2013...CZ and in March 2013 opened the first flagship branch in Prague in the presence of Herman...

Annual Report

2013

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Sberbank CZ, a.s.

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ContentsBoard of Director’s statement 2

About Sberbank and Sberbank Europe 4

Key figures in summary 5

Governing bodies 6

Organisation chart 8

General economic background 9

Business activities 10

Risk management 16

Other Information 19

Corporate social responsibility of Sberbank CZ 27

Statement of comprehensive income for the year ended 31 December 2013 31

Statement of financial position as at 31 December 2013 32

Statement of changes in equity for the year ended 31 December 2013 33

Statement of cash flow for the year ended 31 December 2013 34

Notes to the financial statement 36

Quantitative indices 119

Report on relations 120

Independent auditor’s report 122

Report of the Supervisory Board 124

Our network 126

SBERBANK CZ | ANNUAL REPORT 2013 | BOARD OF DIRECTOR’S STATEMENT 32

Ladies and Gentlemen,Dear Clients, Business Partners and Stakeholders

The year of 2013 was a year of significant changes in the twenty years of our existence in the Czech market. In 2013, we successfully underwent a comprehensive process of rebranding and re-design following the change in our main shareholder in 2012 and saw major changes in our top management. Yet, we managed to keep a stable position in the banking market and achieved successful business results.

Our balance sheet total grew year-on-year by 14.94% to CZK 70.5 billion with the adopted business strategy leading to a year-on-year increase in client deposits in-cluding debt securities in issue (19.26%) and client loans (11.92%) highly above the average seen in the banking sector. Our net profit grew year-on-year by 10.05% com-pared to the year-on-year drop of 4.11% witnessed in the banking sector.

These figures are clear evidence of our ambition and plan to grow in the Czech market. In the following five years, our balance sheet total is expected to be CZK 200 billion with our key segments (retail, micro, SME, corporate banking and global markets) further developed and our client portfolio increased to 200,000 clients.

The year of 2013 was marked by rebranding. On 28 Feb-ruary 2013, we officially changed our name to Sberbank CZ and in March 2013 opened the first flagship branch in Prague in the presence of Herman Gref, CEO of Sber-bank. In the first half of the year, we rebranded all our branches and points of sale with the second flagship branch opened in Karlovy Vary at the end of the year and a marketing campaign launched to increase brand aware-ness.

In 2013, we saw major changes also in our top man-agement. In August 2013, the position of chief executive officer was taken by Vladimír Šolc and the Board of Di-rectors welcomed new members Jiří Antoš, Martin Muránsky and Karel Soukeník joining the remaining board member Frank Guthan. Major changes were seen also in our senior and middle management.

In 2013, we were named Most Client-Friendly Bank 2013 (Best Bank competition) and third Most Dynamic Bank 2013 (Fincentrum Bank of the Year competition) and won recognition for our work and effort under the new brand.

On behalf of our management and our team, thank you for your continued trust and confidence.

Board of Director’sstatement

Vladimír Šolc Jiří Antoš Frank Guthan Martin Muránsky Karel SoukeníkIn 2013, Sberbank CZ was named Most Client-Friendly Bank 2013 (Best Bank competition) and third Most Dynamic Bank 2013 (Fincentrum Bank of the Year competition).

Board of Directors, Sberbank CZfrom left: Frank Guthan, Karel Soukeník, Vladimír Šolc, Martin Muránsky, Jiří Antoš

SBERBANK CZ | ANNUAL REPORT 2013 | KEY FIGURES IN SUMMARYSBERBANK CZ | ANNUAL REPORT 2013 | ABOUT SBERBANK AND SBERBANK EUROPE 54

Key figures in summary

CZK million 2013 2012 2011 2010 2009Total assets 70,472 61,312 51,790 49,334 47,598

Capital adequacy 15.77% 11.78% 13.22% 14.20% 15.46%

Client deposits (liabilities to clients, including debt securities in issue)

57,408 48,135 36,816 34,779 30,170

Receivables from clients 51,421 45,944 41,611 39,147 38,093

Income on financial transactions before provisions and allowances

1,829 1,699 1,678 1,595 1,488

Operating expenses 1,088 930 890 847 835

Profit on ordinary activities before tax 286 270 443 345 276

Profit for the year 230 209 346 271 185

Number of employees* 719 668 637 622 695

Number of points of sale 22 24 24 45 57

* including employees on maternity leave

About Sberbankand Sberbank Europe

As an important part of one of the largest, fastest grow-ing, and dynamic banking organisations in the world – we at Sberbank Europe aspire to be recognised as a game-changing innovator, an emerging leader in CEE banking with growing presence and recognition in Western Eu-rope. Sberbank Europe AG manages a banking network of nine universal banks in eight Central and Eastern Eu-ropean countries: Slovakia, Czech Republic, Hungary, Slovenia, Croatia, Bosnia-Herzegovina, Serbia, and the Ukraine. In total the bank operates 280 branches and has 4.500 employees (as at 31.12.2013).

In 2013 a lot of positive changes happened throughout Sberbank Europe and its subsidiaries in Central and Eastern Europe. We have started a fundamental trans-formation and integration program to benefit from the synergies as a member of one of the leading banking groups worldwide.

One of the most visible achievements was the introduc-tion of the Sberbank brand to all our markets. During the year we have rebranded all of our branches as well as expanded our network. This change is more than a color change. It’s a fundamental re-look of products, processes and customer experience.

Understanding and addressing the financial needs of our customers is our #1 priority. We have introduced new products and services that enable our customers to fulfill their aspirations – for their private lives, for their own small and medium enterprises or for large corporate busi-nesses. We will continue to bring innovative products and services to our markets.

Sberbank is one of the most successful financial institu-tions in the world and a leading market player in deliver-ing innovative products based on excellence and state-of-the-art technology. Combined with the local expertise and customer focus of our employees, Sberbank Europe is building bridges to Eastern business and is a unique banking partner in the CEE region, Russia, the CIS coun-tries and Turkey.

We are proud that in 2013 Sberbank continues to be rec-ognized the “Best Bank in CEE and Russia” by the Euro-money magazine, another recognition after being named “Bank of the Year 2012” by the Banker magazine.

We aim to become the #1 financial partner in Central and Eastern Europe by further developing ourselves and our operations for the benefit of our customers.

Slovakia

Czech RepublicUkraine

HungaryAustria

SloveniaCroatia

Bosnia and Herzegovina

Serbia

2012201120102009

2012201120102009

2012201120102009

2012201120102009

Total assetsCZK billion

Client depositsCZK billion

Income on financial transactionsCZK billion

Loans to clientsCZK billion

30.2

48.1

34.8 36.8

47.6

61.349.3 51.8 1.49

1.701.60 1.68

38.145.9

39.1 41.6

2013

70.5

2013

2013

2013

57.4

1.83

51.4

SBERBANK CZ | ANNUAL REPORT 2013 | GOVERNING BODIES SBERBANK CZ | ANNUAL REPORT 2013 | GOVERNING BODIES 76

Governing bodies

Supervisory BoardChairman

Mark ARNOLDAppointed on: 1 March 2013Experience:19 years of banking experience, 19 years of management experience

Membership on other companies’ bodies:Sberbank Europe AG, Austria: Chairman of the Board of Directors; Sberbank SK, Slovakia: Chairman of the Supervisory Board

Vice-chairman

Valentin MIHOVAppointed on: 4 July 2012Experience:6 years of banking experience, 6 years of management experience

Membership on other companies’ bodies:VS - Bank, Ukraine: Chairman of the Supervisory Board; Sberbank Europe AG, Austria: Member of the Board of Directors; Sberbank Banka d.d., Slovenia, Chairman of the Supervisory Board; Sberbank Magyarországi Zrt., Hun-gary: Chairman of the Supervisory Board

Supervisory Board Members

Irina KREMLEVAAppointed on: 28 March 2012Experience:21 years of banking experience, 7 years of management experience

Membership on other companies’ bodies:United Credit Bureau, Russia: Chairman of the Board of Directors; Cetelem Bank LLC, Russia: Member of the Board of Directors; Sberbank of Russia, Russia: Vice-Chairman of the Board of Directors

Reinhard KAUFMANNAppointed on: 14 June 2013Experience:11 years of banking experience, 9 years of management experience

Membership on other companies’ bodies:Sberbank SK, Slovakia: Member of the Supervisory Board

Robert KVARDAAppointed on: 21 September 2012Experience:9 years of banking experience, 18 years of management experience

No membership on other companies’ bodies.

Luboš VLČEKAppointed on: 18 February 2010Experience:16 years of banking experience, 21 years of management experience


Board of DirectorsChairman

Vladimír ŠOLCAppointed on: 1 August 2013Experience:15 years of banking experience, 12 years of management experience


Members of the Board of Directors

Frank GUTHANAppointed on: 1 March 2012Experience:21 years of banking experience, 19 years of management experience


Jiří ANTOŠAppointed on: 11 July 2013Experience:15 years of banking experience, 15 years of management experience

Membership on other companies’ bodies:BranchPro, s.r.o., Slovakia: Chief Executive

Martin MURÁNSKYAppointed on: 1 October 2013Experience:17 years of banking experience, 12 years of management experience


Karel SOUKENÍKAppointed on: 1 October 2013Experience:9 years of banking experience, 9 years of management experience


SBERBANK CZ | ANNUAL REPORT 2013 | ORGANISATION CHART SBERBANK CZ | ANNUAL REPORT 2013 | GENERAL ECONOMIC BACKGROUND 98

Organisation chart General economic background

In 2013, the Czech economy recovered from recession. First positive signs of the economic recovery appeared already in 2Q/2013, indicating a quarter-on-quarter growth by 0.6%. This trend continued also during the subsequent quarters. In 2013, the Czech economy saw a year-on-year growth of 1.3%, especially considering the result of 4Q/2013 (quarter-on quarter growth of 1.9%) exceeded all expectations.

The Czech economy was primarily underpinned by the relatively strong recovery in the industry prompted main-ly by the positive development tendencies in the markets of our largest business partners and partially by ending a spell of fiscal consolidation. Impact of household con-sumption was found to be less significant, as the curren-cy intervention by the Czech National Bank had prompted the increase in demand for imported goods before the expected rising of prices.

If the Czech economy maintains the same dynamics in growth as seen in 4Q/2013, the Czech Republic’s GDP could increase by 2% in 2014. Such scenario, however, appears quite unlikely; nonetheless, we assume that the Czech economy can achieve a 1% year-on-year growth after years of recession.

Although the overall performance of the Czech economy improved in 2013, the unemployment rate, on the other hand, gradually increased reaching 8.18% at the end of the year. With ending seasonal employments, the unem-ployment rate peaked at 8.63% at the beginning of 2014 (630,000 unemployed) hitting the worst level in the last years. As it is assumed that the recovery of the Czech economy will pick up pace soon, the unemployment rate is expected to gradually decrease in 2014 and linger at 8% by the end of the year.

Gradually decreasing from the level of 1.9% and fluctuat-ing below the level of the inflation target set by the Czech National Bank during the year, consumer inflation reached 1.4% at the end of 2013. The slight increase thereof was observed in the last month of 2013 with respect to the Czech crown weakened by the intervention in the coun-try’s monetary policy by the Czech National Bank. Data from the first months of 2014 indicate a continuing trend of 2013, i.e. further decrease in consumer inflation. Con-sidering the fact that no inflationary pressures are ex-pected, the inflation shall remain below the inflation tar-get set by the Czech National Bank, which is around 1%.

After several years of decrease and stagnation, the Czech industry saw in 2013 the highest year-on-year growth of the past 21 months. The industrial production in 2013 increased on a year-on-year basis by 9.3%, notably be-cause of the significant growth in the last months of the year. The results thereof reflect both the economic re-covery of the Czech export market and the domestic market, especially the Czech automotive industry, ma-chinery and manufacture of other means of transport. The positive trends shall prevail also for the rest of 2014, supported by the expected positive outcome of foreign exchange intervention by the Czech National Bank from the end of 2013. In 2014, the industrial production is ex-pected to grow by approximately 3%.

Development of interest rates and the Czech crown

By decreasing the two-week key repo rate to 0.05% in 2012, the Czech National Bank depleted one of the monetary policy instruments. Consumer inflation fluc-tuated below the level of the inflation target for the most part of the year. The CZK interest rates were close to the lowest level in history for the most part of the year. In reaction to the development of inflation, long-term interest rates also fell and reached the historical low. Considering the anticipated further development of the consumer prices, CZK rates in 2014 will remain at the levels achieved at the end of 2013. A rise in the interest rates may be expected by 2015, or, in case of slower eco-nomic growth, after 2015.

For the most of 2013, the CZK exchange rate was quite stable, without any deviations. Comments from central bankers about contemplated interventions directed at weakening the Czech currency also influenced the CZK exchange rate against euro over the course of the year. The Czech National Bank finally decided to use the in-terventions directed at weakening the Czech currency at the beginning of November. The Czech National Bank managed to keep the exchange rate at 27.50 CZK/EUR. The Czech National Bank announced that it would keep the exchange rate close to 27 CZK/EUR also in 2014. Considering the comments thereon, the CZK exchange rate is expected to remain above the announced level, or in the lower part of the range thereof.

153Security Office

101Administration Office

110Translation Office

001Section 001

057Partnership and Bankassurance

070Integrated Risk

Management

027Transaction Services

026ALM / Treasury

130Audit / Revision

058Segment

Management

071Market Risk

028Corporate Banking

055Banking Operations

160HR Management

090Distribution

072Operation Risk

030SME

080Financial

Management

175Compliance & AML

140Marketing

370Corporate Credit Risk

045Business & Product

Support

170Legal

155Retail Products

371Retail Credit Risk

190Facility Management

021Credit Support

037Work out andRestructuring

002Section 002

003Section 003

004Section 004

005Section 005 (CEO)

056Alternative & Digital

Channels

036Underwriting

Division

020Global Markets

015Organisation, IT

014Communication

Board of Directors

SBERBANK CZ | ANNUAL REPORT 2013 | BUSINESS ACTIVITIES SBERBANK CZ | ANNUAL REPORT 2013 | BUSINESS ACTIVITIES 1110

Business activities

Credit Card. Clients also appreciated the “tip” loyalty pro-gramme, thanks to which they are able to get a bonus of up to CZK 500 per month. As regards deposit prod-ucts, Sberbank also offered a savings account with one of the highest interest rates on the market, especially during the second half of the year. The bank’s position on the mortgage market strengthened because of the growing interest in Sberbank mortgage loan products during the summer months.

SME bankingSMEs are traditionally one of the bank’s key segments. In terms of the volume of assets, loans granted to SMEs represent 33% of the total volume of loan transactions. Also, in terms of the number of clients, Sberbank CZ is one of the leading players on the market – almost 10% of corporations with turnover between CZK 25 million and CZK 1.2 bn make use of some of our products and services.

The important role this segment plays for the bank, not only from the local but also the group-wide perspective, is emphasised by the fact that in May 2013 a separate business division was established for SME clients. This organizational change was the bank’s first step towards an intensive focus on small and medium enterprises. In order to streamline our services and better match up to our clients’ needs, important procedural changes were launched in 2013. One of the implemented changes for streamlining and improving the quality of the lending process was the establishment of the Credit Analysis unit in September 2013.

In 2013, SME banking not only focussed on credit products, but also achieved success in the deposit business. Thanks to the attractive deposit products offered to SME clients, especially the Step-up Term Deposit, the volume of de-posits was up by 15% compared to 2012. The change in ownership also opened up new opportunities for the bank in the area of export financing, not only in Russia.

Structured Finance & SyndicationsThe Structured Finance & Syndications subdivision in-creased its staff to four in 2013. Throughout the year, the subdivision assessed more than 35 transactions (financing of renewable sources, recapitalization, leverage buy-outs), of which seven transactions with a total value of approx-imately CZK 9 bn were subsequently approved by the bank’s loan committees and successfully implemented.

