,658 and €152,000(US$130,074,238 and €152,000 at June 30, 2012) 2,650,010,151 1,437,288,157

Collections in foreign currency, includes US$11,359,512 (US$13,066,745at June 30, 2012) 48,845,901 56,187,002

Guarantees received, includes US$113,412,813 (US$127,416,700 at June 30, 2012) 28,782,592,222 19,252,031,249Lines of credit available 9,946,021,216 6,542,363,973Uncollectible accounts written off 286,507,502 271,700,387Deferred interest receivable on loans overdue and in litigation (Note 6) 11,754,285 16,522,904Mortgage guarantees pending release 299,090,115 299,090,115Securities held by other financial institutions, includesUS$35,162,441 (US$37,453,241 at June 30, 2012) 151,198,496 161,048,936

Guarantees on collateral granted 15,116,783 13,118,043Taxes receivable 1,616,964 939,591Foreign currency purchases, includes US$6,834,317 and €706,662 (US$8,582,141 and€285,358 at June 30, 2012) (Note 4) (33,404,376) (38,456,023)

Foreign currency sales, includes US$6,834,317 and €706,662 (US$8,582,141 and €285,358at June 30, 2012) (Note 4) 33,404,376 38,456,023

Guarantees in foreign currency, includes US$21,899,750 (US$360,000 at June 30, 2012) 94,168,925 1,548,000Other 2,058,658 1,610,168

42,288,981,218 28,053,448,525


62

At December 31, 2012, in accordance with the Accounting Manual, the Bank has set aside a generaland specific provision for contingent debtor accounts of Bs 7,797,125 (Bs 5,753,095 at June 30, 2012),shown under accruals and other liabilities (Note 17).

Below is a breakdown of assets received in trust:


(In bolivars)

Type of trust fundAdministration 179,282,186 196,968,666Length-of-service benefits 695,155,135 530,170,556Investment 97,203,974 59,995,837

971,641,295 787,135,059

At December 31, 2012, combined trust fund assets include Bs 570,314,047 in respect of trust fundsopened by government agencies, representing 58.70% of total assets received in trust(Bs 504,358,680, representing 64.08% at June 30, 2012).

Combined trust fund accounts include the following balances, according to the financial statements ofthe trust:


(In bolivars)

Assets

Cash and due from banks 48,728,363 13,959,186

Investment securities 577,919,123 480,482,109

Loan portfolio 333,351,073 283,154,544

Loans and advances to beneficiaries of length-of-service benefits 333,351,073 282,585,347Loans receivable - 569,197

Interest and commissions receivableInterest receivable on investment securities 11,642,730 9,539,054

Other assets 6 166

Total assets 971,641,295 787,135,059

Liabilities and EquityLiabilities

Other liabilities 4,411,537 5,810,346

Total liabilities 4,411,537 5,810,346

EquityCapital assigned to trusts 894,435,696 723,239,113

Retained earnings 72,794,062 58,085,600

Total equity 967,229,758 781,324,713

Total liabilities and equity 971,641,295 787,135,059

At December 31 and June 30, 2012, cash and due from banks includes Bs 48,728,363 andBs 13,959,186, respectively, related to funds received from trust fund operations that are managedthrough checking accounts with the Bank, which are used to receive or pay all funds and earn 6%annual interest.


63

Investment securities included in trust fund accounts, recorded at amortized cost, comprise thefollowing:

December 31, 2012Fair

Amortized marketCost cost value

(In bolivars)

Securities issued or guaranteed by the Venezuelan governmentVebonos, with a par value of Bs 333,350,437, annual yield at between10.93% and 17.70%, maturing between May 2013 and 2021 328,688,214 328,403,203 351,213,190 (1)

Fixed Interest Bonds (TIF), with a par value of Bs 227,055,625, annual yieldat between 9.63% and 18.00%, maturing between May 2013 and August2018 230,840,791 229,515,920 253,466,768 (1)

559,529,005 557,919,123 604,679,958

Debt securities issued by non-financial private-sector companiesDebenture bondsFVI Fondo de Valores Inmobiliarios, with a par value of Bs 20,000,000,11.26% annual yield, maturing in September 2017 20,000,000 20,000,000 20,000,000 (2)

579,529,005 577,919,123 624,679,958

June 30, 2012Fair

Amortized marketCost cost value

(In bolivars)

Securities issued or guaranteed by the Venezuelan governmentVebonos, with a par value of Bs 234,826,756, annual yield at between10.32% and 17.37%, maturing between April 2013 and June 2020 234,131,426 234,537,416 214,972,673 (1)

Fixed Interest Bonds (TIF), with a par value of Bs 232,579,625, annual yieldat between 9.63% and 18.00%, maturing between May 2013 and August 2018 238,735,230 237,678,935 249,871,846 (1)

Treasury Notes, with a par value of Bs 5,000,000, maturing in July 2012 4,998,610 4,999,166 4,998,025 (1)

477,865,266 477,215,517 469,842,544

Debt securities issued by non-financial private-sector companiesDebenture bondsAserca Airlines, C.A., with a par value of Bs 3,266,592,13.79% annual yield, maturing in October 2012 3,266,592 3,266,592 3,266,592 (2)

481,131,858 480,482,109 473,109,136

(1) Fair value is determined from trading operations on the secondary market or from the present value of estimated future cash flows.

(2) Corresponds to par value, which is considered as fair market value.

Below is the classification of investment securities according to maturity:



(In bolivars)

Up to six months 2,586,648 2,656,375 8,265,758 8,264,617Six months to one year 3,970,972 4,120,000 24,028,077 23,048,557One to five years 275,855,823 297,164,161 255,914,524 264,631,150Over five years 295,505,680 320,739,422 192,273,750 177,164,812

577,919,123 624,679,958 480,482,109 473,109,136


64

At December 31, 2012, interest receivable on investment securities amount to Bs 11,642,730(Bs 9,539,054 at June 30, 2012).

At December 31 and June 30, 2012, loans and advances to beneficiaries of the length-of-servicebenefit trust fund are in respect of loans and advances granted to employees guaranteed by theirlength-of-service benefits deposited in the trust fund. These interest-free loans are in respect of length-of-service benefit trust fund plans of public and private-sector companies.

At December 31, 2012, loans and advances to beneficiaries of the length-of-service benefit trust fundinclude Bs 36,608,424 (Bs 31,690,720 at June 30, 2012) from Bank employees (Note 1),Bs 87,092,031 from private length-of-service benefit trust funds, and Bs 209,650,618 from governmentagencies (Bs 70,443,279 and Bs 180,451,347, respectively, at June 30, 2012).

At December 31 and June 30, 2012, fiduciary remuneration payable to the Bank amounts toBs 890,821 and Bs 610,394, respectively. In addition, the commission paid by the trust fund and thetrustors to the Bank during the six-month period ended December 31, 2012 amounted toBs 5,060,595 (Bs 3,940,865 during the six-month period ended June 30, 2012) (Note 19).

