Vojvodjanska banka a.d., Novi Sad · The accompanying notes form an integral part of these financial statements. These financial statements were approved by the Management of Vojvođanska

Translation of the Auditors’ Report issued in the Serbian language

VOJVOĐANSKA BANKA A.D., NOVI SAD Financial Statements Year Ended December 31, 2013 and Independent Auditors’ Report

VOJVOĐANSKA BANKA A.D., NOVI SAD

Translation of the Auditors’ Report issued in the Serbian language

CONTENTS Page Independent Auditors' Report 1 Financial Statements:

Income Statement 2 Balance Sheet 3 Statement of Changes in Equity 4 Cash Flow Statement 5

Statistical annex 6

Notes to the Financial Statements 7 - 83

Translation of the Independent Auditors’ Report Issued in the Serbian language

INDEPENDENT AUDITORS’ REPORT To the Shareholders of Vojvođanska banka a.d., Novi Sad We have audited the accompanying financial statements of Vojvođanska banka a.d., Novi Sad (the “Bank”), which comprise the balance sheet as of December 31, 2013 and the related income statement, statement of changes in equity and statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory notes and the statistical annex. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Law on Accounting of the Republic of Serbia and regulations of the National Bank of Serbia governing financial reporting of banks, as well as for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and the Law on Audit of the Republic of Serbia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Bank’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2013, and its financial performance and cash flows for the year then ended in accordance with the accounting regulations of the Republic of Serbia and regulations of the National Bank of Serbia governing financial reporting of banks. Belgrade, April 7, 2014

Nada Suđić Certified Auditor


2 Translation of the Auditors’ Report issued in the Serbian language

INCOME STATEMENT Year Ended December 31, 2013 (Thousands of RSD) Note 2013. 2012. INCOME AND EXPENSES FROM REGULAR OPERATIONS Interest income 4 6,892,883 5,870,431 Interest expense 4 (3,395,584) (3,108,553) Net interest income 3,497,299 2,761,878 Fee and commission income

5

1,709,750

1,761,513

Fee and commission expense 5 (174,927) (178,765) Net fee and commission income 1,534,823 1,582,748 Net gains on the sale of securities carried at fair

value through profit and loss

6

157

857 Net gains/(losses) on the sale of other investments 7 11,971 (3,897) Foreign exchange gains, net 8 605,689 301,075 Dividend and other income from equity investments 9 2,838 4,628 Other operating income 10 142,963 103,659 Net impairment gains/(losses) and provisions 11 1,265,570 (977,366) Staff costs 12 (2,471,744) (2,498,855) Depreciation and amortization 13 (500,046) (542,615) Operating and other expenses 14 (2,718,459) (2,676,953) Net gains on the valuation of assets and liabilities 15,16 1,858 81,982 Profit from continuing operations before taxes 1,372,919 - Losses from continuing operations before taxes - (1,862,859) Current income tax expense (1,782) (1,024) Gains on the creation of deferred tax assets and

decrease in deferred tax liabilities

17

18,902

27,608 Loss on the decrease in deferred tax assets and

creation of deferred tax liabilities (7,892)

(57,660)

Net profit/loss

1,382,147

(1,893,935)

The accompanying notes form an integral part of these financial statements.

These financial statements were approved by the Management of Vojvođanska banka a.d., Novi Sad on February 21, 2014 and submitted to the Serbian business Registers Agency. Signed on behalf of Vojvođanska banka a.d., Novi Sad by: Marinos Vathis Spyridon Ntallas Valentina Dragojlović President of the Executive Board Chief Financial Officer

Assistant Director of Finance, Accounting and Tax Department



BALANCE SHEET As of December 31, 2013 (Thousands of RSD) Note 2013 2012 ASSETS Cash and cash equivalents 18 16,746,230 15,694,401 Revocable loans and deposits 19 11,884,348 12,951,499 Receivables arising from interest, fees and commissions,

trade, fair value adjustments of derivatives and other receivables

20

476,298 389,957 Loans and deposits to customers 21 61,005,349 60,640,291 Securities (excluding treasury shares) 22 10,629,455 6,168,556 Equity investments (interests) 23 261,838 268,214 Other investments 24 689,810 662,820 Intangible assets 25 395,428 375,028 Property, equipment and investment property 25 4,837,751 5,208,538 Non-current assets held for sale and assets from

discontinued operations

26 222,971 158,195 Deferred tax assets 17 480,315 480,841 Other assets 27 1,230,609 1,065,485 Total assets 108,860,402 104,063,825 LIABILITIES Transaction deposits 28 22,528,501 18,387,778 Other deposits 29 62,018,377 59,878,926 Borrowings 30 2,728,585 5,230,693 Liabilities from securities - 344 Interest, fee and commission payables and change in

the value of derivatives

31 7,756 6,239 Provisions 32 480,381 562,249 Deferred tax liabilities 29,181 34,334 Tax payables 17 168,664 180,200 Other liabilities 33 1,347,534 1,770,759 Total liabilities 89,308,979 86,051,522 Share and other capital 16,337,550 16,337,550 Reserves from profit 122,185 2,016,120 Revaluation reserves 1,400,112 1,396,230 Unrealized losses on securities available for sale (9,735) (103,189) Retained earnings 1,701,311 259,527 Accumulated losses - (1,893,935) Total Equity

34 19,551,423 18,012,303

Total liabilities and equity 108,860,402 104,063,825 OFF-BALANCE-SHEET ITEMS

35 245,851,646 218,599,128

Managed funds 457,765 522,898 Commitments 7,748,410 5,067,635 Sureties received 166,373,870 144,703,959 Derivatives 15,669,415 15,521,133 Other off-balance sheet items 55,602,186 52,783,503

The accompanying notes form an integral part

of these financial statements.



STATEMENT OF CHANGES IN EQUITY Year Ended December 31, 2013 (Thousands of RSD)

Share Capital

Share Premium

Reserves

Revaluation Reserves

Retained Earnings

Accumulated Losses not Exceeding

Equity

Losses on Securities Available

for Sale Total Balance at January 1, 2012 16,337,430 120

3,188,768 1,523,720 198,961 (1,172,647)

(54,712) 20,021,640

Remeasurement of securities held for sale - -

- (66,924) - -

(48,477) (115,401)

Decrease in revaluation reserves based on the transfer of a portion of deprecation charge to retained earnings upon appraisal - -

- (60,566) 60,566 -

- - Absorption of losses from prior years - - (1,172,647) - - 1,172,647 - - Loss for the year - - - - - (1,893,935) - (1,893,935) Other - - (1) - - - - (1)

Balance at December 31, 2012 16,337,430 120

2,016,120 1,396,230 259,527 (1,893,935)

(103,189) 18,012,303 Remeasurement of securities held for sale - -

- 63,519 - -

93,454 156,973

Decrease in revaluation reserves based on the transfer of a portion of deprecation charge to retained earnings upon appraisal - -

- (59,637) 59,637 -

- - Absorption of losses from prior years - - (1,893,935) - - 1,893,935 - - Profit for the year - - - - 1,382,147 - - 1,382,147

Balance at December 31, 2013 16,337,430 120

122,185 1,400,112 1,701,311 -

(9,735) 19,551,423

The accompanying notes form an integral part of these financial statements.

.



CASH FLOW STATEMENT Year Ended December 31, 2013 (Thousands of RSD)

2013

2012

OPERATING ACTIVITIES Cash inflows from operating activities 8,817,092 7,844,787 Interest receipts 6,997,677 6,026,001 Fee and commission receipts 1,701,194 1,731,819 Receipts of other operating income 115,338 82,339 Receipts from dividends and profit distribution 2,883 4,628 Cash outflows from operating activities

(9,066,352)

(8,334,795)

Interest paid (3,514,589) (3,051,161) Fees and commissions paid (158,835) (165,818) Payments to, and on behalf of employees (2,695,954) (2,553,107) Taxes, contributions and other duties paid (822,325) (772,957) Payments of other operating expenses (1,874,649) (1,791,752) Net cash generated by operating activities prior to

increases or decreases in loans and deposits

(249,260)

(490,008) Decreases in loans and increases in deposits 7,688,517 13,560,192 Decrease in loans and advances to banks and customers 1,445,748 - Increase in deposits due to banks and customers 6,242,769 13,560,192 Increases in loans and decreases in deposits (4,291,743) (6,163,109) Increase in loans and advances to banks and customers - (1,756,714) Increase in securities carried at fair value through profit and loss,

trading investments and short-term securities held-to-maturity

(4,291,743)

(4,406,395) Net cash generated by operating activities 3,147,514 6,907,075 INVESTING ACTIVITIES Cash inflows from investing activities 18,806 24,932 Sales of equity investments (interests) - 55 Sales of intangible assets, property and equipment 4,127 16,450 Sales of investment property - 3,683 Other inflows from investing activities 14,679 4,744 Cash outflows from investing activities

(254,889)

(463,213)

Purchases of equity investments (interests) - (235,760) Purchases of intangible assets, property and equipment (194,008) (211,676) Purchases of investment property (6,218) (10,250) Other outflows from investing activities (54,663) (5,527) Net cash used in investing activities (236,083) (438,281) FINANCING ACTIVITIES Cash outflows from financing activities

(2,465,290)

(226,031)

Borrowings, net outflows (2,465,290) (226,031) Total net cash inflows

16,524,415

21,429,911

Total net cash outflows (16,078,274) (15,187,148) Net increase in cash and cash equivalents 446,141 6,242,763 Cash and cash equivalents, beginning of year 15,694,401 9,150,564 Foreign exchange gains on translation of cash 605,688 301,074

Cash and cash equivalents, end of year

16,746,230

15,694,401





STATISTICAL ANNEX Year Ended December 31, 2013 (Thousands of RSD)

2013.

2012.

Costs of salaries 1,495,740 1,458,741 Costs of employee benefits 264,396 261,992 Taxes on salaries and benefits 243,244 267,855 Contributions on salaries and benefits 440,489 399,922 Costs of considerations to temporary and seasonal employees 583 427 Other staff costs 27,292 109,918 Depreciation/amortization charge 500,046 542,615 Insurance premiums 272,354 243,169 Reimbursement of costs to employees 90,753 89,763 Rental costs 306,194 395,003 Indirect taxes 362,091 336,093 Indirect contributions 424,840 411,382 Rental income 46,398 40,768 Foreign exchange losses 4,871,065 14,935,513 Foreign exchange gains 5,476,754 15,236,588 Inventories 111,264 151,881 Average employee head count determined based on the

head count at each month-end of the financial year (whole number)

1,733

1,779 Number of ordinary shares 1,633,743 1,633,743 Number of preference shares - - Nominal value of ordinary share 16,337,430 16,337,430 Nominal value of preference shares - -



VOJVOĐANSKA BANKA A.D., NOVI SAD NOTES TO THE FINANCIAL STATEMENTS For the Year Ended December 31, 2013 All amounts expressed in thousands of RSD, unless otherwise stated.


1. CORPORATE INFORMATION

Vojvodjanska banka a.d., Novi Sad (the “Bank”) was established on 1 January 1990 by the transformation of Vojvodjanska banka - Associated Bank, Novi Sad. On 30 December 2001, in accordance with its Articles of Incorporation and the Decision of the Bank’s General Assembly, the Bank merged with Srpska razvojna banka a.d. Beograd and Uzicka banka a.d., Uzice.

In December 2006, in accordance with the terms of the Agreement on the Purchase and Sale of Share Capital, the National Bank of Greece became the major owner of the Bank’s share capital, by acquiring an equity interest of 99.43%. The aforementioned acquisition was duly registered with the Central Securities Depository and Clearing House, on 12 December 2006. On 25 October 2007, the National Bank of Greece, Athens, conducted the mandatory purchase of the remaining 1,727 shares and became the sole owner of the Bank.

On 7 December 2007, Vojvodjanska banka a.d., Novi Sad was excluded from the Belex list on its own request.

The Bank is registered in the Republic of Serbia a closed joint stock company to provide a wide range of banking services associated with payment transfers, credit and deposit activities in the country and abroad, and it operates in accordance with the Republic of Serbia’s Law on Banks. In accordance with the Decision brought by the Bank’s Assembly on 3 January 2008, Vojvodjanska banka a.d., Novi Sad merged with the National Bank of Greece a.d. Beograd, with the date of merger being 31 December 2007. The aforementioned status change of merger by absorption of the National Bank of Greece a.d., Beograd was inscribed in the registry maintained by the Serbian Business Registers Agency on 14 February 2008 under the number BD 6190/2008 (removal of the business entity – the National Bank of Greece a.d., Beograd as the acquired bank) and the change in equity structure of Vojvodjanska banka a.d., Novi Sad was inscribed (Decision number BD 6210/2008). The National Bank of Greece a.d., Beograd was entirely in the ownership of the National Bank of Greece Athens, Greece. The Bank continued its operations under the name of Vojvodjanska banka a.d., Novi Sad. The Bank’s Head Office is located in Novi Sad, 7, Trg Slobode. As of 31 December 2013, the Bank operated through its Central Office located in Novi Sad, 54 branches, excluding the inactive branches in Pristina and Podgorica, 55 sub-branch offices (31 December 2012: 60 branches, excluding the inactive branches in Pristina and Podgorica, 57 sub-branches). As of 31 December 2013, the Bank had 1,703 employees (31 December 2012: 1,770 employees). The Bank’s registration number is 08074313. Its tax identification number is 101694252. As of 31 December 2013, the Bank had controlling interest in the following legal entities, which are not consolidated in the accompanying financial statements:

Subsidiary’s name

% of interest in capital

Brodogradiliste Apatin d.o.o, Apatin 100.00% Imos a.d. Šid 51.55%

2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS 2.1. Financial Statements

These financial statements include only receivables, liabilities, profit/loss from operations, changes in equity and cash flows of the Bank excluding its subsidiaries. Pursuant to the regulations prevailing in the Republic of Serbia, the Bank has prepared the consolidated financial statements which include the financial statements of the following subsidiary: • Shipyard Apatin d.o.o., Apatin, solely (100%) owned by the Bank



2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued) 2.1. Financial Statements (Continued)

The Bank has prepared these unconsolidated financial statements based on and pursuant to the requirements of the laws and regulations effective in the Republic of Serbia, where investments in the subsidiaries are stated at cost less impairment, if any, in these unconsolidated financial statements. More detailed information about the Bank’s financial position is provided in the Bank’s consolidated financial statements which the Bank is obligated to prepare and submit to the Serbian Business Registers Agency by April 30, 2014, as in accordance with the Law on Accounting.

2.2. Basis of Preparation and Presentation of Financial Statements

Legal entities and entrepreneurs incorporated in Serbia are required to maintain their books of account, to recognize and value assets and liabilities, income and expenses, and to present, submit and disclose financial statements in conformity the Law. As a large legal entity, the Bank is required to apply International Financial Reporting Standards (“IFRS”), which as per the aforementioned law comprise the following: the Framework for the Preparation and Presentation of Financial Statements (the “Framework”), International Accounting Standards (“IAS”), International Financial Reporting Standards (“IFRS”), as well as the related interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and additional related interpretations issued by International Accounting Standards Board (“IASB”), the translations of which to the Serbian language were approved and issued by the competent Ministry of Finance and which were in effect as at December 31, 2002. The amendments to IAS, as well as the newly issued IFRS and the related interpretations issued by the IASB and the IFRIC, in the period between December 31, 2002 and January 1, 2009, were officially adopted pursuant to a Decision enacted by the Ministry of Finance of the Republic of Serbia (the “Ministry”) and published in the Official Gazette of the Republic of Serbia no. 77 of October 25, 2010. However, until the preparation date of the accompanying financial statements, not all amendments to IAS/IFRS and IFRIC in effect for annual periods beginning on or after January 1, 2009 had been translated. In addition, the accompanying financial statements are presented in the format prescribed under the “Guidelines on the Prescribed Form and Content of the Financial Statements of Banks and Other financial Organizations (Official Gazette of the Republic of Serbia nos. 74/2008, 3/2009 and 5/2010). Such statements represent the complete set of financial statements as defined under the law, which differ from those defined under the provisions of IAS 1, “Presentation of Financial Statements,” and differ in some respects from the presentation of certain items as required under the aforementioned standard. Standards and interpretations in issue but not yet officially translated and adopted and standards and interpretations in issue but not yet in effect are disclosed in Notes 2.3 and 2.4. In accordance with the aforedescribed, and given the potentially material effects which the departures of accounting regulations of the Republic of Serbia from IAS and IFRS may have on the fairness presentations made in the financial statements, the accompanying financial statements cannot be treated as a set of financial statements prepared in accordance with IAS and IFRS.

The Bank’s financial statements are stated in thousands of dinars (RSD). The dinar is the official reporting currency in the Republic of Serbia. In the preparation of the accompanying financial statements, the Bank adhered to the accounting policies described in Note 3.



2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued) 2.3. Standards and Interpretations in Issue but not yet Translated and Adopted

As of the financial statements issuance date, the following standards and amendments were issued by the International Accounting Standards Board and Interpretations issued by the International Financial Reporting Interpretations Committee but were not officially adopted and translated in the Republic of Serbia: • Amendments to IFRS 7 “Financial Instruments: Disclosures” – Amendments improving fair value

and liquidity risk disclosures (revised in March 2009, effective for annual periods beginning on or after January 1, 2009);

• Amendments to IFRS 1 “First-Time Adoption of IFRS” – Additional Exemptions for First-Time

Adopters. The amendments relate to assets in oil and gas industry and determining whether an arrangement contains a lease (revised in July 2009, effective for annual periods beginning on or after January 1, 2010);

• Amendments to various standards and interpretations resulting from the Annual Quality

Improvement Project of IFRS published on April 16, 2009 (IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36, IAS 39, IFRIC 16) primarily with a view to removing inconsistencies and clarifying wording, (amendments are to be applied for annual periods beginning on or after 1 January 2010, while the amendment to IFRIC is to become effective as of July 1, 2009);

• Amendments to IAS 38 “Intangible Assets” (revised in July 2009, effective for annual periods

beginning on or after July 1, 2009);

• Amendments to IFRS 2 “Share-Based Payment”: Amendments resulting from the Annual Quality Improvement Project of IFRS (revised in April 2009, effective for annual periods beginning on or after July 1, 2009) and amendments relating to group cash-settled share-based payment transactions (revised in June 2009, effective for annual periods beginning on or after January 1, 2010);

• Amendments IFRIC 9 “Reassessment of Embedded Derivatives” effective for annual periods beginning on or after July 1, 2009 and IAS 39 “Financial Instruments: Recognition and Measurement” – Embedded Derivatives (effective for annual periods beginning on or after June 30, 2009);

• IFRIC 18 “Transfers of Assets from Customers” (effective for annual periods beginning on or after

July 1, 2009); • “Conceptual Framework for Financial Reporting 2010” being an amendments to “Framework for the

Preparation and Presentation of Financial Statements” (effective for transfer of assets from customers received on or after September 2010);

• Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” –

Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (effective for annual periods beginning on or after July 1, 2010);

• Amendments to IAS 24 “Related Party Disclosures” – Simplifying the disclosure requirements for

government-related entities and clarifying the definition of a related party (effective for annual periods beginning on or after January 1, 2011);

• Amendments to IAS 32 “Financial Instruments: Presentation” – Accounting for Rights Issues

(effective for annual periods beginning on or after February 1, 2010); • Amendments to various standards and interpretations “Improvements to IFRSs (2010)” resulting

from the Annual quality improvement project of IFRS published on May 6, 2010 (IFRS 1, IFRS 3, IFRS 7, IAS 1, IAS 27, IAS 34, IFRIC 13) primarily with a view to removing inconsistencies and clarifying wording, (most amendments are to be applied for annual periods beginning on or after January 1, 2011);



2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued) 2.3. Standards and Interpretations in Issue but not yet Translated and Adopted (Continued)

• Amendments to IFRIC 14 “IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding

Requirements and Their Interaction” – Prepayments of a Minimum Funding Requirement (effective for annual periods beginning on or after January 1, 2011);

• IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments” (effective for annual periods

beginning on or after July 1, 2010).

• Amendments to IFRS 1 “First-Time Adoption of IFRS” – Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (effective for annual periods beginning on or after July 1, 2011);

• Amendments to IFRS 7 “Financial Instruments: Disclosures” – Transfers of Financial Assets

(effective for annual periods beginning on or after January 1, 2011);

• Amendments to IAS 12 “Income Taxes” – Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after January 1, 2012);

• IFRS 10 “Consolidated Financial Statements” (effective for annual periods beginning on or after

January 1, 2013);

• IFRS 11 “Joint Arrangements” (effective for annual periods beginning on or after January 1, 2013); • IFRS 12 “Disclosures of Involvement with Other Entities” (effective for annual periods beginning

on or after January 1, 2013);

• IFRS 13 “Fair Value Measurement” (effective for annual periods beginning on or after January 1, 2013);

• IAS 27 (revised in 2011) “Separate Financial Statements” (effective for annual periods beginning on or after January 1, 2013);

• IAS 28 (revised in 2011) “Investments in Associates and Joint Ventures” (effective for annual

periods beginning on or after January 1, 2013);

• Amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards” – Government Loans with a Below-Market Rate of Interest (effective for annual periods beginning on or after January 1, 2013);

• Amendments to IFRS 7 “Financial Instruments: Disclosures” – Offsetting Financial Assets and

Financial Liabilities (effective for annual periods beginning on or after January 1, 2013);

• Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated Financial Statements, Joint Arrangements and Disclosures of Involvement with Other Entities: Transition Guidance” (effective for annual periods beginning on or after January 1, 2013);

• Amendments to IAS 1 “Presentation of Financial Statements” – Presentation of Items of Other

Comprehensive Income (effective for annual periods beginning on or after July 1, 2012),

• Amendments to IAS 19 “Employee Benefits” – Improvements to the Accounting for Post-Employment Benefits (effective for annual periods beginning on or after January 1, 2013);

• Amendments to various standards “Improvements to IFRSs (2009-2011 Cycle)” issued in May

2012, resulting from the annual improvement project of IFRS (IFRS 1, IAS 1, IAS 16, IAS 32, IAS 34) primarily with a view to removing inconsistencies and clarifying wording (amendments are to be applied for annual periods beginning on or after January 1, 2013),;

• IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine” (effective for annual periods beginning on or after January 1, 2013).