Export & Trade FinanceThe volume of loans in Export & Trade Finance (ETF), in-cluding post-financed documentary letters of credit, exceeded EUR 61 million in 2013; bank guarantees were issued in a total value of EUR 39.9 million and the value of documentary letters of credit amounted to EUR 6.6 million. The pipeline of ETF trades with EGAP insurance exceeds EUR 200 million. Owing to the increase in funding of loan resources, the bank managed to find a solution in the form of unfunded risk participation in the customer loans granted by Sberbank of Russia and insured by EGAP; in this structure Sberbank CZ is the Co-Lender and Co-Insured in the insurance contracts signed with EGAP.

Noteworthy among the marketing activities of ETF in 2013 were Russian Day at the International Engineering Fair in Brno, where Sberbank had two presentations on ex-port finance, and the Delovaya Sreda consumer platform.

Corporate bankingThe Corporate Banking division was established in May 2013 together with the establishment of a separate di-vision for SMEs to serve four specific customer groups: large enterprises and corporations, financial institutions, real estate service providers and the public sector. As of 31 December 2013, the Corporate Banking division reached 33% in the total volume of loans granted by the bank, and 35% in the total volume of deposits.

In January 2013, Sberbank CZ opened a specialized cus-tomer service unit and established itself in the segment of large enterprises and corporations. In addition, during the year the bank created a specialized unit serving fi-nancial institutions. Both these new units were very successful during the first year of their existence. The Large Enterprise and Corporation division managed to increase the volume of loans 360%. The increase thereof was achieved especially as a result of structured and syndicated financing trades. The Financial Institutions unit increased its deposits by 76%, while the Public Sec-tor reported a slight increase in deposits. On the other hand, the results of the Real Estate Financing unit were rather stagnant mainly due to the bank’s overall involve-ment in this sector. Among other achievements, the Large Enterprise and Corporation unit signed the highest loan in the bank’s history in 2013. With the amount of CZK 4.1 bn, Sberbank CZ participated in financing the acquisition of the majority stake in Telefónica Czech Republic, a.s. by PPF.

The new staff hired for the Larger Enterprise and Cor-poration and the Financial Institution units and the streamlining of our processes, will contribute to further improve of our services and create tailored solutions for clients in these segments.

Retail bankingIn 2013, retail banking went through some significant changes, especially related to the visual appearance and operation of all branches in connection with the rebrand-ing of Volksbank to Sberbank. In addition, a plan for the development of the branch network in 2014 and 2015 was prepared and approved.

The retail segment reported significant double digit growth in total deposits (12%) and especially in the total volume of granted loans (24%). This was especially the result of a rise in the volume of mortgages loans (22%) and consumer loans (8%). The total number of clients in the retail segment increased by 10% in 2013.

At the end of February, a new flagship branch opened at Na Příkopě Street in Prague. The opening ceremony was attended by Herman Gref, CEO of Sberbank of Russia. In November, a new branch opened in Karlovy Vary, thanks to which the bank is now present in most regions of the Czech Republic. According to the branch network development plan, the number of points of sale will dou-ble in the next two years.

The branch network rebranding project following the change in the bank’s name focused especially on the creation of the points of sale with a maximum emphasis on customer comfort. New technologies were also in-stalled at Sberbank branches, including an iPad service zone, touch screens and the interactive evaluation of bankers directly at the counters. In addition, elements of sensitive marketing were also used.

The bank consolidated its offer for retail clients under the line of “FAIR” products and services, which are based on transparency and mutual benefits for clients and the bank. The concept is built on the FAIR Account available in three versions based on client preferences, including the basic version with zero monthly fees. The product range has been extended by an attractive loan offer, including the FAIR loan, FAIR Consolidation and FAIR


In addition to conservative instruments, clients also took advantage of the possibility to invest directly in shares on the Prague Stock Exchange and foreign stock ex-changes. Due to the positive development in the second half of the year, equity markets represented an interest-ing option for generating a return on invested funds.

The bank also continued in the sale of structured bonds in the course of the year. In view of the current market conditions, the bank focused on non-guaranteed issues, or issues with partially guaranteed investment. In this sector, the bank cooperated with prestigious issuers.

Despite the continuing complicated situation in the area of securities sales, the bank continued to fulfil its long-term strategy which, in addition to securities sales, also includes investment consultancy and the formulation of individual investment solutions according to client re-quirements and expectations. The Bank further focused on increasing the expertise of client advisors in the area of securities sales and improving the training and certi-fication system.

Organisation / ITDuring the first half of 2013, rebranding associated with the change of the Volksbank brand to the new progres-sive Sberbank brand was the primary project pursued by the IT division. This project was associated with a large amount of changes, tasks and sub-projects in the IT di-vision. It was necessary to change the design of all ap-plications, new technologies were installed at branches, and two new “flagship” branches opened (in Prague and Karlovy Vary). The rest of the branches implemented new IT technologies of Sberbank (exchange rate panels, info terminals, and at some locations also iPad zones and Wi-Fi for visitors). The second key project in early 2013 was the implementation of the online validation of the account balance upon cash withdrawal/use of payment cards. This was an international project involving eight companies from three countries; it was completed by the successful gradual migration of the entire portfolio of payment cards to this platform in March 2013. The new technology helps the bank save costs and prevent potential risks resulting from the unauthorized use of cards (e.g. for Internet payments or resulting from skim-ming).

As regards all-group projects, the functionalities of the system for the automatic approval of loans (Credit Fac-tory) gradually expanded with more features and prod-ucts. In addition, the area of treasury and market risk underwent further development, where the group-wide Murex functionality expanded with new features, and additional systems were implemented in order to meet the dynamic requirements in this area. The Mercury (col-lateral management system) and Zeus (limit watching system) systems were other examples of the extension of the portfolio of the group’s solution shared across the entire Sberbank Group.

Towards the end of 2013, Sberbank CZ launched a Smart Banking app for smartphones (iOS and Android) thanks to which clients are provided with easy and quick access to their accounts from mobile phones. This new Internet banking service platform provides a new direct channel based on advanced technology through clients’ mobile phones. Towards the end of the year, changes were im-plemented in many systems to reflect the new Civil Code which came into force in 2014. The “Lean” initiative launched together with the new Civil Code aims to streamline client processes at branches and transfer part of the processes from the Front Office to the Back Office, thus improving client convenience and service.

by the expected future development in interest rates, which suggests their long-term stagnation.

In addition to the sale of investment instruments to small and medium-sized enterprises, the bank turned more of its focus to large clients. The bank thus made successful use of its position as a large banking group to attract and support the sale of products among clients from this segment.

The individual approach to resolving clients’ business needs, long-term strategy and its proper timing in con-nection with the potential of new markets, products and clients after the introduction of the strategic shareholder helped the bank achieve further growth in the number and volume of transactions concluded with clients year-on-year.

Financial institutions

In 2013, the Bank continued the trend of previous years and further strengthened its position in providing ser-vices to financial institutions. The bank is aware of the importance of this segment, and therefore the sales team hired new members and the offer of new products and services was extended in the course of the year. Thanks to the individual approach to resolving clients’ needs and, in particular, the security and strength gained by the in-troduction of the strategic shareholder, the number of clients using the bank’s services further increased.

With the increasing number of clients, the volume of funds deposited also recorded significant growth. The client base of institutional clients was represented especially by insurance companies, health insurance companies, pension funds and state agencies.

Securities sales to clients

In looking at the development on financial markets, client preferences in the area of investment did not change sig-nificantly compared to the previous year. In the context of declining interest rates, clients were especially seeking secure instruments with a guaranteed yield. Thus, the bank was very successful in the sale of its own bond is-sues.

Global marketsFinancial markets

After the introduction of a strategic shareholder in 2012, Sberbank continued to establish and expand business cooperation with financial market players in 2013. The Global Markets unit signed a series of general finance market trade agreements with many major European banks, providing the bank with access to new markets and products.

In addition to trading in investment instruments on its own account, the Global Markets unit especially focused on providing investment services to institutional, retail and corporate clients. Despite the difficult situation on financial markets, most of the trading activities reached growth year-on-year as regards trading volumes, the number of active clients making use of the unit’s services and the number of concluded trades.

Investment instrument salesto corporate clients

One of the most important moments for Czech industry and Czech companies in 2013 was the reports on the eco-nomic recovery in the euro area and subsequently the first signs of economic recovery in the Czech economy published in the second half of the year. After years of recession, this was the first positive impulse indicating a turning point in the development of the Czech economy.

As regards currency hedging, the first half of 2013 did not deviate from the trend of the previous year. Thanks to the steady situation on foreign exchange markets, the interest among clients in currency hedging products was very low. A significant change occurred in the last months of the year in connection with the Czech National Bank’s intervention to weaken the Czech currency. Many clients thus took advantage of the favourable market conditions to hedge currency risk.

A similar development was observed in trading products used for hedging interest rate risk. Even though interest rates were at historical lows, the interest in hedging among clients was very weak. This was especially caused


Bank also focused on the development of processes, with the aim of increasing the traders’ capacities. The financial analysis was detached from the Underwriting and SME divisions and concentrated in the separate Credit Analy-ses unit. Loan proposals are now generated in coopera-tion of credit analysts and traders. At the end of 2013, this new unit was staffed by eighteen employees work-ing from offices in Prague, Brno and České Budějovice.

After the appointment of a new member of the board of directors responsible for Retail, the bank strengthened this part of its mission both in terms of organization and personnel. In September new members were hired for the management of the distribution network. There are three regional directors and an internal team of coaches and trainers providing support for the effective manage-ment of the network of branches and its future expansion.

As regards risk management, the main task was to recruit staff with good knowledge of the CEE market for the Underwriting Hub based in the Czech Republic, the mission of which is to assess loans for several countries within the Sberbank Europe Group.

The HR projects of the Sberbank Europe Group started to be visible in Sberbank CZ in 2013. At the beginning of the calendar year, the bank participated in a group-wide employee survey programme. We consider the fact that over 80% of employees sent their answers in the first year of the survey a great success. We have intensified communication between management and employees based on employee feedback. We have introduced regu-lar “Town Hall Meetings” in Prague and Brno, breakfasts with individual members of the Board of Directors, and regular personal meetings with the CEO and employees. Our partner teams from Hungary and Bosnia offered their help in the implementation of Sales Force Effectiveness at our branches. Within the group-wide project entitled “Talent has no boundaries”, the team of SME Prague and Central Bohemia participates in the streamlining of SME processes. Another example is the preparation for our accession to the Performance Management process, which will be identical in all countries where Sberbank Europe operates.

Marketing & communicationThe bank’s marketing and communication activities in 2013 focused primarily on company rebranding. The pro-cess covered all communication channels, including new presentation and POS materials based on the Sberbank corporate identity, a new website presentation and a brand new Facebook profile, which gained nearly 8,000 followers by the end of the year. Rebranding also covered the branch network, where specific focus was placed on the creation of the points of sale with a maximum empha-sis on customer comfort. Our branches therefore offered brand new features, such as an Internet café, iPad zone, smile system for customer feedback, and some elements of sensitive marketing – music and aromas.

In August, we launched an image-building campaign entitled “Sberbank. Your Story. Your Bank”, with the aim of building brand awareness. In September, this was fol-lowed by a product campaign aimed at the sale of con-sumer loans. The media campaign included TV, online, print and massive outdoor advertising in the towns and cities where the bank has branches. The campaign met its objectives and has built a 3.3% spontaneous awareness among the population.

In October, the bank exhibited at the International Engineering Fair in Brno. The display booth was designed as modern and timeless. Our participation in the fair also included the active participation of Sberbank in the Rus-sian Business Day, and the successful VIP Magic Party for corporate and SME clients.

Towards the end of the year, the Communication subdi-vision was established as a separate organisational unit aimed at strengthening the bank’s reputation and pres-tige among stakeholders and supporting the bank’s over-all communication. The responsibilities will continue to include the areas of external and internal communica-tion and the bank’s social responsibility.

Electronic bankingDirect banking services continued to be provided to cli-ents in 2013 by means of the Sberbank Online Banking, Homebanking and MultiCash apps. Furthermore, the bank extended its portfolio to include Smart Banking in November 2013.

Sberbank Online Banking continues to be the most used of the direct banking services. At the end of 2013, it had nearly 34,239 users, which represents a 27% increase over the previous year. In terms of price and also taking into account their considerable convenience in execution, online processing and transparency, electronic transac-tions are much more advantageous and efficient for the customer.

Towards the end of the year, the token – electronic key of Sberbank Online Banking was used by 27,151 of the total of 34,239 users, which means over 80% token penetration, and a 39% increase over the previous year. From a security perspective, Online Banking has been sufficiently rein-forced, and security remains the bank’s top priority.

Compared with other applications, the share of said major online service in the total number of direct banking products is 95%. The trend shows the high popularity of the Sberbank Online Banking channel; its position on the market is based on its practical usefulness. Homebanking and MultiCash account for 5%, and their number of users is stable or slightly decreasing. Offline services are often replaced with online systems. In contrast, the comple-mentary Phone Banking service was cancelled in 2013 and replaced with a modern Smart Banking system, providing a quick view of available branches and ATMs, together with a range of basic online services such as account balance, transaction statement, standard pay-ments as well as urgent payments with the use of QR codes.

From the perspective of direct banking, Sberbank CZ changed the design of its online banking portal towards the end of February 2013 and implemented the feature of “co-signing” (authorization) of payments by more par-ties transacting with an account, especially for corporate clients. As regards the retail segment, the bank focused especially on the new Smart Banking channel towards the end of the year, the popularity of which has been on the rise.

Human resources managementHuman resources management is an important part of the bank’s overall strategic management, as employees are a decisive factor in creating long-term partnerships with our clients, fulfilling sales targets, and creating an effective foundation and environment for all banking activities.

After the bank established the Corporate Banking, Struc-tured Finance and Syndication, and Export and Trade Finance units in 2012, it focused on quality improvements in the SME segment in 2013. The bank’s top management was strengthened by top managers with long experi-ence in corporate banking and export financing, both in the area of business and product development. The

Breakdown of direct banking channels as at 31 December 2013

94.12%

0.21%0.98%

4.68%

Sberbank Online BankingHomebankingSmart BankingMulticash

SBERBANK CZ | ANNUAL REPORT 2013 | RISK MANAGEMENT SBERBANK CZ | ANNUAL REPORT 2013 | RISK MANAGEMENT 1716

Risk management

Sberbank CZ maintains a prudential and balance approach to risk management in order to achieve adequate return at the acceptable level of risk, taking as its starting point the applicable legal regulations and risk strategy of the Group. The Bank uses a system of regulatory and internal limits, the amounts of which and adherence thereto are regularly monitored, and cooperates with its parent com-pany in the gradual development of advance risk manage-ment instruments.

The overriding general principles in the risk management process are optimisation of the relationship between risk and expected return, an effective internal control system, proper segregation of duties, identification and analysis of risks, portfolio diversification, and ensuring accuracy and completeness of the data in the Bank’s system. The Bank’s management is regularly informed as to the level of risk undertaken, and the risk management system is monitored and evaluated.

The Bank’s Board of Directors plays a key role in risk man-agement’s organisational structure. The Board determines the risk management strategy; approves the key risk man-agement documentation; and decides upon the most im-portant risk positions. The risk management is facilitated by the Risk Management Section directly subordinated to the board member responsible for risk management. The section units analyse the Bank’s risk positions, monitor com-pliance with established limits, report on the results of their

findings, and, as appropriate, approve their own risk posi-tions within the scope of their assigned authorities.

Section units: Integrated Risk Management – responsible for credit

risk management, capital adequacy and portfolio moni-toring;

Market Risk – responsible for market risk management and liquidity risk management;

Operational Risk – responsible for operational risk man-agement and internal control system;

Credit Risk – responsible for loan process parameters; Underwriting – responsible for the approval process; and Work Out and Restructuring – responsible for the re-

covery of claims.