At December 31, 2012, length-of-service benefit trust funds in favor of Bank employees amount toBs 72,721,699 (Bs 58,694,815 at June 30, 2012).

Debtor accounts from other special trust services (Housing Loan System) and Housing SavingsFundDebtor accounts from other special trust services (Housing Loan System) and Housing Savings Fundcomprise the following:


(In bolivars)

AssetsCash and due from banks (Note 13) 376,524 477,580Investment securities 315,472,933 226,576,509Loan portfolio 152,515,420 126,508,306Interest receivable 509,644 514,068Other assets 10,359,083 138,000

Total assets 479,233,604 354,214,463

LiabilitiesContributions to the Housing Savings Fund 275,021,140 195,544,848Liabilities to BANAVIH 183,311,652 141,143,295

Total liabilities 458,332,792 336,688,143

Income 20,900,812 17,526,320

Total liabilities and income 479,233,604 354,214,463

Housing programs, direct subsidies, eligibility schemes, the Guarantee Fund and the Rescue Fund aresubject to the Housing Loan Law. They are aimed mostly at families applying for housing loans throughthe Housing Mutual Fund. Financial institutions authorized by BANAHIV to act as financial operatorsreceive monthly contributions from employers, employees and workers in the private and public sectorsto be deposited in a Housing Mutual Fund account on behalf of each employee. These funds will beused to grant short and long-term mortgages for acquisition, construction or improvement of primaryresidences.


65

At December 31, 2012, the Bank has an investment trust in BANAVIH for Bs 315,472,933(Bs 226,576,509 at June 30, 2012) in respect of funds from deposits under the Housing Loan Lawcollected and transferred by the Bank, shown as investment securities in conformity with theAccounting Manual.

According to the Housing Loan Law, monthly mortgage loan repayments will represent between 5%and 20% of the monthly family income. In addition, these loans will bear interest at the social interestrate set by the People’s Power Ministry for Housing.

At December 31, 2012, the Bank has granted loans out of BANAVIH resources of Bs 152,515,420(Bs 126,508,306 at June 30, 2012). These loans bear annual interest at between 4.66% and 8.55%.

At December 31, 2012, the Housing Savings Fund has 1,697 debtors (1,547 debtors at June 30,2012).

During the six-month period ended December 31, 2012, the Bank recorded income of Bs 599,017(Bs 439,321 during the six-month period ended June 30, 2012) from commissions charged toBANAVIH for the administration of resources related to the Mandatory Housing Savings Fund, shownunder interest income.

23. Financial instruments with off-balance sheet risks

Credit-related financial instrumentsThe Bank has outstanding commitments related to letters of credit, guarantees granted and lines ofcredit to meet the needs of its customers. Since many of its credit commitments may expire withoutbeing drawn upon, total commitment amounts do not necessarily represent future cash requirements.Commitments to extend credit, letters of credit and guarantees granted by the Bank are recordedunder memorandum accounts.

a) Guarantees grantedAfter conducting a credit risk analysis, the Bank provides guarantees to certain customers within theirline of credit; they are issued to a beneficiary who may execute the guarantee if the customer fails tocomply with the terms of the agreement. At December 31 and June 30, 2012, these guaranteesearned annual commissions of 1%. These commissions are recorded monthly while the guaranteesare in force.

At December 31, 2012, Bank guarantees amount to Bs 357,006,621 (Bs 207,176,948 at June 30,2012) (Note 22).

b) Credit limitsCredit limit contractual agreements are granted to customers subject to prior credit risk assessmentsand, if needed, obtention of any guarantee required by the Bank to cover risk for each customer.These agreements are for specific periods, provided that customers do not default on the terms setforth therein (Note 22).

c) Letters of creditLetters of credit usually mature within 90 days, and are renewable. They are generally issued tofinance a trade agreement for the shipment of goods from a seller to a buyer. At December 31 andJune 30, 2012, the Bank charged a commission of between 0.5% and 2% on the amount of letters ofcredit. Unused letters of credit at December 31, 2012 amount to Bs 82,907,690 (Bs 144,814,370 atJune 30, 2012) (Note 22).


66

The Bank’s exposure to credit loss in the event of noncompliance by customers with terms for extendedcredit, letters of credit and written guarantees is represented by the notional contractual amounts ofthese credit-related instruments. The credit policies applied by the Bank for these commitments are thesame as those for granting loans.

In general, the Bank evaluates customer eligibility before granting credit. The amount of collateralprovided, if required by the Bank, is based on customer credit assessment. The type of collateralvaries, but may include accounts receivable, property and equipment and securities.

24. Convertible bonds

At a Special Shareholders’ Meeting on July 19, 2006, a public offering of convertible bonds of up toBs 50,000,000 was approved, as well as the general terms of the offering. The shareholders alsoresolved to create a reserve fund for payment of convertible bonds at maturity with a charge tounappropriated surplus. The fund will accrue Bs 2,083,333 quarterly until it reaches the total amountredeemable at maturity. The bond issue was authorized by SUDEBAN through Resolution No. 013-07of January 22, 2007, published in Official Gazette No. 38,620 on February 6, 2007, and by the SNVthrough Resolution No. 045-2007 of April 3, 2007.

In April 2007, the Bank completed the public offering of convertible bonds, traded as from May 2, 2007at a par value of Bs 50,000,000, with annual nominal weighted average interest of the six maincommercial and universal banks payable on a quarterly basis and maturing in April 2013.

At a Special Shareholders’ Meeting on May 30, 2007, a second public offering of convertible bonds ofup to Bs 50,000,000 was approved. Under the terms of the offering, a reserve fund will be created forpayment of convertible bonds at maturity with a charge to unappropriated surplus amounting toBs 4,166,667 quarterly. This fund will be created as from the closing of the six-month period followingpublic offering commencement date. The bond issue was authorized by SUDEBAN through ResolutionNo. 367-07 of October 31, 2007, published in Official Gazette No. 38,809 on November 13, 2007, andby the SNV through Resolution No. 181-2007 of December 7, 2007.

The second public offering of convertible bonds began at the end of December 2007, with annualnominal weighted average interest of the six main commercial and universal banks payable quarterlyand maturing in December 2013. This offering was completed in March 2008.

Bondholders may choose between receiving principal payments and converting their bonds into Bankshares by paying 1.5 times the equity value of the share at bond maturity.

According to the Accounting Manual, financial institutions shall include convertible bonds as part oftheir equity. SUDEBAN also authorized inclusion of these bonds as part of the Bank’s equity structurefor the purpose of any computation required by this entity.

At December 31 and June 30, 2012, bonds earned 14.50% annual interest (Note 16). During the six-month period ended December 31, 2012, interest expense in this connection amounts to Bs 8,367,471(Bs 8,311,726 for the six-month period ended June 30, 2012).