2. BASIS OF PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS (Continued)

2.4. Standards and Interpretations in Issue not yet in Effect At the date of issuance of these financial statements the following standards, revisions and interpretations were in issue but not yet effective:

• IFRS 9 “Financial Instruments” and subsequent amendments (effective for annual periods

beginning on or after January 1, 2018);

• IFRS 14 “Regulatory Deferral Accounts” (effective for annual periods beginning on or after January 1, 2016);

• Amendments to IFRS 10, IFRS 12 and IAS 27 - Exemption from Consolidation of Subsidiaries

under IFRS 10 'Consolidated Financial Statements' (effective for annual periods beginning on or after January 1, 2014);

• Amendments to IAS 19 - Defined Benefit Plans: Employee Contributions Statements' (effective for

annual periods beginning on or after July 1, 2014);

• Amendments to IAS 32 “Financial Instruments: Presentation” – Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after January 1, 2014);

• Amendments to IAS 36 “Impairment of Assets” - Recoverable Amount Disclosures for Non-Financial Assets (effective for annual periods beginning on or after January 1, 2014);

• Amendments to IAS 39 “Financial Instruments:” Recognition and Measurement - Novation of

Derivatives and Continuation of Hedge Accounting (effective for annual periods beginning on or after January 1, 2014);

• Amendments resulting from Annual Improvements 2010-2012 Cycle issued in December 2013

(IFRS 2, IFRS 3, IFRS 8, IFRS 13, IAS 16, IAS 24 and IAS 38) with a view to removing inconsistencies and clarifying wording (effective for annual periods beginning on or after July 1, 2014);

• Amendments resulting from Annual Improvements 2011-2013 Cycle issued in December 2013

(IFRS 1, IFRS 3, IFRS 13 and IAS 40) with a view to removing inconsistencies and clarifying wording (effective for annual periods beginning on or after July 1, 2014);

• IFRIC 21 “Levies” (effective for annual periods beginning on or after January 1, 2014).

2.5. Comparative Information

Comparative information includes the Bank’s financial statements as of and for the year ended December 31, 2012.

2.6. Use of Estimates

The presentation of the financial statements requires the Bank’s management to make best estimates and reasonable assumptions that effect asset and liability amounts, disclosure of contingent liabilities and receivables at the date of preparation of the financial statements, as well as the income and expenses arising during the account period. These estimations and assumptions are based on information available to us at the date of preparation financial statements. However, actual results may vary from these estimates. The review of the significant accounting estimates is provided in Note 3.24.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1. Interest Income and Expense

Interest income and expense, including penalty interest and other income and other expenses from interest bearing assets, i.e. liabilities are recognized on an accrual basis based on obligatory terms defined by a contract signed between the Bank and a customer.



3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.1. Interest Income and Expense (Continued)

Loan origination fees, which are charged, collected or paid on a one-time basis in advance, are deferred and amortized to interest earned on loans and advances over the life of the loan using the straight-line method, which approximates the effective yield.

Interest is suspended and disclosed within off-balance sheet items after 90 days in delinquency of the repayment of the loan (“non-performing loans”).

3.2. Fee and Commission Income and Expense

The Bank earns/pays fee and commission from rendering and using the banking services. Fees and commissions are generally recognized on an accrual basis when the service has been provided, i.e. rendered.

Fees and commissions are mostly earned by rendering services of payment transaction services, loan administration, issuance of guarantees, as well as other services. Corporate and retail loans’ origination fees are deferred over the life of the loan, and are recorded within interest income.

3.3. Foreign Currency Translation

Balance sheet and income statement items stated in the financial statements are valued by using currency of primary economic environment (functional currency). As disclosed in Note 2.2., the accompanying financial statements are stated in thousand of Dinars (RSD), which represents the functional and official reporting currency of the Bank. Transactions denominated in foreign currency are translated into Dinars at the official exchange rate determined on the Interbank Foreign Currency Market, prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currency are translated into Dinars at the official exchange rate determined on the Interbank Foreign Currency Market, prevailing at the balance sheet date (Note 41).

Foreign exchange gains or losses arising upon the translation of assets, liabilities and transactions are credited or debited as appropriate, to the income statement, as foreign exchange gains or losses (Note 8). Gain or losses arising upon the translation of financial assets and liabilities with contacted foreign currency clause are credited or debited as appropriate, to the income statement, as gains/losses from changes in value of assets and liabilities (Notes 15 and 16). Commitments and contingencies denominated in foreign currency are translated into dinars at the official middle exchange rate of the National Bank of Serbia prevailing at the balance sheet date.

3.4. Financial Instruments

All financial instruments are initially recognized at fair value (usually equal to the consideration paid) including any directly attributable incremental costs of acquisition or issue, except for financial assets and financial liabilities which are valued at fair value through profit and loss. Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulations or conventions on the market, are recognized on the trade date or settlement date, i.e., on the date when the Bank commits to purchase or sell the assets or the date when the Bank commits to receive or transfer the assets. Financial assets and financial liabilities are recognized in the Bank’s balance sheet on the date upon which the Bank becomes counterparty to the contractual provisions of a specific financial instrument. Regular way purchases and sales of financial assets are recognized on the trade date.




3.4. Financial Instruments (Continued)

“Day 1” Profit When the transaction price in a non-active market is different to the fair value from other observable current market transaction in the same instrument or based on a valuation technique whose variables include data from observable markets, the Bank immediately recognizes the difference between the transaction price and fair value (“Day 1” profit) in the income statement.

Derecognition of Financial Assets and Financial Liabilities Financial assets cease to be recognized when the Bank loses control of the contractual rights governing such instruments; which occurs when the rights of use of such instruments have been realized, expired, abandoned, and/or ceded.

When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Bank’s continuing involvement in the asset. Continuing involvement that takes the form of a “guarantee” over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the income statement.

Reclassification of Financial Assets

Financial assets other than loans and receivables are permitted to be reclassified out of the held for trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near-term.

Reclassifications are made at fair values as of the reclassification date. Fair value becomes the new cost or amortized cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made.

Classification of Financial Instruments The Bank’s management determines the classification of its investments at initial recognition. Classification of financial instruments upon initial recognition depends on the purposes for which financial instruments have been obtained and their characteristics.

The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity securities and available-for-sale securities.

Subsequent measurement of financial assets depends on their classification, as follows:

3.4.1. Financial Assets at Fair Value through Profit or Loss

This category includes trading securities that have been primarily acquired for generating profit from short-term price fluctuations. Trading securities are stated in the balance sheet at fair value.

Trading securities include shares of banks and enterprises, as well as other securities issued by banks and corporate entities.

Changes in fair value of trading securities are credited or debited as appropriate, to the income statement, as gains/losses from changes in value of assets and liabilities.





3.4.2. Loans and Advances

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. All loans and advances are recognized when cash is transferred to borrowers. Loans and receivables are initially recognized at fair value.

At the reporting date, loans and advances originated by the Bank are stated at the amount of principal outstanding, less allowance for impairment, which are based on the evaluation of specifically-identified exposures and also cover losses that are inherent in the Bank’s loan portfolio.

The effects of non-application of effective interest rate in accordance with IAS 39, “Financial Instruments: Recognition and Measurement,” requiring that loans be measured at amortized cost by applying the effective interest rate method, in the management’s opinion, are not material for loans and advances to customers and the financial statements on the whole, as the Bank approves loans at variable interest rates, while the one-off fees collected in advance are deferred throughout the loan repayment period (Note 3.2).

Loans, which are disbursed in Dinars and index-linked to the EUR exchange rate or to the retail price growth, are revaluated in accordance with the provisions stated under the individual loan agreements. The difference between the carrying amount of loan and the amount calculated applying the foreign currency clause is disclosed within loans and advances. Gains and losses resulting from the application of foreign currency clause are recorded in the income statement, as gains/losses from changes in value of assets and liabilities.

Impairment of Financial Assets and Provision for Risks

In accordance with its internal policy, the Bank assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event“) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulties, defaults or delinquencies in interest or principal payments, probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

In accordance with the internal methodology, if there is objective evidence that a financial asset has been impaired, the Bank calculates the difference between the carrying amount and the present value of the future cash flows as discounted at the effective interest rate in accordance with the requirements of IAS 39 “Financial Instruments: Recognition and Measurement”, for the corporate customers which meet the criteria prescribed by the internal methodology, whereas, for all other placements, the allowance for impairment is estimated on portfolio basis. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics and the Bank’s internal grading system by an asset type, industry, delinquency in servicing interest or principal, activity, geographical location, collateral type, past-due status and other relevant factors. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of contracted cash flows and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The Bank regularly reviews the methodology and assumptions used for estimating future cash flows in order to reduce any differences between loss estimates and actual loss experience.





3.4.2. Loans and Advances (Continued)

The carrying amount of the loan is reduced through the use of an allowance account and the amount of the impairment loss arising from impairment of loans and receivables, as well as other financial assets measured at amortized cost, is recognized in the income statement as impairment losses on financial assets (Note 11). Loans together with the associated allowance for impairment are written off when there is no realistic prospect of future recovery and when collateral has been realized or has been transferred to the Bank. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the income statement (Note 11).

Bank in 2011. year formed a committee for write off debts and receivables. Writing off of uncollectible debts and receivables is in accordance with the write off policy.

3.4.3. Rescheduled Loans

Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment period as well as changes in the loan conditions. Once the terms have been renegotiated, the loan is no longer considered past due. The management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. Rescheduled loans are subject of individual impairment assessment, discounted by using the original effective interest rate.

3.4.4. Securities Held-to-Maturity

Held-to-maturity securities are financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity. Securities held-to-maturity include discounted bills of exchange initially recorded at cost. Securities held-to-maturity are subsequently measured at amortized cost using the effective interest rate method, less any allowance for impairment. Amortized cost is calculated by taking into account any discounts or premiums on acquisition, over the period to maturity. The Bank performs individual assessment in order to determine whether there is objective evidence on impairment of the investment into securities held-to-maturity. If there are objective evidence that such securities have been impaired, the amount of impairment loss for investments held to maturity is calculated as the difference between the investments’ carrying amount and the present value of expected future cash flows discounted at the investment's original effective interest rate, and it is charged to the income statement (Note 11).

If, in a subsequent year, the amount of the estimated impairment loss decreases as a consequence of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced and effects are credited to the income statement.

3.4.5. Securities Available-for-Sale

Securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as “securities available-for-sale”. Available-for-sale securities include other legal entities’ equity instruments and debt securities. Equity investments comprise equity investments in other legal entities, related parties, shares of companies and banks denominated in Dinars and foreign currencies.





3.4.5. Securities Available-for-Sale (Continued)

Subsequent to the initial measurement, these securities are measured at fair value. The fair values of securities quoted in active markets are based on current bid prices. Unrealised gains and losses are recognised directly in equity with in the Available-for-sale reserves. When the investment is disposed of or impaired, the cumulative gain or loss previously recognised in equity is recognised in the income statement.

Equity instruments in other legal entities that do not have a quoted market price in an active market and for which other methods of reasonably estimating fair value are inappropriate are exempt from fair value valuation. These available-for-sale securities are measured at cost, less any allowance for impairment. Dividends earned whilst holding available-for-sale financial instruments are recognized in the income statement as dividend income when the right to receive payment is established. Gains and losses arising from the sale of these securities are credited or debited as appropriate, to the income statement, as gains/losses from sale of available-for-sale securities. In addition, impairment losses on securities available-for-sale, which cannot be deemed to be temporary, are recognized in the income statement.

3.4.6. Issued Financial Instruments and Other Financial Liabilities

Issued financial instruments or their components are classified as liabilities where the substance of the contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

The subsequent measurement of financial liabilities depends on their classification as follows:

Deposits from Other Banks and Customers

All deposits from other banks and customers and interest-bearing borrowings are initially recognized at the fair value of the consideration received net of transaction costs, except for financial liabilities through profit and loss. After initial recognition, interest-bearing deposits and borrowings are subsequently measured at amortized cost.

Borrowings

Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost. Borrowings are classified as current liabilities, unless the Bank has the indisputable right to postpone the settlement of obligations for at least 12 months after the balance sheet date.

Operating Liabilities

Trade payables and other short-term liabilities are measured at amortized cost, being the amount of the consideration received due to the short-term nature of these liabilities.

3.5. Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

3.6. Financial Derivatives

The Bank uses financial instruments such as currency forward contracts, currency swap and spot contracts for hedging and trading purposes. The Bank has chosen to apply trade date accounting for these transactions.




3.6. Financial Derivatives (Continued)

Upon closing forward contracts, the Bank records spot transactions from the contract when they have occurred, recognizing concurrently financial assets and liabilities arising from forward transactions which will be realized in the ensuing period. On daily basis, the Bank measures unrealized forward transactions of forward contracts by crediting/debiting them to prepayments/accruals and the income statement. During the course of 2013, the most common financial derivatives in the Bank included currency swaps used to balance short-term gaps in the Bank’s currency positions and to provide the necessary currency structure on the accounts held abroad.

3.7. Special Reserves for Estimated Losses on Bank Balance Sheet Assets and Off-balance Sheet

Items

Special reserves against potential losses on balance sheet assets and off-balance sheet items are calculated in accordance with the National Bank of Serbia’s Decision on the Classification of Bank Balance Sheet Assets and Off-balance Sheet Items (“RS Official Gazette”, no. 94/2011, 57/2012, 123/2012 and 43/2013). All receivables (balance sheet and off-balance sheet exposure) from a single borrower are classified in categories from A to D in accordance with the assessment of their recoverability. Individual credit exposures are evaluated based upon the borrower's character and payment record, which correspond to the number of days the payments are overdue, overall financial position, as well as the quality of collateral. Through its internal enactments, the Bank has defined the criteria and methodology for determining special provisions against potential losses within percentages prescribed by the National Bank of Serbia decision, in line with the assessment of individual credit risk exposure based on borrower’s defaults in contractual payments of principal or interest, financial position, adequacy of cash flows and quality and value of collateral. In accordance with the classification of receivables and pursuant to the aforementioned Decision of the National Bank of Serbia, the amount of the special reserves against potential losses is calculated by applying the following percentages on placements: A - 0%, B - 2%, V - 15%, G - 30% and D – 100%. Special reserves for estimated losses are reduced by allowances for impairment of balance sheet assets and provisions against losses on off-balance sheet items, which are calculated in accordance with the Bank’s accounting policy disclosed in Note 3.4.2, and are charged to the income statement (Note 11).

The Bank is obliged to determine the amount of the needed reserves for estimeted losses, which represents the sum of positive differences between the reserve for estimated losses calculated in accordance with the stipulated NBS Decision and the determined amount of allowances for impairment of balance sheet assets and reserves for losses per off-balance sheet items at debtor level. If the amount of allowances for impairment of balance sheet assets and reserves for losses per off-balance sheet items is larger than the amount of reserves for estimated losses calculated at debtor level, the Bank is not obligated to calculate needed reserve for estimated losses for balance sheet assets and off-balance sheet items.

Needed reserve for estimated losses for balance sheet assets and off-balance sheet items represents deductable item from Bank’s capital in accordance with the NBS Decision by which the capital adequacy of the Bank is determined.

3.8. Cash and Cash Equivalents

For the purposes of the Statement of cash flows, cash and cash equivalents include cash, cheques in the course of collection, balances on current accounts held with other banks, giro account balances and other cash equivalents (Note 18).




3.9. Repurchase Agreements (“Repo transactions”)

Securities bought under agreements to repurchase at a specified future date (‘repos’) are recognized in the balance sheet. The corresponding cash given, including accrued interest is recognized in the balance sheet. The difference between the sale and repurchase prices is treated as interest income and is accrued over the life of the agreement.

Securities purchased from the National Bank of Serbia under agreements to resell, pursuant to the provisions of the General Agreement on the Sale of Securities with an Obligation to repurchase, are stated at amortized cost at the balance sheet date.

3.10. Investments in Subsidiaries

Subsidiary is a legal entity in which the Bank possesses a stake of more than 50 percent, or otherwise holds more than half of voting rights, or the right to manage the financial (business) policy of the subsidiary.

Equity investments in subsidiaries are stated at cost, less allowance for impairment (Note 23).

3.11. Property, Plant and Equipment and Intangible Assets

Property, plant and equipment mostly comprise buildings, equipment and leasehold improvements. As of 31 December 2013, buildings are stated at their revaluated cost, as determined by independent valuation performed in 2005, less subsequent accumulated depreciation and impairment losses, if any. The appraisal of the buildings was performed by an independent appraiser based on the respective asset’s market value for existing use.

The frequency of revaluations depends upon the changes in fair values of the items of building being revaluated. If an asset’s carrying value is increased as a result of a revaluation, the increase is credited directly to equity under the heading of revaluation surplus. If an asset’s carrying value is decreased as a result of an appraisal, the decrease is recognized in the income statement as an expense, within losses from changes in value valuation of assets and liabilities. Buildings acquired in the period from 2006 to 2013 are stated at cost, less accumulated depreciation.

Equipment is stated at cost less accumulated depreciation. Cost represents the price billed by suppliers together with all costs incurred in bringing the asset to the location and condition necessary for its intended use.

Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to income statement of the financial period in which they are incurred.

Assets under construction are stated at cost.

Intangible assets consist of licenses, software and similar rights, as well as leasehold improvements in business premises under long-term lease. Intangible assets also include capitalized salaries of employees involved in projects’ development. Costs associated with maintaining computer software programmes are recognized as an expense as incurred.

Intangible assets are measured at cost, less accumulated amortization and impairment losses, if any.




3.11. Property, Plant and Equipment and Intangible Assets (Continued)

Depreciation and amortization of property, plant and equipment and intangible assets are provided on a straight-line basis in order to fully write off the cost/revaluated amount of the assets over their estimated useful lives. The principal annual depreciation rates in use for classes of property and equipment are as listed below:

Buildings 2.0% Computer equipment 20.0% Leasehold improvements 20.0% - 50.0% Furniture and other equipment 6.7% - 14.3% Vehicles 14.3% - 20.0% Other equipment 6.7% -20.0% Licenses 20.0% Other intangible assets 20.0%

Calculation of depreciation and amortization of property and equipment commences at the beginning of month following the month when an asset is put into use. Assets under construction are not depreciated. Depreciation charge is recorded as an expense during the period in which it is incurred. Leasehold improvements are depreciated over the period of the lease.

The useful lives of the assets are reviewed periodically, and adjusted if necessary at each reporting date. Change in the expected useful life of an asset is considered as a change in an accounting estimate.

Gains from the disposal of property and equipment are credited directly to other operating income, whereas any losses arising on the disposal of property and equipment are charged to other operating expenses. The calculation of the depreciation and amortization for tax purposes is determined by the Law on Corporate Income Tax (“RS Official Gazette” no. 25/2001, 80/2002, 43/2003, 84/2004 and 18/2010,101/2011,119/2012, 47/2013 and 108/2013) and the Rules on the Manner of Fixed Assets Classification in Groups and Depreciation for Tax Purposes (“RS Official Gazette”, no. 116/2004 and 99/2010). Different depreciation methods used for the financial reporting purposes and the tax purposes give raise to deferred taxes (Note 17(c)).

3.12. Investment Property

The Bank owns property as investments to generate profits from rents and/or increases in property value on the market. Subsequent to initial recognition, investment property is stated at cost less accumulated depreciation. Depreciation of investment property is calculated using the straight-line method in order to fully write off the cost of these assets over their estimated useful lives, by applying the annual depreciation rate of 2%.

3.13. Fixed assets available for sale

During 2013, the Bank has reclassified part of investment properties and prefabricated buildings classified as fixed assets on non-current assets held for sale. The reason for reclassification is the intention of the Bank’s management to sell these assets within a year. Non-current assets held for sale are measured at the lower of carrying amount and fair value less costs to sell and shall not be depreciated.




3.13. Fixed assets available for sale (Continued) In order fixed assets to be reclassified to assets available for sale it is necessary the non-current asset to be available for immediate sale in its present condition and the recoverability of the carrying amount through sale transaction must meet the following criteria:

– The appropriate level of management must be committed to a plan to sell the asset – An active program to locate a buyer and to complete the sales plan must have been initiated; – The asset must be actively marketed for sale at a price that is reasonable in relation to its current

fair value – The sale should be expected to be completed within 12 months from the date of

classification as “held for sale”; – Actions required to complete the sales plan should indicate that it is unlikely that significant changes

to the sales plan will be made or that the plan will be withdrawn. 3.14. Impairment of Non-financial Assets

In accordance with adopted accounting policy, at each reporting date, the Bank’s management reviews the carrying amounts of the Bank’s intangible assets, property, plant and equipment and investment property. If there is any indication that such assets have been impaired, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its recoverable amount, being the higher of an asset’s fair value less costs to sell and value in use. Impairment losses, representing a difference between the carrying amount and the recoverable amount of tangible and intangible assets, are recognized in the income statement as required by IAS 36 “Impairment of Assets”.

Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

3.15. Assets acquired through foreclosure proceedings

In certain circumstances, property is repossessed following the foreclosure on loans that are in default. Assets acquired through foreclosure proceedings are measured at the lower of carrying amount and fair value less costs to sell and reported within “Other assets” (Note 27).

3.16. Leases

The determination of whether an arrangement is a lease, or contains lease elements, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether the arrangement conveys a right to use the assets.

(a) Finance Lease – Bank as a Lessee

Finance leases, which transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments and included in property and equipment with the corresponding liability to the lessor included in other liabilities.

Capitalized leased assets are depreciated over the shorter of the estimated useful life of the assets and the lease term, if there is no reasonable certainty that the Bank will obtain ownership by the end of the lease term.

Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income statement in interest expense.




3.16. Leases (Continued)

(b) Operating Lease – Bank as a Lessee

A lease is classified as an operating lease if it does not transfer to the Bank substantially all the risks and rewards incidental to ownership.

The total payments made under operating leases are charged to other operating expenses in the income statement on a straight-line basis over the period of the lease (Note 14).

3.17. Provisions and Contingencies

Provisions are recognized when the Bank has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. In order to be maintained, the best possible estimates of provisions are considered, determined and, if necessary, adjusted at each balance sheet date. When the outflow of the economic benefits is no longer probable in order to settle legal or constructive liabilities, provisions are derecognised in income. Provisions are taken into account in accordance with their type and they can be used only for the expenses they were recognised initially for. Provisions are not recognised for future operating losses. Contingent liabilities are not recognized in the financial statements. They are disclosed in the financial statements (Note 38), unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but disclosed when an inflow of economic benefits is probable.

3.18. Equity

Equity consists of share capital (ordinary shares), share premium, reserve from profit, revaluation reserves and retained earnings (Note 34(a)). Gains determined by valuation of buildings are recorded within revaluation reserves (Note 3.11.). Positive effects of valuation of buildings are transferred to the retained earnings in the amount representing the difference between depreciation calculated on the value of buildings before and after the valuation, while, in case of sale and disposal, the remaining amount of the positive effects of valuation contained in revaluation reserves is transferred completely to the retained earnings. Gains and losses arising from fair value adjustments of securities available-for-sale are also recorded within revaluation reserves (Note 3.4.5.).

3.19. Financial Guarantees

In the ordinary course of business, the Bank gives financial guarantees, consisting of payment guarantees and performance bonds, letters of credit, acceptances and other warranties. Financial guarantees are contracts which obligate the issuer of a guarantee to perform the payment or compensate the loss to the holder of a guarantee, incurred if a certain creditor fails to settle its liabilities in due time as required under the terms of the contract. Financial guarantees are initially recognized in the financial statements at fair value as of the date the guarantee is given. Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amortized premium and the best estimate of expenditure required to settle any financial obligations arising as a result of the guarantee. Any increase in the liability relating to the financial guarantees is recognized in the income statement. The premium received is recognized in the income statement within net fees and commissions income on a straight-line basis over the life of the guarantee.