Risk management committees (part of the risk manage-ment system): Risk Committee – monitoring of risks within the Bank’s

risk profile and related capital adequacy (internal capi-tal adequacy assessment system);

Assets and Liabilities Committee; Credit Committee; and Distress Assets Committee – management of distress

assets portfolio.

The committee members include the Bank’s directors (board members) and heads of the respective risk management units.

12/0

8

3/0

9

6/0

9

9/0

9

12/0

9

3/10

6/10

9/10

12/1

0

3/11

6/11

9/11

12/1

1

3/12

6/12

9/12

12/1

2

3/13

6/13

9/13

12/1

3

Sberbank CZ Czech banking sectorDevelopment of capital adequacy

16%

18%

14%

12%

8%

10%

Capital adequacy

In accordance with regulatory requirements, risks are suf-ficiently covered by capital. The Bank applies the principles of standardised approach to credit and operational risks. With regard to the Bank’s small trading portfolio, the mar-ket risk requirement is not determined.

At the end of 2013, the sole shareholder resolved on pro-moting further growth of the Bank and increasing its capital (through a subordinated loan to be converted into equity in the first half of 2014).

Following the requirements of Pillar II under the Basel Capital Accord known as Basel II, the Bank assesses the capital adequacy at least on an annual basis with respect to all significant risks (internal capital adequacy assessment system).

Credit riskProviding loan products is one of the Bank’s most important business activities, and the emphasis given to managing credit risk reflects that fact. This process includes identifying risks, measuring risk positions, monitoring limits and adopt-ing measures leading to mitigation of the credit risk un-dertaken. The process takes place at the levels of both the individual client and the loan portfolio.

In assessing a client’s credit quality, the Bank places particu-lar emphasis on analysing the client’s financial situation, his or her ability to repay the provided loan from cash flow, and the experience with the client to date.

The credit quality of each client is assessed using an internal rating system corresponding to the type of client being assessed. Within each rating system, a client is classified at one of 26 points on the internal rating scale. Each rating point corresponds to a fixed one-year probability of the client’s default. This probability is used as one of the pa-rameters in the decision-making process. The rating tools are regularly tested and adjusted accordingly to ensure that the estimated probabilities of default are correct.

The quality of the collateral instruments is another criterion taken into account in assessing a credit application. A cat-

alogue of these instruments defines the acceptable types of collateral, the methods for establishing their fair values, the frequency of revaluation, and the responsibilities of the Bank’s individual branches.

The assessment and approval of credit applications is in-dependent from the selling departments. Authorisation powers are delegated by the Board of Directors and are segmented by value into several layers.

The Bank regularly monitors individual exposures in order to continuously check the quality of the loan portfolio. This process increases the probability for timely recognition of future client defaults. For such cases, the Bank has estab-lished a system to address problematic loans in a timely manner. This reduces the probability of incurring losses from providing loans.

The Bank is in compliance with all regulatory limits for its investment portfolio exposure.

The Bank assesses claims against clients in terms of their lowered value (if any), namely considering the lowered rat-ing, default and other breach of original contractually agreed terms and conditions by the respective counterparty. The lowered value of claims is assessed with respect to: collective impairment – applied to specific groups of

assets based upon statistical models and covered by the collective impairment provisions; and

individual impairment – applied to claims with objective evidence of lowered value and covered by the individual impairment provisions.

Market riskThe main instrument for managing market risk is a system of limits for individual types of market risk. Compliance with these limits is regularly monitored. Information about any exceeded limits and related remedial measures is reported without delay to the Board of Directors, Risk Committee and respective business units. The limits are established inter-nally in cooperation with the parent company or based on the relevant CNB regulations and approved by the Assets and Liabilities Committee. Stress testing of market risks is carried out regularly.

SBERBANK CZ | ANNUAL REPORT 2013 | RISK MANAGEMENT SBERBANK CZ | ANNUAL REPORT 2013 | OTHER INFORMATION 1918

Sberbank Europe AG (SBEU) is the controlling entity of Sberbank CZ and is part of the Sberbank group. The group’s structure is laid out in the diagram.

Measures that should ensure that the controlling entity does not misuse its powers stem from the Commercial Code. The measures concern, in particular, a prohibition against misusing the majority of votes in the company (Section 56a (1) of the Commercial Code); a prohibition against misusing the controlling entity’s influence in order to force adoption of a measure or execution of a contract due to which financial loss may arise to a controlled en-

tity, unless the controlling entity compensates for the loss so arising no later than by the end of the accounting period within which the loss occurred, or unless within the same time limit an agreement is entered into estab-lishing a reasonable period and method for the com-pensation of loss by the controlling entity (Section 66a (8) of the Commercial Code); the company’s obligation to prepare a report on relations between connected enti-ties in accordance with Section 66a (9nn) of the Commer-cial Code (see page 120 of the Annual Report – Report on Relations); the obligation of the controlling entity to compensate damage incurred by the controlled entity

Other information

Information on relations

Sberbank of Russia

Sberbank Magyarország Zrt.Hungary

Sberbank BH d.d., SarajevoBosnia and Herzegovina

Sberbank banka d.d.Slovenia

Sberbank CZ, a.s.Czech Republic

Sberbank Slovensko, a.s.Slovakia

Sberbank d.d.Croatia

Sberbank a.d. Banja LukaBosnia and Herzegovina

Sberbank Srbija a.d. BeogradSerbia

VS BankUkraine

Sberbank Europe AG

100%

100%

98.93%

100% 99.98%

100% 99.50%*)

*) as at 31 January 2014

100% 99.42%

99.92%

The exchange risk is managed by closing the Bank’s foreign exchange position through hedging. The foreign exchange position of individual major currencies is monitored on a dai-ly basis and compared with the applicable limits.

The exposure to interest rate risk is quantified by simulating the impact of a standardised interest rate shock (shifting the yield curve by 200 percentage points) on the Bank’s capital where this impact is represented by the change in the net present value of the Bank’s interest rate sensitive assets and liabilities. The difference between assets and liabilities with fixed long-term interest rates (the main source of interest rate risk) is balanced using interest rate swaps and debt issuance. The Bank’s interest rate position is measured on a regular basis and compared to the appli-cable limits.

Exposure to securities market volatility occurs in relation to the bonds portfolio held, in which Czech government bonds predominate. From a regulatory point of view, the Bank holds a small trading portfolio.

Liquidity riskThe operational liquidity risk management is carried out on a daily basis by means of monitoring the short-term and long-term residual maturities of assets and liabilities, which are examined both in the individual major currencies and on an aggregate basis for all currencies. Following the results of these analyses, the Bank monitors daily the compliance with internally established liquidity limits. The Bank distinguishes between the contractual maturity of balance items and modelled forecast maturity. The fore-cast models are approved by the Assets and Liabilities Committee.

Stress scenarios of the Bank’s liquidity position are pre-pared on a weekly basis using the data on the existing structure of assets and liabilities with respect to the fore-cast behaviour thereof in modelled stress situations. A con-tingency liquidity plan is prepared for the theoretical pos-sibility that extraordinary circumstances would threaten the Bank’s liquidity position.

Operational riskIn accordance with regulatory requirements, the Bank has an internal database of the requisite internal regulations for operational risk management, including those for the areas of information security, continuity of operations, outsourcing, and the internal control system that is estab-lished for individual processes and units.

The basic methods used are elimination, reduction, transfer and acceptance of operational risk. The operational risk management process includes identification, recording, evaluation and evaluation of risks, as well as measures for their minimisation, and it is applied at the levels of both actual events and hypothetical risks.

The operational risk is managed and identified through: collection, classification and subsequent evaluation of

operational risk events; Risk Control Self Assessment; and analysis of scenarios for risks with low frequency and

high impact.

Considering the identified operational risks, the Bank adopts measures aimed at effectively minimising the probability of a similar type of event’s occurring in future and designed in accordance not only with the frequency of occurrence and amount of the realised/anticipated loss/gain but also their seriousness and original cause of origin.

A contingency plan for critical incidents is prepared to facilitate a continuation of business activities within the widest range possible as well as a recovery plan to resume the operation of key IT applications.

Concentration riskSufficient diversification of underlying credit risk is ensured by a system of limits on risk concentrations in relation to economically connected groups of clients, sectors in which clients operate, and countries.

The Bank also monitors risks resulting from concentration of exposures under individual products or indirect expo-sures – for example, from a single type of collateral, collat-eral provider, or issuer of securities accepted as collateral. In the liquidity area, the level of concentration in providers of short-term liabilities is monitored.

SBERBANK CZ | ANNUAL REPORT 2013 | OTHER INFORMATION SBERBANK CZ | ANNUAL REPORT 2013 | OTHER INFORMATION 2120

in accordance with Section 66a (14) of the Commercial Code; and the liability of members of the controlling en-tity’s and controlled entity’s governing bodies in accord-ance with Section 66a(15) of the Commercial Code.

Since the Commercial Code was repealed on 31 December 2013 and replaced as of 1 January 2014 with respective provisions of Act No. 89/2012 Sb., the Civil Code, and Act No. 90/2012 Sb., the Business Corporations Act, Sber-bank CZ intends to comply with the Business Corpora-tions Act. Sberbank CZ hereby declares that, in 2014, it intends to continue to observe and perform the afore-mentioned measures in compliance with the respective

provisions of the Business Corporations Act and hence ensure that the controlling entity does not misuse its powers; in particular, a prohibition against misusing the controlling entity’s influence in order to force adoption of a measure or execution of a contract due to which financial loss may arise to a controlled entity and the obligation of the controlling entity to compensate the controlled entity for the loss incurred (Section 71 of the Business Corporations Act); the obligation of Sberbank CZ to prepare a report on relations between connected en-tities (Section of 82 et seq. of the Business Corporations Act); liability of members of the controlling entity’s and controlled entity’s governing bodies in accordance with the Business Corporations Act; and other.

In 2013, Sberbank CZ did not trade or hold any of its own shares, nor did it own any shares of the controlling entity, SBEU.

No restriction exists on the transferability of securities issued by Sberbank CZ except that treasury shares of Sberbank CZ are not publicly traded.

Other than for the interests resulting from ownership, there is no other significant direct or indirect participa-tion in the voting rights of Sberbank CZ, nor are there any restrictions on voting rights.

To the knowledge of Sberbank CZ, no agreements exist between shareholders that may result in hindering the transferability of shares or voting rights.

Information on treasury shares and securities

Apart from the statutes, there exist no special regulations governing the election and dismissal of members of the Board of Directors and modification of the company’s statutes.

The members of the Board of Directors have no special powers such as the authorisation under Sections 161a and 210 of the Commercial Code.

There exist no significant agreements to which Sber-bank CZ is a contracting party and which will become effective, change or lapse in the case of a change in the control of Sberbank CZ due to a takeover bid and the effects resulting from such agreements.

There exist no agreements between Sberbank CZ and the members of its Board of Directors or employees that Sberbank CZ is obliged to fulfil in the case that their offices or employment will be terminated in relation to a take-over bid.

There exist no programmes on the basis of which em-ployees and members of the company’s Board of Direc-tors are allowed to acquire participating securities of the company, options on these securities or other rights thereto under advantageous conditions.

No persons or entities with management authority hold shares or similar securities representing a share in Sber-bank CZ

Sberbank CZ and its issued bonds have not been as-signed a rating.

Issued SecuritiesSberbank CZ shares as at 1 January 2014

• Class: ordinary shares• Type: 401,076 registered ordinary shares• Form: dematerialised• Quantity: 401,076 shares in total• Total volume in issue: CZK 2,005,380,000• Nominal value per share: CZK 5,000• Traded in: not traded in any public market.

Sberbank CZ mortgage bonds (HZL) as at 31 December 2013

HZL VB CZ 5.30% payable in 2017• ISIN: CZ0002001688• Date, type and form of issue: 18 December 2007, bearer

securities, dematerialised • Total volume of issue: CZK 0.8 billion • Nominal value, quantity: CZK 10,000; 80,000• Coupon: fixed annual interest rate of 5.30% paid annually

in arrears• Traded in: ---• Maturity: 18 December 2017 (repaid at the nominal value).

HZL VB CZ 5.70% payable in 2014 • ISIN: CZ0002002116• Date, type and form of issue: 27 October 2009, bearer

securities, dematerialised• Total volume of issue: CZK 0.5 billion • Nominal value, quantity: CZK 10,000; 50,000 • Coupon: fixed annual interest rate of 5.70% paid annually

in arrears• Traded in: --- • Maturity: 27 October 2014 (repaid at the nominal value)

HZL VB CZ 3.50% payable in 2013 • ISIN: CZ0002002181• Date, type and form of issue: 14 April 2010, bearer secu-

rities, dematerialised • Total volume of issue: CZK 0.5 billion • Nominal value, quantity: CZK 10,000; 50,000 • Coupon: fixed annual interest rate of 3.50% paid annually

in arrears• Traded in: --- • Maturity: 14 April 2013 (repaid at the nominal value)

HZL VB CZ 4.10% payable in 2016 • ISIN: CZ0002002199 • Date, type and form of issue: 19 May 2010, bearer secu-

rities, dematerialised• Total volume of issue: CZK 0.5 billion• Nominal value, quantity: CZK 10,000; 50,000• Coupon: fixed annual interest rate of 4.10% paid annually

in arrears• Traded in: ---• Maturity: 19 May 2016 (repaid at the nominal value)

Contracts concluded by Sberbank CZ within the group:

Title Party Object

1 Loan Agreement Sberbank Europe AG Revolving loan facility

2 Loan Agreement - Termination Sberbank Europe AG Loan facility – termination

3 Loan Agreement Sberbank Europe AG Loan facility

4 Master Participation Agreement Sberbank Europe AG Facility for consortium lending

5 Services Agreement Sberbank Europe AG Advisory services

6 Group Audit Agreement Sberbank Europe AG Performance of audit activities

7 Services Agreement Sberbank Europe AG Evaluation of credit risk

8 IT Services Agreement ALB-EDV GmbH IT services

9 SW Maintenance Agreement Sberbank Technology Maintenance of SW MUREX

10 Services Agreement Sberbank Slovakia Evaluation of credit risk

11 Services Agreement Sberbank Slovenia Evaluation of credit risk

12 Services Agreement Sberbank Croatia Evaluation of credit risk

13 Services Agreement Sberbank Hungary Evaluation of credit risk


HZL VB CZ VAR1 payable in 2015 • ISIN: CZ0002002298• Date, type and form of issue: 24 March 2011, bearer se-

curities, dematerialised• Total volume of issue: CZK 0.3 billion • Nominal value, quantity: CZK 10,000; 30,000• Coupon: floating half-year 6M PRIBOR+1% interest rate

paid semi-annually in arrears• Traded in: --- • Maturity: 24 March 2015 (repaid at the nominal value)

HZL VB CZ VAR payable in 2017• ISIN: CZ0002002454• Date, type and form of issue: 22 March 2012, bearer se-

curities, dematerialised• Total volume of issue: CZK 0.5 billion • Nominal value, quantity: CZK 1; 500,000,000• Coupon: floating half-year 6M PRIBOR+2% interest rate

paid semi-annually in arrears• Traded in: Prague Stock Exchange• Maturity: 22 March 2017 (repaid at the nominal value)

HZL VB CZ 3.20% payable in 2016• ISIN: CZ0002002611• Date, type and form of issue: 11 October 2012, bearer

securities, dematerialised• Total volume of issue: CZK 1 billion • Nominal value, quantity: CZK 1; 1,000,000,000• Coupon: fixed annual interest rate of 3.20% paid annually

in arrears• Traded in: Prague Stock Exchange• Maturity: 11 October 2016 (repaid at the nominal value)

HZL VB CZ 2.30% payable in 2018• ISIN: CZ0002003254• Date, type and form of issue: 24 October 2013, bearer

securities, dematerialised• Total volume of issue: CZK 0.8 billion• Nominal value, quantity: CZK 10,000; CZK 80,000• Coupon: fixed interest rate 2.30% paid annually in arrears• Traded in: BCPP• Maturity: 24 October 2018 (repaid at the nominal value)

Remunerating of Sberbank CZ managersPersons or entities with management competence at Sberbank CZ include the managing entity and members of the Supervisory Board.