67

Bonds issued and placed comprise the following:

December 31, 2012 June 30, 2012Amount Equity Amount Equity

Shareholders Bs % Bs %

Banco Sofitasa Banco Universal, C.A. 24,000,000 24.0 12,500,000 12.5Banco Caroní Fideicomiso 16,000,000 16.0 - -Seguros Pirámide, C.A. 15,000,000 15.0 5,000,000 5.0Multinacional de Seguros, C.A. 12,000,000 12.0 7,200,000 7.2Fideicomiso Banco Canarias 11,108,272 11.1 5,554,136 5.5Del Sur Banco Universal, C.A. Fideicomiso 6,000,000 6.0 3,000,000 3.0Caja de Ahorros de Jubilados y Pensionados del INOS 3,772,000 3.8 - -Unidad Corporativa de Mercados de Inversión 2,000,000 2.0 - -Unidad Educativa Colegio Las Colinas, C.A. 2,000,000 2.0 - -Banco Guayana, C.A. - - 8,000,000 8.0Estar Seguros, C.A. - - 5,000,000 5.0BOD Fideicomiso - - 5,000,000 5.0Seguros Altamira, C.A. - - 3,900,000 3.9Inversora Multinacional, C.A. - - 3,700,000 3.7Fideicomiso Banco Provincial S.A. - Banco Universal - - 7,000,000 7.0Banco Bicentenario Banco Universal, S.A. - - 8,650,000 8.7La Oriental de Seguros, C.A. - - 10,000,000 10.0Other 8,119,728 8.1 15,495,864 15.5

100,000,000 100.0 100,000,000 100.0

25. Equity

a) Capital stock and authorized capitalThe Bank’s paid-in capital amounts to Bs 428,503,396 (Bs 345,403,396 at June 30, 2012), representedby 428,503,396 (345,403,396 common shares at June 30, 2012) non-convertible common shares ofthe same class with a par value of Bs 1 each, fully subscribed and paid-in.

The Bank complies with the minimum capital required under the current legislation.

At a Regular Shareholders’ Meeting on March 30, 2011, it was resolved to declare cash dividends ofBs 14,100,000, which exceeds unappropriated surplus available for dividends of Bs 12,742,373 atDecember 31, 2010; it was also resolved to increase capital stock by the same amount. On May 25,2011, the Bank requested SUDEBAN’s authorization to reduce the amount of cash dividends declaredto Bs 12,742,373. Through Notice No. SIB-II-GGIBPV-GGIBPV2-17894 of June 23, 2011, SUDEBANordered the Bank to call a new Shareholders’ Meeting before July 31, 2011 to annul theaforementioned dividends declared and the capital stock increase. On July 27, 2011, the Bankrequested SUDEBAN’s authorization to modify the method for dividend declaration and payment, andto increase capital stock to Bs 14,100,000 as follows: Bs 7,050,000 out of cash dividends declaredwith a charge to unappropriated surplus, and Bs 7,050,000 out of stock dividends, with a charge torestricted surplus. On August 12, 2011, SUDEBAN sent Notice No. SIB-II-GGIBPV-GIBPV2-24163 tothe Bank agreeing on the aforementioned changes and asked the Bank to inform shareholders whoexpress their will to participate in the share subscription and payment process with resources arisingfrom cash dividends declared. The aforementioned dividends were approved at a SpecialShareholders’ Meeting of August 31, 2011.

At a Regular Shareholders’ Meeting on September 28, 2011, it was resolved to declare and paydividends and a capital increase of Bs 28,000,000 as follows: Bs 14,000,000 in non-convertiblecommon shares of the same class with a par value of Bs 1; and Bs 14,000,000 payable in cash, whichmay be converted into capital at shareholders’ will based on the agreed-upon term.

Through Notice No. SIB-II-GGIBPV-GIBPV2-41061 of December 7, 2011, SUDEBAN informed theBank that the requests submitted by the Special Shareholders’ Meeting of August 31, 2011 and theRegular Shareholders’ Meeting of September 28, 2011 were pending authorization from OSFIN. On


68

January 24 and 27, 2012, and upon authorization from OSFIN, SUDEBAN issued Notices Nos. SIB-II-GGR-GA-01547 and SIB-II-GGR-GA-02015, respectively, authorizing the aforementioned dividendsand capital increases. On June 21, 2012, through Notices Nos. DSNV-1259-2012 andDSNV-1263-2012, the SNV authorized the capital increases approved at the Special Shareholders’Meeting of August 31, 2011 and the Regular Shareholders’ Meeting of September 28, 2011. Inaddition, the Bank capitalized these dividends on July 20 and August 6, 2012, respectively, inaccordance with the notices sent to shareholders.

At a Regular Shareholders’ Meeting on February 22, 2012, it was resolved to increase capital byBs 10,000,000 through the public offering of non-convertible common shares with a par value of Bs 1.Through Notice No. SIB-11-GGIBPV-GIBPV2-09791 of April 17, 2012, SUDEBAN ratified that theBank should formally request authorization for the capital increase. Subsequently, through NoticeNo SIB-II-GGR-GA-32152 of October 10, 2012, with the binding opinion of OSFIN, SUDEBANauthorized the aforementioned capital increase. On February 4, 2013, through NoticeNo. DSNV-0174-2013, the SNV authorized this capital increase.

At a Regular Shareholders’ Meeting on March 28, 2012, it was resolved to declare and pay dividends,and to increase capital to up to Bs 41,000,000 as follows: Bs 20,500,000 out of cash dividendsdeclared with a charge to unappropriated surplus, and Bs 20,500,000 out of stock dividends with acharge to restricted surplus. On May 14, 2012, SUDEBAN sent Notice No. SIB-II-GGIBPV-GIBPV2-13144 to the Bank agreeing on the aforementioned dividend declaration and payment. The Bank wasalso instructed to request authorization for the Bs 41,000,000 capital increase and await OSFIN’sopinion. On September 10, 2012, and upon authorization from OSFIN, SUDEBAN issued NoticeNo. SIB-II-GGR-GA-28712 authorizing the aforementioned capital increase. On November 6, 2012,through Notice No. DSNV-2082-2012, the SNV authorized the capital increase approved at a RegularShareholders’ Meeting of March 28, 2012. In addition, the Bank capitalized this dividend onDecember 11, 2012, in accordance with the notices sent to shareholders.

At a Regular Shareholders’ Meeting on September 26, 2012, it was resolved to declare and paydividends, and to increase capital to up to Bs 70,000,000 as follows: Bs 35,000,000 out of cashdividends declared with a charge to unappropriated surplus, and Bs 35,000,000 out of stock dividendswith a charge to restricted surplus. On December 27, 2012, SUDEBAN sent Notice No. SIB-II-GGIBPV-GIBPV2-42313 to the Bank agreeing on the aforementioned dividend declaration andpayment. The Bank should await a ruling, with the binding opinion of OSFIN for the authorization ofthe aforementioned capital increase. To date, the Bank is awaiting approval from the regulatoryentity.