3.20. Employee Benefits

(a) Employee Taxes and Contributions for Social Security

In accordance with the regulations prevailing in the Republic of Serbia, the Bank has an obligation to pay taxes and contributions to various state social security funds. These obligations involve the payment of contributions on behalf of the employee, by the employer in an amount calculated by applying the specific, legally-prescribed rates. The Bank is also legally obligated to withhold contributions from gross salaries to employees, and on their behalf to transfer the withheld portions directly to the appropriate government funds. The Bank has no legal obligation to pay further benefits due to its employees by the Pension Fund of the Republic of Serbia upon their retirement. These taxes and contributions payable on behalf of the employee and employer are charged to expenses in the period in which they arise.

(b) Other Employee Benefits – Retirement Benefits

In accordance with the Labour Law, there is a mandatory retirement indemnity equal to 3 average monthly salaries realized in the Republic of Serbia in the month prior to the month of retirement or equal to 3 average salaries in the Bank, i.e., 3 average salaries of an employee earned in the month prior to retirement or to payment – depending on what is more favourable for an employee. The Bank recognized provision in the amount of present value of expected future payments, based on the actuarial calculation. As of 31 December 2013, the Bank made provision for retirement benefits (as adjusted by the amount of retirement benefits paid to employees who accepted early retirement pursuant to the restructuring program), using the following assumptions:

Average salary growth rate for the period 5.7% per annum Discount rate 7% Long-term retail price growth index 4.2% per annum

(c) Short-Term Compensated Absences

Accumulating compensated absences may be carried forward and used in future periods if the current period’s entitlement has not been fully used. In the instance of non-accumulating compensated absences, no liability or expense is recognized until the time of the absence.

(d) Pension Funds

The Bank does not have defined benefit plans or share-based remuneration options, and therefore there are no identified liabilities with respect to these matters as of 31 December 2013.

3.21. Taxes and Contributions

(a) Income Taxes

Current Income Tax

Current income tax is calculated and paid in accordance with the effective Law on Corporate Income Tax (“RS Official Gazette”, no. 25/2001, 80/2002, 43/2003, 84/2004 and 18/2010, 101/2011, 119/2012, 47/2013 and 108/2013) and by-laws. Income tax is payable at the rate of 15% on the tax base reported in the annual corporate income tax return, and can be reduced by any applicable tax credits. The tax base includes the taxable profit, determined by adjusting the taxpayer’s result reported in the income statement, in the manner prescribed by this Law.




3.21. Taxes and Contributions (Continued)

(a) Income Taxes (Continued)

Current Income Tax (Continued) In accordance with the Law on Corporate Income Tax, tax credit is recognized in the amount equal to 20% of the investments in own property and equipment used to perform the core activities, but it cannot exceed 33% of a tax liability in the year in which the investment was made. The non-utilised part of the tax credit in respect of investments in property and equipment can be carried forward to the profit tax account in the future accounting periods, but not for longer than ten years. In each year, the tax credit deriving from investments made in that year is to be applied first, and thereafter, the carried forward tax credits from previous years are to be used in the order of investment, up to the limit of 33% of calculated tax in a stated year. The tax regulations in the Republic of Serbia do not envisage that any tax losses of the current period can be used to recover taxes paid within a specific previous period. Losses of the current period may be transferred to the account of profit determined in the annual tax return from the future accounting periods, but not longer than 5 ensuing years (in accordance with the amendments to the Law in 2010).

Corporate income tax rate for 2013 is15%.

Deferred Income Tax

Deferred income taxes are provided on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The currently-enacted tax rates or the substantively-enacted rates at the balance sheet date are used to determine the deferred income tax amount. For calculation of deferred taxes rate of 15% was applicable. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carry forwards of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and unused tax credits and unused tax losses carry forward can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Current and deferred taxes are recognized as income or expense and are included in net profit for the period. Deferred income taxes related to items that are recorded directly in equity are also recognized in equity.

(b) Taxes, Contributions and Other Duties Not Related to Operating Result

Taxes, contributions and other duties that are not related to the Bank’s operating result, include property taxes, value added tax, employer contributions on salaries, and various other taxes and contributions paid pursuant to republic and municipal regulations. These taxes and contributions are included within other operating expenses (Note 14).

3.22. Earnings per Share

Basic earnings per share is calculated by dividing net profit attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the reporting period.

3.23. Funds Managed on Behalf of Third Parties

The funds that the Bank manages on behalf of, and for the account of third parties, are disclosed within off-balance sheet items (Note 35(a)). The Bank bears no risk in respect of repayment of these placements.



3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3.24. Significant Accounting Estimates and Judgements

The preparation of the financial statements requires the Bank’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as income and expenses for the reporting period.

These estimations and related assumptions are based on information available as of the date of preparation of the financial statements. Actual results could differ from those estimates. These estimates and underlying assumptions are reviewed on an ongoing basis, and changes in estimates are recognized in the periods in which they become known.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a) Impairment of Financial Assets

The Bank assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired, and impairment losses are incurred, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event“) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated (see Note 3.4.).

Loan portfolio is individually assessed for impairment losses on quarterly basis and collectively assessed for impairments losses on monthly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. The evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers of a Bank, or national or local economic conditions that correlate with defaults on assets of the Bank.

The Bank’s management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

(b) Determination of Fair Value of Financial Instruments

The fair value of financial instruments traded in active markets as of the balance sheet date is based on their quoted market prices, without any deductions for transaction costs. For all other financial instruments not listed in an active market, the fair value is determined using the appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist and other relevant valuation models. When market inputs are not available, they are determined by estimates that include a certain degree of assumptions in the estimate of fair value. Valuation models reflect the current market conditions before or after the measurement date. Consequently, all valuation techniques are revised periodically, in order to appropriately reflect the current market conditions.

(c) Impairment of Equity Investments

The Bank deems equity investments to be impaired when there is a documented (market data) or estimated decrease in the fair value of these asset below their cost.




3.24. Significant Accounting Estimates and Judgements (Continued)

(d) Useful Lives of Intangible Assets and Property and Equipment

The determination of the useful lives of intangible assets, property and equipment is based on historical experience with similar assets as well as any anticipated technological development and changes in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions.

(e) Impairment of Non-Financial Assets

At each balance sheet date, the Bank’s management reviews the carrying amounts of the Bank’s intangible assets and property and equipment presented in the financial statements. If there is any indication that such assets have been impaired, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

If the recoverable amount of an asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its recoverable amount.

An impairment review requires management to make subjective judgments concerning the cash flows, growth rates and discount rates of the cash generating units under review.

(f) Provisions for Litigations

The Bank is subject to a number of claims incidental to the normal conduct of its business, relating to and including commercial, contractual and employment matters, which are handled and defended in the ordinary course of business. The Bank routinely assesses the likelihood of any adverse judgments or outcomes to these matters as well as ranges of probable and reasonable estimated losses. Reasonable estimates involve judgments made by management after considering information including notifications, settlements, estimates performed by legal department, available facts, identification of other potentially responsible parties and their ability to contribute, and prior experience.

A provision is recognised when it is probable that an obligation exists for which a reliable estimate can be made of the obligation after careful analysis of the individual matter. The required provision may change in the future due to new developments and as additional information becomes available. Matters that are either possible obligations or do not meet the recognition criteria for a provision are disclosed, unless the possibility of transferring economic benefits is remote.

(g) Deferred Tax Assets

Deferred tax assets are recognized for all tax losses and/or tax credits to the extent to which taxable profit will be available against which the unused tax losses /credits can be utilised. Significant estimate of the management is necessary to determine the amount of deferred tax assets which can be recognized, based on the period of in which it was created and the amount of future taxable profits and the tax policy planning strategy (Note 17).

(h) Retirement and Other Post-Employment Benefits to Employees

The costs of defined employee benefits payable upon the termination of employment, i.e. retirement in accordance with the legal requirements are determined based on the actuarial valuation. The actuarial valuation includes an assessment of the discount rate, future movements in salaries, mortality rates and fluctuations in the number of employees. As these plans are long-term ones, significant uncertainties influence the outcome of the assessment. Additional information is disclosed in Note 3.20(b) to the financial statements.



4. INTEREST INCOME AND EXPENSE Year Ended December 31, 2013 2012 Interest income – Banks 400,923 382,614 – Corporate customers 2,096,331 1,713,201 – Entrepreneurs 63,307 81,769 – Public sector 1,066,696 763,636 – Retail customers 3,231,736 2,866,051 – Foreign entities 5,112 36,035 – Agricultural producers 4,963 3,325 - Other customers 23,815 23,800

Total 6,892,883 5,870,431 Interest expense – Banks 94,652 75,160 – Corporate customers 1,020,887 560,505 – Entrepreneurs 8,629 7,640 – Public sector 109,854 61,941 – Retail customers 1,623,435 1,786,396 – Foreign entities 258,761 410,997 – Agricultural producers 25,141 25,122 – Other customers 254,225 180,792

Total 3,395,584 3,108,553 Net interest income 3,497,299 2,761,878

Interest income and expense by type of financial instruments are presented below:

Year Ended December 31, 2013 2012 Interest income on: – Loans in Dinars 5,734,550 4,733,492 – Securities in Dinars 461,780 310,519 – Other placements in Dinars 249,163 332,798 – Loans in foreign currency 270,389 396,733 – Deposits in foreign currency 2,850 30,913 – Securities in foreign currency 174,017 64,048 – Other placements in foreign currency 134 1,928

Total 6,892,883 5,870,431 Interest expense on: – Borrowings in Dinars 4,068 24,554 – Deposits in Dinars 1,486,509 826,019 – Other liabilities 2,560 7,791 – Borrowings in foreign currency 121,751 224,653 – Deposits in foreign currency 1,780,696 2,025,536

Total 3,395,584 3,108,553 Net interest income 3,497,299 2,761,878



5. FEE AND COMMISSION INCOME AND EXPENSE

Year Ended December 31, 2013 2012 Fee and commission income – Domestic and international payment

transaction services 658,999 615,188 – Loan administration fees 47,217 140,015 – Safekeeping charges 29,521 25,407 – Fees for other banking services 772,292 699,661 – Debit and credit cards operations 112,481 183,384 – Fees for issued guarantees, letters of credit

and acceptances 33,916 36,729 – Broker-dealer services 39,311 35,514 – Other fees and commissions 16,013 25,615

Total 1,709,750 1,761,513 Fee and commission expense – Domestic payment transaction services 69,154 66,902 – International payment transaction services 30,541 36,121 – Cheques transactions 8,717 9,195 – Foreign exchange transactions - 3,248 – Other fees and commissions 66,515 63,299

Total 174,927 178,765 Net fee and commission income 1,534,823 1,582,748

6. NET GAINS/(LOSSESS) FROM SALE OF SECURITIES AT FAIR VALUE THROUGH PROFIT AND LOSS Year Ended December 31, 2013 2012 Gains on sale of: – Foreign currency savings bonds 212 948 Total 212 948 Losses on sale of: – Equity investment (55) - – Foreign currency savings bonds - (91) Total (55) (91) Net gain/(loss) on sale of securities 157 857

In 2013, the Bank earned profit from foreign currency savings bonds in the amount of RSD 212 thousand and loss from assign of equity investement in entity withdrawal from participation in Regional Centre for development of small and medium enterprises Subotica in the amount of RSD 55 thousand.



7. NET (LOSSES)/GAINS FROM SALE OF SECURITIES

AVAILABLE FOR SALE Year Ended December 31, 2013 2012 Gains from sale: – AIK banka a.d. Niš 11,177 - – Sojaprotein a.d Bečej 794 - – Banka Poštanska štedionica a.d. Beograd - 14 – bonds and treasury bills RS - 2,136 11,971 2,150 Losses from sale: – OTP banka a.d. Novi Sad - (6,047) - (6,047) Total 11,971 (3,897)

In 2013, the Bank had profit from available for sale shares sales in the amount of RSD 11,971 thousand.

8. NET FOREIGN EXCHANGE (LOSSES)/ GAINS Year Ended December 31, 2013 2012 Foreign exchange gains 5,476,754 15,236,588 Foreign exchange losses (4,871,065) (14,935,513) Net foreign exchange (losses)/ gains 605,689 301,075

9. DIVIDEND INCOME Year Ended December 31, 2013 2012 Dividend income 2,838 4,628 Total 2,838 4,628

In 2013, the Bank received cash dividends in total amount of RSD 2,838 thousand dinar (out of from AIK bank a.d. Niš , RSD 2,726 thousand ).

10. OTHER OPERATING INCOME Year Ended December 31, 2013 2012

Recovery of written-off receivables 3,986 5,617 Gains from sale of property and equipment

and intangible assets 4,694 26,603 Other income from operating activities 47,813 44,576 Liabilities waived 53,116 1,185 Surpluses - 1,682 Other income 33,354 23,996 Total 142,963 103,659



11. NET (LOSSES)/GAINS FROM IMPAIRMENT OF FINANCIAL ASSETS AND PROVISIONS

(a) (Charged)/Credited to the Income Statement Year Ended December 31, 2013 2012 Expenses from indirect write-off of placements and provisions Impairment losses on financial assets: – Interest and fees receivable (47,744) (89,469) – Loans and advances (577,093) (1,694,418) – Securities and equity investments (119,063) (27,234) – Other placements and other assets (70,185) (138,751) (814,085) (1,949,872) Provisions for: – Retirement benefits (33,033) (46,730) – Litigation (99,759) - – Other liabilities - (23,164) (132,792) (69,894) Total impairment losses and provisions

(Note 11(b)) (946,877) (2,019,766) Reversal of impairment losses Reversal of impairment losses on financial assets: – Interest and fees receivable 309,149 45,031 – Loans and advances 1,491,617 784,850 – Securities and equity investments 32,130 2,294 – Other placements and other assets 20,064 60,810 1,852,960 892,985 Release of provision for: – Off-balance sheet assets - 35,105 – Retirement benefits 22,754 - – litigations 156,813 2,738 – other liabilities 22,227 - 201,794 37,843 Income from reversal of impairment losses

and release of provisions (Note 11(b)) 2,054,754 930,828 Income from collected suspended interest 157,693 111,572 Total 2,212,447 1,042,400 Net impairment (losses)/gains 1,265,570 (977,366)



11. NET (LOSSES)/GAINS FROM IMPAIRMENT OF FINANCIAL ASSETS

AND PROVISIONS (Continued)

(b) Movements in the Allowance for Impairment of Financial Assets and Provisions

Movements in the allowance for impairment of loans and other financial assets and provisions during the year were as follows:

Interest and fees

receivable (Note 20)

Loans and advances (Note 21)

Securities and equity

investments (Notes 22

and 23)

Cash, other placements

and other assets

(Notes 18, 24 and 26

Provisions (Note 31) Total

Balance as of January 1, 2012 624,794 8,469,697 522,814 1,147,140 530,466 11,294,911 Charge for the year

(Note 11(a)) 89,469 1,694,418 27,234 138,751 69,894 2,019,766 Reversal of impairment losses

(Note 11(a)) (45,031) (784,850) (2,294) (60,810) (37,843) (930,828) Foreign exchange differences 58,848 574,871 27,641 82,760 (420) 743,700 Payments for lost litigations (57,380) (55,291) (13,643) (97,405) 152 (223,567) Balance as of December 31, 2012 670,700 9,898,845 561,752 1,210,436 562,249 12,903,982 Charge for the year

(Note 11(a)) 47,744 577,093 119,063 70,185 132,792 946,877 Reversal of impairment losses

(Note 11(a)) (309,149) (1,491,617) (32,130) (20,064) (201,794) (2,054,754) Foreign exchange differences (22,288) 47,469 (5,799) 63,366 (515) 82,233 Payments for lost litigations - - - - (3,327) (3,327) Other movements (7,603) (472,163) (155,608) (33,700) (9,024) (678,098) Balance as of December 31, 2013 379,404 8,559,627 487,278 1,290,223 480,381 11,196,913

Other movements in 2013 mostly relate to write off of receivables with the related allowances for impairment based on decisions of the relevant bodies of the Bank, for the following major clients: Brodogradilište Apatin in the amount of RSD 360,118 thousand, DM Kostic Milk Factory Sumice DOO in the amount of RSD 94,791 thousand. Regarding securities and equity investments, other movements relate to rebook of BFY Paris in the amount of RSD 59,612 thousand, AY Bank London in the amount of RSD 24,724 thousand and Adria Bank Vienna in the amount of RSD 8,122 thousand and on sale of available for securities AIK Bank Nis in the amount of RSD 59,158 thousand.

(c) Special Reserve for Potential Losses

As of 31 December 2013, the Bank has determined special reserve for potential losses in accordance with the National Bank of Serbia (“NBS”) requirements. In accordance with the NBS Decision on the Classification of Bank Balance Sheet Assets and Off-balance Sheet Items (“RS Official Gazette”, 43/2013 ), the difference between the amount of special reserve for potential losses calculated in accordance with the NBS requirements, and the amount of allowance for impairment and provision for guarantees and other irrevocable commitments estimated in accordance with the internally adopted methodology, bank shall determine amount of needed reserves for potential losses.



11. NET (LOSSES)/GAINS FROM IMPAIRMENT OF FINANCIAL ASSETS

AND PROVISIONS (Continued)

(c) Special Reserve for Potential Losses (Continued) Year Ended December 31, 2013 2012 Special reserve for potential losses determined as per the NBS

Decision with respect to: – balance sheet exposures 18,771,194 19,707,356 – off-balance sheet exposures 109,831 107,777 18,881,025 19,815,133 Allowances for impairment and provisions determined in

accordance with the internally adopted methodology (IAS 39):

– allowance for impairment of balance sheet assets (10,675,776) (12,306,141) (10,675,776) (12,306,141) Difference between provisions determined in accordance with the

NBS Decision and allowances for impairment in accordance with the internally adopted methodology (IAS 39) 8,205,249 7,508,992

Provisions determined in accordance with IAS 39 exceeding the amount of provision as per the NBS Decision 69,990 32,064

Needed reserve for potential losses as of 31 December

8,275,239 7,541,056

Allowances for impairment and provisions determined in accordance with the internally adopted methodology in this table include only allowances for receivables subject to classification. As of 31 December 2013, needed reserves for potential losses on balance sheet assets and off-balance sheet items, after being reduced for allowances for impairment of balance sheet assets and provision for losses for off-balance sheet items, and calculated in accordance with the aforementioned Decision of the NBS (Note 3.7), amounts to RSD 8,275,239 thousand (31 December 2012: RSD 7,541,056 thousand).

12. SALARIES AND OTHER PERSONAL EXPENSES

Year Ended December 31, 2013 2012

Net salaries and fringe benefits 1,760,719 1,721,160 Payroll taxes and contributions 683,733 667,777 Other personal expenses 27,292 109,918 Total 2,471,744 2,498,855

13. DEPRECIATION AND AMORTIZATION EXPENSE Year Ended December 31, 2013 2012 Depreciation of property, plant and equipment

and investment property (Note 25) 390,649

445,756 Amortization of intangible assets (Note 25) 109,397 96,859 Total 500,046 542,615



14. OTHER OPERATING EXPENSES Year Ended December 31, 2013 2012

Material 134,343 147,766 Transportation services 50,062 54,598 Postage and leased lines 144,432 160,696 Maintenance cost 362,843 254,760 Rental expenses 306,194 395,003 Marketing, advertising, sponsorships and donations 6,789 5,740 Advertisement costs 103,505 118,790 Productive services 242,907 248,000 Insurance premium cost 6,787 8,852 Deposit insurance cost 263,796 230,899 Representation cost 14,656 16,173 Employee travel expenses 57,651 54,010 Per diems and travel expenses 33,445 37,014 Cost of lawyers’ services 37,254 20,033 Cost of securing property 113,333 129,599 Indirect taxes 362,091 336,093 Indirect contributions 424,840 411,382 Direct write-off of bad debts 1,353 4,430 Losses from sale of property, plant and equipment and intangible

assets 27,894 12,986 Other expenses 24,284 30,129 Total 2,718,459 2,676,953

15. GAINS FROM CHANGES IN VALUE OF ASSETS AND LIABILITIES Year Ended December 31, 2013 2012 Income from changes in value of loans

and receivables 1,429 12,331 Income from changes in value of derivatives 16,104 140,642 Income from changes in value of liabilities 881 - Total 18,414 152,973

16. LOSSES FROM CHANGES IN VALUE OF ASSETS AND LIABILITIES

Year Ended December 31, 2013 2012 Losses from changes in value of loans

and receivables 6,843 3,975 Losses from changes in value of derivatives 8,589 64,431 Losses from changes in value of liabilities 1,124 2,585 Total 16,556 70,991



17. INCOME TAXES

(a) Components of Income Taxes

Components of income tax are: Year Ended December 31, 2013 2012

Current income tax (1,782) (1,024) Deferred tax income 18,902 27,608 Deferred tax expense (7,892) (57,660) Total tax income 9,228 (31,076)

(b) Numerical Reconciliation of Income Tax and (Loss)/Profit Before

Tax Multiplied by the Statutory Income Tax Rate Year Ended December 31, 2013 2012

(Loss)/ Profit before tax 1,372,919 (1,862,859) Capital gain 17,730 20,478 Income tax (2,660) (2,048) Utilisation of tax credits for investments in property, plant and equipment 878 1,024 Current income tax (1,782) (1,024) Effects of temporary differences - Deferred tax income 11,010 (30,052) Total tax income reported in the income statement 9,228 (31,076)

(c) Components of Deferred Tax Assets/(Liabilities) Year Ended December 31, 2013 2012 Deferred tax assets Effects of temporary differences between

the tax bases of property, plant and equipment and intangible assets and their carrying amounts 89,475 91,595

Effects of temporary differences in respect of unpaid taxes 2,024 101 Recognized tax credits for investments in property, plant and

equipment 151,696 146,253 Recognized tax losses carried forward 237,120 242,892 480,315 480,841 Deferred tax liabilities Effects of temporary differences between

the tax bases of property, plant and equipment and intangible assets and their carrying amounts (167,211) (176,156)

Taxable temporary differences in respect of securities available-for-sale (1,453) (4,044)

(168,664) (180,200) Deferred tax assets, net 311,651 300,641

In the calculation of deferred taxes Bank applied where necessary rate of 15%, because according to amendments of Corporate Income Tax Laws income tax rate is changed from 10% to 15% with effect from 2013



17. INCOME TAXES (Continued) (c) Components of Deferred Tax Assets/(Liabilities) (Continued) Bank has recognizes deferred tax assets related to tax losses carried forward in the amount of 237,120 thousand RSD

(d) Movements in Deferred Tax Assets/(Liabilities)

Movement in deferred tax assets during the year was as follows: Year Ended December 31, 2013 2012

Balance as of 1 January 480,841 455,287 Effects of temporary differences credited

to the income statement (526) 25,554 Balance as of 31 December 480,315 480,841

Movement in deferred tax liabilities during the year was as follows: Year Ended December 31, 2013 2012

Balance as of 1 January (180,200) (124,594) Effects of temporary differences credited/

(charged) to the income statement 11,536 (55,606) Balance as of 31 December (168,664) (180,200)

(e) Unrecognized Deferred Tax Assets

As of 31 December 2013, the Bank did not recognize deferred tax assets totalling RSD 964,507 thousand. Right to utilise tax losses carryforward, presented in the amount of unrecognized deferred tax assets, expires in the following years: Years of expiring

Deferred tax on tax

losses 2013 Total 2013

Deferred tax on tax

losses 2012

Total 2012

2014 600,044 600,044 465,354 465,354 2015 156,802 156,802 156,802 156,802 2016 207,661 207,661 207,661 207,661 2017 - - 237,120 237,120 Total 964,507 964,507 1,066,937 1,066,937



18. CASH AND CASH EQUIVALENTS

December 31,

2013 December 31,

2012 In Dinars Gyro account 7,318,537 4,228,585 Cash on hand 1,983,874 2,068,428 Total 9,302,411 6,297,013 In foreign currency Current accounts held with foreign banks 5,237,579 7,257,241 Cash on hand 2,168,913 2,102,552 Other cash equivalents 25,244 19,731 Total 7,431,736 9,379,524 Gold and other precious metals 12,083 17,864 Gross balance as of 31 December 16,746,230 15,694,401 Less: Allowance for impairment (Note 11(b)) - - Balance as of 31 December 16,746,230 15,694,401

The obligatory reserve in local currency – Dinars (RSD), represents the minimal reserve in foreign currency allocated in line with the National Bank of Serbia’s Decision on Banks’ Required Reserves with the National Bank of Serbia (“RS Official Gazette”, no. 3/2011, 31/2012, 57/2012, 78/2012, 87/2012, 107/2012 and 62/2013). The Bank calculates required reserves against liabilities in respect of dinar deposits, credits and securities, as well as other dinar liabilities, excluding dinar deposits received under transactions performed by the Bank on behalf and for the account of third parties that are not in excess of the amount of investment made from such deposits.