Managing Entity of the Issuer The managing entity of the Sberbank CZ issuer comprises the Chairman of the Board of Directors, who is also the

chief executive director; the members of the Board of Directors; and company secretaries. They are listed by name on pages 6–7 “Governing Bodies”.

By law, the Board of Directors is the governing body di-recting the company’s operations and acting on its be-half. Members of the Sberbank CZ Board of Directors perform their functions with due managerial care and act in good faith, with appropriate diligence and care, and in the best interest of the company and its shareholders. They are experts in managing large corporations and have

FEES charged by auditing companies for 2013

international experience and ability to work as a team. Their office requires ongoing development both in their fields of expertise and in the general operation and man-agement of companies; an active approach to fulfilling their obligations and the ability to contribute to the com-pany’s strategy development; and, last but not least, loyalty to the company. Members of the Board of Direc-tors adhere to high ethical standards and are responsible for the company’s observance of the applicable laws. They are personally liable for any damage that they may cause by violating their legal obligations, and they also are func-tionally responsible to the company represented by the shareholders.

The Chairman of the Board of Directors and members of the Board of Directors are remunerated under a Service Agreement entered into pursuant to Act No. 513/1991 Sb., the Commercial Code. The Service Agreements were approved by the company’s Supervisory Board.

The company pays fixed monthly remuneration to the Chairman and members of the Board of Directors for their management activity, attendance at the body’s meet-ings, due preparation for those meetings, and for other activities associated with discharging the office of a mem-ber of the Board of Directors.

Moreover, the Chairman and members of the Board of Directors are remunerated in consideration of a perfor-mance evaluation regarding their activity, which is meas-ured on the basis of their fulfilling established performance criteria. The performance criteria, which are established in cooperation with SBEU, are drawn up each calendar year and are derived from the financial goals (profit be-fore taxes of SBEU, profit before taxes of Sberbank CZ, and profit of the controlled organisational unit) and the fulfilment of structural duties. The variable component of the remuneration may be as much as 50% of the fixed component.

The chief executive director and company secretaries are not additionally remunerated due to their positions. Thus, only the employment salaries of company secretaries are listed for other managers.

Based on their managerial and professional knowledge and experience and their contribution to the company,

the Chairman of the Board of Directors, members of the Board of Directors and company secretaries received: all monetary earnings pertaining to members of the

Board of Directors in the total amount of CZK 29.225 million;

all monetary earnings pertaining to other managers in the total amount of CZK 5.232 million;

all in-kind earnings pertaining to members of the Board of Directors in the total amount of CZK 0.953 million; and

all in-kind earnings pertaining to other managers in the total amount of CZK 0.131 million.

These earnings were paid on the basis of fulfilling financial, qualitative and development criteria, as well as on the basis of efficiency criteria.

Neither the Chairman of the Board of Directors, members of the Board of Directors, company secretaries nor per-sons close to them own shares or options to purchase shares of Sberbank CZ. The shares of Sberbank CZ are not publicly tradable.

Supervisory BoardThe Supervisory Board is the company’s controlling body and oversees the performance of the Board of Directors in carrying out the company’s business operations. The Supervisory Board in particular monitors whether the Board of Directors is performing its duties in accordance with legal regulations and the company’s statutes and whether members of the Board of Directors are acting in accordance with the company’s interests while exer-cising a due managerial care. Members of the Supervi-sory Board perform their functions with a due managerial care. To perform the duties of a member of the Supervi-sory Board, members must be expertly qualif ied and maintain loyalty to the company and discretion regard-ing confidential information and facts.

Members of the Supervisory Board are liable for any dam-age that they may cause by failing to fulfil their legal obligations. Moreover, members of the Supervisory Board are functionally responsible to the company represented by the shareholders. Members of the Supervisory Board are remunerated in accordance with the relevant provi-sions of Act No. 513/1991 Sb., the Commercial Code. The amount of the relevant remuneration for members of the Supervisory Board is approved by the general meeting.

in CZK million KPMG Ernst & Young Total

Annual accounts (including VAT) 0.00 3.99 3.99

Auditing services (including VAT) 0.00 2.54 2.54

Tax services (including VAT) 0.00 0.33 0.33

Other (including VAT) 0.53 0.00 0.53

Total 0.53 6.86 7.39


No monthly remuneration is paid for activities in the Su-pervisory Board of Sberbank CZ.

Neither members of the Supervisory Board nor persons close to them own shares or options to purchase shares of Sberbank CZ. The shares of Sberbank CZ are not pub-licly tradable.

No remunerations due to membership in the Supervisory Board, including those of an in-kind nature, were paid in 2013 to members of the Supervisory Board of Sber-bank CZ for their activities in that body.

As remuneration for their employment, the members of the Supervisory Board receive: all monetary earnings pertaining to members of the

Supervisory Board in the total amount of CZK 2.471 million; and

all in-kind earnings pertaining to members of the Supervisory Board in the total amount of CZK 0.154 million.

Sberbank CZ declares that there are no conflicts of in-terest in relation to the obligations of members of ad-ministrative, managing and supervisory bodies and their private interests or other obligations.

Market position in relation to Sberbank CZ principal activities Sberbank CZ has successfully operated in the Czech mar-ket since 1993. In 2013, Sberbank CZ held a 1.40% share in the total assets of the Czech banking sector (44 banks including building societies) compared to 1.32% held in 2012. The Sberbank CZ total assets grew year on year by 14.94%. By comparison, the growth in total assets for the banking sector for 2013 was 8.83%.

The adopted Sberbank CZ business strategy saw a con-tinued year-on-year growth in client deposits (including debt securities in issue) by 19.26% (compared to the year-on-year growth in the banking sector of 6.79%) and client loans by 11.92% (compared to the growth in the banking sector of 6.54%). Sberbank CZ saw its share of client

deposits in the banking sector’s total client deposits in-crease from 1.33% to 1.43% and the volume of client loans increase from 1.99% to 2.10%.

The net income of Sberbank CZ grew year on year by 10.05%, while that for the banking sector as a whole dropped by 4.11%.

Information on the company’s operating and management principlesThe governing bodies are the shareholders’ general meeting as the supreme body, the Board of Directors, the Super-visory Board and the Audit Committee. The composition of these bodies is set out in detail on pages 6–7, “Gov-erning Bodies”. These bodies make decisions usually by a simple majority of votes, unless the law or statutes stipulate a different majority.

The general meeting is the Issuer’s supreme body. The general meeting resolves, in particular, on: amending the statutes; increasing or decreasing the share capital; issuing bonds; appointing and dismissing the Supervisory Board

members with the exception of those elected by employees;

approving the annual financial statements and de-ciding on profit distribution or covering a loss;

submitting an application for a licence for public trad-ing of the company’s shares and for cancelling the public tradability of shares;

selling the business, winding up the company with liquidation, or transforming, merging, consolidating or dividing the company;

changing the rights connected with individual classes or types of shares;

restricting the transferability of registered shares and cancelling the public transferability of shares;

eliminating or restricting the priority right to obtain convertible and preference bonds and eliminating or restricting the priority right to obtain new shares;

increasing the share capital with material noncash investments; and

changing the subject of business.

The general meeting meets at least once per year. The Board of Directors is obliged to convene the regular general meeting annually no later than 6 months after the end of the calendar year, unless valid legal regulations establish an earlier date.

The main shareholder only influences the company through its votes at the general meeting.

The Board of Directors is the company’s governing body and directs its operations, acts on its behalf and repre-sents the company externally. It is responsible for organ-ising the company’s activities and exercises the rights of an employer.

A record is drawn up of all the Board of Directors’ delibera-tions and votes and is kept throughout the company’s existence.

The term of office for members of the Board of Directors runs from their election until the adjournment of the fourth general meeting deciding on the annual financial statements for the fourth business year following the election. The business year in which the election of the Board of Directors took place is not calculated into this period. The Supervisory Board can decide on a shorter term of office. Re-election is permitted. The Supervisory Board can recall individual members of the Board of Di-rectors during their terms of office. A replacement elec-tion must be held upon the early termination of a term of office. As at 31 December 2013, the Board of Directors is comprised of five members. The Chairman of the Board of Directors is elected by its members at the proposal of the Supervisory Board.

The members of the Board of Directors also form the company’s senior management.

Company secretaries act and sign on behalf of the com-pany either both jointly or only one along with any mem-ber of the Board of Directors by means of an annex indi-cating the company’s business name, designating the company secretary, and including his or her signature.

The Supervisory Board oversees the performance of the Board of Directors in its competence and conduct of the company’s business operations and represents the in-terests of the company’s shareholders in the period be-tween general meetings.

The Supervisory Board has six members in total. The Supervisory Board members are elected, unless the gen-eral meeting decides otherwise, for the period until the adjournment of the third general meeting deciding on the annual financial statements for the third business year following the election. The business year in which the election of the Supervisory Board took place is not calcu-lated into this period. If the number of Supervisory Board members drops during the term of office, the Supervi-sory Board is entitled in accordance with the conditions established by law (Section 200(3) and Section 194(2) of the Commercial Code) to appoint a replacement mem-ber until the next general meeting. Of the total number of Supervisory Board members, two thirds are elected by the general meeting from among the shareholders’ representatives and one third are elected by the com-pany’s employees.

The Audit Committee follows the procedure for prepar-ing and auditing the financial statements and fulfils tasks in other areas that the statutes and relevant legal regulations entrust to its competence and responsibility. The Audit Committee is comprised of three members who are elected by the general meeting. A member of the Audit Committee can only be an individual, who at the same time may not be a member of the Board of Direc-tors, a company secretary, or a person authorised to act on behalf of the company according to the entry in the Commercial Register. Members of the Audit.

Committee are elected, unless the general meeting decides otherwise, for the period until the adjournment of the third general meeting deciding on the annual fi-nancial statements for the third business year following the election. The business year in which the election of the members of the Audit Committee took place is not calculated into this period. The general meeting is enti-tled to approve the Audit Committee’s rules of procedure.

SBERBANK CZ | ANNUAL REPORT 2013 | CORPORATE SOCIAL RESPONSIBILITY OF SBERBANK CZ SBERBANK CZ | ANNUAL REPORT 2013 | CORPORATE SOCIAL RESPONSIBILITY OF SBERBANK CZ 2726

Corporate social responsibility of Sberbank CZ

The financial reporting process may be exposed to risks of inaccuracies resulting from human or technical fac-tors. Sberbank CZ addresses these risks in the following manners: detailed systematic directives, accounting policies (see

pages 37–79 for more details) and risk management strategy (see pages 80–109 for more details);

regular internal and external audit; and automation of processes.

Risk events are monitored and regularly evaluated within the process of managing operational risk. Appropriate measures are established based on analyses of risk events.

The Board of Directors of Sberbank CZ has created an internal control system and is responsible for maintain-ing its functionality and effectiveness. Sberbank CZ has established control mechanisms at all management and organisation levels, including corresponding information flows. These control mechanisms are re-evaluated at regular intervals and updated as needed. All the Sber-bank CZ employees are involved in the internal control system. The Board of Directors and Audit

Committee regularly evaluate its functionality and ef-fectiveness. Internal audit independently examines the Sberbank CZ activities, including the risk management and internal control systems.

Sberbank CZ is a member of the Czech Banking Asso-ciation and the Czech Capital Market Association and voluntarily adheres to the following codes, which are available for inspection on the websites www.czech-ba.cz and www.akatcr.cz:

Ethical Code of the Czech Banking Association (updated in 2012)

Ethical Code of the Czech Capital Market Association

Code of Conduct on Home Loans (CBA Standard No. 18/2005, Principles of Providing Pre-contractual Infor-mation on Home Loans)

Code of Conduct on Banks and Clients (CBA Standard No. 19/2005, Code of Conduct in Relations between Banks and Clients)

Code on Client Mobility (CBA Standard No. 22/2009, Client Mobility – Procedure for Changing Banks)

Compensation Guidelines in Interbank Payments (CBA Standard No. 15/2002, updated April 2011)

Sberbank CZ has also agreed to and observes other CBA Standards in the area of payment transactions.

Sberbank CZ has incorporated these codes and stand-ards into its Code of Conduct for Employees and into internal operating procedures.

Sberbank CZ introduced a comprehensive long-term cor-porate social responsibility (CSR) strategy in 2012. Two major projects were initiated as part of this strategy – an employee charity fund and volunteering by Sber-bank CZ employees. Thanks to the great interest among employees and the general public, these projects also continued in 2013. In addition, Sberbank CZ further de-veloped some other CSR activities.

Volunteering by Sberbank CZ employeesUnder the volunteering project, each employee can spend one day per year on volunteer work in place of working in the office. In 2013, 10% of Sberbank CZ employees took part in this project by participating in one of three cen-trally organized volunteering days. Other Sberbank CZ employees participated in small local projects, including, for example, helping flood sufferers, assisting in children day-care centres, etc.

The fourth volunteering day and the first one under the new Sberbank brand took place on 26 April 2013, on the occasion of the Earth Day. Over thirty employees par-ticipated in the unique event of planting the “Sberbank Forest”. The aim was to plant an economic forest with varied species. The planting took place in Březová – Podještědí, near the town of Český Dub.

Sberbank CZ entered into a long-term partnership with Čmelák – Friends of Nature, a Czech environmental organization which will take care of the Sberbank Forest. In April 2013, almost 1,500 trees were planted and the entire area allocated to the first Sberbank Forest was covered with new trees.

The fifth volunteering day took place on 12 July 2013 in co-operation with the Centre for Environmental Education Pálava at the Děvín nature preserve in the Pálava Protected Landscape Area, where a total of 20 Sberbank CZ volunteers participated in cleaning the land-scape and collecting waste in the locations of Děvín and Stolová hora.

The sixth volunteering day took place on 1 November 2013 and involved 13 volunteers working again in the Sber-bank Forest. Before the coming winter, it was necessary to protect young trees from for-est animals. With com-mitments to intense work effort, Sberbank CZ volunteers did a great job and installed approximately 350 metres of fence.

Charity fundIn order to support charity projects, Sberbank CZ estab-lished a charity fund in 2012, to which any Sberbank CZ employee can contribute, and opened a current account exclusively for the purpose of collecting the funds. The

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amount collected is then allocated at the end of the year to specific charity projects nominated by the Sberbank CZ employees throughout the year and selected by the fund’s board of trustees elected by the Sberbank CZ employ-ees. The fund focuses especially on supporting children and women at-risk, people with disabilities, senior citi-zens, and promoting education and financial literacy and environmental projects.

The deadline for making contributions for 2013 was set for 31 October 2013; by that date, Sber-bank CZ employ-ees contributed a total of CZK 71,700. At its second meeting on 25 November 2013, the fund’s board of trus-tees decided to allocate the funds to 6 selected projects of 13 proposed. The board gave preference to smaller projects without large publicity and other sources of fi-nancing. Support was provided to specific projects with particularly positive goals and the mission to spread joy.

At the beginning of 2014, the existing charity fund was replaced with the institutionalized Sberbank CZ Endow-ment Fund. Thanks to its new form the fund is now also open to public contributions. The Sberbank CZ top man-agement expressed support for the fund and agreed to contribute the Sberbank CZ resources to the endowment fund.