69

Shares subscribed by shareholders for the six-month periods ended December 31 and June 30, 2012are identified as non-convertible common shares as follows:

December 31, 2012 June 30, 2012Number of Equity Number of Equity

shares % shares %

ShareholderNogueroles García, Jorge Luis 42,480,904 9.91 34,242,462 9.91Nogueroles López, José María 27,404,962 6.40 22,090,242 6.40Halabi Harb, Anuar 25,174,135 5.87 20,292,044 5.87Alintio International, S.L. 21,382,373 4.99 - -Valores Torre Casa, C.A. 18,968,066 4.43 11,439,148 3.31De Guruceaga López, Gonzalo Francisco 17,269,838 4.03 13,920,650 4.03Curbelo Pérez, Juan Ramón 17,047,566 3.98 13,741,484 3.98Zasuma Inversiones, C.A. 16,582,309 3.87 13,366,455 3.87Sucesión Talayero Tamayo, Alvaro 15,929,736 3.72 - -Inversiones Clatal, C.A. 14,095,458 3.29 11,361,888 3.29Puig Miret, Jaime 10,590,093 2.47 8,536,327 2.47Tamayo Degwitz, Carlos Enrique 8,895,718 2.08 7,170,548 2.08García Arroyo, Sagrario 8,593,100 2.01 6,926,618 2.01Inversiones Tosuman, C.A. 8,040,101 1.88 6,480,863 1.88Kozma Ingenuo, Alejandro N. 8,040,097 1.88 6,480,861 1.88Kozma Ingenuo, Carolina María 8,040,097 1.88 6,480,861 1.88Teleacción, S.A. 8,040,097 1.88 6,480,861 1.88Consorcio Toyomarca, S.A. 5,987,955 1.40 1,312,051 0.38Juan Huerta, Salvador 5,458,940 1.27 4,400,276 1.27Herrera de la Sota, Mercedes 5,025,072 1.17 4,050,546 1.17Benacerraf Herrera, Jorge Fortunato 5,025,045 1.17 4,050,527 1.17Benacerraf Herrera, Andrés Gónzalo 5,025,045 1.17 4,050,527 1.17Benacerraf Herrera, Mercedes Cecilia 5,025,045 1.17 4,050,527 1.17Chaar Chaar, Mouada 4,905,718 1.14 3,954,344 1.14Nogueroles García, María Montserrat 4,738,838 1.11 3,819,824 1.11Inversiones Fernández, S.A. 4,580,336 1.07 3,692,060 1.07Cedeño, Eligio 4,500,730 1.05 3,627,892 1.05Inversora Diarriveca, C.A. 4,456,399 1.04 3,592,159 1.04Somoza Mosquera, David 4,285,031 1.00 - -Eurobuilding Internacional, C.A. 4,078,234 0.95 3,287,332 0.95Kozma Solymosi, Nicolás A. 4,023,303 0.94 3,243,055 0.94D Alessandro Bello, Nicolas Gerardo 3,860,520 0.90 3,111,844 0.90Industria Venezolana Maicera Pronutricos, C.A. 3,695,713 0.86 2,978,995 0.86Fondo de Jubilaciones y Pensiones UDO 3,617,164 0.84 2,915,680 0.84Ponte Sucre, Gonzalo Luis 3,177,536 0.74 2,561,308 0.74Velutini Urbina, Luis Emilio 3,111,867 0.73 2,508,377 0.73Vollmer de Reuter, Luisa M. 3,087,771 0.72 2,488,953 0.72Inversiones 747, C.A. 1,587,691 0.37 4,968,183 1.44Sociedad Financiera Intercontinental I.T.D. 16,678 0.00 3,455,728 1.00Domingo Alonso International, S.A. - - 17,235,629 4.99Talayero Tamayo, Alvaro - - 12,840,436 3.72Other 62,658,115 14.63 54,195,831 15.69

428,503,396 100.00 345,403,396 100.00

b) Capital reserves and retained earningsBased on the provisions set out in its bylaws and the Law on Banking Sector Institutions, the Bankmakes an appropriation to the legal reserve every six months equivalent to 20% of its biannual netincome until the reserve reaches 50% of its capital stock. Once the legal reserve reaches this amount,the Bank’s appropriation to the legal reserve will be 10% of its biannual net income until the reservecovers 100% of its capital stock.


70

At December 31 and June 30, 2012, capital reserves include Bs 996,124 in respect of voluntaryreserves. In addition, at December 31, 2012, this account includes Bs 89,583,333 for payment ofconvertible bonds (Bs 81,250,000 at June 30, 2012) (Note 24).

Through Notice No. SIB-II-GGIBPV-GIBPV2-07778 issued on March 30, 2011, SUDEBAN informed theBank that profit generated by Branch operations should be considered restricted surplus. During thesix-month period ended December 31, 2012, the Bank reclassified Branch income of Bs 33,870,641 forthe six-month period then ended (Bs 5,316,575 for the six-month period ended June 30, 2012).

Resolution No. 305.11 issued by SUDEBAN on November 28, 2011 was published in Official GazetteNo. 39,820 on December 14, 2011. This Resolution relates to the “Regulations Governing the SocialContingency Fund” and establishes the guidelines to account for the social fund, in conformity withArticle No. 47 of the Law on Banking Sector Institutions.

On March 23, 2012, the Bank created the social fund through an investment trust fund with BancoExterior, C.A. Banco Universal, in conformity with Resolution No. 305-11 published in the OfficialGazette on December 14, 2011. The Bank made the respective accounting entries with a charge torestricted investments and a credit to cash maintained with the BCV.

At June 30, 2012, the Bank recorded the social fund of Bs 1,727,016 with a charge to restrictedinvestments and a credit to capital reserves. In July 2012, the Bank informed SUDEBAN of adiscrepancy when recording the Fund and sent the accounting records of July 2012 showing a debit tounappropriated surplus and a credit to cash maintained at the BCV.

At December 31, 2012, the Bank recorded the social contingency fund of Bs 2,142,517 with a chargeto unappropriated surplus and a credit to capital reserves. On January 10, 2013, the Bank transferredBs 2,142,517 to the investment trust fund with Banco Exterior and made the accounting record with adebit to restricted investments and a credit to cash maintained at the BCV.

In compliance with SUDEBAN Resolution No. 329-99, during the six-month period ended December31, 2012, the Bank reclassified Bs 114,627,343 (Bs 72,747,775 at June 30, 2012) to restricted surplus,equivalent to 50% of income for the six-month period, net of appropriations to reserves and Branchincome. At December 31 and June 30, 2012, restricted surplus amounts to Bs 326,770,146 andBs 253,692,803, respectively. These amounts may be used for capital stock increase, but not for cashdividend distribution.