As an exception to the above, the Bank does not calculate required reserves against the following items: liabilities due to the National Bank of Serbia; liabilities due to banks allocating required reserves with the National Bank of Serbia; subordinated liabilities recognized by the National Bank of Serbia as aligible for inclusion into the banks’s supplementary capital; dinar liabilities in respect of funds received by banks from international financial institutions, governments and financial institutions founded by foreign states, through the intermediation of the government as the main debtor and/or owner of these funds or received directly; dinar liabilities in respect of deposits, credits and other funds received from abroad from 1 October 2008 to 31 March 2010, until the originally established maturity of such liabilities, but not later than 31 December 2013; time dinar savings deposits accumulated from 31 October to 8 November 2010 - until the end of their term, provided they are not foreign currency clause-indexed; dinar liabilities arising from financial support provided by the Deposit Insurance Agency in accordance with the law. The Bank is obligate to calculate the obligatory reserves in Dinars based on the average daily balance of liabilities in Dinars in the prior month applying 5% (2012: 5%) on the portion of the dinar base composed of liabilities maturing in less than two years and 0% (2012: 0%) on the portion of the dinar base composed of liabilities maturing in over two years. Calculated required reserve in local currency is sum of calculated required reserve calculated based on the average daily balance of liabilities in Dinars in the prior month, 32% (2012: 32%) of the dinar equivalent of calculated required reserves in euros calculated on 29% (2012: 29%) on portion of the foreign currency base composed of liabilities maturing in less than two years, and, by way of exception, 50% on the portion of the foreign currency base composed of foreign currency clause-indexed dinar liabilities maturing in less than two years and 24% (2012:24%) of the dinar equivalent of calculated required reserves in euros calculated on 22% (2012:22%) on portion of the foreign currency base composed of liabilities maturing in over two years, , by way of exception, 50% on the portion of the foreign currency base composed of foreign currency clause-indexed dinar liabilities maturing over two years.

Bank allocates the calculated dinar required reserves to their gyro account held with National Bank of Serbia.



18. CASH AND CASH EQUIVALENTS (Continued) During the maintenance period, the Bank is obliged to keep the average daily balance of allocated dinar required reserves at the level of calculated dinar reserve requirements. The calculated obligatory reserve in Dinars for December 2013 amounted to RSD 6,858,458 thousand (December 2012: RSD 6,223,872 thousand) and it was in line with the aforementioned Decision of the National Bank of Serbia. The average interest rate on the balance of the obligatory reserve in Dinars set aside equalled to 2.5% per annum during 2013 (2012: 2.5% per annum). As of 31 December 2013, foreign currency accounts amounting to RSD 5,237,579 thousand mostly relate to current nostro accounts held with the following foreign banks: JP Morgan Chase Bank London, Deutschebank AG Franfurt and BAWAG PSK AG Wien (2012 : RSD 7,257,241 thousnads).

19. REVOCABLE DEPOSITS AND LOANS

December 31,

2013 December 31,

2012 Obligatory reserve 11,884,348 11,251,499 Repo placements with the

National Bank of Serbia -

1,700,000 Balance as of 31 December 11,884,348 12,951,499

Pursuant to the National Bank of Serbia’s decision on Required Reserves of Banks held with the National Bank of Serbia (RS Official Gazette”, no. 3/2011, 31/2012, 57/2012, 78/2012, 87/2012 and 107/2012 and 62/2013), the Bank is obliged to calculate required reserves in foreign currency against liabilities in respect of foreign currency deposits, credits and securities and against other foreign currency liabilities, as well as deposits, credits and other foreign currency funds received from abroad under transactions performed on behalf and for the account of third parties. As an exception to the above, the Bank does not calculate required reserves against the following items: liabilities due to the National Bank of Serbia; liabilities due to banks allocating required reserves with the National Bank of Serbia; subordinated liabilities recognized by the National Bank of Serbia as eligible for inclusion into the bank’s supplementary capital; foreign currency liabilities in respect of funds received by banks from international financial institutions, governments and financial institutions founded by foreign states, through the intermediation of the government as the main debtor and/or owner of these funds or received directly; foreign currency balances held by leasing companies in a special purpose account opened with a bank; foreign currency liabilities in respect of deposits, credits and other funds received from abroad from 1 October 2008 to 31 March 2010, until the originally established maturity of such liabilities, but not later than 31 December 2013; foreign currency liabilities arising from financial support provided by the Deposit Insurance Agency in accordance with the law. Foreign currency base for the calculation of required reserves is consist of the average daily balance of liabilities in foreign currency and the amount of the average daily balance of liabilities in dinars which are foreign currency clause-indexed during the prior calendar month.

Bank is obliged to calculate required reserves in foreign currency applying 29% (2012: 29%) on the portion of the foreign currency base composed of liabilities maturing in less than two years, and, by way of exception, 50% on the portion of the foreign currency base composed of foreign currency clause-indexed dinar liabilities maturing in less than two years and 22% (2012: 22%) on the portion of the foreign currency base composed of liabilities maturing in over two years, and, by way of exception, 50% on the portion of the foreign currency base composed of foreign currency clause-indexed dinar liabilities maturing over two years.



19. REVOCABLE DEPOSITS AND LOANS (Continued) Required reserves are reducing by 25% of the increase in loans approved pursuant to the Government Programme of Measures for Mitigating Negative Effects of the Global Economic Crisis in the Republic of Serbia in 2011. The increase in loans is determined as difference between the balance of those loans as at the last calendar day of the month for which the reserve base in calculated and their balance as at 13 January 2011, excluding the effects of changes in the dinar exchange rate. Beginning from the maintenance period 18 August – 17 September 2011, in calculating the increase in loans, only loans approved until 30 June 2011 should be taken into account. This should be applied until their original maturity. Calculated foreign currency required reserves is sum of 68% (2012: 68%) of calculated reserves intended on the portion of the foreign currency base composed of liabilities maturing in less than two years and 76% (2012: 76%) of calculated reserves intended on the portion of the foreign currency base composed of liabilities maturing in over two years. Bank calculated foreign currency required reserves allocates to its foreign currency account held with National Bank of Serbia. During the maintenance period, the Bank is obliged to keep the average daily balances of allocated foreign currency required reserves at the level of calculated foreign currency reserve requirements. The National Bank of Serbia does not pay interest on required reserves in foreign currency.

20. INTEREST AND FEES RECEIVABLE, RECEIVABLES FROM SALES, CHANGES IN FAIR VALUE OF DERIVATIVES AND OTHER RECEIVABLES

December 31,

2013 December 31,

2012 In Dinars Interest and fees receivable: – Banks 6,455 13,700 - Companies 276,265 298,211 – Entrepreneurs 23,572 27,101 – Public sector 285,576 197,573 – Retail customers 128,024 110,250 – Foreign entities 157 144 – Agricultural producers 3,733 3,994 – Other customers 2,388 1,703 726,170 652,676 Receivables from sales 394 3,278 Receivables arising from changes in fair value

of derivatives 10,889

4,879 737,453 660,833 In foreign currency Interest and fees receivable: – Companies 114,149 395,855 – Entrepreneurs 3,382 3,355 – Foreign entities 388 300 – Other customers 330 314 118,249 399,824 Gross receivables 855,702 1,060,657 Less: Allowance for impairment (Note 11(b)) (379,404) (670,700) Balance as of 31 December 476,298 389,957



21. LOANS AND ADVANCES

(a) Summary per Type of Loans and Advances

December 31,

2013 December 31,

2012 Loans up to one year: – in Dinars 25,927,037 22,827,006 – in foreign currency 5,084,927 5,701,102 31,011,964 28,528,108 Loans over one year: – in Dinars 35,506,883 36,494,103 – in foreign currency 3,009,444 5,516,810 38,516,327 42,010,913 Deposits: – in Dinars - 115 – in foreign currency 36,685 - 36,685 115 Gross loans and advances 69,564,976 70,539,136 Less: Allowance for impairment (Note 11(b)) (8,559,627) (9,898,845) Balance as of 31 December 61,005,349 60,640,291 Structure of loans and advances per their purpose is as follows:

December 31,

2013 December 31,

2012 Loans and advances in Dinars: – Loans per transaction accounts 1,981,329 1,884,602 – Consumer loans 363,162 506,360 – Loans for working capital 28,245,573 27,227,610 – Investment loans 3,964,383 4,969,812 – Housing loans 12,862,273 12,923,295 – Other loans 14,017,200 11,809,430 - Deposits - 115 61,433,920 59,321,224 Loans and advances in foreign currency: – Loans for payment of imported goods

and services abroad 710,979 703,141 – Other loans 7,383,392 10,514,771 – Deposits 36,685 - 8,131,056 11,217,912 Gross loans and advances 69,564,976 70,539,136 Less: Allowance for impairment (Note 11(b)) – in Dinars (4,691,314) (4,802,147) – in foreign currency (3,868,313) (5,096,698) (8,559,627) (9,898,845) Balance as of 31 December 61,005,349 60,640,291

During 2013, corporate customers and entrepreneurs in large and commercial clients segments were granted loans for working assets, investments, overdrafts etc. Moreover, loans with a subsidized interest rate were also granted with a large interest on the part of clients. Short-term and long-term loans (up to 1 year and over 1 year) were also granted in dinars, with a currency clause and in a foreign currency. The average interest rate on loans with a currency clause and loans in a foreign currency was 6.49% annually. The average interest rate on loans in dinars for large clients was 12.83% annually. The average interest rate on loans with a currency clause and loans in a foreign currency for commercial clients was 8.19% annually. The average interest rate on loans in dinars for commercial clients was 15.21% annually.



21. LOANS AND ADVANCES (Continued)

(a) Summary per Type of Loans and Advances (Continued) As of 31 December 2013, loans and advances to retail customers were mostly granted as cash loans, overdraft loans, loans based on the use of credit cards, car loans and housing loans. Cash loans over one year were approved at annual interest rates ranging from 12.00% to 25.9% per annum. Overdrafts on citizens’ current accounts are approved at annual interest rates ranging from 23.30% to 25%, while the usage of VISA credit cards bears interest at the rate of 26% annually. Long-term housing loans have been granted at interest rates ranging from 4%+3M EURIBOR to 5.9%+3M EURIBOR annually. (b) Maturity Structure of Loans and Advances The maturity of gross loan portfolio, based on the remaining period on the balance sheet date to the contractual maturity date, as of 31 December 2013 and 2012, is as follows:

December 31,

2013 December 31,

2012

Loans in arrears (overdue receivables) 12,506,697 13,216,099 Up to 30 days 157,641 385,459 From 31 to 90 days 6,340,257 4,618,093 From 91 to 365 days 12,044,054 10,308,572 From 1 to 5 years 20,938,142 25,982,973 Over 5 years 17,578,185 16,027,940 69,564,976 70,539,136 Maturity structure of loans in arrears is presented in the table below:

December 31,

2013 December 31,

2012

Up to 90 days 552,507 248,970 From 91 to 180 days 74,404 114,123 From 181 to 365 days 618,671 290,373 Over 1 year 11,261,115 12,562,633 12,506,697 13,216,099



21. LOANS AND ADVANCES (Continued)

(c) Industry Concentration of Loans and Advances

As of 31 December 2013 and 2012, the gross loan portfolio is concentrated on the following sectors:

December 31,

2013 December 31,

2012 Retail customers 28,897,535 26,802,245 Mining and processing industry 11,152,713 13,825,422 Trade 10,510,945 10,334,551 Services, tourism, accommodation services

and transportation 6,660,367 6,737,984 Agriculture, hunting, fishing and forestry 3,219,527 2,719,361 State administration and other public services 2,929,198 4,540,317 Construction 1,647,679 1,883,278 Energetic, gas, steam and air-conditioning providers 1,363,221 393,902 Entrepreneurs 1,048,389 1,244,954 Foreign entities 859,411 815,169 Banks and finance 689,545 736,702 Agricultural producers 46,053 36,333 Other 540,393 468,918 Total

69,564,976 70,539,136

22. SECURITIES (EXCLUDING TREASURY SHARES)

December 31,

2013 December 31,

2012 In Dinars Shares of banks: 42,788 101,637 – AIK banka a.d. Nis - 67,873 – Agrobanka a.d. Belgrade 2,773 382 – JUBMES banka a.d. Belgrade 35,183 32,542 – Razvojna banka Vojvodine a.d. Novi Sad 3,366 140 – Komercijalna banka a.d. Belgrade 1,466 700 Treasury bills of the Republic of Serbia (note 37.11) 5,371,275 3,409,272 Shares of corporate customers 313,041 311,516 Corporate bills of exchange 96,724 217,895 5,823,828 4,040,320 In foreign currency Treasury bills of the Republic of Serbia (note 37.11) 4,889,832 2,177,550 Foreign currency savings bonds of the Republic of Serbia - 11,156 Other securities 471 466 4,890,303 2,189,172 Gross securities 10,714,131 6,229,492 Less: Allowance for impairment (Note 11(b)) (84,676) (60,936)

Balance as of 31 December

10,629,455 6,168,556



23. EQUITY INVESTMENTS

December 31,

2013 December 31,

2012 In Dinars – subsidiaries 230,010 235,760 – other companies 193,130 193,186 – other banks and financial institutions 35,549 35,549 458,689 464,495 In foreign currency – foreign banks and financial institutions 205,751 304,535 205,751 304,535 Gross equity investments 664,440 769,030 Less: Allowance for impairment (Note 11(b)) (402,602) (500,816) Balance as of 31 December 261,838 268,214

As of 31.12.2013., the Bank had equity investment in Brodogradilište Apatin d.o.o, Apatin in amount of RSD 230,010 thousand (100% ownership).

24. OTHER PLACEMENTS

December 31,

2013 December 31,

2012 Placements arising from payments of guarantees

in Dinars or foreign currencies 819,090 778,328 Letters of credit and other guarantees 41,564 43,088 Other placements in foreign currency 740,954 724,344 Other placements in Dinars 50,780 30,882 Gross other placements 1,652,388 1,576,642 Less: Allowance for impairment (Note 11(b)) (962,578) (913,822) Balance as of 31 December 689,810 662,820

As of 31 December 2013, allowances for impairment of other placements mostly relate to receivables for guarantees and acceptances paid by the Bank on behalf of the following customers: ZZ Sopocani in the amount of RSD 94,697 thousand, Company for production and services Interpak d.o.o. Ruma in the amount of RSD 75,076 thousand, Vulin Commerce d.o.o., Ruma the amount of RSD 71,086 thousand, MD d.o.o. company of production, transfer and services, Bogatić in bankruptcy 48,435 thousand, ITF Communications, Kraljevo in the amount of RSD 36,766 thousand, Vecom d.o.o., Bezdan in the amount of RSD 34,217 thousand, Valorplast d.o.o., Belgrade in the amount of RSD 23,043 thousand, I.S.N d.o.o., Šabac in the amount of RSD 12,892 thousand and Union Inženjering d.o.o., Valjevo in the amount of RSD 10,620 thousand and Stav d.o.o., Belgrade in the amount of RSD 10,000 thousand. As of 31 December 2013, a portion of established allowance for impairment amounting to RSD 379,251 thousand mostly relates to the placements with the following domestic banks in bankruptcy: Beogradska banka a.d. in bankruptcy, Belgrade in the amount of RSD 187,817 thousand, Jugobanka a.d. in bankruptcy, Belgrade in the amount of RSD 141,028 thousand and Jugoslovenska izvozna i kreditna banka a.d. bankruptcy, Belgrade in the amount of RSD 50,406 thousand.



25. PROPERTY, PLANT AND EQUIPMENT, INVESTMENT PROPERTY AND INTANGIBLE ASSETS

Land Buildings Investment

Property Equipment

Leasehold

Improvements

Assets under

Construction

Total Property and

Equipment

Licenses and

Software

Intangible Assets under Development

Total Intangible

Assets COST OR REVALUED AMOUNT Balance as of January 1, 2012 517 6,825,559 283,426 2,094,378 998,569 28,669 10,231,118 682,472 17,973 700,445 Additions - 2,059 10,250 10,509 81 95,482 118,381 1,103 106,940 108,043 Transfer from assets under construction - 15,611 - 37,245 28,711 (81,567) - 45,309 (45,309) - Reclassification from assets acquired in lieu of debt collection - - - 639 - - 639 - - -

Reclassification to investment property (4,432) 4,432 - - - - - - - Reclassification to buildings held for sale - (3,369) (3,212) - - - (6,581) - - - Sales - (47) (3,816) (1,545) - - (5,408) - - - Shortages and disposals - - - (250,800) (149,450) (2,142) (402,392) (43,960) (4,091) (48,051) Balance as of December 31, 2012 517 6,835,381 291,080 1,890,426 877,911 40,442 9,935,757 684,924 75,513 760,437 Additions - 154 2,293 7,230 142 53,657 63,476 7,816 121,981 129,797 Transfer from assets under construction - 11,953 - 48,936 21,643 (82,532) - 102,823 (102,823) - Reclassification from assets acquired in lieu of debt collection - - 1,155 - - - 1,155 - - -

Reclassification to investment property - (525) 525 - - - - - - - Reclassification to buildings held for sale - (36,316) - - - - (36,316) - - - Surpluses - - 2,399 - - - 2,399 - - - Sales - - - (25,094) - - (25,094) - - - Shortages and disposals - - - (71,679) (114,712) (1,552) (187,943) - - - Other - - (4) - - (796) (796) - - - Balance as of December 31, 2013 517 6,810,647 297,452 1,849,819 784,984 9,219 9,752,638 795,563 94,671 890,234



25. PROPERTY, PLANT AND EQUIPMENT, INVESTMENT PROPERTY AND INTANGIBLE ASSETS (Continued)

Land Buildings Investment Property Equipment

Leasehold

Improvements

Assets under

Construction

Total Property and

Equipment

Licenses and

Software

Intangible Assets under

Development

Total Intangible

Assets ACCUMULATED DEPRECIATION AND AMORTIZATION

Balance as of January 1, 2012 - 2,601,158 77,994 1,342,222 652,353 - 4,673,727 332,510 - 332,510 Charge for the year (Note 13) - 96,974 4,782 214,426 129,574 - 445,756 96,859 - 96,859 Reclassification from assets acquired in lieu of debt collection - - - 639 - - 639 - - -

Reclassification to investment property - (126) 126 - - - - - - - Reclassification to buildings held for sale - (1,620) (1,261) - - - (2,881) - - - Sales - (23) (1,197) (1,545) - - (2,765) - - - Shortages and disposals - - - (250,346) (136,911) - (387,257) (43,960) - (43,960) Balance as of December 31, 2012 - 2,696,363 80,444 1,305,396 645,016 - 4,727,219 385,409 - 385,409 Charge for the year (Note 13) - 97,179 4,786 179,820 108,864 - 390,649 109,397 - 109,397 Reclassification to investment property - (154) 154 - - - - - - - Reclassification to buildings held for sale - (17,838) - - - - (17,838) - - - Sales - - - (25,094) - - (25,094) - - - Shortages and disposals - - - (71,199) (88,850) - (160,049) - - - Balance as of December 31, 2013 - 2,775,550 85,384 1,388,923 665,030 - 4,914,887 494,806 - 494,806 NET BOOK VALUE: - as of December 31, 2013 517 4,035,097 212,068 460,896 119,954 9,219 4,837,751 300,757 94,671 395,428 – as of December 31, 2012 517 4,139,018 210,636 585,030 232,895 40,442 5,208,538 299,515 75,513 375,028



25. PROPERTY, PLANT AND EQUIPMENT, INVESTMENT PROPERTY AND INTANGIBLE ASSETS

(Continued) The Bank did not pledge any buildings as collateral for borrowings. Due to incomplete cadastrial records the Bank does not have title deeds for buildings with net book

value of RSD 196,446 thousand as of 31 December 2013 (31 December 2012: RSD 258,062 thousand). The Bank’s management has taken all necessary measures in order to obtain title deeds.

As of 31 December 2013, the carrying value of the equipment leased under finance lease arrangements

amounts to RSD 27,265 thousand (31 December 2012: RSD 35,448 thousand). Investment property comprises buildings rented out. The Bank’s management concluded that there were no indications of impairment of tangible assets,

investment property and intangible assets as of 31 December 2013.

26. AVAILABLE FOR SALE ASSETS

Descr Address Area (m2)

Date of transfer

Book value December 31,

2013. Building Podgorica, Cetinjski put bb/24 946

19.09.2011

70,646

Building Senta, Jovana Djordjevica 1 727

19.09.2011

15,441 Building Kula, Marsala Tita 262 127

19.09.2011

11,524

Building Sremska Mitrovica, Svetog Dimitrija 1 283

19.09.2011

7,068 Building Novi Becej, Marsala Tita 3 92

01.12.2012

1,612

Business premises Novi Sad, Bulevar Oslobodjenja 5 399

13.12.2013

43,000 Building Novi Sad, Njegoseva 3 153

13.12.2013

12,935

Other assets available for sale 29,616

60,745

Total 32,343

222,971

Bank started to classify fixed assets in available for sale since 2011.

During 2013 the Bank has reclassified 18 assets: three from class Administrative and business buildings to class assets for sale, one from class buildings of stones and bricks to class assets for sale, six from class Foreclosure assets-buildings to class Assets for sale and eight from class Foreclosure assets – land to class Assets for sale. The rest objects meant for sale are 31 building, management building, business buildings and garages as well as 8 assets – lands meant for sale (two orchards, five agricultural land and one land).