Other projects and activitiesBlood donation

Blood donation is one of the new Sberbank CZ corporate social responsibility activities supported by the Sber-bank CZ top management. Sberbank CZ employees are encouraged to take part in this pro-ject in the course of volunteering days. In 2013, approximately 20 Sberbank CZ employees were regu-lar blood donors. In 2014, Sber-bank CZ plans to organize a blood donation session di-rectly at the Sberbank CZ premises.

Helping flood sufferers

In June 2013, large part of Bohemia was stricken by floods; Sberbank CZ decided to help the flood sufferers by do-nating CZK 250,000. The donation was transferred to the account of a public fundraising campaign run by the Czech humanitarian organization ADRA and the major flood / natural disasters relief coordinator in the Czech Republic.

Afternoon with children

In June 2013, Sberbank CZ employees of the Brno – Panská branch took part in an event entitled “Afternoon with children”. They visited children patients of the Primary School and Kindergarten, University Hospital Brno (Chil-dren’s Hospital) and together drew and painted pictures that were subsequently displayed and auctioned. Pro-ceeds from the auction were donated to the Adam dětem citizens asso-ciation to finance its project on the ENT inpatient ward in the Children’s Hospital.

Road safety

In September 2013, Sberbank CZ joined the safety cam-paign called “Careful on the road – school year has begun”. The campaign took place on four large screens situated along the main roads and intersections in Prague and its aim was to draw drivers’ attention to the fact that chil-dren were coming back to schools.

Christmas gifts to children’s homes

After the huge success in 2012, Sberbank CZ decided to repeat the 2013 event called “Christmas gifts for kids” for children in children homes and seriously ill children staying in hospital over the Christmas. Sberbank CZ employees once again joined the campaign with great enthusiasm and donated 80 nicely wrapped Christmas gifts that brighten the smiles of dozens of children in the Depart-ment of Pediatric Oncology, University Hospital Brno, Dagmar Children’s Home in Brno and the Children’s Home in Zlín.

Day-to-day Sberbank CZ activities and employees’ behaviour

Sberbank CZ declares that: Sberbank CZ follows the Ethical Code of the Czech

Banking Association and the Sberbank CZ Employee Code of Conduct.

Sberbank CZ guarantees equal opportunities for men and women and employs people with disabilities.

Sberbank CZ promotes financial literacy; Sberbank CZ supports the “With Vysočina Region to Europe” knowledge contest for students and sends its experts to various workshops and university lecturing pro-grammes.

Sberbank CZ uses double-sided printing by default on all company printers.

Sberbank CZ employees consider the nature before their print their e-mails as claimed in the e-mail footer.

Sberbank CZ employees travel between towns and cities in a most economical way, making use of the car-sharing principle.

Sberbank CZ works with local charities; in 2013, Sber-bank CZ facilitated catering for community events organized by some of these charities.

As the corporate social responsibility projects elicit positive response from Sberbank CZ employees and the general public, Sberbank CZ will continue to actively pursue and further develop these ac-tivities also in 2014.

Projects supported from the charity fund in 2013

Organisation Amount allocatedDiakonie ČCE – středisko v Brně (Diaconal Association of the Evangelical Church of Czech Brethren – Brno Centre) CZK 20,000

LUISA, o. s. (citizens association) CZK 15,000

Nadační fond Modrý hroch (Blue Hippo Endowment Fund) CZK 11,000

Čmelák – Společnost přátel přírody, o.s. (Čmelák - Friends of Nature, citizens association) CZK 10,000

Nadace Křižovatka (Crossroads Foundation) CZK 8,700

Horní Poustevna integrated centre for people with disabilities CZK 7,000

SBERBANK CZ | ANNUAL REPORT 2013 | STATEMENT OF COMPREHENSIVE INCOME 3130

Statement of comprehensive income for the year ended 31 December 2013Prepared in accordance with International Financial Reporting Standards as adopted by the European Union

Note Year ended 31 December

in CZK million 2013 2012

Interest and similar income 2,137 2,033

Interest expense and similar charges (698) (743)

Net interest income 3 1,439 1,290

Fee and commission income 467 464

Fee and commission expense (110) (78)

Net fee and commission income 4 357 386

Net trading income 5 20 8

Net income from financial investments 6 13 15

Impairment charge for credit losses 14 (401) (445)

Provisions 26 – (2)

Administrative expenses 7 (1,088) (930)

Other operating income 8 17 4

Other operating expenses 9 (71) (56)

Operating profit 286 270

Profit before income tax 286 270

Income tax expense 10 (56) (61)

Profit for the year 230 209

Other comprehensive income

Fair value reserves (available-for-sale financial assets): 28

– Net change in fair value (40) 14

– Net amount transferred to profit or loss (5) 32

Other comprehensive income for the period, net of income tax (45) 46

Total comprehensive income 185 255

Profit attributable to:

– Owners of the Bank 230 209

Profit for the period 230 209

Total comprehensive income attributable to:

– Owners of the Bank 185 255

Total comprehensive income 185 255

SBERBANK CZ, a.s.

INDEPENDENT AUDITOR’S REPORT AND FINANCIAL STATEMENTS(Prepared in accordance with International Financial Reporting Standards as adopted by the European Union)

FOR THE YEAR ENDED 31 DECEMBER 2013

Financialstatements

SBERBANK CZ | ANNUAL REPORT 2013 | STATEMENT OF CHANGES IN EQUITY SBERBANK CZ | ANNUAL REPORT 2013 | STATEMENT OF FINANCIAL POSITION 3332

in CZK millionShare

capital

Share premium

accountStatutory

reserve

Cumulative gains not recognized

in the profit for the period

Retained earnings

Total Equity

As at 1 January 2012 2,005 2,695 93 (38) 646 5,401Net change in available-for-sale investments, net of tax – – – 46 – 46

Other comprehensive income (recognized directly in equity) – – – 46 – 46

Net profit – – – – 209 209

Total comprehensive income for 2012 – – – 46 209 255

Dividends relating to 2011 – – – – (346) (346)

Transfer to statutory reserve – – 17 – (17) –

As at 31 December 2012 2,005 2,695 110 8 492 5,310

As at 1 January 2013 2,005 2,695 110 8 492 5,310Net change in available-for-sale investments, net of tax – – – (45) – (45)

Other comprehensive income (recognized directly in equity) – – – (45) – (45)

Net profit – – – – 230 230

Total comprehensive income for 2013 – – – (45) 230 230

Dividends relating to 2012 – – – – – –

Transfer to statutory reserve – – 10 – (10) –

As at 31 December 2013 2,005 2,695 120 (37) 712 5,495

As at 31 December

in CZK million Note 2013 2012ASSETSCash and balances with central banks 11 11,746 7,196

Loans and advances to banks 12 3,462 4,894

Loans and advances to customers 13,14 51,421 45,944

Derivative financial instruments 15 269 283

Financial assets at fair value through profit or loss 16 31 265

Investment securities:

– Available for sale 17 2,997 2,253

– Loans and receivables 17 61 61

– Held to maturity 17 – –

Intangible assets 18 115 110

Property and equipment 19 262 193

Current income tax assets – 32

Deferred income tax assets 20 47 13

Other assets 21 39 40

Deferred items 21 22 28

Total assets 70,472 61,312LIABILITIESDeposits from banks 22 4,488 6,927

Due to customers 23 48,008 41,642


Debt securities in issue 24 9,400 6,493

Current income tax liabilities 2 –

Other liabilities 25 356 347

Deferred items 25 27 29

Provisions 26 39 35

Subordinated debt 27 2,400 253

Total liabilities 64,977 56,002EQUITYShare capital 28 2,005 2,005

Share premium account 2,695 2,695

Statutory reserve 120 110

Cumulative gains / (loss) not recognized in the profit for the period 28 (37) 8

Retained earnings 712 492

Total equity 5,495 5,310Total equity and liabilities 70,472 61,312

Statement of changes in equityfor the year ended 31 December 2013Prepared in accordance with International Financial Reporting Standards as adopted by the European Union

Statement of financial position as at 31 December 2013Prepared in accordance with International Financial Reporting Standards as adopted by the European Union

SBERBANK CZ | ANNUAL REPORT 2013 | STATEMENT OF CASH FLOW SBERBANK CZ | ANNUAL REPORT 2013 | STATEMENT OF CASH FLOW 3534

in CZK million Note 2013 2012

Cash flow from / (used in) operating activities


Adjustment for:

Impairment losses on loans and advances 14 354 218

Provisions 26 4 2

Depreciation of property and equipment 7 95 70

(Increase)/ decrease in operating assets:

Due from banks, non-demand, over 3 months 318 (2,922)

Financial assets at fair value through profit or loss 248 (252)

Loans and advances (5,832) (4,551)

Other assets (1) (9)

Prepayments and accrued income 6 (4)

Increase / (decrease) in operating liabilities

Due to banks, term (1,062) (978)

Financial liabilities at fair value through profit and loss (19) 251

Due to customers 6,366 9,879

Promissory notes and certificates of deposits 2,044 780

Other liabilities 11 (111)

Accruals and deferred income (2) (21)

Net cash flow from / (used in) operating activities before income tax 2,816 2,622

Net income tax (47) (113)

Net cash flow from (used in) operating activities 2,769 2,509

in CZK million Note 2013 2012

Cash flow from / (used in) investing activities

Purchase of investment securities 17 (3,034) (2,015)

Proceeds from sale and redemption of securities 17 2,237 2,466

Purchase of property, equipment and intangible assets 18,19 (169) (55)

Net cash flow from (used in) investing activities (966) 396

Cash flow from / (used in) financing activities

Issue of bonds 24 863 660

Increase / (decrease) in borrowings 27 2,147 (7)

Dividends paid 35 – (346)

Net cash flow from financing activities 3,010 307

Net increase / (decrease) in cash and cash equivalents 4,813 3,212

Cash and cash equivalents at the beginning of the year 31 6,382 3,170

Net increase / (decrease) in cash and cash equivalents 4,813 3,212

Cash and cash equivalents at the end of the year 31 11,195 6,382

Operational cash flow from interest

Interest paid 708 883

Interest received 2,108 2,181

Income tax paid 47 113

Income tax received – –

Statement of cash flow for the year ended 31 December 2013Prepared in accordance with International Financial Reporting Standards as adopted by the European Union

These financial statements were approved for issue by the Board of Directors on 14 April 2014 and signed on its behalf by:

Signature of the Person responsible Person responsible statutory representatives for accounting for the preparation of the financial statements

Frank Guthan Karel Soukeník Alena Sládková Libor NosekMember of the Member of theBoard of Directors Board of Directors

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

SBERBANK CZ | ANNUAL REPORT 2013 | NOTES TO THE FINANCIAL STATEMENTSSBERBANK CZ | ANNUAL REPORT 2013 | NOTES TO THE FINANCIAL STATEMENTS 3736

1 General informationSberbank CZ, a.s. (hereinafter referred to as “the Bank”) was incorporated on 31 October 1996. The Bank had 22 domestic regional branches in the Czech Republic as at 31 December 2013 (as at 31 December 2012: 24 branches) and employed on average 719 people (as at 31 December 2012: 649 people).

As at 31 December 2013 and 31 December 2012, the ultimate holding company was Sberbank, which is incorporated in Russia and whose registered office is located at 117997 Moscow, 19 Vavilova St. (hereinafter referred to as “Sber-bank RU”). The financial statements of the Bank were included in the consolidated financial statements of Sber-bank RU. The direct holding company was Sberbank Europe AG (hereinafter referred to as “Sberbank EU”), which is incorporated in Austria.

Sberbank CZ, a.s. was using in the beginning of the year 2013 the company name Volksbank CZ, a.s. It was changed on 28 February 2013 in the process of integrating into the Sberbank RU group, after an acquisition of 100% interest in Sberbank EU (formerly Volksbank International AG) by Sberbank RU. Since 28 February 2013 the Bank uses the company name Sberbank CZ and started the rebranding of its branch network.

In January 2012, both minority shareholders (see note 36) sold their shares at Sberbank CZ, a.s. to the company Sberbank EU, which became the owner of a 100% share of Sberbank CZ, a.s.

The Bank’s operations primarily consist of the following:

• Providing Czech and foreign currency loans and guarantees

• Accepting and placing deposits in Czech and foreign currencies

• Accepting current and term accounts denominated in Czech and foreign currencies

• Rendering of general banking services through a network of branches and agencies

• Providing foreign exchange transactions on the inter-bank money market

• Providing foreign trade finance and related banking services

• Trading in securities and portfolio management

• Issuing mortgage bonds

2 Accounting policies(a) Statement of compliance and basis of preparation of financial statements

The statutory financial statements, comprising a statement of financial position, statements of comprehensive income and of changes in equity, a statement of the cash flow and accompanying notes, of the Bank have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”). The policies set out below have been consistently applied to all the reporting periods presented.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities held at fair value through profit or loss and all derivative contracts.

The preparation of financial statements to conform with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”) requires the use of certain critical accounting estimates. It also requires man-agement to exercise its judgment in the process of applying the Bank’s accounting policies.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2 (ab).

The financial statements are rounded to millions of Czech Crowns (“CZK million” or “CZKm”) unless otherwise stated.

(b) Operating segments reporting

The Bank determines and presents operating segments based on the information which is internally presented to the Board of Directors as the Bank’s chief operating decision maker with regard to resources to be allocated to the seg-ment and assesses its performance.

The operating segment is a component of the Bank:

• That engages in business activities from which revenues and expenses may arise (including revenues and expenses related to transactions with other components of the Bank)

• Whose operating results are regularly reviewed by the Bank’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance

• For which discrete financial information is available.

(c) Foreign currencies translation

Functional and presentation currencyItems included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the Bank operates (“the functional currency”).

The financial statements are presented in CZK, which is the Bank’s functional and presentation currency.

Notes to the financial statements


Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the “net trading income”.

Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of net trading income. Translation differences on non-monetary items, such as equities classified as availa-ble-for-sale financial assets, are included in the other comprehensive income in the fair value reserve in equity.

(d) Financial assets and liabilities and their valuation

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 investments and available-for-sale financial assets.

The Bank classifies its financial liabilities in the following categories: financial liabilities at fair value through profit or loss and other financial liabilities. The classification of financial assets and liabilities is based on management’s intention at initial recognition and the relevant criteria for classification have to be met.

(i) Financial assets and liabilities at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception.

A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorized as held for trading unless they are designated as hedging instruments.

Financial assets and financial liabilities are designated at fair value through profit or loss when:

• Doing so significantly reduces measurement inconsistencies that would arise if the related derivatives were treated as held for trading and the underlying financial instruments were carried at amortized cost for loans and advances to customers or banks and debt securities in issue

• The group of financial assets and financial liabilities, such as debt securities, are managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel, and on that basis are designated at fair value through profit and loss

• Financial instruments, such as debt securities held, containing one or more embedded derivatives significantly modifying the cash flows, are designated at fair value through profit and loss.

Gains and losses arising from sale and changes in the fair value of financial instruments held for trading, including trading derivatives that are managed in conjunction with designated financial assets or financial liabilities, are re-corded in the “net trading income”.

Gains and losses arising from sale and changes in the fair value of financial assets and financial liabilities designated at fair value through profit or loss at inception are recorded in the “net income from financial investments”.

(ii) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those that the Bank intends to sell immediately or in the short term, which are classified as held for trading, and those that the Bank upon initial recognition designates as fair value through profit or loss; (b) those that the Bank upon initial recognition designates as available for sale; or (c) those for which the Bank may not recover substantially all of its initial investment, other than because of credit deterioration. These assets are carried at the amortized cost.

(iii) Held-to-maturity financial assetsHeld-to-maturity investments are non-derivative 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. These assets are carried at the amortized cost.

If the Bank has sold other than an insignificant amount of held-to-maturity assets before maturity (other than in certain specific circumstances), the entire category has to be reclassified as available for sale. Furthermore, the Bank would be prohibited from classifying any financial assets as held-to-maturity during the following two years.