Below is the movement in restricted surplus balances:

ResolutionNo. 329-99

(In bolivars)

Balance at December 31, 2011 180,945,028Appropriation of 50% of income for the period 72,747,775

Balance at June 30, 2012 253,692,803

Capital stock increase (41,550,000)Appropriation of 50% of income for the period 114,627,343

Balance at December 31, 2012 326,770,146


71

c) Exchange gain (loss) from holding foreign currency assets and liabilitiesExchange gain (loss) from holding foreign currency assets and liabilities at December 31 and June 30,2012 comprises the following:

(In bolivars)

Balance at December 31, 2011 133,767,875Exchange loss from holding foreign currency assets and liabilities (Note 4) (656,392)

Balance at June 30, 2012 133,111,483

Reclassification according to SUDEBAN Notice No. SIB-II-GGIBPV-GIPV2-32501 656,392

Balance at December 31, 2012 133,767,875

Through Notice No. SIB-II-GGIBPV-GIBPV2-32501 of October 15, 2012, SUDEBAN informed the Bankthat the effect of translation for the Bank’s consolidation with the Curacao Branch financial statementsshould not be recorded under exchange gain (loss) from holding foreign currency assets and liabilities.Accordingly, SUDEBAN requested the Bank to reverse the effect recorded under exchange gain (loss)from holding foreign currency assets and liabilities so as to show under this item the balance atDecember 31, 2011. Furthermore, SUDEBAN informed the Bank that section 152 “Investments inbranches” of the Accounting Manual establishes the parameters for consolidating financial statements.On October 25, 2012, the Bank sent SUDEBAN the corresponding accounting vouchers. At December31, 2012, other operating income includes Bs 23,321,669 in respect of the effect of translation for theBank’s consolidation with the Curacao Branch financial statements (Notes 4 and 19).

d) Risk-based capital ratioRatios required and maintained by the Bank, in accordance with SUDEBAN rules, have beencalculated based on its published financial statements, as indicated below:

December 31, 2012 June 30, 2012Required Maintained Required Maintained

% % % %

Total risk-based capital 12 13.83 12 13.32Equity-to-total assets 8 8.36 8 8.02

In March 2007, SUDEBAN incorporated a scheme for gradually excluding goodwill from the index ofthe equity solvency calculation, which consists in dividing goodwill for March 2007 into 48 parts anddeducting it from equity on a monthly basis by March 31, 2011. According to Resolution No. 305-09issued by SUDEBAN on July 29, 2009, which introduced changes to the aforementioned scheme,deduction of goodwill from equity is no longer required. Changes introduced to risk-based capital ratiowere as follows: a) contributions pending capitalization and treasury stock are considered as primaryequity (Tier 1); b) goodwill and investments in Venezuelan financial subsidiaries or affiliates must bededucted from the primary equity (Tier 1); and c) 50% of pending cash items, overnight deposits anddeposits and credits related to microcredits, agriculture, manufacturing and tourism activities must beincluded into the risk category. Furthermore, this Resolution establishes a new 75% risk weightingapplicable to overnight deposits in local currency.

Resolution No. 305-09 maintains the minimum total risk-based capital and equity-to-total assets(solvency ratio) at 12% and 8%, respectively.


72

26. Balances and transactions with related companies

In the ordinary course of business, the Bank conducts commercial transactions with relatedcompanies. Because of those relationships, certain transactions may have taken place on terms otherthan those that would characterize transactions between unrelated companies.

A breakdown of the Bank’s balances and transactions with its related company Caracas InternationalBanking Corporation is provided below:


(In bolivars)

AssetsCash and due from banks

Foreign and correspondent banks US$44,757 (US$249,161 at June 30,2012) 192,453 1,071,391

LiabilitiesBorrowings (Note 14)

Interest-bearing checking accounts, with 0.25% annual interest 581,327 613,360

Expenses for the periodInterest expense

Expenses from borrowings 4,429 46,612

27. Deposit Guarantee and Bank Protection Fund

Venezuelan financial institutions regulated by the Law on Banking Sector Institutions are required topay fees to the Deposit Guarantee and Bank Protection Fund (FOGADE). Among other things,FOGADE guarantees customer deposits up to a given amount per depositor.

Through Decree No. 7,207, published in Official Gazette No. 39,358 on February 1, 2010, theVenezuelan government set at 0.75% the monthly fee that banks must pay to FOGADE throughmonthly premiums equivalent to one-sixth of 0.75% of the total amount of customer deposits at the endof each semester prior to the payment date, calculated in accordance with instructions issued byFOGADE. This fee is shown under operating expenses.

28. Special fee paid to the Superintendency of Banking Sector Institutions

The Law on Banking Sector Institutions requires Venezuelan banks and financial institutions regulatedby this Law to pay a special fee to support SUDEBAN operations.

At December 31, 2012 and June 30, 2012, the biannual fee is 0.06% of the average of theBank’s assets; it is payable monthly. This fee is shown under operating expenses.

29. Legal reserve

The BCV requires financial institutions to maintain a minimum legal reserve deposit at the BCV equalto a percentage of their placements, deposits, liabilities and investments assigned, excluding liabilitieswith the BCV, FOGADE and other financial institutions; liabilities arising from funds received from theVenezuelan government, local or foreign entities to finance special programs in the country (oncethese funds have been allocated); liabilities arising from funds received from financial institutions tofinance and promote exports as required by Law (once these funds have been allocated); and liabilitiesin foreign currency resulting from its offices abroad and those resulting from transactions with otherbanks and financial institutions for which the latter have, in turn, created a reserve pursuant to the legal


73

reserve regulations. Liabilities arising from resources provided by Mandatory Housing Savings Fundsrequired under the Venezuelan Housing Loan Law and managed by financial institutions in trust fundswill not be computed. In addition, through Resolution No. 12-05-02 published in Official GazetteNo. 39,933 on May 30, 2012, the BCV reduced the legal reserve amount to be allocated by financialinstitutions that purchased dematerialized certificates of participation issued by the Simón Bolívar Fundby the balance of such certificates. For the six-month period ended December 31 and June 30, 2012,the Bank purchased Bs 233,458,108 in this connection (Notes 5-b and e). The legal reserve must bemaintained in legal tender, regardless of the currency of the transactions from which it originated(Note 3).

30. Contingencies

At December 31, 2012, the Bank is defendant in the following legal proceedings:

a) TaxMunicipal taxesThe Bank received tax assessments from the Valencia Municipality in respect of unpaid taxes, finesand overdue interest amounting to Bs 668,424, Bs 1,176,082 and Bs 285,270, respectively. At June30, 2012, the Bank had fully provided for these balances, which had been recorded under otherprovisions (Note 17). The case was subsequently dismissed and the Bank paid the respective fines.

The Bank received tax assessments from the El Hatillo Municipality in respect of tax on businessactivities of Bs 145,623. In the opinion of the Bank’s legal advisors, a reduction of the fine is highlyprobable.

b) Labor and otherThe Bank received assessments from the National Institute for Socialist Education (INCES) in respectof special contributions amounting to Bs 50,210. In the opinion of Bank management and its externallegal advisors, these matters should not have a material adverse effect on the Bank’s financial positionand results of operations.