27. OTHER ASSETS

December 31,

2013 December 31,

2012 Advances, deposits and retainers: – in Dinars 22,655 31,971 – in foreign currency 13,450 17,897 Receivables for overpaid taxes and contributions 243,055 244,153 Receivables from employees: – in Dinars 2,753 28,657 – in foreign currency 5,629 1,493 Other receivables from operations: – in Dinars 310,671 277,444 – in foreign currency 75,900 76,692 Suspense and temporary accounts 51,086 (8,972) Receivables in settlement: – in Dinars 2,239 1,219 – in foreign currency - 68 Assets received on foreclosed loans 108,930 148,941 Inventories of small tools and stationary 36,600 35,488 Accrued interest income: – in Dinars 521,862 333,027 – in foreign currency 10,629 13,955 Deferred interest expense in foreign currency 21,590 39,381 Deferred other expenses 124,658 112,073 Other prepayments 6,547 8,612 Gross other assets 1,558,254 1,362,099 Less: Allowance for impairment (Note 11(b)) (327,645) (296,614)


1,230,609 1,065,485

As of 31 December 2013, assets obtained by foreclosure (repossessed property) include commercial buildings, residential buildings, land and equipment. The most important balances are presented in following table:

Description Address Acquired from

client Based on contract

Area (m2)

Acquired date

Current value

House with a garage

Belgarde, Cika Mise Djurica 49 Drvopak doo

200-170/04 from28.06.2004.

173

04.08.2011

7,522

Business premisses S. Palanka. Palanacke cete 27/6 Djurdjevdan 229

61/95 from 30.06.1995.

148

16.10.2002

3,693

Business premisses Kosjerici, village Makoviste Dudic company

1200/1 from 01.12.1994.

523

28.09.2001

3,375

Business premisses Subotica, Arsenija Carnojevica 42/44 Koming doo

3522&06 from 14.09.2006.

790

26.06.2012

50,180

Residential building Jagodina, 7 july 33 B Produkt

148/02 from 18.11.2002.

300

07.05.2013

2,685

Business premisses Subotica, Brace Radic 7 AC Urosevic

200-120/06 from 27.07.2006.

554

08.07.2013

9,310

Other assets aquired trough foreclosure

136,387

28,773

Total

138,875

105,538

The most significant part of other assets acquired trough foreclosure is related to agricultural and industrial land, fields and pastures with 133,254m2 and 4,090 thousands of dinars current value, orchards with 19.100 m2 and 1,758 thousands dinars of current value, as well as forest with 18,456 m2 and 1,375 thousands dinars of current value.



28. SIGHT DEPOSITS

2013 2012

In dinars In foreign currency Total In dinars

In foreign currency Total

Banks and financial sector 296,669 345,228 641,897 245,028 501,977 747,005

Companies 9,746,233 3,060,679 12,806,912 6,969,216 3,394,652 10,363,868 Public sector 717,013 201,239 918,252 397,149 15,072 412,221 Entrepreneurs 969,541 113,863 1,083,404 858,029 106,787 964,816 Retail customers 3,186,825 1,151,907 4,338,732 2,525,703 703,232 3,228,935 Agricultural producers 373,020 6,706 379,726 388,396 1,122 389,518 Foreign entities 75,062 576,586 651,648 161,477 394,826 556,303 Other customers 1,324,057 383,873 1,707,930 1,276,088 449,024 1,725,112 Balance as of 31 December 16,688,420 5,840,081 22,528,501 12,821,086 5,566,692 18,387,778

Demand deposits in dinars mostly consist of current accounts of corporate customers, entrepreneurs and retail customers held with the Bank. Demand deposits of corporate customers and entrepreneurs in dinars and in a foreign currency are non-interest bearing, except for special arrangements defined by individual contracts with very important clients. The possibility of accruing interest on demand deposits of corporate customers in bankruptcy and insurance companies has been defined. In most of the cases, while making special arrangements for demand deposits in dinars, interest rates are related to the Key Policy Rate of the National Bank of Serbia. During 2013, the average interest rate on transaction deposits in dinars was 6.98% and in a foreign currency 1.41%. Moreover, eexceptions are demand deposits in dinars of beneficiaries of the budgetary funds of the Republic of Serbia and local authorities, to which the Bank accrued and paid interest. The average interest rate in 2013 for such deposits was 11.11%. Retail customers’ current accounts are non-interest bearing. For a vista deposits of retail customers interest is calculated ranging from 0.1% to 0.8% annually, depending on the currency. As of 31 December 2013, the major corporate depositors of the Bank are:Elektrosrbija Kraljevo, Fond za razvoje Republike Srbije, Bailo d.o.o. Novi Sad , Elektroprivreda Srbije,Telekom Srbija a.d. Belgrade, Imlek a.d.Padinska Skela, Sokoj - the music authors’ organization, NBG Lizing d.o.o., Belgrade, representing in total 29.47% of sight deposits at the balance sheet date.



29. OTHER DEPOSITS

2013 2012 Short-term Long-term Total Short-term Long-term Total In Dinars Savings deposits 2,077,839 226 2,078,065 976,775 225 977,000 Specific purpose

deposits 353,926 535 354,461 249,121 429 249,550 Other deposits 6,388,327 24,861 6,413,188 7,069,052 29,800 7,098,852 Total 8,820,092 25,622 8,845,714 8,294,948 30,454 8,325,402 In foreign currency Savings deposits 48,119,147 3,487 48,122,634 46,648,636 23,955 46,672,591 Specific purpose

deposits 387,664 38,924 426,588 282,834 33,006 315,840 Other deposits 4,216,599 406,842 4,623,441 3,931,150 633,943 4,565,093 Total 52,723,410 449,253 53,172,663 50,862,620 690,904 51,553,524 Balance as of 31 December 61,543,502 474,875 62,018,377 59,157,568 721,358 59,878,926

Time deposits of corporate customers and entrepreneurs in dinars earn interest at rates depending on the period and the amount for which the funds have been deposited. The amounts of interest rates on time deposits in dinars are adjusted to the modification of the Key Policy Rate of the National Bank of Serbia. During 2013, the average interest rate on time deposits in RSD was 10.69%. Time deposits of corporate customers and entrepreneurs in a foreign currency earn interest which depends on the currency, the period and the amount for which the funds have been deposited. The average interest rate on time deposits in a foreign currency in 2013 was 2.18%. Short-term deposits of retail customers denominated in foreign currencies earn interest at rates ranging from 1.00% to 4.5% annually, depending on the currency. Long-term deposits of retail customers denominated in foreign currencies earn interest at rates ranging from 0.50% to 4.16% annually.. As of 31 December 2013, the major depositors of the Bank are National Bank of Greece S.A. London, PIP Njegos Lovćen, Titan cementara a.d., Kosjerić, BB Minakva a.d., Novi Sad, Pandam d.o.o., Novi Sad accounting for 6.11% of the outstanding balance of other deposits at the balance sheet date.

Structure of other deposits by customer type is presented in the table below:

December 31,

2013 December 31,

2012 Banks 483,026 411,046 Corporate customers 7,532,923 6,910,011 Public sector 30,338 909,933 Entrepreneurs 118,218 144,532 Retail customers 49,230,485 46,962,412 Agricultural producers 6,579 5,704 Foreign entities 4,290,417 4,225,741 Other customers 326,391 309,547 Balance as of 31 December 62,018,377 59,878,926



30. BORROWINGS

December 31,

2013 December 31,

2012 Short-term borrowings: – in Dinars 316,100 525,500 – in foreign currency 2,292,842 - 2,608,942 525,500 Long-term borrowings: – in foreign currency - 4,548,732 - 4,548,732 Other financial liabilities: – in Dinars 15,500 5,704 – in foreign currency 104,143 150,757 119,643 156,461 Balance as of 31 December 2,728,585 5,230,693

According to the Loan agreement entered into with European Bank for Reconstruction and Development on 3 December 2010, the Bank withdrawal the amount of EUR 50 mil on August, 25th, 2011. Repayment in five semi-annual instalments of EUR 10 mil each, began on December 7, 2012. Interest rate is 6-month EURIBOR plus 2,5%. During 2013, two instalments were paid in total amount of EUR 20 mil. Structure of borrowings and other financial liabilties by customer type is presented in the table below:

December 31,

2013 December 31,

2012 Banks 3,427 251,585 Foreign entities 2,339,825 4,600,484 Public sector 331,600 331,000 Retail customers 4,990 5,140 Corporate customers 48,714 39,085 Other customers 29 3,399 Balance as of 31 December 2,728,585 5,230,693

31. INTEREST AND FEES PAYABLE AND CHANGES IN FAIR VALUE OF DERIVATIVES

December 31,

2013 December 31,

2012 In Dinars Interests and fees payable: - Banks 3,835 655 - Public sector - 19 3,835 674 Liabilities arising from changes in fair value

of derivatives 3,711 5,215 7,546 5,889 In foreign currency Interests and fees payable: - Foreign entities 210 350 210 350 Balance as of 31 December 7,756 6,239



32. PROVISIONS

December 31, 2013

December 31, 2012

Provision for retirement benefits (a) 232,795 231,540 Provision for litigations (b) 247,586 307,967 Provisions for other liabilities - 22,742 Balance as of 31 December 480,381 562,249

(a) Provision for retirement benefits has been recognized in the Bank’s financial statements on the

basis of an independent actuary’s report as of the balance sheet date, and it is stated in the amount of present value of the estimated future payments. When determining the present value of the expected cash outflows, the Bank used assumptions disclosed in Note 3.20(b).

(b) The Bank made a provision for legal claims filed against the Bank, for which the Bank's Legal

Department expects a negative outcome.

Movements in provisions during the year were as follows:

December 31,

2013 December 31,

2012 Provision for off-balance sheet items Balance at the beginning of the year - 35,105 Release of provision (Note 11(a)) - (35,105) Balance at the year end - - Provision for retirement benefits Balance at the beginning of the year 231,540 184,656 Payments in respect of early retirement

(Note 11(a)) (9,024) (28) Charge for the year (Note 11(a)) 33,033 46,730 Release of provision (Note 11(a)) (22,754) - Retirement expense - 182 Balance at the year end 232,795 231,540 Provision for litigations Balance at the beginning of the year 307,967 310,705 Charge for the year (Note 11(a)) 99,759 - Release of provision (Note 11(a)) (156,813) (2,738) Payments during the year (Note 11(a)) (3,327) - Balance at the year end 247,586 307,967 Other provision for liabilities Balance at the beginning of the year 22,742 - Charge of provision (Note 11(a)) - 23,164 Release of provision (Note 11(a)) (22,227) - Foreign exchange difference (515) (422) Balance at the year end - 22,742 Balance as of 31 December 480,381 562,249

Technological Redundancy Plan resulted in 2013 in the decrease of the personnel of the Bank by 86 employees, of which 73 employees based on the decisions and programs in 2013. The total amount paid to the employees who left as technological redundancy and regular retirement reached RSD 63,524 thousand. Additional provision in the income statement of the Mandatory and Voluntary Schemes launched during 2013 amounted to RSD 10,279 thousand.



33. OTHER LIABILITIES

December 31,

2013 December 31,

2012 Net salaries and fringe benefits 4,130 81,156 Taxes and contributions payable 1,761 30,212 Advances, deposits and retainers received: – in Dinars 13,696 7,237 – in foreign currency 17,769 16,668 Trade payables: – in Dinars 90,311 101,221 – in foreign currency 87,609 82,648 Finance lease liabilities 24,926 29,286 Other liabilities: – in Dinars 222,255 288,546 – in foreign currency 9,969 25,440 Accrued interest expense: – in Dinars 53,976 84,350 – in foreign currency 310,314 416,709 Other accrued expenses in Dinars 32,735 42,157 Deferred interest income: – in Dinars 433,654 507,374 – in foreign currency - - Deferred loan and guarantee origination fees 36,419 46,726 Other accruals: – in Dinars 8,010 8,041 – in foreign currency - 2,988 Balance as of 31 December 1,347,534 1,770,759

34. EQUITY

(a) Equity Structure

The Bank’s equity structure is presented in the table below:

December 31,

2013 December 31,

2012 Share capital – ordinary shares 16,337,430 16,337,430 Share premium 120 120 Reserves from profit 122,185 2,016,120 Revaluation reserves 1,400,112 1,396,230 Retained earnings 319,164 259,527 Current year profit 1,382,147 - Unrealized losses on securities available for sale (9,735) (103,189) Current year losses - (1,893,935) Balance as of 31 December 19,551,423 18,012,303

As of 31 December 2013, subscribed and paid in share capital of the Bank comprised 1,633,743 ordinary shares, with nominal value per share of RSD 10,000. The Bank’s shareholders are entitled to take part in the Bank’s decision-making commensurately with their interest in the total amount of the Bank’s ordinary shares, in the distribution of profit, priority purchase rights of shares from subsequent issuances, priority collection rights in the event of the Bank’s bankruptcy or liquidation.



34. EQUITY (Continued)

(a) Equity Structure (Continued) In December 2006, in accordance with the terms of the Agreement on the Purchase and Sale of Share Capital, the National Bank of Greece, Athens became the major owner of the Bank’s through the acquisition of an equity interest of 99.43%. The aforementioned acquisition was duly registered with the Central Securities Depository and Clearing House on 12 December 2006. Pursuant to the Articles of Incorporation no. 1.0-10340/2 and Decision on Increase in Capital no. 1.0-10340/3 dated 29 November 2007, the share capital of the Bank increased through the issue of 410,000 ordinary shares with the individual par value of RSD 10,000. The National Bank of Greece, Athens purchased the entire share issue, and thereby became the sole owner of the Bank.

In accordance with the Decision issued by the Bank’s Assembly dated 3 January 2008, the Bank enacted a Decision on the Merger of Vojvodjanska banka a.d. Novi Sad with the National Bank of Greece a.d. Beograd, in effect from 31 December 2007. The aforementioned merger was registered with the Serbian Business Registers Agency on 14 February 2008 under the registry number BD 6190/2008 (removal of the business entity “National Bank of Greece a.d. Beograd” as the acquired bank due to a merger) and the change in the core capital of Vojvodjanska banka a.d. Novi Sad was inscribed based on the Decision numbered BD 6210/2008. The National Bank of Greece a.d. Beograd was fully owned by the National Bank of Greece, Athens. Pursuant to the aforesaid Decision dated 3 January 2008, enacted by the Bank’s Assembly, the Bank’s capital increased through the issue of shares without public offer for the amount of RSD 7,419,535 thousand (741,953 ordinary shares with the individual par value of RSD 10,000), i.e., in the amount equal to the share capital of the National Bank of Greece a.d. Beograd. These shares were transferred to the shareholder of the entity which discontinued its operations, i.e., the National Bank of Greece, Athens, Greece. Vojvodjanska banka a.d. Novi Sad is the legal successor of all rights and liabilities of the National Bank of Greece a.d. Beograd existing before the merger date, i.e., 31 December 2007.

(b) Capital Adequacy and Performance Indicators – Compliance

with Legal Regulations

The Bank is obliged to reconcile the scope and the structure of its operations and risk-weighted placements with the performance indicators prescribed by the Law on Banks and the relevant decisions of the National Bank of Serbia brought on the basis of the aforementioned Law. As of 31 December 2013 the Bank is in compliance with all prescribed performance indicators. The Bank’s performance indicators as of 31 December 2013 are as follows:

Performance indicators Prescribed Realized

1. Capital Minimum EUR 10 million

EUR 78,772,292

2. Capital adequacy ratio Minimum 12% 16.61% 3. Bank's total investments in non-financial sector

entities and in fixed assets of the Bank Maximum 60%

56.84%

4. Related parties exposure Maximum 20% 8.20% 5. The sum total of all large exposures Maximum 400% 88.59% 6. Monthly liquidity ratios:

– in the first month of the reporting period

Minimum 1

1.20

– in the second month of the reporting period Minimum 1 1.80 – in the third month of the reporting period Minimum 1 2.20

7. Foreign exchange risk ratio Maximum 20% 1.25% 8. Exposure to a group of related parties Maximum 25% 24.93% 9. Exposure to an entity related to the Bank Maximum 5% 4.39% 10. Bank's investment in a single non-financial

sector entity Maximum 10%

2.55%



34. EQUITY (Continued)

(b) Capital Adequacy and Performance Indicators – Compliance with Legal Regulations (Continued)

As of 31 December 2013, the Bank has large loans that exceed 10% of its capital, granted to the companies: Naftna industrija Srbije a.d. Novi Sad (24.93% of the Bank’s capital), Dijamant a.d. Zrenjanin (21.80% of the Bank’s capital), Eko Srbija a.d. Beograd (16.98% of the Bank’s capital), JP Morgan Chase Bank National ASS (13,36% of the Bank’s capital) and Telekom Srbija, Beograd (11.51% of the Bank’s capital).

35. OFF-BALANCE SHEET ITEMS

December 31,

2013 December 31,

2012 Funds managed on behalf of third parties (a) 457,765 522,898 Guarantees and other irrevocable commitments (b) 7,748,410 5,067,635 Received guarantees for liabilities (c) 166,373,870 144,703,959 Derivatives (d) 15,669,415 15,521,133 Other off-balance sheet items (e) 55,602,186 52,783,503 Balance as of 31 December 245,851,646 218,599,128

(a) Funds Managed on Behalf of Third Parties

In RSD thousand

December 31,

2013 December 31,

2012 Funds managed on behalf of third parties: – in Dinars 395,054 452,571 – in foreign currency 62,711 70,327 Balance as of 31 December 457,765 522,898

As of 31 December 2013 and 2012, funds managed on behalf of third parties mainly relate to funds received from the public sector customers and entrusted to the Bank’s management. The funds managed on behalf of third parties primarily include loans for the Economic Recovery of Serbia, loans of the Development Fund of the Republic of Serbia for financing registered agricultural farms, loans granted from the funds of the Ministry of Agriculture, Forestry and Water and loans that companies extend to their employees or other companies through the Bank as an agent. The Bank charges fees for the services provided.

(b) Guarantees and Other Irrevocable Commitments

December 31,

2013 December 31,

2012 Payment guarantees, performance bonds and

acceptances: – in Dinars 1,021,062 798,654 – in foreign currency 346,601 379,050 1,367,663 1,177,704 Irrevocable commitments for undrawn credit

facilities: – in Dinars 6,110,938 3,439,953 – in foreign currency 189,977 339,306 6,300,915 3,779,259 Other irrevocable commitments: – in Dinars 2,403 3,338 – in foreign currency 77,429 92,976 79,832 96,314 Risky guarantees and other irrevocable commitments which are classified 7,748,410 5,053,277 Property standing as collateral for liabilities - 14,358


7,748,410 5,067,635



35. OFF-BALANCE SHEET ITEMS (Continued)

(b) Guarantees and Other Irrevocable Commitments (Continued)

Irrevocable commitments relate to garantiees issued by the bank on order of clients contractual commitments to make loans that cannot be cancelled unilaterally, such as: overdrafts, revolving loans to companies, multi-purpose revolving loans and other irrevocable commitments. Irrevocable commitments usually have fixed expiry dates or other stipulations with respect to expiry dates. Since irrevocable commitments may expire without being drawn upon, the total contracted amounts do not necessarily represent future cash requirements. The Bank monitors maturity periods of credit commitments and undrawn crediti facilities because longer term commitments have a greater degree of loan risk than short-term commitments.

(c) Received guarantees for liabilities

December 31,

2013 December 31,

2012 Guarantees for liabilities: – in Dinars 17,738,972 16,143,538 – in foreign currency 148,503,606 128,444,313 Securities received as pledge 131,292 116,108 Balance as of 31 December 166,373,870 144,703,959

(d) Derivatives December 31,

2013 December 31,

2012 Receivables with respect to currency swaps (nominal amount –

purchase of EUR) 1,376,193 - Receivables with respect to currency swaps (nominal amount –

purchase of RSD) 1,995,028

2,927,768 Receivables with respect to currency swaps (nominal amount –

sale of EUR) 1,843,967 917,155 Receivables with respect to currency swaps (nominal amount –

sale of CHF) 10,286,829 11,676,210 Receivables with respect to forward (nominal amount – sale of

USD) 167,398

- Balance as of 31 December 15,669,415 15,521,133

(e) Other Off-balance Sheet Items

December 31,

2013 December 31,

2012 Suspended interest receivable 8,378,935 7,215,092 Revocable commitments for undrawn credit facilities 3,351,188 3,120,813 Cross border loans 37,656,618 34,906,113 Other off-balance sheet items 6,215,445 7,541,485 Balance as of 31 December 55,602,186 52,783,503

Other off-balance sheet items as of 31 December 2013 is mostly consist of receivables for placements in respect of purchase and sale of foreign currency in the amount of RSD 3,251,448 thousand ( 31 December 2012: RSD 5,706,277 thousand), old savings bonds in the amount of RSD 1,348,136 thousand (31 December 2012: RSD 1,380,179 thousand) and revolving arrangement concluded during 2013 year with EBRD in the amount of RSD 1,146,421 thousand.



35. OFF-BALANCE SHEET ITEMS (Continued)

(e) Other Off-balance Sheet Items (Continued)

The breakdown of cross-border loans per largest exposure as of December 31, 2013 and 2012 is presented in the table below:

December 31,

2013 December 31,

2012 Naftna industrija Srbije a.d., Novi Sad 16,803,816

16,171,008

NBG Leasing a.d., Beograd 4,356,400 4,548,732 Republic of Serbia Development Fund 2,866,053 2,842,958 PE Electric Power Industry of Serbia 2,045,649 2,411,070 Assembly of the City of Belgrade 2,190,784 2,196,982 Others 9,393,916 6,735,363 Balance at December 31 37,656,618 34,906,113

36. RELATED PARTY DISCLOSURES

A number of banking transactions are entered into with shareholders, subsidiaries and other related parties from the NBG Group in the ordinary course of business. These transactions are carried out on commercial terms and conditions and at market rates.