(iv) Available-for-sale financial assetsAvailable-for-sale investments are 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. These assets are carried at fair value.

(v) Financial liabilities at fair value through profit or loss For financial liabilities, the classification and rules referred to in paragraph (i) are applied.

(vi) Other financial liabilitiesThe Bank classifies all financial liabilities in this category, except for those classified in the category of financial liabilities at fair value through profit or loss in accordance with those rules for classification in that category. Other financial liabilities are carried at the amortized cost.

The Bank issues mortgage bonds. Bought-back mortgage bonds are reported directly as a deduction from liabilities from issued securities

(vii) Recognition and derecognition of financial assetsRegular-way purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for sale are recognized on the trade date – the date on which the Bank commits to purchasing or selling the asset.

Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are recognized in the statement of comprehensive income under “fee and commission expense”. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Bank has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when they are extinguished − that is, when the obligation is discharged, cancelled or expires.


Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at the amortized cost using the effective interest method. Gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category -are included in the profit for the period in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognized directly in equity, until the financial asset is derecognized or impaired. At this time, the cumulative gain or loss previously recognized in equity is recognized in profit or loss.

However, interest calculated using the effective interest method and foreign currency gains and losses on monetary assets classified as available for sale are recognized in the profit for the period. Dividends on available-for-sale equity instruments are recognized in the profit for the period when the Bank’s right to receive payment is established.

(viii) Determination of fair valueFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurable date in the principal, or in its absence, the most advantageous market to which the Bank has access at that date.

The fair values of quoted investments in active markets are based on current bid prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no active market for a financial asset, the Bank establishes fair value using valuation techniques that maximise the use of relevant observable inputs. These include for example the use of a discounted cash flow analysis and other valuation techniques commonly used by market participants.

The Bank’s accounting methods on fair value are disclosed in the Note 34.

(e) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

(f) Derivative financial instruments and hedge accounting

Derivatives including foreign exchange contracts, currency and interest rate swaps are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

The Bank occasionally purchases or issues financial instruments containing embedded derivatives. Certain derivatives embedded in other financial instruments, such as the conversion option in a convertible bond, are treated as sepa-rate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in the profit for the period unless the Bank chooses to designate the hybrid contracts at fair value through profit or loss.

The Bank does not apply hedge accounting.

(g) Recognition of deferred day one profit and loss

The best evidence of fair value at initial recognition is the transaction price (i.e. the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique where the variables of which include only data from observable markets.

When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Bank immediately recognizes the difference between the transaction price and fair value (a Day 1 profit or loss) in Net trading income. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the income statement when the inputs become observ-able, or when the instrument is derecognized.

(h) Interest income and expense

Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading, are recognized in the statement of comprehensive income under “interest and similar income” and “interest expense and similar charges” using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. The effective interest rate is established when the financial assets or liability is firstly recognized and it is revised at the time of the change of estimated future cash flows arising from the financial instruments with floating interest rate or with non-fixed payments.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

(i) Fee and commission income and fee expense

Fees and commissions are generally recognized on an accrual basis when the service has been provided. Loan com-mitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and rec-ognized as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognized as revenue when the syndication has been completed and the Bank has retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other participants. Commission and fees arising from ne-


gotiating, or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses – are recognized on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts, usually on a time-apportionated basis. Asset management fees related to investment funds are recognized rateably over the period in which the service is provided. The same principle is applied for as-set management, financial planning and custody services that are continuously provided over an extended period of time. Performance linked fees or fee components are recognized when the performance criteria are fulfilled.

(j) Dividend income

Dividends are recognized in the profit for the period when the Bank’s right to receive payment is established.

(k) Sale and repurchase agreements

Securities sold subject to repurchase agreements (“repos”) are reclassified in the statement of financial position as pledged assets when the transferee has the right by contract or custom to re-sell or re-pledge the collateral to the third party. The counterparty liability is included in “deposits from banks” or “due to customers”, as appropriate. Securities purchased under agreements to resell (“reverse repos”) are recorded as “loans and advances to banks” or “loans and advances to customers”, as appropriate. The difference between the sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to coun-terparties are also retained in the financial statements.

(l) Impairment of financial assets

(i) Loans and receivables carried at amortized costsThe Bank assesses as at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Bank mainly uses to determine that there is objective evidence of an impairment loss include the following:

• Delinquency in contractual payments of principal or interest

• Cash flow difficulties experienced by the borrower

• Breach of loan covenants or conditions

• Initiation of bankruptcy or insolvency proceedings

• Deterioration of the borrower’s competitive position

• Deterioration in the value of collateral

• Downgrading below investment grade level

The estimated period between a loss occurring and its identification is determined by local management for each identified portfolio. In general, the periods used vary between one and three months.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the profit for the period. If a loan or held-to-maturity invest-ment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an ob-servable market price.

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 less costs for obtaining and selling the collateral, whether or not fore-closure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the esti-mation of future cash flows for groups of such assets by being indicative of the debtor’s ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank.

Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current condi-tions that did not affect the period in which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their mag-nitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objec-tively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed either directly or by adjusting the allowance account.


The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. The amount of the reversal is recognized in the profit for the period in “impairment charge for credit losses”.

When a loan is uncollectible, it is written off against the related allowance for impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. These procedures mainly include (i) cession of a loan (if the debt is ceded at a lower price than the face value), (ii) report from the executor that there is no other property of the debtor that may be punished by execution of the loan, (iii) the final termination of the insolvency proceedings with the debtor.

In the statement of comprehensive income under “impairment charge for credit losses” proceeds from written-off receivables are also reported.

(ii) Assets classified as available for saleThe Bank assesses as at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant or pro-longed decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the dif-ference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the statement of income. Impair-ment losses recognized in the profit for the period on equity instruments are not reversed through the statement of income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the profit for the period.

(iii) Assets classified as held to maturityBonds classified as held to maturity are regularly tested for impairment. If the Bank concludes that there is objective evidence that a bond is impaired, it is reflected in an allowance account and the impairment loss is recognized in profit or loss. If an event occurring after the impairment was recognized causes the amount of impairment loss to decrease, then the decrease in impairment loss is reversed through profit or loss.

(iv) Renegotiated loans and advancesSince the moment of renegotiation, such loans are treated as individually impaired for a period of six months. If a loan performs according to the renegotiated schedule, it becomes treated as a watched loan during the subsequent 18 months, and as standard starting the third year since the renegotiation (according to the CNB methodology descibed in the Note 33 (b)). Impairment of renegotiated receivables is measured using the original effective interest rate. Management continuously reviews the performance of the agreed conditions of renegotiated loans and the probability of future installments.

(m) Intangible assets

Depreciation on intangible assets is calculated using the straight-line method to allocate their cost to their residu-al values over their estimated useful lives, as follows:

Software

definite period under the contract, or according to the estimated useful life, or (if there is no agreement for a definite period or estimation of useful life)

36 months

Audiovisual work 18 months

Other 72 months

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring the specific software to use. These costs are amortized on the basis of the expected useful lives.

Costs associated with developing or maintaining computer software programs are recognized as an expense as Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Bank, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intan-gible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads.

Computer software development costs recognized as assets are amortized using the straight-line method over their useful lives.

The cost of depreciation of intangible assets is recognized in the statement of comprehensive income under “Admin-istrative expenses”.

(n) Property, premises and equipment

Land and buildings comprise mainly branches and offices. All property, premises and equipment is stated at his-torical cost less depreciation. Historical costs of property, premises and equipment and intangible assets include:

• The cost (expenditures that are directly attributable to the acquisition of the items)

• Directly attributable costs necessary to bring the asset into operation

• Estimated costs of dismantling and removing the asset and restoring the place where the property is located

• Borrowing costs incurred for the period of the preparation of the asset for its intended use or sale. The Bank is currently buying property only from its own financial resources.

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 the 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 “other general admin-istrative expenses” during the financial period in which they are incurred.


Land, assets under construction and works of art are not depreciated. Depreciation on other long-term assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows (in years):

Buildings and construction (including Administrative buildings) 30

Hardware and equipment 4

Fixtures and fittings 6

Safes 12

Motor vehicles 4

The leasehold improvements are depreciated over the term of the lease.

When classifying new assets into depreciation groups, the Bank uses the component approach, i.e. the major com-ponents of assets with different useful lives are depreciated separately.

The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, as at each balance sheet date.

The cost of depreciation of property, premises and equipment are recognized in the statement of comprehensive income under “Administrative expenses”. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in “other operating income“ or “other operating expenses” in the profit for the period.

The Bank does not hold any assets for which it would use the revaluation model. All property under paragraphs (m) and (n) is depreciated using the cost model. The Bank currently does not own the building, to which IAS 40 Invest-ment property would be applied, i.e. property held primarily to earn rental income or for capital appreciation.

(o) Impairment of non-financial assets

Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indicators of impairment can be external (drop in market prices) or internal (information obtained from a review of useful lives and residual book values) carried out once a year. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

(p) Leases

The determination of whether an arrangement is a lease, or contains a lease, 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 the arrangement conveys a right to use the asset.

The leases entered into by the Bank are primarily operating leases. The total payments made under operating leases are charged to “other general administrative expenses” in the profit for the period on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of a penalty is recognized as an expense in the period in which the termination takes place.

(q) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 3 months maturity from the date of acquisition including: cash and balances with central banks (including Mandatory Mini-mum Reserves), due from banks and due to banks.

(r) Provisions

Provisions for legal claims, restructuring, financial guarantees issued, promises of loans issued, letters of credit issued and other contingent liabilities are recognized when the Bank has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense.

(s) Financial guarantee contracts

The Bank gives financial guarantees, i.e. guarantees and letters of credit. Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guar-antees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.

Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Bank’s obligations from given guarantees are measured at the higher of the initial measurement, less amortization of revenue from fees amortized on straight basis in “income from fees and commissions” for the duration of the guarantee and the best estimate of expenses which will be required to settle any financial obligation that existed at the balance sheet date. They are recognized as „provisions“. These estimates are determined based on experience with similar transactions and the history of past losses, supple-mented by the judgment of management.

Any change in the amount of „Provisions“ is recognized in „impairment charge for credit losses“ in the statement of comprehensive income.


(t) Staff costs

Staff costs are included in “administrative expenses” and they also include remuneration of the members of the executive and Supervisory Board.

Employee benefitsThe Bank provides its employees with:

• Retirement benefit or disability benefit. The employees are entitled to receive retirement or disability benefits if they are employed by the Bank until their retirement age or if they are entitled to receive a disability pension but only if they were employed with the Bank for a minimum defined period

• Anniversary benefit. The employees are entitled to receive anniversary benefit if they were employed with the Bank for a minimum defined period and their service was of appropriate quality throughout this period.

The Bank recognized a provision amounting to the present value of defined post-employment and other long-term employee benefits. The defined benefit obligation is calculated in accordance with the projected unit credit method which estimates the present value of defined benefit obligation based on generally recognized actuarial principles. In determining the parameters of the model, the Bank refers to the most recent data (the length of employment with the Bank, age, gender, benefit value and its anticipated growth) and actuarial assumptions (endowment age according to mortality tables, legal retirement age, estimated amount of social security and health insurance contri-butions and discount rate). Due to the long-term nature of these plans, such estimates are subject to uncertainty.

Remeasurements of the net defined benefit liability, which comprises actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling are recognised immediately in „other comprehensive income“.

Net interest expense related to defined bendit plans are recognised in „personnel expenses” in profit or loss.

These employee benefits are provided by the Bank on a voluntary basis (not on the benefits provided under legal regulations).

PensionsThe Bank currently executes a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

For defined contribution plans, the Bank pays contributions to privately administered pension insurance plans on a contractual or voluntary basis. The Bank has no further payment obligations once the contributions have been paid. The contributions are recognized as an employee benefit expense when they are due.

Social fundThe Bank creates a social fund to finance the social needs of its employees and employee benefit programmes. The allocation to the social fund is recognized in the “administrative expenses”.

(u) Taxation and deferred income tax

Income taxIncome tax payable on profits, based on Czech tax law, is recognized as an expense in the period in which profits arise.

Deferred taxDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is deter-mined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

The principal temporary differences arise from the depreciation of property, plant and equipment, revaluation of cer-tain financial assets and liabilities including derivative contracts, provisions and tax losses carried forward. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognized where it is probable that future taxable profit will be available against which the temporary differences can be utilized.

The tax effects of income tax losses available for carry-forward are recognized as an asset when it is probable that future taxable profits will be available against which these losses can be utilized.

Deferred tax related to fair value re-measurement of available-for-sale investments, which is charged or credited directly to equity, is also credited or charged directly to equity and subsequently recognized in the profit for the period together with the deferred gain or loss.

(v) Value added tax

The Bank is registered for value added tax (“VAT”). Intangible and tangible fixed assets are stated at acquisition cost including the appropriate VAT. The Bank does not claim a deduction of input VAT as the ratio of the taxable income to the total income of the Bank is such that it is not economical for the Bank to claim the input VAT.

(w) Borrowings

Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds net of transaction costs and the redemption value is recognized in the profit for the period over the period of the borrowings using the effective interest method.

(x) Share capital and reserves

Share issue costsIncremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.


Dividends on sharesDividends on shares are recognized in equity in the period in which they are approved by the Bank’s shareholders.

Dividends for the year that are declared after the balance sheet date are dealt with in the subsequent events note.

Statutory reserveIn accordance with the Commercial Code, the Bank is required to set aside a statutory reserve in equity.

The statutory reserve represents accumulated transfers from retained earnings. Five percent of net profit shall be allocated to the statutory reserve until the value of 20 % of share capital is achieved. This reserve is not distributable and can be used exclusively to cover losses.

(y) Fiduciary activities

The Bank acts as a trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, and other institutions. These assets and income arising thereof are excluded from these financial statements, as they do not belong to the Bank.

(z) Collaterals valuation

Fair value of the collaterals is determined using market data, valuation models and independent expert estimations. The dominant type of collateral is residential and non-residential property, where an expert estimation of the market value is conservatively reduced by a factor for the type of collateral. The amounts of reduction factor are based on conservative expert estimations, until the frequency of the realization of collaterals does not allow the determi-nation of these factors on the basis of statistically significant observations. The reported financial effect of collateral is limited up to the carrying amount of the related financial asset.

(aa) IFRS /IAS accounting and reporting developments

In 2013, the Bank adopted all of the new and revised Standards and Interpretations issued by the IASB and IFRIC as adopted by the EU that are relevant to its operations and effective for accounting periods commencing 1 January 2013:

• Amendments to IAS 1, Presentation of financial statements (issued in June 2011; effective for the reporting periods beginning on or after 1 July 2012). It revised the way of presenting other comprehensive income, separate those that would be recognized in profit or loss in the future from those that would never be.

• Amendments to IFRS 1, First time adoption of IFRS – Government loans – (issued in March 2012; effective for the reporting periods beginning on or after 1 January 2013). The standard prescribes how a first-time IFRS adopter would account for government loans with a below-market rate.

• IFRS 10, Consolidated financial statements (issued in May 2011; effective for the reporting periods beginning on or after 1 January 2013; the standard was endorsed by the European Union for use for reporting periods begin-ning on or after 1 January 2014). It replaces the requirements contained in IAS 27 and SIC-12. It introduces a single consolidation model for all entities including special purpose entities (SPE). It introduces a consolidation based on control, irrespective of the nature of the investee. It defines the three elements of control: power, exposure or rights to variable returns from its involvement with the investee and ability to use its power over the investee to affect the amounts of the returns.

• IFRS 11, Joint arrangements (issued in May 2011; effective for the reporting periods beginning on or after 1 January 2013; the standard was endorsed by the European Union for use for reporting periods beginning on or after 1 January 2014). It replaces IAS 31. It introduces two forms of joint arrangements: joint venture and joint operation. The option to apply the proportionate consolidation method to account for jointly controlled entities is canceled.