The Bank has received legal claims from individuals in respect of length-of-service and other labor-related benefits amounting to Bs 66,118,143 at December 31 and June 30, 2012. In the opinion ofBank management and its external legal advisors, these claims are not well grounded in law and,therefore, should not have a material adverse effect on the Bank’s financial position and results ofoperations.

Bank management and its legal advisors believe most of these assessments are not well grounded inlaw and, consequently, that the outcome of these claims will be favorable to the Bank. At December31 and June 30, 2012, the Bank has set aside no provision in this connection.

Except for the aforementioned assessments, management is not aware of any other pending tax, laboror other claim that may have a significant effect on the Bank’s financial position or result of operations.


74

31. Maturity of financial assets and liabilities

Below is a breakdown of the estimated maturity of financial assets and liabilities:

December 31, 2012Maturity

BeyondJune 30, December 31, June 30, December 31, June 30, December 31, December

2013 2013 2014 2014 2015 2015 2015 Total

(In bolivars)

AssetsCash and due from banks 5,703,778,981 - - - - - - 5,703,778,981Investment securities 1,710,655,834 365,600,419 51,627,666 154,558,495 431,921,560 95,917,734 5,241,219,803 8,051,501,511Loan portfolio 6,323,514,358 1,359,947,152 552,193,293 532,447,709 657,967,591 522,170,869 2,048,817,077 11,997,058,049Interest and commissions

receivable 225,044,751 - - - - - - 225,044,751

13,962,993,924 1,725,547,571 603,820,959 687,006,204 1,089,889,151 618,088,603 7,290,036,880 25,977,383,292

LiabilitiesCustomer deposits 24,214,533,357 11,901,952 - - - 60,000,000 - 24,286,435,309Borrowings 23,206,607 - - - - - - 23,206,607Liabilities fromfinancial intermediation 20,350,594 - - - - - - 20,350,594

Interest and commissionspayable 12,969,545 - - - - - - 12,969,545

24,271,060,103 11,901,952 - - - 60,000,000 - 24,342,962,055

June 30, 2012Maturity

BeyondDecember 31, June 30, December 31, June 30, December 31, June 30, June

2012 2013 2013 2014 2014 2015 2015 Total

(In bolivars)

AssetsCash and due from banks 4,016,330,948 - - - - - - 4,016,330,948Investment securities 235,697,092 139,314,458 351,456,419 45,327,451 90,652,003 207,051,907 3,690,399,862 4,759,899,192Loan portfolio 5,788,173,757 1,009,670,060 467,033,260 413,830,197 362,816,923 654,605,623 1,177,416,116 9,873,545,936Interest and commissions

receivable 168,787,981 - - - - - - 168,787,981

10,208,989,778 1,148,984,518 818,489,679 459,157,648 453,468,926 861,657,530 4,867,815,978 18,818,564,057

LiabilitiesCustomer deposits 17,578,665,129 14,322,994 - - - - - 17,592,988,123Borrowings 1,765,183 - - - - - - 1,765,183Liabilities from financial

intermediation 32,723,687 - - - - - - 32,723,687Interest and commissions

payable 13,646,949 - - - - - - 13,646,949

17,626,800,948 14,322,994 - - - - - 17,641,123,942

32. Fair value of financial instruments

The estimated fair value of the Bank’s financial instruments, their book value, and the mainassumptions and methodology used to estimate their fair values are shown below:

December 31, 2012 June 30, 2012Estimated Estimated

Book fair Book fairvalue value value value

(In bolivars)

AssetsCash and due from banks 5,703,778,981 5,703,778,981 4,016,330,948 4,016,330,948Investment securities, net 8,051,421,105 8,040,432,388 4,759,818,786 4,616,390,073Loan portfolio, net 11,682,646,923 11,682,646,923 9,587,800,957 9,587,800,957Interest and commissions receivable, net 197,536,983 197,536,983 146,263,681 146,263,681

25,635,383,992 25,624,395,275 18,510,214,372 18,366,785,659

LiabilitiesCustomer deposits 24,286,435,309 24,286,435,309 17,592,988,123 17,592,988,123Borrowings 23,206,607 23,206,607 1,765,183 1,765,183Other liabilities from financial intermediation 20,350,594 20,350,594 32,723,687 32,723,687Interest and commissions payable 12,969,545 12,969,545 13,646,949 13,646,949

24,342,962,055 24,342,962,055 17,641,123,942 17,641,123,942


75

Short-term financial instrumentsShort-term financial instruments, both assets and liabilities, are shown in the balance sheet at bookvalue, which does not significantly differ from fair value due to their short-term maturity. Theseinstruments include cash and due from banks, customer deposits with no fixed maturity and short-termmaturity, short-term borrowings, other liabilities from financial intermediation with short-term maturity,and interest receivable and payable.

Investment securitiesThe fair value of investments in available-for-sale and held-to-maturity securities was determined usingquoted market prices, reference prices determined from trading operations on the secondary market,the present value of estimated future cash flows and quoted market prices of financial instruments withsimilar characteristics (Note 5-a and b). Investments in other securities are shown at par value, whichis considered as fair value (Note 5-e).

Loan portfolioThe Bank’s loan portfolio earns interest at variable rates that are reviewed regularly. In addition,allowances are made for loans with some risk of recovery. Therefore, in management’s opinion, thebook value of the loan portfolio approximates its fair value.

Customer deposits and long-term liabilitiesCustomer deposits and long-term liabilities bear interest at variable rates, which are reviewed regularly.Therefore, management considers fair value to be equivalent to book value.

33. Legally established limits for loans and investments

At December 31 and June 30, 2012, the Bank has no loans with economic groups that individuallyexceed 10% of the Bank’s equity and does not maintain investments or loans exceeding the limitsestablished in Article No. 99 of the Law on Banking Sector Institutions.


76

34. Supplementary information - Inflation-adjusted financial statements

The Bank’s inflation-adjusted financial statements, prepared in accordance with the General PriceLevel (GPL) method (Note 2), are provided below as supplementary information:

Supplementary balance sheetDecember 31 and June 30, 2012


(In constant bolivars atDecember 31, 2012)

AssetsCash and due from banks 5,703,778,981 4,486,241,669

Cash 737,253,973 406,653,804Central Bank of Venezuela 4,350,091,834 3,228,977,376Venezuelan banks and other financial institutions 123,110 160,626Foreign and correspondent banks 95,261,299 281,615,079Pending cash items 521,048,765 568,834,784

Investment securities 8,051,421,105 5,316,717,583

Deposits with the BCV and overnight deposits 1,010,939,000 -Investments in available-for-sale securities 3,444,407,131 1,829,677,505Investments in held-to-maturity securities 2,787,127,754 2,603,335,956Restricted investments 16,422,282 18,331,003Investments in other securities 792,605,344 865,462,933(Provision for investment securities) (80,406) (89,814)