(a) Outstanding balances of receivables and liabilities as of 31 December 2013 and 2012, resulting

from transactions with the Bank’s related parties are summarized below:

December 31, December 31, Related party Type of transaction 2013 2012 Brodogradiliste Apatin d.o.o.- interest in capital 100% Transaction deposits (3,760) (3,777) Net assets/(liabilities) (3,760) (3,777) IMOS a.d. Sid – interest in capital 51.55% Transaction deposits (1,755) (468) Other deposits (9,000) (10,000) Deferred interest payable (37) (105) Accrued interest income (3) (6) Net assets/(liabilities) (10,795) (10,579)

National Bank of Greece S.A. Athens Current foreign currency account 35,145 7,398

Special purpose account for

securities 125,420 29,868 Given deposits 36,685 - Receivables for interest 108 - Receivables for fees 3 - Derivatives – assets 7,731 - Derivatives – liabilities (3,711) (3,742) Sight deposits (47,565) (49,002) Liabilities for fees (190) - Other liabilities (35,519) (52,773) Net assets/(liabilities) 118,107 (68,251)



36. RELATED PARTY DISCLOSURES (Continued)

(a) Outstanding balances of receivables and liabilities as of 31 December 2013 and 2012, resulting from transactions with the Bank’s related parties are summarized below (continued):

December 31, December 31, Related party Type of transaction 2013 2012

NBG Leasing d.o.o. Belgrade Loans - 15,000 Receivables for interest - 8 Receivables for fees 172 - Receivables from customers 69 68 Sight deposits (340,963) (458,412) Short-term deposits (125,000) (392) Deferred interest payable (23) - Other deposits (395) - Finance lease liabilities (24,926) (29,286) Liabilities to suppliers (36) - Other liabilities (3) - Net assets/(liabilities) (491,105) (473,014) NBG Services Belgrade Receivables for fees 172 - Sight deposits (26,846) (13,981) Short-term deposits (192,321) (145,000) Deferred interest payable (26) (39)

Net assets/(liabilities) (219,021) (159,020) National Bank of Greece S.A. London

Current foreign currency account

404,452 424,598

Short-term deposits (2,407,484) (2,388,084) Deferred interest payable (21,773) (35,690) Net assets/(liabilities) (2,024,805) (1,999,176)

Ethnodata S.A., Greece

Liabilities to suppliers

(15,946) (22,743)

Net assets/(liabilities) (15,946) (22,743) Stopanska Banka A.D Skopje Placements to banks 2,482 -

Receivables for monetary

intermediation

3 - Net assets/(liabilities) 2,485 - United Bulgarian Bank A.D-Sofia (UBB)

Liabilities to suppliers

(33,297) -

Net assets/(liabilities) (33,297) - Total net assets/(liabilities) (2,678,097) (2,736,560)



36. RELATED PARTY DISCLOSURES (Continued)

(b) The following table summarizes total income and expenses arising from related party transactions realized during the years ended 31 December 2013 and 2012:

December 31,

2013 December 31,

2012

Interest income 2,627 34,893 Interest expense (96,709) (131,264) Fee and commission income 6,546 7,152 Fee and commission expense (2,654) (1,251) Other income 678 986 Other expenses (113,923) (36) Net income/ (expenses) (203,435) (89,520)

(c) Salaries and other benefits of the Executive Board’s members and the Board of Directors’

members (stated in gross amounts), during 2013 and 2012, are presented in the table below:

December 31,

2013 December 31,

2012 Salaries and fringe benefits of the

Executive Board’s members 65,534 81,685 Remunerations to the members of the

Board of Directors 7,969 7,878 Total 73,503 89,563

37. RISK MANAGEMENT

37.1. Introduction The Risk Management in the Bank is performing through two divisions and specialised departments under their responsibility: Risk Management Division (Portfolio and classification management department; Credit risk models department; Market risk management department; Operational risk management department; and Basel II and risk management transformation department) Credit Risk Management Division (Corporate credit risk department and Retail credit initiation department) With the support of the NBG Group Risk Management Authorities, the Bank established a strong Risk Management system in line with the Group principles, with the following overall objectives: • To establish a set of fundamental standards for risk management across the Bank in order to

maximize earnings potential and provide returns for shareholder. • To support the Bank’s business strategy by ensuring that business objectives are pursued in a risk-

controlled manner in order to preserve earnings stability by protecting against unforeseen losses. • To improve the usage and allocation of capital and to enhance risk adjusted return on capital by

incorporating risks into business performance measures. • To support decision making processes by providing necessary and reasonable risk related

estimates. • To ensure consistency with the best practices and compliance with local regulatory, quantitative and

qualitative requirements. • To ensure the cost-effectiveness of risk management by reducing overlaps and avoiding

inappropriate, excessive or obsolete policies, processes, methodologies, models, controls and systems.



37. RISK MANAGEMENT (Continued)

37.1. Introduction (Continued)

The Bank distinguishes the two main types of losses: • Expected loss – is the amount expected to be lost on average within a given period of time (e.g.

one year) and is considered as a standard cost of doing business which is provisioned for and taken into account in the pricing of products.

• Unexpected loss – is the statistically estimated loss at a given confidence level (e.g. 99.9%) associated with adverse events and is considered as a risk of doing business. Capital typically serves as a buffer absorbing such losses.

The Bank acknowledges the following major types of banking risks arising from its activities: Credit Risk Credit risk – the current or prospective risk of adverse effects to earnings and capital arising from credit beneficiary’s failure to discharge contractual obligations to the Bank or otherwise fail to perform as agreed. Pre-settlement risk - the current or prospective risk of adverse effects to earnings and capital arising from a counterparty’s default on off-balance sheet products, where the credit equivalent exposure reflects both the current replacement cost (marked to market) of the product plus an estimate of the Bank’s potential future credit exposure from the product as a result of prevailing market prices. Settlement risk - the current or prospective risk of adverse effects to earnings and capital arising from a counterparty’s default on transactions in the process of being settled and where the sold asset or cash has been delivered to the counterparty but the purchased asset or cash has not yet been received in return as expected. Residual risk - the current or prospective risk of adverse effects to earnings and capital arising from the fact that recognized risk measurement and mitigation techniques used (e.g. collaterals, guarantees, netting agreements), prove less effective than expected. Market Risk – the current or prospective risk of adverse effects to earnings and capital arising from adverse changes in market prices of bonds, shares, trading commodity and derivatives in the trading book. This risk arises in market making, dealing, and position taking activities. This risk comprises: Equity instruments risk - the current or prospective risk of adverse effects to earnings and capital arising from changes in the direction or volatility of equity instruments/equity derivatives prices indices or changes in the relationship between different equity instruments/equity derivatives prices indices. Foreign exchange risk - the current or prospective risk of adverse effects to earnings and capital arising from movements in spot and forward currency exchange rates in the banking book and the trading book. Interest rate risk - the current or prospective risk of adverse effects to earnings and capital arising from changes in the direction or volatility of interest rates/interest rate derivatives, the shape of the yield curve and the spread between different interest rates that affect the trading book positions. Commodity risk - the current or prospective risk of adverse effects to earnings and capital arising from changes in the direction or volatility of commodity/commodity derivatives prices, the spread between spot and forward commodity prices and the relationship between different commodity/commodity derivatives prices. Furthermore, market risks include: Underwriting risk – the current or prospective risk of adverse effects to earnings and capital arising from underwriting commitments in the trading book on bonds, equity investments or other securities. Market liquidity risk – refers to market positions, which cannot be sold within a desired time period or only at a discount. Such are the cases of securities/derivatives in illiquid markets, or when large positions that cannot be sold easily are held.





Operational risk – is the risk of possible adverse effects on financial result and capital of the bank caused by omissions (unintentional and intentional) in employees' work, inadequate internal procedures and processes, inadequate management of information and other systems, as well as by unforeseeable external events. This definition specifies the broad categories of operational risk sources and in particular: • Processes – refers to losses that have been incurred due to a deficiency in an existing procedure,

or the absence of procedure documentation. Losses in this category can result from human error or failure to follow an existing procedure. Process-related losses are unintentional.

• People – refers to losses associated with intentional violation of internal policies by current or former employees. In some specific cases, the risk extends to people who are being considered for employment.

• Systems – reflects losses that are caused by breakdowns in existing systems or technology (IT risk falls in this category). Losses in this category are unintentional. If intentional technology-related losses occur, they would be categorized in either the People or External events.

• External events – reflects losses occurring as a result of natural or man-made forces, or the direct result of a third party action.

IT risk is considered as a subcategory of the operational risk, defined as the current or prospective risk of adverse effects to earnings and capital arising from inadequate information technology and processing in terms of manageability, exclusivity, integrity, controllability and continuity, or arising from an inadequate IT strategy and policy or from inadequate use of the entity’s information technology.

Legal and compliance risk is considered as a subcategory of the operational risk, defined as the current or prospective risk of adverse effects to earnings and capital arising from violations or non compliance with laws, rules, regulations, agreements, prescribed practices, or ethical standards. Liquidity risk – the current or prospective risk of adverse effects to earnings and capital arising from the entity’s inability to meet its liabilities when due without incurring unacceptable losses. The definition of liquidity risk includes: Term liquidity and withdrawal/call risk – reflects the potential mismatch of payment obligations to incoming payments, taking into account unexpected delays in repayments (term liquidity risk) or unexpectedly high payment outflows (withdrawal/call risk). Structural liquidity risk (funding liquidity risks) – refers to the cost of liquidity for the purpose of closing liquidity gaps, which would change if refinancing becomes more expensive due to a decline in the Bank’s creditworthiness, or adverse market conditions. Concentration risk – It is acknowledged that the key source of concentration risk is credit concentration risk, which is the current or prospective risk of adverse effects to earnings and capital arising from excessive exposure places with one counterparty or group of related counterparties whose likelihood of default is driven by common underlying factors, e.g. economic sector, industry, geographical location, collateral type. Concentration risk refers both to banking and trading book exposures. Concentration risk can also arise in other risk types, such as: Liquidity concentration risk – relates to funding liquidity risk and arises from the existence of a limited number of funding sources.

Market concentration risk – arises from excessive exposure to specific market risk factors (stock prices/indices, foreign exchange and interest rates). Country risk - the current or prospective risk of adverse effects to earnings and capital, caused by events in a particular country which are at least to some extent under the control of the government but definitely not under the control of a private enterprise or individual. Possible events include deterioration of economic conditions, political and social upheaval, nationalization and expropriation of assets and disruptive currency depreciation or devaluation. This definition includes all forms of cross-border lending in a country whether to the government, a bank, a private enterprise or an individual. It also includes:





Sovereign risk, where the government of a certain country cannot service its own debt because it does not have the required amount of foreign currency or is unwilling to service its debts or enters in renegotiation and rescheduling schemes or any other form of technical default. Country risk assessment does not only involve an assessment of willingness of the state to fulfil its obligations, as other factors can also cause losses. In practice, sovereign risk and country risk are highly correlated, considering that the government is the major factor in sovereign and country risk affairs. Transfer risk is defined as the inability of private companies or individuals to fulfil their obligations due to government actions. One example of a transfer risk is when the government imposes prohibitive exchange restrictions, which may make it impossible for private agents to transfer payments. Convertibility risk is defined as the inability of private companies or individuals to fulfil their obligations due to government/central bank actions. One example of a convertibility risk is when the central bank imposes prohibitive foreign exchange controls, which may make it impossible for private agents to convert local to foreign currency payments and vice versa. Finally, the Bank further acknowledges: Strategic risk - the current or prospective risk of adverse effects to earnings and capital arising from changes in the business environment and from adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment. The Bank treats strategic risk within the processes related to strategic planning at the Group level. Reputation risk - the current or prospective risk of adverse effects to earnings and capital arising from adverse perception of the Bank’s image on the part of customers, counterparties, shareholders, investors or regulators. In order to manage the aforementioned risks, the Bank complies with the relevant decisions of the domestic regulatory bodies, and relies on the following strategic documents: • Bank Risk Strategy, • Corporate Credit Policy, • Local Retail Banking Credit Risk Policy Manual, • Trading book policy, • Liquidity risk management policy, • Strategy, policy and framework for operational risk management, as well as on different methodologies, procedures and guidelines (allowance for impairment of financial assets and provision, assessment of foreign currency risk, other estimates, early collection of receivables, etc.).

37.2. Credit Risk

The Bank has implemented and it maintains appropriate on-going credit underwriting, administration, measurement and monitoring processes, including in particular: – Sufficient and fully documented credit risk policies which are in place (Corporate Credit Policy and

Retail Policies), such ensuring consistency across the Bank and acknowledging key regulatory requirements of the National Bank of Serbia, including the definition of default and credit portfolio segmentation according to regulatory rules (National Bank of Serbia, Basel II).

– Adequate, well-defined credit granting criteria based on the Bank’s strategy, the borrower or counterparty and the transaction, as well as the purpose and structure of the credit and its source of repayment.



37. RISK MANAGEMENT (Continued) 37.2. Credit Risk (Continued)

– Credit limits that aggregate in a comparable and meaningful manner different types of exposures, at

various levels: Individual borrowers and counterparties, Groups of related borrowers and counterparties, Industry/sector limits, and Product limits (loans, bonds, derivatives, etc.).

– Clearly established procedures for approving new loans as well as the amendment, renewal and re-financing of existing loans, while any exceptions are monitored with particular care taking appropriate steps to control or mitigate the relevant risks.

– Consistent credit grading/scoring tools to standardize and enhance credit risk assessment and portfolio management (RM3 corporate credit risk rating system, introduced during 2008 and Scorecards for the Retail Lending) to support a robust credit assessment process.

– Adequate and detailed procedures covering all aspects of the credit related activities. – Information systems and analytical techniques that enable measurement of credit risk inherent in all

relevant activities, providing adequate information on the composition of the credit portfolio, including identification of any concentration of risk.

– The monitoring process that covers the condition of individual credits, including determining the adequacy of provisions and reserves, as well as the overall composition and quality of the credit portfolio, taking into consideration potential future changes in economic conditions and allowing the assessment of credit risk exposures under stressful conditions.

The Bank has ensured adequate internal controls over the credit risk related processes, including: – Segregation of lending business functions from loan approval, monitoring and follow-up and credit

portfolio management functions. – Approving Committees for all types of credit exposure, with escalation of credit authorization in

accordance with the level of the exposure. – Participation of the Credit Risk Division in such Committees under a veto right. – Proper management of the credit-granting functions ensuring that credit exposures are within set

limits, while exceptions to policies, procedures and limits are appropriately reported. – Periodical, early remedial actions on deteriorating credits, managing problem credits and similar

workout situations. – Independent, ongoing assessment of the credit risk management processes by Internal Audit,

covering in particular the credit risk systems/models employed by the Bank. The results of such reviews are communicated to the Board of Directors and the Senior Management of the Bank.

For the rating of the corporate customers’ risk, during the course of 2008, the Bank implemented the internal customers’ creditworthiness rating model- RM3, which is subject of data validation and calibration process performed on annual basis . The model has 10 notches with defined obligors' limits in Corporate Credit Policy, and which correspond to estimated Probabilities of Default (PD) as follows:

RATING RISK PD% Limit per debtor in

EUR A1 Fair 0.4 6,000 A2 Fair 0.7 5,000 B1 Fair 1.8 4,000 B2 Moderate 3.3 3,500 C1 Moderate 4.3 3,100 C2 Moderate 6.6 2,700 D1 Significant 9.6 2,400 D2 Significant 14.5 2,100 E1 High 22.9 1,900 E2 High 28.9 1,600




In accordance with the regulations of the National Bank of Serbia, the Bank regularly examines and classifies its corporate and retail portfolio (A to D scale). For the purposes of this report, A and B rated credit risks may be considered as “Satisfactory”, C as “Special Mention” and G and D as “Unsatisfactory”. In order to mitigate credit risk, the Bank takes different types of collaterals, on which it calculates a securing value with the use of conservative coefficients, which reflect the time needed for the liquidation of the collateral and the uncertainty about the market prices at the time of liquidation. For the calculation of the necessary provisions as per the National Bank of Serbia’s regulations, the Bank recognizes as prime and adequate the collaterals defined in the relevant Decision, when the conditions for their recognition are met. The Bank recognizes committed and uncommitted credit limits and that the unused committed credit limits bear the same credit risk with its used part. Other off-balance sheet items, which bear counterparty credit risk (guarantees, letters of credit, etc.) are also accepted as bearing credit risk, the height of which varies depending on the applicant’s creditworthiness and the purpose of the off-balance sheet item. (a) Maximum Exposure to Credit Risk by Balance Sheet and Off-balance Sheet Items

Breakdown of maximum credit risk exposure, presented in gross, before collaterals held or other credit enhancements, as of 31 December 2013 and 2012 is presented in the table below:

December 31,

2013 December 31,

2012 Exposure to credit risk by balance sheet items: Loans to banks and customers 67,081,064 66,362,364 Interest and fees receivable, receivables from sales, changes in fair value of derivatives and other receivables 558,770 848,852 Securities 403,260 551,100 Other placements 1,652,388 1,576,642 Other assets 6,274,165 8,122,812 Total 75,969,647 77,461,770 Exposure to credit risk by off-balance sheet items: Financial guarantees 1,367,663 1,177,704 Undrawn credit facilities 9,652,103 6,900,072 Other irrevocable commitments 79,832 96,314 Total 11,099,598 8,174,090 Total exposure 87,069,245 85,635,860

Breakdown of maximum credit risk exposure as of 31 December 2013, before taking into account collaterals held or other credit enhancements, grouped by geographical locations is presented in the table below:

Interest, fees

and other assets

Loans and advances to

customers Securities Other

placements

Guarantees and other

commitments

Total 2013

Serbia 1,204,988 66,250,145 402,789 1,650,554 11,096,841 80,605,317 European Union 5,627,947 830,919 471 1,834 2,757 6,463,928 Total 6,832,935 67,081,064 403,260 1,652,388 11,099,598 87,069,245




(a) Maximum Exposure to Credit Risk by Balance Sheet and Off-balance Sheet Items (Continued)

Breakdown of maximum credit risk exposure as of 31 December 2012, before taking into account collaterals held or other credit enhancements, grouped by geographical locations is presented in the table below:

Interest, fees

and other assets

Loans and advances to

customers Securities Other

placements

Guarantees and other

commitments

Total 2012

Serbia 1,316,992 65,539,044 550,634 1,572,703 8,171,991 77,151,364 European Union 7,654,672 823,320 466 3,939 2,099 8,484,496 Total 8,971,664 66,362,364 551,100 1,576,642 8,174,090 85,635,860

The Bank’s credit risk exposure analysis, by industry sectors, before and after taking into account collateral held and other credit enhancements, as of 31 December 2013 and 2012 is presented in the table below:

Gross maximum exposure

Net maximum exposure

Gross maximum exposure

Net maximum exposure

2013 2013 2012 2012 Mining and processing industry 18,119,412

13,904,400

19,175,510

13,157,840

Energetic 1,377,398 1,369,907 403,096 398,949 Trade 13,236,864 11,500,126 12,519,622 10,822,122 Finance 7,107,232 5,981,493 9,192,723 8,120,961 Agriculture and forestry 3,477,629 2,858,020 3,031,271 2,433,199 Construction 1,887,509 1,659,836 2,100,117 1,871,765 Catering and other services 693,288 606,543 530,357 448,840 Retail customers 33,082,698 31,101,449 30,414,655 28,538,831 Other 8,087,215 7,814,297 8,268,509 8,038,028

Total 87,069,245 76,796,071 85,635,860 73,830,535




(b) Portfolio Quality

The Bank manages the quality of its financial assets using the internal classification of placements. The structure of the loan portfolio (loans and advances to banks and customers, including other placements and securities from the maximum credit risk exposure table) according to internal credit rating as of 31 December 2013 and 2012 is presented in the following table:

2013 2012 Neither past due nor impaired Neither past due nor impaired

High

rating Standard

rating

Sub-standard

rating

Past due and

impaired Total High

rating Standard

rating

Sub-standard

rating

Past due and

impaired Total Loans to and receivables

from banks 384,553 30 - 1,070,462 1,455,045 367,881 - - 1,028,640 1,396,521 Loans to corporate

customers 12,743,762 9,687,770 2,803,794 11,641,965 36,877,291 16,424,339 4,244,522 417,025 16,633,130 37,719,016 Loans to small entities 469,444 8,658 777 1,377,375 1,856,254 381,517 35,612 8,055 2,264,358 2,689,542 Loans to retail customers 20,470,822 114,657 1,402,965 7,115,188 29,103,632 18,087,598 54,878 1,791,389 7,048,914 26,982,779 Total loans and

placements 34,068,581 9,811,115 4,207,536 21,204,990 69,292,222 35,261,335 4,335,012 2,216,469 26,975,042 68,787,858 Quoted securities – other

securities 47,491 3,437 255,608 90,585 397,121 257,456 1,469 221,079 70,714 550,718 Not quoted securities–

equity and debt instruments - - - 6,139 6,139 382 - - - 382

Total 34,116,072 9,814,552 4,463,144 21,301,714 69,695,482 35,519,173 4,336,481 2,437,548 27,045,756 69,338,958



37. RISK MANAGEMENT (Continued) 37.2. Credit Risk (Continued) (b) Portfolio Quality (Continued)

The table below represents the structure of the Bank’s loans and advances to banks and customers, including other placements, as of 31 December 2013 and 2012, according to their quality:

Neither past due nor

impaired

Past due but not

impaired Impaired

Total gross loans and

placements

Individual allowance for

impairment

Collective allowance for

impairment

Total allowance for

impairment

Total net loans and

placements December 31, 2013 Credit cards 760,938 73,450 328,762 1,163,150 (1,713) (217,549) (219,262) 943,888 Consumer loans 11,074,494 1,537,651 2,448,395 15,060,540 (223,117) (1,311,207) (1,534,324) 13,526,216 Housing loans 10,153,012 2,004,812 722,118 12,879,942 (11,704) (70,830) (82,534) 12,797,408 Loans to small entities 478,879 98,890 1,278,485 1,856,254 (506,139) (606,206) (1,112,345) 743,909 Loans to corporate customers 25,235,326 4,139,521 7,502,444 36,877,291 (5,619,683) (263,042) (5,882,725) 30,994,566 47,702,649 7,854,324 12,280,204 67,837,177 (6,362,356) (2,468,834) (8,831,190) 59,005,987 Loans and advances to banks 384,583 64 1,070,398 1,455,045 (1,070,398) - (1,070,419) 384,626 Total 48,087,232 7,854,388 13,350,602 69,292,222 (7,432,754) (2,468,834) (9,901,609) 59,390,613 December 31, 2012 Credit cards 815,460 89,349 339,015 1,243,824 (100) (220,519) (220,619) 1,023,205 Consumer loans 8,779,399 1,549,714 2,474,617 12,803,730 (189,958) (1,277,772) (1,467,730) 11,336,000 Housing loans 10,339,006 1,960,101 636,118 12,935,225 (599) (53,364) (53,963) 12,881,262 Loans to small entities 425,184 531,048 1,733,310 2,689,542 (906,669) (637,799) (1,544,468) 1,145,074 Loans to corporate customers 21,085,886 8,346,903 8,286,227 37,719,016 (6,898,866) (265,913) (7,164,779) 30,554,237 41,444,935 12,477,115 13,469,287 67,391,337 (7,996,192) (2,455,367) (10,451,559) 56,939,778 Loans and advances to banks 367,881 318 1,028,322 1,396,521 (1,028,277) (35) (1,028,312) 368,209 Total 41,812,816 12,477,433 14,497,609 68,787,858 (9,024,469) (2,455,402) (11,479,871) 57,307,987




(b) Portfolio Quality (Continued)

Neither Past Due nor Impaired Loans and Placements

Satisfactory Special

Mention Substandard Total December 31, 2013 Credit cards 736,475 5,212 19,251 760,938 Consumer loans 10,822,939 56,390 195,165 11,074,494 Housing loans 8,911,408 53,055 1,188,549 10,153,012 Loans to small entities 469,444 8,658 777 478,879 Loans to corporate customers 12,743,762 9,687,770 2,803,794 25,235,326 33,684,028 9,811,085 4,207,536 47,702,649 Loans and placements to banks 384,553 30 - 384,583 Total 34,068,581 9,811,115 4,207,536 48,087,232