• IFRS 12, Disclosure of interests in other entities (issued in May 2011; effective for the reporting periods begin-ning on or after 1 January 2013; the standard was endorsed by the European Union for use for reporting periods beginning on or after 1 January 2014). It requires the extensive disclosure of information that enables users of financial statements to evaluate the basis of control, any restrictions on consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated structured entities and from non-controlling interest holder’s involvement in the activities of consolidated entities.

• Amendments to IFRS 10, IFRS 11, IFRS 12 (issued in June 2012; effective for the reporting periods beginning on or after 1 January 2013). The amendments clarify the transition guidance for those standards and provides relief to requirements to present comparative information.

• IFRS 13, Fair value measurement (issued in May 2011; effective for the reporting periods beginning on or after 1 January 2013). It replaces the guidance on fair value measurement in existing IFRSs and Interpretations with a single standard. It contains a new definition of fair value and establishes valuation techniques. The standard applies when another IFRS requires or permits fair value measurement. The Bank adopted revised definition of Fair value (note 2d)vii) and expanded the disclosures in note 34 to conform with the standard’s requirements. The change does not have significant effect on valuation of assets and liabilities.

• Amendments to IAS 19, Employee benefits (issued in June 2011 effective for the reporting periods beginning on or after 1 January 2013). The standard defines and changes rules for accounting of defined benefit plans and termination benefits and the corridor approach is canceled. Tha Bank has adopted new accounting policies re-garding the calculation of income and expense on employee benefits to conform with IAS 19. This change does not have significant effect on the Bank’s statements.

• IAS 27, Separate financial statements (issued in May 2011; effective for the reporting periods beginning on or after 1 January 2013; the standard was endorsed by the European Union for use for reporting periods beginning on or after 1 January 2014). The requirements for separate financial statements remain unchanged, the portion of the original standard dealing with the consolidation has been moved to new IFRS 10.

• IAS 28, Investments in associates and joint ventures (issued in May 2011; effective for the reporting periods beginning on or after 1 January 2013; the standard was endorsed by the European Union for use for reporting periods beginning on or after 1 January 2014). The standard prescribes the requirements for application of the equity method when accounting for associates and joint ventures. The standard defines significant influence and provides guidance on how those entities should be tested for impairment.

• IFRIC 20, Stripping costs in the production phase of a surface mine (issued in October 2011; effective for the reporting periods beginning on or after 1 January 2013).

• Amendments to IFRS 1, First time adoption of IFRS – Removal of fixed dates for first-time adopters (issued in December 2010; effective for the reporting periods beginning on or after 1 July 2011; it can be applied according to the EU endorsement for the period after 1 January 2013). The amendment provides relief for first-time adopters from having to reconstruct transactions that occurred before their transition to IFRS.

• Amendments to IFRS 1, First time adoption of IFRS – Severe hyperinflation – (issued in December 2010; effec-tive for the reporting periods beginning on or after 1 July 2011; it can be applied according to the EU endorsement for the periods beginning on or after 1 January 2013). It provides guidance for entities emerging from severe hy-perinflation.

5352 SBERBANK CZ | ANNUAL REPORT 2013 | NOTES TO THE FINANCIAL STATEMENTSSBERBANK CZ | ANNUAL REPORT 2013 | NOTES TO THE FINANCIAL STATEMENTS

• Amendments to IAS 12, Income taxes – Deferred tax: Recovery of underlying assets (issued in December 2010 effective for the reporting periods beginning on or after 1 January 2012; it can be applied according to the EU endorsement for the periods beginning on or after 1 January 2013). It provides a rebuttable presumption that recovery of the carrying amount of an investment property (using the fair value model in IAS 40 or acquired in business combination) will be recovered through sale of the asset. The way of recovering the asset has to be taken into account, and an amendment is relevant, if the tax rates differ from usage and from sale.

• Amendments to IFRS 7, Financial instruments: Disclosures – (issued in December 2011; effective for the report-ing periods beginning on or after 1 January 2013). It requires disclosure of information about recognized financial assets and liabilities that are set off.

• Annual Improvements to IFRSs (2009–2011):

– IFRS 1 First time adoption of IFRS (effective for the reporting periods beginning on or after 1 January 2013) – the standard sets the procedure for repeated application of IFRSs in case of interruption to applying them. If an entity does not elect to apply IFRS 1 again, it must apply IFRSs retrospectively as if there was no inter-ruption.

– IFRS 1 First time adoption of IFRS (effective for the reporting periods beginning on or after 1 January 2013) – the standard prescribes the requirements for borrowing costs capitalized before the transition date to IFRSs. The capitalized amount need not be adjusted at the date of transition. If borrowing costs are incurred on the date of transition or later, it is necessary to apply IAS 23 Borrowing costs.

– IAS 1 Presentation of financial statements (effective for the reporting periods beginning on or after 1 January 2013) – the standard clarifies the requirements for comparative information. If an entity provides additional comparative information beyond the requirements of IAS 1, the information should be presented in accord-ance with IFRSs. The standard also regulates the extent of disclosure of financial statements in case of ret-rospective changes in accounting policies or application of reclassifications.

– IAS 16 Property, plant and equipment (effective for the reporting periods beginning on or after 1 January 2013) – the standard clarifies the presentation of spare parts, stand-by equipment and servicing equipment. If they meet the definition of property, plant and equipment they should be classified in this way, or otherwise as an inventory.

– IAS 32 Financial instruments: Presentation (effective for the reporting periods beginning on or after 1 January 2013) – in case of accounting of income tax relating to distribution of an equity instrument to holders and to related transaction costs of an equity transaction, IAS 12 Income Taxes should be applied.

– IAS 34 Interim financial reporting – (effective for the reporting periods beginning on or after 1 January 2013) – the standard limits the obligation to separate presentation of total assets and liabilities for a particular reportable segment in interim financial reporting only when a material change from the amounts disclosed in the last annual financial statements has occurred.

The adoption of these new and revised standards and interpretations has not resulted in changes to the Bank’s accounting policies to an extent that would have affected the amounts reported for the current year and prior pe-riod significantly.

At the preparation date of these financial statements, the following standards, amendments to the existing stand-ards, and interpretations adopted by the EU were in issue but not yet effective (effective dates are presented in accordance with the text adopted by the European Union):

• Amendments to IAS 32, Financial instruments: Presentations – (issued in December 2011; effective for the reporting periods beginning on or after 1 January 2014). It specifies disclosure of information about recognized financial assets and liabilities that are set off.

• Amendments to IFRS 10, IFRS 12, IAS 27 (issued in October 2012; effective for the reporting periods beginning on or after 1 January 2014). The amendments provide an exemption from requirements of the standards for consolidation of entities that meet the definition of an investment entity. Such entities should measure their investments in subsidiaries at fair value through profit and loss instead of the consolidation procedure.

• Amendments to IFRS 10, IFRS 12, IAS 27 (issued in October 2012; effective for the reporting periods beginning on or after 1 January 2014). The amendments provide an exemption from requirements of the standards for consolidation of entities that meet the definition of an investment entity. Such entities should measure their investments in subsidiaries at fair value through profit and loss instead of the consolidation procedure.

• Amendments to IAS 39, Novation of derivatives and Continuation of Hedge Accounting – (issued in July 2013). Sets the requirements and criteria for the continuation of hedge accounting (effective for the reporting periods beginning on or after 1 January 2014).

• Amendments to IAS 36, Recoverable Amount Disclosures for Non-Financial Assets (issued in May 2013). Clarify the disclosures requirements of information about recoverable amount of impaired assets and the dis-count rates that have been used when the recoverable amount is based on fair value less costs of disposal using present value technique. (effective for the reporting periods beginning on or after 1 January 2014).

The Bank has decided not to adopt these standards, revisions and interpretations in advance of their effective dates. The Bank anticipates that the adoption of these standards, amendments to the existing standards, and interpreta-tions in future periods will have no material impact on the financial statements of the Bank.

At the preparation date of these financial statements, the following standards, amendments to the existing stand-ards, and interpretations have not yet been endorsed for use in the EU. Endorsement is expected by the time the standards and interpretations become effective:

• IFRS 9, Financial instruments – Classification and measurement (issued in November 2009; effective for the reporting periods beginning on or after 1 January 2015). It introduces new requirements for classifying and measuring financial assets into new categories.

• Additions to IFRS 9, Financial instruments – Financial liability accounting (issued in October 2010; effective for the reporting periods beginning on or after 1 January 2018). A significant change from standard IAS 39 is, when an entity chooses to measure a liability at fair value, then it will present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other comprehensive income, rather than within profit or loss.

• Amendments to IFRS 9, Financial instruments and IFRS 7: Disclosures (issued in December 2011). It amended the effective date of IFRS 9 to annual periods beginning on or after 1 January 2015 (previously: 1 January 2013).

• Amendments to IAS 19, Employee Benefits: Employee Contribution – (issued in November 2013). Clarify how the employees or third party contributions should be allocated to periods of service. (effective for the reporting periods beginning on or after 1 January 2014).


• IFRIC Interpretation 21 Levies – (issued in May 2013). Provides guidance on when to recognize a liability for a levy imposed by a government. (effective for the reporting periods beginning on or after 1 January 2014).

• Annual Improvements to IFRSs (2010–2012) cycle: issued in December 2013, amending the following eight pronouncements

– IFRS 2 Share-based Payment – definition of ‘vesting condition’ (effective for the reporting periods beginning on or after 1 January 2014).

– IFRS 3 Business Combinations – accounting for contingent consideration in a business combination (effec-tive for the reporting periods beginning on or after 1 January 2014).

– IFRS 8 Operating Segments – required the entity to disclose the judgments made by management in applying the aggregation criteria to operating segments (effective for the reporting periods beginning on or after 1 January 2014).

– IFRS 13 Fair Value Measurement – clarification on measurement of short-term receivables and payables with no stated interest rate (effective for the reporting periods beginning on or after 1 January 2014).

– IAS 16 Property, Plant and Equipment – Clarifies that when an item of property, plant and equipment is reval-ued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount (effective for the reporting periods beginning on or after 1 January 2014).

– IAS 24 Related Party Disclosures – Clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity (effective for the reporting periods beginning on or after 1 January 2014).

– IAS 38 Intangible Assets – Clarifies that when an intangible asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount (effective for the reporting periods beginning on or after 1 January 2014).

• Annual Improvements to IFRSs (2011–2013) cycle: issued in December 2013, amending the following four pro-nouncements

– IFRS 1 First-time Adoption of IFRS – clarifies the definition of ‘effective standard’ for the first-time IFRS adopters.

– IFRS 3 Business Combinations – clarifies the exception from the scope.

– IFRS 13 Fair Value Measurement – Clarifies that the scope of the portfolio exception defined in paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 or IFRS 9 (effective for the reporting period when IFRS 13 was first used).

– IAS 40 Investment Property – clarifies the relationship between IFRS 3 and IAS 40 (effective for the reporting periods beginning on or after 1 January 2014).

In the years 2012 and 2013 the Bank and Sberbank Group assessed the impact of IFRS 9 Financial instruments – Classification and measurement on financial statements. A detailed analysis of the adoption of IFRS 9 Financial instruments – Classification and measurement on financial statements will be prepared during the year 2014 The Bank has not assessed the impact of the amendment to IFRS 9 Financial instruments – Financial liability accounting (issued in October 2010) yet.

The Bank anticipates that adopting other standards, amendments to the existing standards, and interpretations in future periods will have no material impact on the financial statements of the Bank (except of the impact of IFRS 9 as described previously) in the period of the first application of the rules.

The Bank monitors the process of creating as yet unpublished standards, particularly IFRS 9 Financial Instruments, proposals for new standards Leases and Revenue from contracts with customers, and annual Improvements to IFRSs.

(ab) Critical accounting estimates and judgments

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Impairment losses on loans and advancesThe Bank reviews its loan portfolios to assess impairment at least on a monthly basis.

The amount of impairment loss reflects the decrease in expected future cash flows (payments) from the portfolio of loans.

For receivables that are not past due, the amount of impairment was estimated based on historical observations of credit losses of homogenous portfolio of clients with similar credit characteristics.

For receivables that are past due, the amount of impairment is calculated as the change in present value of esti-mated future cash flows. The expected cash flows are estimated based on the financial conditions of individual clients and the realizable value of collateral, using historical observations of the loss portfolio and profitability of each type of collateral.

Management uses estimates based on historical loss experience for assets with credit risk characteristics and objec-tive evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodol-ogy 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. To the extent that the net present value of estimated cash flows differs by +/-5%, the provision would be estimated at CZK 59 million lower or CZK 123 million higher (2012: the provision would be estimated at CZK 28 million lower or CZK 149 million higher).

Impairment of available-for-sale equity investmentsThe Bank determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates, among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows.

Fair value of financial instrumentsThe fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. The valuation techniques include the net present value and discounted cash flow models, a comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free rates, credit spreads, and other premiums used in estimating discount rates, bond prices and foreign currency exchange rates. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them.


All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Deferred taxSignificant estimates are required in determining deferred income tax. There are many transactions for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of temporary differences is different from the amounts that were initially recorded, such differences will impact the current income tax provision and deferred tax in the period in which such a determination is made.

3 Net interest incomeInterest and similar income

(CZKm) 2013 2012

Loans and advances to customers 1,997 1,904

Due from banks 117 88

Mandatory minimum reserves with central banks – 4

Loans and advances to banks 2,114 92

Investment securities available for sale 23 32

Investment securities held to maturity – 1

2,137 2,029

Securities designated at fair value at initial recognition 0 4

2,137 2,033

Interest income from loans and advances to customers

(CZKm) 2013 2012

Receivables from companies and individuals including consumer loans 1,985 1,887

Receivables from municipalities 6 9

Receivables from governmental bodies 1 1

Other receivables from customers 5 7

1,997 1,904

Interest income from investment securities held to maturity

(CZKm) 2013 2012

Receivables from companies – 1

– 1

There was CZK 109 million in interest income recognized on impaired receivables in 2013 (2012: CZK 129 million).

Interest and similar expense

(CZKm) 2013 2012

Due to customers 478 441

Due to banks 59 136

Debt securities in issue 157 157

694 734

Due to customers designated at fair value at initial recognition 4 9

698 743

4 Net fee and commission income(CZKm) 2013 2012

Fee and commission income 467 464

Fee and commission expense (110) (78)

357 386

Fee and commission income

(CZKm) 2013 2012

International payment transactions 157 161

Domestic payment transactions 106 112

Lending business (those which are not regarded as part of the effective interest rate) 90 91

Foreign exchange, foreign notes and coins transactions 85 76

Securities and custody business 21 11

Other 8 13

467 464

Fee and commission income from securities and custody business includes CZK 2 million in fee income from custody activities (2012: CZK 2 million).


5 Net trading income(CZKm) 2013 2012

Fixed-income securities and money market 1 3

Net foreign exchange gains 17 6

Equity contracts – –

Interest rate contracts 9 (1)

Foreign exchange (7) –

20 8

Net foreign exchange gains include results arising from both customer and proprietary activities in foreign exchange cash, spot, forward, swap and option operations.

6 Net income from financial investments(CZKm) 2013 2012Net income from revaluation of financial assets at fair value through profit and loss (designated financial instruments) (2) 8

Net income from revaluation of financial liabilities at fair value through profit and loss (designated financial instruments) 2 (10)

Net income from sale of securities available for sale 13 17

13 15

7 Administrative expenses(CZKm) 2013 2012

Personnel expenses 583 521

Depreciation of property and equipment and amortization of intangible assets 95 70

Other general administrative expenses 410 339

1,088 930

Personnel expenses

(CZKm) 2013 2012

Salaries and bonuses of Board of Directors members 37 19

Salaries and bonuses of senior management 35 30

Salaries and bonuses of Supervisory Board members 2 2

Salaries and bonuses of the employees 359 333

Social security costs 134 122

Other personnel costs 16 15

583 521

Social security costs also include the contribution to the state pension scheme.