Loan portfolio 11,682,646,923 10,709,573,669

Current 11,941,485,358 10,952,206,509Rescheduled 34,151,571 36,915,806Overdue 21,421,120 28,683,478In litigation - 10,945,018(Allowance for losses on loan portfolio) (314,411,126) (319,177,142)

Interest and commissions receivable 197,536,983 163,376,532

Interest receivable on investment securities 120,626,364 85,052,579Interest receivable on loan portfolio 103,527,566 102,801,787Commissions receivable 890,821 681,809(Provision for interest receivable and other) (27,507,768) (25,159,643)

Available-for-sale assets 83,687,887 82,709,751

Property and equipment 885,342,454 819,130,205

Other assets 337,026,769 308,176,090

Total assets 26,941,441,102 21,885,925,499


77

Supplementary balance sheetDecember 31 and June 30, 2012



Liabilities and EquityCustomer deposits 24,286,435,309 19,651,367,734

Demand deposits 14,026,432,023 11,067,074,426

Non-interest-bearing checking accounts 11,403,462,235 8,664,064,180Interest-bearing checking accounts 2,622,969,788 2,403,010,246

Other demand deposits 4,993,093,866 4,660,102,185Savings deposits 4,596,193,615 3,006,707,975Time deposits 572,293,969 726,492,739Securities issued by the Bank 98,421,836 -Restricted customer deposits - 190,990,409

Borrowings 23,206,607 1,971,709

Venezuelan financial institutions, up to one year 1,125,280 1,286,586Foreign financial institutions, up to one year 22,081,327 685,123

Other liabilities from financial intermediation 20,350,594 36,552,358

Interest and commissions payable 12,969,545 15,243,642

Expenses payable on customer deposits 12,347,352 14,724,744Expenses payable on borrowings 33,610 -Expenses payable on other liabilities 588,583 518,898

Accruals and other liabilities 388,605,540 302,219,882

Total liabilities 24,731,567,595 20,007,355,325

EquityInflation-adjusted capital stock 1,481,278,988 1,391,816,056Convertible bonds 100,000,000 111,700,000Premium on cash capital contributions 154,949,500 154,949,500Capital reserves 544,977,617 468,720,435Retained earnings (355,444,931) (417,137,362)Exchange gain from holding foreign currency assets and

liabilities 206,640,683 206,420,774Unrealized gain (loss) on investments in available-for-salesecurities 77,471,650 (37,899,229)

Total equity 2,209,873,507 1,878,570,174

Total liabilities and equity 26,941,441,102 21,885,925,499


78

Supplementary income statementSix-month periods ended December 31 and June 30, 2012



Interest income 1,360,800,587 1,146,307,124

Income from cash and due from banks 29,477 56,394Income from investment securities 321,716,136 266,316,143Income from loan portfolio 944,272,219 792,663,381Income from other accounts receivable 94,759,767 87,271,206Other 22,988 -

Interest expense (405,677,216) (354,155,100)

Expenses from customer deposits (396,443,423) (344,195,158)Expenses from borrowings (87,718) (45,621)Expenses from convertible bonds (8,891,925) (9,581,032)Other interest expense (254,150) (333,289)

Gross financial margin 955,123,371 792,152,024

Income from financial assets recovered 5,756,460 7,421,261Expenses from uncollectible and impaired financial assetsExpenses from uncollectible loans and other accounts receivable (53,374,304) (162,827,215)

Net financial margin 907,505,527 636,746,070

Other operating income 179,582,383 278,679,724Other operating expenses (64,449,662) (122,831,813)

Financial intermediation margin 1,022,638,248 792,593,981

Operating expenses (665,308,517) (568,994,640)

Salaries and employee benefits 176,751,635 160,751,996General and administrative expenses 367,422,259 300,537,736Fees paid to the Deposit Guarantee and Bank Protection Fund (FOGADE) 110,245,447 98,897,794Fees paid to the Superintendency of Banking Sector Institutions 10,889,176 8,807,114

Gross operating margin 357,329,731 223,599,341

Gain (loss) on available-for-sale assets 2,736,499 (60,149)Sundry operating income 6,883,293 5,115,902Expenses from available-for-sale assets (18,556,580) (13,844,324)Sundry operating expenses (30,157,563) (26,073,461)

Net operating margin 318,235,380 188,737,309

Extraordinary income 580,774 1,774,473Extraordinary expenses (6,363,801) (2,322,307)

Gross income before tax and loss from net monetary position 312,452,353 188,189,475

Income tax (804,362) (1,273,563)

Income before loss from net monetary position 311,647,991 186,915,912

Loss from net monetary position (82,325,711) (44,907,830)

Net income 229,322,280 142,008,082


79

Supplementary statement of changes in equitySix-month periods ended December 31 and June 30, 2012

Exchange gain(loss) from Unrealized

Paid-in capital stock Share premium holding foreign gain (loss) onInflation Convertible and paid-in Capital Retained currency assets investment Total

Nominal adjustment Total bonds surplus reserves earnings and liabilities securities equity

(In constant bolivars at December 31, 2012, except nominal capital stock)

Balances at December 31, 2011 345,403,396 1,046,412,660 1,391,816,056 120,066,330 154,949,500 415,368,738 (507,722,824) 207,520,997 23,380,244 1,805,379,041

Exchange loss from holding foreign currency assetsand liabilities - - - - - - - (1,100,223) - (1,100,223)

Gain on sale of investments and adjustment ofinvestments in available-for-sale securitiesto market value - - - - - - - - (59,607,152) (59,607,152)

Effect of restating unrealized gain on investmentsin available-for-sale securities - - - - - - - - (1,672,321) (1,672,321)

Effect of restating convertible bonds - - - (8,366,330) - - - - - (8,366,330)Net income - - - - - - 142,008,082 - - 142,008,082Appropriation to legal reserve - - - - - 42,114,286 (42,114,286) - - -Creation of the social contingency fund - - - - - 1,929,077 - - - 1,929,077Reserve fund for convertible bonds - - - - - 9,308,334 (9,308,334) - - -

Balances at June 30, 2012 345,403,396 1,046,412,660 1,391,816,056 111,700,000 154,949,500 468,720,435 (417,137,362) 206,420,774 (37,899,229) 1,878,570,174

Capitalization of dividends declared 83,100,000 6,362,932 89,462,932 - - - (89,462,932) - - -Exchange gain from holding foreign currency assets

and liabilities - - - - - - - 219,910 - 219,910Gain on sale investments and adjustment ofinvestments in available-for-sale securitiesto market value - - - - - - - - 111,401,129 111,401,129

Effect of restating unrealized gain on investmentsin available-for-sale securities - - - - - - - - 3,969,749 3,969,749

Effect of restating convertible bonds - - - (11,700,000) - - - - - (11,700,000)Net income - - - - - - 229,322,280 - - 229,322,280Appropriation to legal reserve - - - - - 65,781,332 (65,781,332) - - -Creation of the social contingency fund - - - - - 2,142,517 (4,052,252) - - (1,909,735)Reserve fund for convertible bonds - - - - - 8,333,333 (8,333,333) - - -