December 31, 2012 Credit cards 787,906 1,351 26,203 815,460 Consumer loans 8,496,666 17,417 265,316 8,779,399 Housing loans 8,803,026 36,110 1,499,870 10,339,006 Loans to small entities 381,517 35,612 8,055 425,184 Loans to corporate customers 16,424,339 4,244,522 417,025 21,085,886 34,893,454 4,335,012 2,216,469 41,444,935 Loans and placements to banks 367,881 - - 367,881 Total 35,261,335 4,335,012 2,216,469 41,812,816

Ageing Analysis of Loans and Placements Past Due but Not Impaired

Up to 30 days past

due From 31 to

60 days From 60 to

90 days From 91 to

180 days From 180

to 365 days From 1 to 5

years Over 5 years Total

December 31, 2013 Credit cards 72,235 - 42 58 156 959 - 73,450 Consumer loans 1,525,629 1,079 11 796 903 9,233 - 1,537,651 Housing loans 1,315,401 133,304 71,135 181,649 101,468 201,855 - 2,004,812 Loans to small entities 57,304 2,229 29 18 1,047 37,819 444 98,890 Loans to corporate customers 1,685,978 411,010 181,031 86,120 179,475 1,419,259 176,648 4,139,521

4,656,547 547,622 252,248 268,641 283,049 1,669,125 177,092 7,854,324 Loans and placements to banks 19 - 2 - 22 21 - 64

Total 4,656,566 547,622 252,250 268,641 283,071 1,669,146 177,092 7,854,388 December 31, 2012 Credit cards 88,619 - 382 51 186 111 - 89,349 Consumer loans 1,540,173 354 84 276 8,008 513 306 1,549,714 Housing loans 1,480,070 76,951 53,450 152,448 92,345 104,837 - 1,960,101 Loans to small entities 507,406 11,219 6,987 1,387 - 1,334 2,715 531,048 Loans to corporate customers 5,701,188 204,661 80,328 192,685 467,940 1,618,115 81,986 8,346,903 9,317,456 293,185 141,231 346,847 568,479 1,724,910 85,007 12,477,115 Loans and placements to banks 283 6 - - - 29 - 318 Total 9,317,739 293,191 141,231 346,847 568,479 1,724,939 85,007 12,477,433




(b) Portfolio Quality (Continued)

Ageing Analysis of Impaired Loans and Placements

Up to 30 days past

due From 31 to

60 days From 60 to

90 days From 91 to

180 days From 180 to

365 days From 1 to 5


December 31, 2013 Credit cards - 9,729 3,290 6,854 7,791 231,537 69,561 328,762 Consumer loans 80 236,766 82,231 103,471 132,360 1,340,576 552,911 2,448,395 Housing loans - 260,251 78,426 78,761 105,558 189,033 10,089 722,118 Loans to small entities 362 10,208 7,048 5,282 12,350 313,607 929,628 1,278,485 Loans to corporate customers 6 29,333 3,064 13,565 461,791 2,620,649 4,374,036 7,502,444 448 546,287 174,059 207,933 719,850 4,695,402 5,936,225 12,280,204 Loans and advances to banks - - - - - 1,167 1,069,231 1,070,398 Total 448 546,287 174,059 207,933 719,850 4,696,569 7,005,456 13,350,602 December 31, 2012 Credit cards - 13,613 6,866 9,125 14,210 292,912 2,289 339,015 Consumer loans - 315,992 94,969 135,843 211,064 1,337,216 379,533 2,474,617 Housing loans - 247,614 91,098 101,255 81,244 106,352 8,555 636,118 Loans to small entities 359 15,839 3,874 6,970 6,546 962,986 736,736 1,733,310 Loans to corporate customers - 15,076 17,694 41,775 68,769 2,508,982 5,633,931 8,286,227 359 608,134 214,501 294,968 381,833 5,208,448 6,761,044 13,469,287 Loans and advances to banks

63

-

8

-

-

3,646

1,024,605

1,028,322

Total 422 608,134 214,509 294,968 381,833 5,212,094 7,785,649 14,497,609

(c) Default Receivables

The Bank gives special attention to default receivables by monitoring the total outstanding balance and the trend of these loans and advances. Default is monitored at the Bank level and in accordance with the product criteria (for retail customers) and the industrial sector the customer belongs to, as well as the maturity structure (for corporate clients and entrepreneurs). In accordance with the regulations, default receivables related to corporate customers and entrepreneurs are monitored at customer (counter party) level, and, as for retail customers, at the level of individual receivable. As of 31 December 2013, default receivables amount to RSD 15,711,638 thousand (31 December 2012: 17,149,905 thousand). Allowances for impairment of default receivables amount of RSD 10,115,487 thousand (31 December 2012: RSD 11,705,976 thousand). Default off-balance sheet items amount to RSD 101,333 thousand as of 31 December 2013 (31 December 2012: RSD 128,376 thousand), while the related provision for those items amounts to zero (31 December 2012 zero).

(d) Rescheduled Loans

The Bank introduced, in 2009, guidelines and/or criteria for rescheduling of corporate and retail loans, based on which rescheduling was performed in 2010,2011,2012 and 2013 as well. Through the aforesaid, the Bank aims to help the debtors/borrowers which are positively assessed as strong enough to overcome the present adverse period to repay properly their debts towards the Bank. Loans to customers, with more significant problems, for which there are doubts about their capability to repay their debts, are not rescheduled.




(d) Rescheduled Loans (Continued) As of 31 December 2013, gross rescheduled loans and advances, including rescheduled loans starting from 2009, amounted to RSD 2,224,118 thousand (31 December 2012: RSD 1,946,082 thousand).

37.3. Liquidity risk

The Bank manages the relevant risk in accordance with its Liquidity Risk Management Policy, updated in 2013, with continued process of regular review, which provides for diversified funding sources in addition to its core deposit base, proper management of assets and liabilities and monitoring of the future cash flows and the liquidity on a daily basis. The Bank daily assesses the expected cash flows in Dinars and foreign currency and the availability of assets which could be used as collaterals to secure additional funding if required.

The Bank manages its assets and liabilities in such a way that it can always fulfill its due obligations and honor its commitments on time.

The Bank’s framework for managing liquidity risk encompasses: • Operating standards relating to liquidity risk, including appropriate policies, procedures and

resources for controlling, limiting and managing liquidity risk. • Maintenance of a stock of liquid assets appropriate for the cash flow profile that can be readily

converted into cash without incurring undue capital losses. • Management of access to funding sources and measurement, control and scenario testing of

funding requirements. • Management information and other systems that identify, measure, monitor and control liquidity

risk. • Contingency plans for handling liquidity disruptions by means of the ability to fund some or all

activities in a timely manner and at a reasonable cost. • Liquidity risk limits (e.g. maturity mismatch ratio, liquid asset ratio) taking into account the existing

regulatory limits.

The Bank has established and maintains adequate liquidity measurement, monitoring and control and reporting functions, addressing: • The maturity profile of cash flows under varying scenarios, including scenarios for non-maturing

assets and liabilities (e.g. savings, credit cards). • The stock of liquid assets available to the institution and their market values. • The ability of the Bank to execute assets sales in various markets (notably under adverse

conditions) and to borrow in markets. • Potential sources of volatility in assets and liabilities (including claims and obligations arising from

off-balance sheet business). • The impact of adverse trends in asset quality on future cash flows and market confidence at the

Bank level. • Creditworthiness and capacity of providers of standby facilities to meet their obligations. • The impact of market disruptions on cash flows and customers. • The type of new deposits being obtained, as well as its source, maturity and price. • The regulatory reporting requirements.



37. RISK MANAGEMENT (Continued) 37.3. Liquidity risk (Continued)

The Market Risk Department of the Risk Management Division is resposnible for the monitoring of the liquidity risk. The daily management of the liquidity is performed by the Treasury Division. The Assets and Liabilities Committee may recommend to the Executive Board measures and actions to improve the maturity structure, and other measures important for the better managing of the liquidity. The level of liquidity is expressed using the ratio of the liquid sum of the first and second level (cash, assets on accounts with other banks, deposits with the National Bank of Serbia, receivables in the process of realization, irrevocable credit lines approved to the Bank, quoted financial instruments and other receivables due within a month) and sum of liabilities on demand without determined maturity date and liabilities with fixed maturity up to a month. In 2013 and 2012, the Bank had in average an indicator of daily liquidity significantly above the prescribed levels by National Bank of Serbia.

The aforementioned ratio in 2013 and 2012 was as presented in the table below:

2012 2012 Average during the period 1.94 2.22 Highest 2.46 3.01 Lowest 1.04 0.98 As of 31 December 2.12 2.04

The maturity structure of guarantees, undrawn loans and limits and other commitments based on the remaining period as of 31 December 2013 and 2012 to the contractual maturity date is presented in the table below:

Up to 14

days

From 15 days to

1 month From 1 to 3

months From 3 to

12 months From 1 to 5


Financial guarantees 28,448 80,133 180,807 766,083 231,375 80,817 1,367,663 Undrawn credit lines 269,489 60,973 606,522 4,356,640 4,354,636 3,843 9,652,103 Other irrevocable

commitments

2,403 - 26,566 50,863 - - 79,832 December 31, 2013

300,340 141,106 813,895 5,173,586 4,586,011 84,660 11,099,598

December 31, 2012 279,939 69,998 847,602 2,749,730 4,226,821 - 8,174,090

The Bank expects that not all of the contingencies and irrevocable commitments will be withdrawn before they expire.



37. RISK MANAGEMENT (Continued) 37.3. Liquidity Risk (Continued)

The Banks’ maturity mismatch of assets and liabilities as of 31 December 2013 is presented in the following table. The table includes financial assets and financial liabilities, presented at their carrying amounts at the reporting date.

Up to 1 month

From 1 to 3 months

From 3 to 12 months

From 1 to 5 years

Over 5 years Total

ASSETS Cash and cash equivalents 16,746,230 - - - - 16,746,230 Revocable deposits and loans 11,884,348 - - - - 11,884,348 Interest and fees receivable, receivables from sales, changes in fair value of derivatives 476,298 - - - - 476,298 Loans and advances to

customers and banks 2,165,532 8,971,946 16,481,306 18,760,939 14,625,626 61,005,349 Securities 567,032 358,471 3,390,165 6,313,787 - 10,629,455 Other placements 322,566 - 41,564 - 325,680 689,810 Other assets 102,162 407 52,330 10,939 - 165,838

Total assets

32,264,168 9,330,824 19,965,365 25,085,665 14,951,306 101,597,328 LIABILITIES Transaction deposits 22,528,501 - - - - 22,528,501 Other deposits 19,652,120 11,015,737 30,875,645 419,300 55,575 62,018,377 Borrowings 435,743 - 2,292,842 - - 2,728,585 Interest, fees and commission payable, change in fair value of derivatives 7,756 - - - - 7,756 Other liabilities 408,210 1,547 13,526 15,917 - 439,200

Total liabilities

43,032,330 11,017,284 33,182,013 435,217 55,575 87,722,419 Net open liquidity position as of:

– December 31, 2013 (10,768,162) (1,686,460) (13,216,648) 24,650,448 14,895,731 13,874,909 – December 31, 2012 (5,855,501) (3,063,527) (12,930,251) 20,355,553 14,012,748 12,519,022

The Bank’s management judges that the diversification of deposits by the type of deposit placed and the number of customers, as well as the historical experience of the Bank, provide adequate assurance that its deposits represent a stable and reliable source of finance. The structure of the Bank’s assets and liabilities components as classified into their relevant maturities at 31 December 2013 indicating the existence of gaps for time zones that are distributed at periods up to one month, one to three months in the period from three to twelve months and one to five years and over five years.



37. RISK MANAGEMENT (Continued) 37.3. Liquidity Risk (Continued)

Maturity Mismatch Analysis

The table below analyses assets and liabilities of the Bank into relevant maturity groupings based on the remaining period on the balance sheet date to the contractual maturity date. The Bank experience is also hereby noted, based on which, assets and liabilities of a nominal short term, because of continuous roll-overs, may have practically a much longer term. The following table presents Maturity Mismatch report of assets and liability as of 31 December 2013:

Up to 1 month

From 1 to 3 months

From 3 to 12 months

From 1 to 5 years Over 5 years Total

ASSETS Cash and cash equivalents 16,746,230 - - - - 16,746,230 Revocable deposits and loans 11,884,348 - - - - 11,884,348 Interest and fees receivable,

receivables from sales, changes in fair value of derivatives 476,298 - - - -

476,298 Loans and advances 2,165,532 8,971,946 16,481,306 18,760,939 14,625,626 61,005,349 Securities 567,032 358,471 3,390,165 6,313,787 - 10,629,455 Equity investments - - - - 261,838 261,838 Other placements 322,566 - 41,564 - 325,680 689,810 Intangible assets - - - - 395,428 395,428 Property, plant and equipment and

investment property - - - - 4,837,751

4,837,751 Non-current assets held for sale and discontinued operations 3,171 3,303 95,263 121,234 -

222,971

Deferred tax assets - - 2,024 296,859 181,432 480,315 Other assets 584,912 55,039 337,315 253,343 - 1,230,609 Total assets 32,750,089 9,388,759 20,347,637 25,746,162 20,627,755 108,860,402 LIABILITIES AND EQUITY Sight deposits 22,528,501 - - - - 22,528,501 Other deposits 19,652,120 11,015,737 30,875,645 419,300 55,575 62,018,377 Borrowings 435,743 - 2,292,842 - - 2,728,585 Interest and fees payable and

changes in fair value of derivatives 7,756 - - - -

7,756 Provisions - - - - 480,381 480,381 Tax liabilities 25,178 4,003 - - - 29,181 Deferred tax liabilities - - - 1,453 167,211 168,664 Other liabilities 1,009,196 101,904 206,836 24,260 5,338 1,347,534 Total liabilities 43,658,494 11,121,644 33,375,323 445,013 708,505 89,308,979 Total equity - - - - 19,551,423 19,551,423 Total liabilities and equity 43,658,494 11,121,644 33,375,323 445,013 20,259,928 108,860,402 Maturity mismatch as of: - December 31, 2013 (10,908,405) (1,732,885) (13,027,686) 25,301,149 367,827 - December 31, 20112 (6,043,885) (3,042,965) (13,151,361) 21,036,360 1,201,851



37. RISK MANAGEMENT (Continued) 37.4. Market Risks

The main document, based on which the Bank manages the market risks is the Trading Book Policy, which defines the measurement methodologies, processes and tools, risk limits, reporting and remedial action guidelines and responsibilities, as well as trading book definition, for both accounting and capital adequacy purposes. This Policy was updated in 2013, and it is subject to regular review. Apart from it, several other Regulations are applied, in accordance with the risk strategy, the instructions of the NBG Group and the regulations of the local authorities. The Bank has established and maintains adequate market risk measurement, monitoring, and control functions, including: – Market risk measurement processes that capture all material sources of market risk and assess the

effect of market risk factors’ changed in ways that are consistent with the scope of Bank’s activities. These measurement systems include VaR for the major foreign currencies and models where appropriate.

– Operating limits and other practices that maintain exposures within levels consistent with internal policies, in terms of exposure to individual market risk types, position and loss limits.

– Measurement of vulnerability to loss under stressful market conditions (including the breakdown of key assumptions) considering those results when establishing and reviewing policies and limits for market risks.

– Adequate and effective processes and information systems for measuring, monitoring, controlling and reporting market risk exposures. Relevant IT systems must be sophisticated enough to cover the complexity of trading activities of Bank. Controls (limits) are embedded in these systems. Reports must be provided on a timely basis to the Board of Directors, Executive Board, Senior Management, and all other appropriate levels.

37.4.1. Interest Rate Risk

The Bank is exposed to this risk based on items from the banking book, and it assesses the aforementioned risk in total and per each significant foreign currency for whose definition it has established criteria. In accordance with these criteria, the Bank considers RSD, EUR, USD and CHF to be materially significant currencies. Established Policy for management of interest rate risk in banking book is a document whose main objective is management process identifying, measuring, mitigating, monitoring and reporting of interest rate risk. The Bank’s goal when managing the interest rate risk is to optimise its effect to the changes in interest rate on one hand and the economic value of equity on the other. In determining interest rates the Bank considers market interest rates and their movements. Interest rate changes result in increases or decreases in interest margins. The Market Risk Department of the Risk Management Division monitors the interest rate risk, while the Asset and Liability Management Committee may propose to the Bank’s Executive Board measures and actions for the maturity matching of assets and liabilities based on the Bank’s strategy, on macroeconomic analysis, on forecasts of the Bank’s liquidity and on interest trends analysis for different segments of assets and liabilities.



37. RISK MANAGEMENT (Continued) 37.4. Market Risks (Continued) 37.4.1. Interest Rate Risk (Continued)

The following table shows Reprising Gap report, i.e. the Bank’s exposure to the interest rate risk as of 31 December 2013. The table includes the Bank’s assets and liabilities at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates.

Up to1 month

From 1 to 3 months

From 3 to 12 months Over 1 year

Non-interest bearing Total

ASSETS Cash and cash equivalents 7,915,858 - - - 8,830,372 16,746,230 Revocable deposits and loans - - - - 11,884,348 11,884,348 Interest and fees receivable,

receivables from sales, changes in fair value of derivatives - - - - 476,298 476,298

Loans and advances 22,528,135 19,156,006 5,377,808 13,943,400 - 61,005,349 Securities 1,007,354 358,471 2,961,514 5,967,217 334,899 10,629,455 Equity investments - - - - 261,838 261,838 Other placements 301,359 - - 346,887 41,564 689,810 Intangible assets - - - - 395,428 395,428 Property, plant and equipment and investment property - - - - 4,837,751 4,837,751 Non-current assets held for sale and discontinued operations - - - - 222,971 222,971 Deferred tax assets - - - - 480,315 480,315 Other assets - - - - 1,230,609 1,230,609 Total assets 31,752,706 19,514,477 8,339,322 20,257,504 28,996,393 108,860,402 LIABILITIES AND EQUITY Sight deposits 8,741,937 - - - 13,786,564 22,528,501 Other deposits 18,796,612 10,865,504 30,728,088 82,386 1,545,787 62,018,377 Borrowings 316,100 - 2,292,842 - 119,643 2,728,585 Interest and fees payable and changes in fair value of derivatives - - - - 7,756 7,756 Provisions - - - - 480,381 480,381 Tax liabilities - - - - 29,181 29,181 Deferred tax liabilities - - - - 168,664 168,664 Other liabilities 29,286 - - - 1,318,248 1,347,534 Total liabilities 27,883,935 10,865,504 33,020,930 82,386 17,456,224 89,308,979 Total equity - - - - 19,551,423 19,551,423 Total liabilities and equity 27,883,935 10,865,504 33,020,930 82,386 37,007,647 108,860,402 Interest sensitivity gap as of: – December 31, 2013 3,868,771 8,648,973 (24,681,608) 20,175,118 (8,011,254)

– December 31, 2012 12,928,560 (1,107,512) (27,153,908) 18,368,291 (3,035,431)



37. RISK MANAGEMENT (Continued) 37.4. Market Risks (Continued) 37.4.1. Interest Rate Risk (Continued)

Interest rate risk is also monitored by scenario analyses, i.e. observing the effect of interest rate fluctuations to the Bank’s income and expenses, as presented in the following table:

Change in

percentage

Income statement sensitivity

2013 Change in

percentage

Income statement sensitivity

2012 Increase in percentage 1% 80,922 1% 30,661 Decrease in percentage -1% (79,319) -1% (30,054) Interest Rate Risk in the Banking Book The Bank has established and maintains adequate measurement, monitoring, and control functions for interest rate risk in the banking book, including measurement systems that capture all material sources of interest rate risk and that assess the effect of interest rate changes in ways that are consistent with the scope of the Bank’s activities. Exposure to the interest rate risk arising from financial instruments as of the balance sheet date is presented in the following table:

Interest bearing

Non-interest bearing Total

ASSETS Cash, cash equivalents 7,915,858 8,830,372 16,746,230 Revocable deposits and loans - 11,884,348 11,884,348 Interest, fees and commission receivables, change in fair value of derivatives and other receivables - 476,298 476,298 Loans and advances 61,005,349 - 61,005,349 Securities 10,294,556 334,899 10,629,455 Other placements 648,246 41,564 689,810 Other assets - 165,838 165,838 Total assets 79,864,009 21,733,319 101,597,328 LIABILITIES Sight deposits 8,741,937 13,786,564 22,528,501 Other deposits 60,472,590 1,545,787 62,018,377 Borrowings 2,608,942 119,643 2,728,585 Interest and fees payable and changes in fair

value of derivatives - 7,756 7,756 Other liabilities 29,286 409,914 439,200 Total liabilities 71,852,755 15,869,664 87,722,419 Net open interest rate position as of: – December 31, 2013 8,011,254 5,863,655 13,874,909 – December 31, 2012 3,035,431 9,483,591 12,519,022



37. RISK MANAGEMENT (Continued) 37.4. Market Risks (Continued) 37.4.2. Foreign Currency Risk

The banking operations in different foreign currencies cause the exposure to fluctuation in foreign currencies exchange rates. The Bank manages foreign currency risk, striving to prevent adverse effects of changes in cross-currency rates and foreign exchange rates comparing to dinar (foreign currency losses) on the Bank’s financial result, as well as on customers’ ability to repay loans in foreign currency. For the purposes of protection against the foreign currency risk, the Bank monitors the changes in foreign currency exchange rate on the financial market on daily basis, carries out the policy of low level exposure to the foreign currency risk and contracts the foreign currency clause with its customers, the monitoring results obtained during the simulations of stress test. The Bank has established and maintains adequate FX risk measurement, monitoring and control functions, including an application to daily monitor the open position of the Bank in foreign currencies, which at 31 December 2013, was as follows:

EUR USD

Other foreign

currencies

Total in foreign

currency Total in local

currency Total ASSETS Cash and cash equivalents 5,492,884 618,420 1,320,432 7,431,736 9,314,494 16,746,230 Revocable deposits and loans 11,884,348 - - 11,884,348 - 11,884,348 Interest, fees and commission receivables,

change in fair value of derivatives and other receivables 373,254 554 14,168 387,976 88,322 476,298

Loans and advances 33,363,248 483,951 5,679,961 39,527,160 21,478,189 61,005,349 Securities 4,890,303 - - 4,890,303 5,739,152 10,629,455 Equity investments 1,513 15,143 - 16,656 245,182 261,838 Other placements 178,898 343,643 637 523,178 166,632 689,810 Intangible assets - - - - 395,428 395,428 Property, plant, equipment and investment

property - - - - 4,837,751 4,837,751 Non-current assets held for sale and discontinued operations - - - - 222,971 222,971 Deferred tax assets - - - - 480,315 480,315 Other assets 266,010 4,237 31,600 301,847 928,762 1,230,609 Total assets 56,450,458 1,465,948 7,046,798 64,963,204 43,897,198 108,860,402 LIABILITIES Sight deposits 5,440,595 210,400 189,086 5,840,081 16,688,420 22,528,501 Other deposits 51,220,450 1,144,661 1,451,193 53,816,304 8,202,073 62,018,377 Borrowings 2,372,645 14,766 9,574 2,396,985 331,600 2,728,585 Interest and fees payable and changes in fair

value of derivatives 210 - - 210 7,546 7,756 Provisions - - - - 480,381 480,381 Tax liabilities - - - - 29,181 29,181 Deferred tax liabilities - - - - 168,664 168,664 Other liabilities 540,543 4,467 9,898 554,908 792,626 1,347,534 Total liabilities 59,574,443 1,374,294 1,659,751 62,608,488 26,700,491 89,308,979 Forward and spot position 3,050,840 (86,389) (5,422,119) (2,457,668) 2,469,491 – December 31, 2013 (73,145) 5,265 (35,072) (102,952) 19,666,198 – December 31, 2012 (889,452) 12,116 (89,983) (967,319) 18,968,402



37. RISK MANAGEMENT (Continued) 37.4. Market Risks (Continued) 37.4.2. Foreign Currency Risk (Continued)

Exposure to the foreign currency risk arising from financial instruments as of the balance sheet date is presented in the following table:

EUR USD Other foreign

currencies

Total in foreign

currency Total in local

currency Total Financial assets Cash and cash equivalents 5,492,884 618,420 1,320,432 7,431,736 9,314,494 16,746,230 Revocable deposits and loans 11,884,348 - - 11,884,348 - 11,884,348 Interest, fees and commission receivables, change in fair value of derivatives and other receivables 373,254 554 14,168 387,976 88,322 476,298 Loans and advances 33,363,248 483,951 5,679,961 39,527,160 21,478,189 61,005,349 Securities 4,890,303 - - 4,890,303 5,739,152 10,629,455 Other placements 178,898 343,643 637 523,178 166,632 689,810 Other assets 18,426 (623) 23,652 41,455 124,383 165,838 Financial assets 56,201,361 1,445,945 7,038,850 64,686,156 36,911,172 101,597,328 LIABILITIES Sight deposits 5,440,595 210,400 189,086 5,840,081 16,688,420 22,528,501 Other deposits 51,220,450 1,144,661 1,451,193 53,816,304 8,202,073 62,018,377 Borrowings 2,372,645 14,766 9,574 2,396,985 331,600 2,728,585 Interest and fees payable and changes in fair value of derivatives 210 - - 210 7,546 7,756 Other liabilities 183,577 538 5,299 189,414 249,786 439,200 Financial liabilities 59,217,477 1,370,365 1,655,152 62,242,994 25,479,425 87,722,419 Forward and spot position 3,050,840 (86,389) (5,422,119) (2,457,668) 2,469,491 Net foreign currency position as of: – December 31, 2013 34,724 (10,809) (38,421) (14,506) 13,901,238 – December 31, 2012 (459,361) (2,797) (94,762) (556,920) 13,064,722



37. RISK MANAGEMENT (Continued) 37.4. Market Risks (Continued) 37.4.2. Foreign Currency Risk (Continued)

The sensitivity analysis of financial assets and liabilities provides for two scenarios prepared on the basis of the assumed potential movements in foreign exchange, where all other variables remain constant, and presents potential effects on the financial result. • Proportionate fluctuations in foreign exchange of +10% (foreign exchange depreciation); and • Proportionate fluctuations in foreign exchange of -10 % (RSD depreciation).