Balances at December 31, 2012 428,503,396 1,052,775,592 1,481,278,988 100,000,000 154,949,500 544,977,617 (355,444,931) 206,640,684 77,471,649 2,209,873,507


80

Supplementary cash flow statementSix-month periods ended December 31 and June 30, 2012



Cash flows from operating activitiesNet income 229,322,280 142,008,082Adjustments to reconcile net income to net cash provided by (used in)

operating activitiesAllowance for losses on loan portfolio 53,325,393 157,119,079Provision for interest receivable 48,287 -Provision for other assets 430,263 3,202,394Depreciation of property and equipment and amortization of available-for- 87,597,967 71,266,435sale and other assets

Accrual for length-of-service benefits 20,537,598 20,837,977Transfers to trust fund and payment of length-of-service benefits (17,962,828) (15,207,643)Income tax provision 2,669,495 2,030,359Deferred tax asset (1,865,133) (634,156)Net change inOvernight deposits (1,010,939,000) -Interest and commissions receivable (39,953,865) (65,526,982)Other assets (60,064,391) (32,755,253)Accruals and other liabilities 79,770,475 36,370,850

Net cash provided by (used in) operating activities (657,083,459) 318,711,142

Cash flows from financing activitiesConvertible bonds (11,700,000) (8,366,330)Effect of inflation on exchange gain (loss) from holding foreigncurrency assets and liabilities 452,691 (1,100,223)

Net change inCustomer deposits 4,635,067,575 3,115,635,652Borrowings 21,234,898 (403,096)Other liabilities from financial intermediation (16,201,764) (79,638,251)Interest and commissions payable (2,274,097) (10,775,405)

Net cash provided by financing activities 4,626,579,303 3,015,352,347

Cash flows from investing activitiesLoans granted during the period (10,327,129,401) (10,492,130,343)Loans collected during the period 9,307,846,799 8,532,344,993Net change in

Investments in available-for-sale securities (1,499,358,747) 397,808,336Investments in held-to-maturity securities (183,801,206) (1,308,994,250)Restricted investments 1,908,721 (2,935,095)Investments in other securities 70,715,072 (422,503,423)Available-for-sale assets (19,534,716) (39,649,289)Property and equipment (102,605,054) (80,549,625)

Net cash used in investing activities (2,751,958,532) (3,416,608,696)

Cash and due from banksNet change in cash and cash equivalents 1,217,537,312 (82,545,207)

At the beginning of the period 4,486,241,669 4,568,786,876

At the end of the period 5,703,778,981 4,486,241,669

Loss from net monetary positionIn operating activities 153,468,874 90,001,381In financing activities 2,075,258,810 1,171,766,031In investing activities (1,676,491,252) (898,502,398)From holding cash (469,910,721) (318,357,184)

82,325,711 44,907,830


81

Supplementary cash flow statementSix-month periods ended December 31 and June 30, 2012



Supplementary information on non-cash activitiesWrite-off of uncollectible loans (principal) 16.484.304 169.784.765Write-off of uncollectible loans (interest) 805.846 12.979.452Reclassification of excess in

Allowance for losses on loan portfolio to provision for interest receivable (5.742.176) (7.661.065)Allowance for losses on loan portfolio to provision for contingent loans (1.370.918) (802.257)

Net change in unrealized gain (loss) on investment securities 115.370.879 (61.279.473)Creation of the social contingency fund 2.142.517 1.929.077Effect of exchange fluctuations on

Investments in available-for-sale securities 94.343 472.005Investments in held-to-maturity securities 121.708 608.912Interest receivable 3.858 19.306

Property and equipmentProperty and equipment comprises the following:

December 31, 2012 June 30, 2012Accumulated Accumulated

Cost depreciation Net Cost depreciation Net

(In constant bolivars at December 31, 2012)

Land 72,322,592 - 72,322,592 106,117,960 - 106,117,960Buildings and facilities 558,896,948 (52,252,228) 506,644,720 459,425,183 (42,231,005) 417,194,178Computer hardware 166,205,240 (121,739,769) 44,465,471 147,036,612 (113,532,440) 33,504,172Furniture and equipment 336,377,166 (162,169,235) 174,207,931 296,484,986 (144,837,275) 151,647,711Vehicles 12,086,594 (8,423,687) 3,662,907 11,448,142 (7,613,653) 3,834,489Construction in progress 82,040,018 - 82,040,018 104,832,879 - 104,832,879

1,227,928,558 (344,584,919) 883,343,639 1,125,345,762 (308,214,373) 817,131,389

Other assets 1,998,815 - 1,998,815 1,998,816 - 1,998,816

1,229,927,373 (344,584,919) 885,342,454 1,127,344,578 (308,214,373) 819,130,205

Monetary assets and liabilitiesMonetary assets and liabilities, including amounts in foreign currency are, by their nature, shown interms of purchasing power at December 31, 2012. The result from monetary position reflects the lossor gain resulting from maintaining a net monetary asset or net monetary liability position during aninflationary period and is shown separately in the income statement.

Nonmonetary assets and liabilitiesThese components (property and equipment, available-for-sale assets and deferred charges) havebeen restated based on their dates of origin and are shown at restated cost by the GPL method.

EquityAll equity accounts, except convertible bonds, have been restated based on their dates of origin andare shown in constant currency at December 31, 2012. Stock dividends are declared, as well asvoluntary, statutory or similar reserves are dated based on their dates of origin as equity and not ontheir capitalization date. Cash dividends are adjusted based on the date they were declared.


82

Income statementOperating income and expenses have been restated by multiplying them by the factor obtained fromdividing the NCPI at December 31, 2012 by the NCPI at the dates on which they were earned orincurred. Costs and expenses in respect of nonmonetary items have been adjusted based on thepreviously restated nonmonetary items to which they relate.

Analysis of monetary result for the periodAn analysis of the monetary result for the period is provided below:


2012 2012


Net monetary asset position at the beginning of the period 734,395,428 733,323,352

Transactions that increased net monetary positionIncome 1,556,339,996 1,439,238,335Changes in equity 115,590,788 60,179,251Sales price of available-for-sale assets 6,846,079 668,829

Subtotal 1,678,776,863 1,500,086,415

Transactions that decreased net monetary positionExpenses 1,157,094,038 1,181,055,986Changes in equity - 8,366,330Additions to property and equipment, deferred charges and other 174,526,321 264,684,193

Subtotal 1,331,620,359 1,454,106,509

Estimated net monetary asset position at the end of the period 1,081,551,932 779,303,258

Net monetary asset position at the end of the period 999,226,221 734,395,428

Loss from net monetary position (82,325,711) (44,907,830)

Documents

Banco Nacional de Crédito, C.A., Banco Universal · The accompanying notes are an integral part of the financial statements 1 Banco Nacional de Crédito, C.A., Banco Universal Balance