2013 Foreign exchange fluctuations Total 10% -10% ASSETS Cash and cash equivalents 7,431,736 825,748 (675,612) Revocable deposits and loans 11,884,348 1,320,483 (1,080,395) Interest, fees and commission receivables,

change in fair value of derivatives and other receivables 387,976 43,108 (35,271)

Loans and advances 39,527,160 4,391,907 (3,593,378) Securities 4,890,303 543,367 (444,573) Other placements 523,178 58,131 (47,562) Other assets 41,455 4,606 (3,769) Total assets 64,686,156 7,187,350 (5,880,560) LIABILITIES Sight deposits 5,840,081 648,898 (530,916) Other deposits 53,816,304 5,979,589 (4,892,391) Borrowings 2,396,985 266,332 (217,908) Interest and fees payable and changes in

fair value of derivatives 210 23 (19) Other liabilities 189,414 21,046 (17,219) Total liabilities 62,242,994 6,915,888 (5,658,453) Net exposure to currency risk: – December 31, 2013 271,462 (222,107)

334,714

(259,882) – December 31, 2012

37.5. Exposure/Concentration Risk

The Bank’s exposure risk includes the risk of its exposure to a single person or a group of related parties, as well as its exposure risk to a person related to the Bank. The Bank’s Corporate Lending Policy defines the maximal limits per customer/debtor or a group of customers corresponding to each credit rating notch. Exceptions can be approved only under the consent of the Risk Management Division. At the same time, the above policy complies with the prescribed requirements in respect of exposure risks to a single person or a group of related parties defined by the relevant decisions of the National Bank of Serbia. In 2013, the Bank took care of the adjustment of the exposure risk indicators and performed the appropriate activities envisaged by relevant procedures and decisions on approving loans, secured the compliance of its placements and investments with the indicators prescribed by the National Bank of Serbia (see Note 34(b)).



37. RISK MANAGEMENT (Continued) 37.6. Investment Risk

The Bank’s investment risks include equity investments of the Bank in other legal entities’ capital and in property, plant and equipment. In accordance with the National Bank of Serbia legislation, the level of the Bank’s investments and the level of regulatory capital is being monitored by the Risk Management Function in order to ensure that the Bank’s investments in a single non-financial sector entity do not exceed 10% of its capital, while the total investments of the Bank in non-financial entities and in property, plant and equipment cannot exceed 60% of its regulatory capital. In 2013, the Bank maintained the investment risk indicators within the range prescribed by the National Bank of Serbia.

37.7. Country Risk

The Country Risk Management Policy of the Bank defines roles, responsibilities and procedures for the management of the country risk. The Market Risk Department, organized within the Risk Management Function, is responsible for ensuring and monitoring compliance with internally determined limits of exposures per countries and by the region where these countries belong.

37.8. Operational Risk

The Bank treats operational risks as a distinct risk category. Accountability and responsibilities for these risks reside locally, as close as possible to where the risks actually originate. The Bank has approved a firm-wide and high quality Operational Risk Management Framework in order to: – Promote a Bank wide operational risk awareness and management culture further contributing to

process efficiency and control effectiveness; – Establish a set of fundamental standards for Operational Risk Management across the Bank

leading to the avoidance of unexpected and catastrophic losses and the minimization of expected losses;

– Ensure that business objectives are pursued in a risk-controlled manner; – Ensure the cost-effectiveness of operations by reducing overlaps and avoiding excessive or

obsolete controls; – Ensure consistency with relevant best practices and compliance with regulatory (quantitative and

qualitative) requirements, and – Improve the use of capital and enhance return on capital, regarding operational risk.

The Bank’s Operational Risk Management Framework is business and process oriented aiming to be both proactive and reactive in the management of operational risks. The Bank’s Operational Risk Management Framework includes: – Regular monitoring of operational risk exposure; – An operational risk methodology including risk and control self assessment, key risk indicators and

loss data collection; and – The collection of material operational losses at the Bank level.

The Operational Risk Management Framework, including the applicable strategies of controls and mitigation of risks are reviewed periodically and adjusted in accordance with the overall risk profile of the Bank, as prescribed for the operational risk. Data on operational risks are gathered in all organizational units of the Bank. Data is classified and analyzed, and the methods of risk mitigation and its impact reduction are recommended.

During the course of 2009, the Bank developed its Business Continuity Plan in order to respond to unexpected business disruptions of its Critical Divisions and recover their operations in an organized and efficient way.



37. RISK MANAGEMENT (Continued) 37.8. Operational Risk (Continued)

The Business Continuity Plan aims to: • Ensure the achievement of the desired business recovery and continuity level; • Prevent a Division’s business disruption from having significant impact on another Division’s

business continuity; • Achieve business resumption under the predefined business recovery time period; • Maintain a high level of plan activation and implementation readiness and effectiveness in

relation to the Bank’s critical process recovery; and • Mitigate (if possible) the impact of a potential business disruption and the occurring possibility.

The Disaster Recovery Plan was developed as description of the procedures related to recovery and continuity of the Bank applications, data, hardware, communication and other IT infrastructure, and presumes the existence of an alternative site (Disaster recovery site)).

37.9. Capital Management

The Bank permanently manages its capital, in order to:

- Comply with the capital requirements set by the National Bank of Serbia; - Provide an adequate level of capital so as to enable the Bank to continue its operations as a going

concern; and - Maintain a strong capital base to support the development of its business.

The Bank’s management monitors regularly the Bank’s capital adequacy ratios and other ratios established by the National Bank of Serbia and delivers quarterly reports on achieved values of ratios. The Bank manages its capital structure and may make adjustments to it, after approval by the NBG Group and in the light of changes in economic conditions and the risk characteristic of its activities. The Bank’s strategy of capital management has remained unchanged in comparison with the prior year.

The National Bank of Serbia has defined the following capital limits:

- The minimum amount of the capital of EUR 10 million; and - The minimum of the Capital adequacy ratio of 12%.

In accordance with the Decision on the Capital Adequacy of Banks (“Official Gazette of the Republic of Serbia”, no. 46/2011), the method of calculating the regulatory capital adequacy has been determined.

The Bank’s capital comprises sum of Core Capital (Tier 1) and Supplementary Capital (Tier 2), reduced for deductible items: – Core Capital (Tier 1) includes: Paid up shares (excluding preference cumulative shares); Premium

on issued shares; Reserves allocated from profit; and profit of the Bank; reduced for losses from earlier years; Current year losses; Intangible investments; Acquired own common and preference shares (excluding preference cumulative shares); Common and preference shares (excluding preference cumulative shares) pledged with Bank; and Regulatory value adjustments.

– Supplementary Capital (Tier 2) includes: Paid up preference cumulative shares; Premium on issued shares; Part of positive revaluation reserves; hybrid instruments; subordinated debt; reduced for Own preference cumulative shares; Preference cumulative shares pledged with Bank; and Claims covered by hybrid instruments and subordinated debts of the Bank.

– Deduction items from Capital in case of Bank include: Amount of which is exceeded qualified participation of Bank in non-financial entities; and Amount of needed reserve for estimated losses on balance sheet and off-balance items.

Capital adequacy ratio of the Bank is equal to the ratio of the Bank’s capital and the sum of the credit risk-weighted assets, capital requirement in relation to market risk multiplied with the reciprocal value of the capital adequacy ratio, and capital requirement in relation to operational risk multiplied with the reciprocal value of the capital adequacy ratio.




37.9. Capital Management (Continued)

The table below summarizes the structure of the Bank’s capital as of 31 December 2013 and 2012, as well as the capital adequacy ratio:

2013 2012 Regulatory capital Tier 1 capital 12,176,479 14,295,215 Tier 2 capital 1,260,101 1,256,607 Total Tier 1 and Tier 2 capital 13,436,580 15,551,822 Deductible items: Shortfall amount of the special reserves

for potential losses (4,137,620) (5,655,792) Exceeded qualified investments in non-financial entities (268,339) (304,486) Total (1) 9,030,621 9,591,544 Risk weighted assets Balance sheet assets 44,616,871 46,195,012 Off balance sheet items 3,237,450 2,044,978 Non-trading derivatives 18,866 15,374 Operational risk exposure 6,342,292 6,712,825 Foreign currency risk exposure - 1,125,308 Price risk exposure 145,000 153,150 Total (2) 54,360,479 56,246,647 Capital adequacy (1/2 x 100) 16.61% 17.05%

37.10. Judgements on the Effects of the Global Financial Crisis

The economy of Serbia after recession in 2009 has been started to recover in 2010 effecting growth of real GDP for 1%. Economic recovery underpinned by export increase towards EU has been slowing down during 2011 due to negative effects of second wave of global economic crisis particularly in virtue of weakening of economic growth and financial problems in eurozone Second wave of global crisis during 2012 has caused recession trends in Serbian economy (downfall of real GDP for 1.7%) expressed through downturn of economic activity and foreign trade caused by slow down of foreign and domestic demand and decline of capital inflow from abroad in virtue of investors prudence and deterioration of conditions through world financial markets. In accordance with expectations, during 2013 the economic growth has been accomplished and as well as inflation rate has been restrained in targeted limits and it could be appreciated as well performance in changed post crisis environment.

During all these years (first and second wave of crisis) the Government of the Republic of Serbia and the National Bank of Serbia have undertaken a series of short-term and long-term measures in order to mitigate the effects of the financial crisis, preserve the stability of the banking system in Serbia as well as set down the conditions for reviving economic activity by offering more favourable lending terms and conditions. The Government of the Republic of Serbia has continuously implemented the Plan for the Economic Stability of Serbia ever since March 2009 by means of a range of anti-crisis measures directed towards corporate liquidity maintaining the level of employment unloading of economic subjects and decreasing of public spending.. The package of incentive measures included subsidized loans for corporate liquidity, subsidized consumer loans for purchasing domestic consumer durables, subsidized investment loans, favourable loans for SMEs originating from foreign credit lines and subsidized housing loans.




37.10. Judgements on the Effects of the Global Financial Crisis (Continued)

Owing to the comprehensive programme of measures and lending from the IMF, the Government and the National Bank of Serbia have responded to the challenges posed by the economic crisis and maintained the macroeconomic and financial stability. The key role in this process has been played by the fiscal policy which reduced the volume of government spending through its measures and ensured regular payment of current expenses and the implementation of national infrastructure projects. The economic and monetary policies have contributed to mitigating the consequences of the global financial and economic crisis, stabilizing the economic situation and ensuring a steady economic recovery from 2013. The Bank's Management expects that the effects of the global crisis could continue to influence the volume of economic activity, the maintenance of the liquidity of business entities, and the collection rate regarding receivables from borrowers, though with a reduced intensity.

In accordance with the regulatory requirements and measures by the NBS, as well as the internal risk and capital management policies, the Bank conducts appropriate activities which can ensure the provision of adequate capital, the expected growth in credit facilities, future sources of funding and their usage in order to maintain the quality of its credit portfolio.

Such activities particularly include the prudential policy of granting loans, the analysis of debtors’ creditworthiness, obtaining relevant collaterals for securing the collection of receivables, appropriate provisions for credit risks as well as providing the adequate regulatory and internal capital in line with the NBS requirements. The Bank’s Management believes that collection of receivables, risk and capital management and provision of appropriate sources of funding will continue to be the key choices of the Management and the Bank’s managing bodies in the forthcoming period.

The current economic and financial crisis has had a limited effect on the Bank’s financial position and performance so far, mostly owing to the internal acts regarding risk and capital management and the restrictions imposed by the valid legal provisions. In this respect, the Bank has adopted strict procedures for granting loans, assessing and accepting collaterals as well as for the Bank’s liquidity and asset management activities. All types of risks are monitored on a regular basis and a contemporary capital management practice is being developed so as for the Bank to be able to support its desired risk profile, and thereby, the further growth in its operations. It is expected that the capital adequacy will remain at the level which is higher than the one prescribed by the NBS, which should in turn guarantee the continuation of the Bank’s business activities, even in the case of significantly more unfavourable conditions on the market.

The Bank’s Management believes that, under the given circumstances, it is undertaking all the necessary activities for ensuring sustainable growth and development of the Bank.

37.11. Fair Value of Financial Assets and Liabilities

It is a policy of the Bank to disclose the fair value information of those components of assets and liabilities for which published or quoted market prices are readily available, and of those for which the fair value may be materially different than their carrying amounts. A market price, where an active market exists, is the best evidence of the fair value of a financial instrument. However, market prices are not available for a significant number of financial assets and liabilities held by the Bank. Therefore, for financial instruments where no market price is available, the fair values of financial assets and liabilities are estimated using present value or other estimation and valuation techniques based on current prevailing market conditions. In the Republic of Serbia, sufficient market experience, stability and liquidity do not exist for the purchase and sale of receivables and other financial assets or liabilities, for which published market prices are presently not readily available. As a result of this, fair value cannot readily or reliably be determined in the absence of an active market.

The Bank’s management assesses its overall risk exposure, and in instances in which it estimates that the value of assets stated in its books may not have been realized, it recognizes a provision.




37.11. Fair Value of Financial Assets and Liabilities (Continued) In the opinion of the Bank’s management, the reported carrying amounts are the most valid and useful reporting values under the present market conditions, as required under the Law on Audit and Accounting and regulations.

The following table presents the carrying amounts and fair values of the main categories of financial assets and liabilities at the reporting date:

Carrying Value Fair Value December 31, December 31, December 31, December 31, 2013 2012 2013 2012 Financial assets Revocable deposits 11,884,348 12,951,499 11,884,348 12,951,499 Loans and advances 61,005,349 60,640,291 60,964,040 60,339,000 Securities 10,629,455 6,168,556 10,629,455 6,168,556 Total 83,519,152 79,760,346 83,477,843 79,459,055 Financial liabilities Sight deposits 22,528,501 18,387,778 22,528,501 18,387,778 Other deposits 62,018,377 59,878,926 62,166,224 60,158,231 Borrowings 2,728,585 5,230,693 2,728,585 5,230,693 Total 87,275,463 83,497,397 87,423,310 83,776,702

Out of the above listed financial instruments, only securities held for trading and securities available-for-sale are measured at fair value.

Equity investments that do not have a quoted market price in an active market and for which other methods of reasonably estimating fair value are inappropriate, are excluded from measurement at fair value and stated at cost less any allowance for impairment.

All other assets and liabilities have been stated at amortised cost and variable interest rates. In regular intervals their cost is predetermined. Consequently, the Bank is not exposed to the risk of changes in fair value, and the carrying value of assets and liabilities does not depart from their fair value significantly. The following methods and assumptions were used to estimate the fair values of the Bank’s financial instruments as of 31 December 2013 and 2012:

Cash and Cash Equivalents: The carrying amount of cash and cash equivalents approximates their fair value.

Revocable Deposits: The fair value of revocable deposits with no defined maturity is determined to be the amount payable on demand at the reporting date. The fair value for fixed-maturity deposits is estimated using discounted cash flow models based on rates for similar remaining maturities. Loans and Advances: The fair value of loans to customers is estimated using discounted cash flow models. The discount rates are based on current market interest rates offered for instruments with similar terms to borrowers of similar credit quality. The fair value for impaired loans is estimated using discounted cash flow analysis or underlying collateral values, where applicable.

Trading and Available-for-Sale Securities: Fair value of trading and available-for-sale assets, which is also the amount recognized in the balance sheet, is based on quoted market prices of the same or comparable instruments. These instruments are included in level 1 of the fair value measurement hierarchy. For debt instruments, for which such quoted market prices are not available the fair value is estimated using discounted cash flow analysis based on contractual cash flows discounted at the corresponding market rates.




37.11. Fair Value of Financial Assets and Liabilities (Continued) Derivative Financial Instruments: All derivatives are recognized on the balance sheet at fair value. For exchange-forward contracts and options traded on active markets, fair value is based on quoted market prices. For non-exchange traded contracts, fair value is based on dealer quotes and discounted cash flow analysis. Transaction Deposits, Other Deposits and Borrowings: Deposits from other banks and customers are mostly on demand and with short-term maturity, all deposits bear variable market interest rates; therefore management of the Bank is of the opinion that the fair value of deposits is equal to their carrying values. The fair value of other borrowed funds is estimated using discounted cash flow analysis based on the Bank’s current incremental borrowing rates for similar types of borrowings arrangements Fair Value Hierarchy

IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market assumptions. These two types of inputs have created the following fair value hierarchy. Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The fair value hierarchy for the financial assets and liabilities of the Bank measured at fair value as of 31 December 2013 is summarized below: Level Total Derivatives (Note 35 d) 3 15,669,415 Bank and corporate shares (Note 22) 1 334,898 RSD Treasury bills of the Republic of Serbia (Note 22) 2 5,371,275 Foreign currency Treasury bills of the Republic of Serbia

(Note 22) 2 4,889,832 38. COMMITMENTS AND CONTINGENT LIABILITIES

(a) Operating Lease Commitments

The Bank has entered into commercial operating leases on certain business premises. The future minimum lease payments are as follows:

December 31,

2013 December 31,

2012 Up to 1 year 244,881 241,216 From 1 to 5 years 624,723 530,483 Over 5 years 535,731 632,104 1,405,335 1,403,803



38. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) (b) Litigations

As of 31 December 2013, the Bank acted as a defendant in a certain number of legal proceedings. The total estimated value of damage claims arising from the litigations, including court expenses and interest, amounts to RSD 1,626,949 thousand (31 December 2012: RSD 1,427,517 thousand). The final outcome of the legal proceedings still in process is uncertain. As disclosed in Note 31 to the financial statements, as of 31 December 2013, the Bank recognized provision of RSD 247,586 thousand (31 December 2012: RSD 307,967 thousand) for potential losses that might arise as a result of the litigations with estimated negative outcome. The above stated amount includes penalty interest from damage claims together with court expenses calculated throughout 31 December 2013. The Bank’s management considers that no material losses will arise from the remaining litigations still in course, other than those provided for.

(c) Tax Risks

Tax system in the Republic of Serbia is undergoing continuous amendments. Tax period in the Republic of Serbia is considered to be open in the five-year period. In different circumstances, tax authorities could have different approach to some problems, and could detect additional tax liabilities together with related penalty interest and fines. The Bank’s management believes that tax liabilities recognized in the accompanying financial statements are fairly presented.

39. RECONCILIATION OF OUTSTANDING BALANCES WITH COUNTERPARTIES

In accordance with Article 18 of the Law on Accounting, the Bank performed reconciliation of receivables and payables with its debtors and creditors, and it maintains credible documentation on the circularization process.

The Bank submitted the confirmations to its customers and debtors with the outstanding balance of receivables/payables as of 31 October 2013. During the course of the audit, the status compliance with major customers was performed as of December 31 December 2013.

Based on the exchanged confirmations, the total amount of non-reconciled confirmations related to balance sheet items amounts to RSD 26,925 thousands, while for off-balance sheet items this amount is RSD 88,532 thousand. Moreover, confirmations returned due to failure to deliver amount to RSD 130,043 thousand and refer to the off-balance sheet items.

40. EVENTS AFTER THE REPORTING PERIOD

There have been no significant events subsequent to the reporting date, which would require adjustments and/or disclosures in the Notes to the accompanying financial statements of the Bank as of and for the year ended December 31, 2013.

41. EXCHANGE RATES

The official exchange rates of the National Bank of Serbia, determined on the Interbank Foreign Currency Market, used in the translation of balance sheet items denominated in foreign currencies as of 31 December 2013 and 2012 into Serbian Dinars (RSD), for the major currencies were as follows:

In RSD

2013 2012 EUR 114.6421 113.7183 USD 83.1282 86.1763 CHF 93.5472 94.1922

Documents

Vojvodjanska banka a.d., Novi Sad · The accompanying notes form an integral part of these financial statements. These financial statements were approved by the Management of Vojvođanska