Management bonus schemeSalaries and remuneration of the Members of the Board of Directors, as well as the remuneration principles and structure, are subject to approval by the Supervisory Board. Key performance indicators of the Annual performance bonus is based on the financial results of the Bank, profit center / segment and the strategic and individual objectives. The Annual performance bonus is paid if the requirements set out in the Group guidelines on remuneration and in the Bank internal guidelines General principles of the remuneration are fulfilled. The annual bonus can also be reduced or unpaid in relation to the achievement of the performance objectives.

Retirement benefitsThe Bank provides its employees with a defined contribution retirement scheme in accordance with Act No. 42/1994 Coll. Participating employees can contribute a percentage of their salaries to a pension fund. The Bank contributes up to CZK 3,600 a year per person. Total Bank expense for the retirement scheme in 2013 was CZK 1.4 million (2012: CZK 1.3 million). The expenses for the retirement scheme are recognized on the line „Other personnel costs“ in the table “Administrative expenses”.

Other general administrative expenses(CZKm) 2013 2012

Rent and leasing 90 79

Information technology 109 101

Marketing and public relations 63 41

Material consumption 40 22

Audit, tax, legal consultancy 31 41

Tax and fees 2 2

Other 75 53

410 339


8 Other operating income(CZKm) 2013 2012

Gain on disposal of fixed assets 4 1

Gain on contractual partners’ expense compensation 9 –

Other 4 3

17 4

9 Other operating expenses(CZKm) 2013 2012

Deposit insurance 65 54

Other 6 2

71 56

10 Income tax expense(CZKm) 2013 2012

Current tax expense 79 56

Deferred tax income/expense relating to the origination and reversal of temporary differences (Note 20) (23) 5

56 61

The following table shows how the tax on the Bank’s profit before tax differs from the theoretical amount that would arise using the basic tax rate:

(CZKm) 2013 2012

Profit before taxation 286 270

Applicable rates 19% 19%

Taxation at applicable tax rates 54 52

Tax effect of non-deductible expenses 4 5

Other (2) 4

56 61

The effective tax rate in 2012 was 19.58% (2012: 22.59%).

11 Cash and balances with central banksThe Bank classifies its cash and balances with central banks, except for cash in hand, in the category of financial assets “loans and receivables”.

(CZKm) 31.12.2013 31.12.2012

Loans and deposits to central bank 10,560 6,200

Mandatory minimum reserves with central banks 823 599

Cash in hand 351 375

Balances with central banks 12 22

11,746 7,196

Mandatory minimum reserves with the Czech National Bank (“CNB”) are generally not available for use in the Bank’s day-to-day operations. These deposits bear interest at the CZK repo rate, which was 0.05% as at 31 December 2013 (31 December 2012: 0.05%).

12 Loans and advances to banksThe Bank classifies its loans and advances to banks in the category of financial assets “loans and receivables”.

(CZKm) 31.12.2013 31.12.2012

Analyzed by product and bank domicile

Current accounts

Domestic 7 9

Foreign 183 39

Term deposits

Domestic – 204

Foreign 3,272 4,642

3,462 4,894

Allowances for credit losses – –

Net due from banks 3,462 4,894

Loans and advances to banks amounting to CZK 470 million (2012: CZK 1,584 million) are included in the item cash and cash equivalents (Note 31).


13 Loans and advances to customersThe Bank classifies its loans and advances to customers in the category of financial assets “loans and receivables”.

(CZKm) 31.12.2013 31.12.2012

Analyzed by product

Investment loans 35,762 32,675

Working capital financing 4,948 4,515

Mortgages 11,212 9,326

Consumer loans 1,086 661

Gross loans and advances 53,008 47,177

Allowance for impairment (Note 14) (1,587) (1,233)

Net loans and advances 51,421 45,944

In 2013, the Bank pledged collateral for the received long-term loan from the other bank to finance housing de-mands of the customers. The value of the pledged loan collateral at gross amortized cost is CZK 1,460 million (2012: CZK 1,401 million).

For an analysis of individual categories of loans and advances to customers according to their credit quality see Note 33 (b).

14 Impairment charge for credit lossesThe movement in allowance for impairment of loans and advances to customers can be analyzed as follows:

(CZKm) Retail Corporate Total

As at 1 January 2012 404 611 1,015

Allocation to provision for loan impairment 235 410 645

Reversal of provision for loan impairment (139) (54) (193)

Loans written off during the year as uncollectible (43) (182) (225)

Recoveries received for loans earlier written off (7) – (7)

Net foreign exchange difference – (2) (2)

As at 31 December 2012 450 783 1,233

Allocation to provision for loan impairment 233 284 517

Reversal of provision for loan impairment (73) (38) (111)

Loans written off during the year as uncollectible (45) – (45)

Recoveries received for loans earlier written off (5) – (5)

Net foreign exchange difference – (2) (2)

As at 31 December 2013 560 1,027 1,587

Segments Corporate/Retail are determined in accordance with the Basel II standardized approach as opposed to Note 32, where the segments are defined based on the Bank’s organizational structure.

The Bank also realized a loss amounting to CZK 10 million (2012: CZK 158 million) on ceded receivables. The loss is recognized in the “impairment charge for credit losses”.

15 Derivative financial instrumentsThe Bank’s trading activities primarily involve providing various derivative products to its customers and managing positions for its own account. The trading derivatives also include those derivatives which are used for asset and liability management (ALM) purposes to manage the interest rate position and which do not meet the criteria of hedge accounting.

The contract or notional amounts and positive and negative fair values of the Bank’s outstanding derivative trading positions as at 31 December 2013 and 31 December 2012 are set out in the table below. The contract or notional amounts represent the volume of outstanding transactions at a point in time; they do not represent the potential for gain or loss associated with market risk or credit risk of such transactions.


Derivative financial instrumentsTrading derivatives

31.12.2013 31.12.2012

Contract/nominal

Fair valuepositive

Fair valuenegative

Contract/nominal

Fair valuepositive

Fair valuenegative(CZKm)

Interest rate derivatives

Swaps 13,656 217 208 7,817 277 272

Options 3,323 10 10 1,760 – –

16,979 277 218 9,577 277 272

Foreign exchange derivatives

Swaps 1,235 1 2 379 1 –

Options – – – 63 – –

Forwards 2,521 41 37 781 5 4

3,756 42 39 1,223 6 4

Equity derivatives

Options – – – 250 – –

– – – 250 – –

Total 20,735 269 257 11,050 283 276

Fair value gains less losses of trading derivatives are recognized in the profit for the period.

Certain derivative transactions, while providing effective economic hedges under the Bank’s risk management po-sitions, do not qualify for hedge accounting, and are therefore presented above as trading derivatives with fair value gains and losses recognized in the profit for the period.

16 Financial assets at fair value through profit or lossSecurities held for trading(CZKm) 31.12.2013 31.12.2012

Debt securities 31 11

Securities designated at fair value through profit or loss (CZKm) 31.12.2013 31.12.2012

Fixed-yield debt securities – 254

Total 31 265

In 2013 the fixed-yield debt securities in amount of CZK 254 million matured.

17 Investment securitiesThe Bank classifies its investment securities in the categories of financial assets “available for sale”, “loans and receivables” and “held to maturity”.

(CZKm) 31.12.2013 31.12.2012

Securities available for sale

Debt securities thereof:

– Listed 2,997 2,253

2,997 2,253

Securities in category loans and receivables


– Unlisted 61 61

61 61

Securities held to maturity


– Listed – –

– –

(CZKm)

Securities available

for sale

Securities in category loans

and receivables

Securities held to

maturity Total

As at 1 January 2012 2,446 61 201 2,708

Additions 2,015 – – 2,015

Disposals (2,265) – (201) (2,466)

Gains / losses from changes in fair value 57 – – 57

As at 31 December 2012 2,253 61 – 2,314

Additions 3,034 – – 3,034

Disposals (2,237) – – (2,237)

Gains / losses from changes in fair value (53) – – (53)

As at 31 December 2013 2,997 61 – 3,058

The Bank pledged securities for loans taken to finance SME and municipalities. The value of the pledged collateral (securities available for sale) at fair value amounts to CZK 464 million in 2013 (2012: CZK 938 million).


18 Intangible assets

(CZKm) SoftwareDevelopment

in progress Other Total

Costs

As at 1 January 2012 354 5 1 360

Additions 21 6 – 27

Transfer 2 (2) – –

Disposal (2) – – (2)

As at 31 December 2012 375 9 1 385

Additions 33 13 – 46

Transfer 12 (12) – –

Disposal (6) – – (6)

As at 31 December 2013 414 10 1 425

Accumulated amortization

As at 1 January 2012 (246) – (1) (247)

Amortization charge (30) – – (30)

Disposals (accumulated amortization) 2 – – 2

As at 31 December 2012 (274) – (1) (275)

Amortization charge (41) – – (41)

Disposals (accumulated amortization) 6 – – 6

As at 31 December 2013 (309) – (1) (310)

Net book value

As at 1 January 2012 108 5 – 113

As at 31 December 2012 101 9 – 110

As at 31 December 2013 105 10 – 115

The acquisition amount of fully amortized intangible assets which are still in use was CZK 116 million in 2013 (2012: CZK 63 million).

19 Property and equipment

(CZKm)Land and buildings

Leasehold improvement Equipment Other

Construction in progress Total

Costs

As at 1 January 2012 168 77 268 150 2 665

Additions – 1 9 12 6 28

Disposal – – (2) 2 – –

Reclassification – – (10) (9) – (19)

As at 31 December 2012 168 78 265 155 8 674

Additions 10 42 35 35 1 123

Transfer – 5 – 3 (8) –

Disposal – (6) (30) (34) – (70)

As at 31 December 2013 178 119 270 159 1 727

Accumulated depreciation

As at 1 January 2012 (90) (55) (201) (114) – (460)

Depreciation charge (4) (6) (19) (11) – (40)

Transfer – 4 3 (7) – –

Disposals (accumulated depreciation) – – 10 9 – 19

As at 31 December 2012 (94) (57) (207) (123) – (481)

Depreciation charge (5) (8) (22) (15) – (50)

Transfer – – – – –

Disposals (accumulated depreciation) – 4 29 33 – 66

As at 31 December 2013 (99) (61) (200) (105) – (465)

Net book value

As at 1 January 2011 78 22 67 36 2 205

As at 31 December 2011 74 21 58 32 8 193

As at 31 December 2012 79 58 70 54 1 262

The acquisition amount of fully amortized property and equipment assets which are still in use was CZK 197 million in 2013 (2012: CZK 213 million). The amount of received compensation from third parties for items of property and equipment that were given up or lost was CZK 1.7 million (2012: CZK 1 million).


20 Deferred income tax assetsDeferred income taxes in 2013 are calculated on all temporary differences under the liability method using the 19% income tax rate which is supposed to be applicable at recognition (19% for 2012).

The movement on the deferred income tax account is as follows:

(CZKm) 2013 2012

As at 1 January 13 29

Profit for the period (debit) / credit (Note 10) 23 (5)

Available-for-sale securities

Fair value re-measurement (Note 28) 11 (11)

As at 31 December 47 13

Deferred income tax asset and liability are attributable to the following items:

(CZKm) 31.12.2013 31.12.2012

Allowance for impairment 33 13

Available-for-sale securities 9 (2)

Depreciation of the fixed assets (6) (6)

Provisions 10 7

Other temporary differences 1 1

47 13

The deferred tax (debit) / credit in the statement of income comprise the following temporary differences:

(CZKm) 2013 2012

Allowance for impairment 20 (8)

Depreciation of fixed assets – –

Reserves 3 3

Other temporary differences – –

Total (Note 10) 23 (5)

The Bank’s management believes it is probable that the Bank will fully realize its gross deferred income tax assets based upon the Bank’s current and expected future level of taxable profits and the expected offset from gross deferred income tax liabilities.

21 Other assets(CZKm) 31.12.2013 31.12.2012

Prepayments and accrued income 22 28

Other debtors, net of provisions 25 24

Anticipated receivables 4 4

Anticipated receivables 10 12

61 68

The item “other debtors” includes an impairment of CZK 0 million (2012: CZK 1 million).

22 Deposits from banksThe Bank classifies its deposits from banks in the category of financial liabilities “measured at amortized cost”.

(CZKm) 31.12.2013 31.12.2012

Analyzed by product and bank domicile

Current accounts

Domestic 68 7

Foreign 66 35

Term deposits

Domestic 892 1,485

Foreign 593 1,315

Borrowings

Domestic – 500

Foreign 2,739 3,421

Other

Domestic – –

Foreign 130 164

4,488 6,927

The Bank provided collaterals for its obligations by pledge of securities (Note 17) and pledge of receivables (Note 13).

Deposits from banks in the amount of CZK 1,021 million (2012: CZK 2,398 million) are included in the item cash and cash equivalents (Note 31).


23 Due to customersThe Bank classifies its due to customers in the category of financial liabilities “measured at amortized cost” or „measured at fair value at initial recognition“.

Due to customers measured at amortized cost

(CZKm) 31.12.2013 31.12.2012

Analyzed by product

Current accounts 21,808 16,025

Term deposits 18,880 20,006

Savings accounts with notice period 32 39

Savings accounts 7,288 5,066

48,008 41,136

Analyzed by customer type

Private companies 22,351 20,258

Individual – households 13,048 11,837

Individual – entrepreneurs 3,031 2,638

Government bodies 4,538 3,499

Non-profit institutions 705 795

Insurance companies and pension funds 2,327 1,779

Other financial institutions 2,008 330

48,008 41,136

Due to customers measured at fair value through profit or loss

(CZKm) 31.12.2013 31.12.2012

Analyzed by product

Term deposits – 506

– 506

Analyzed by customer type

Government bodies – 506

– 506

Due to customers total

(CZKm) 31.12.2013 31.12.2012

Total 48,008 41,642

Due to customers at fair value through profit or loss includes time deposits which contain embedded derivatives. Embedded derivatives modify the income from term deposits on the basis of market-specific variables (stock indexes).

The Bank has not given any collateral for its liabilities..

24 Debt securities in issueThe Bank classifies its debt securities in issue in the category of financial liabilities “measured at amortized cost”.

(CZKm) Issue date Currency Maturity date 31.12.2013 31.12.2012

Issued mortgage bonds

Mortgage bond emission 5.30/17 18.12.2007 CZK 18.12.2017 825 830


Mortgage bond emission 3.50/13 14.4.2010 CZK 14.4.2013 – 118


Mortgage bond emission VAR1/15 24.3.2011 CZK 24.3.2015 255 254

Mortgage bond emission VAR1/17 22.3.2012 CZK 22.3.2017 506 175

Mortgage bond emission 3.20/16 11.10.2012 CZK 11.10.2016 1 020 1,000

Mortgage bond emission 2.30/18 24.10.2013 CZK 24.10.2018 641 –

4,268 3,405

Promissory notes and certificates of deposits

Promissory notes and certificates of deposits short-term 5,049 3,081

Promissory notes and certificates of deposits long-term 83 7

5,132 3,088

Debt securities in issue 9,400 6,493

The Bank released one mortgage bonds issue in 2013 in the nominal amount of CZK 800 million. (in 2012: two mort-gage bonds issues in the nominal amount of CZK 1,500 million)

The Bank repaid one mortgage bond issue in 2013 in the nominal amount of CZK 118 million (in 2012: one issue in the amount of CZK 700 million).

Issued mortgage bonds are collateralized by the Bank’s receivables arising from the granted mortgages in line with Czech regulatory requirements.


25 Other liabilities and accruals and deferred income(CZKm) 31.12.2013 31.12.2012

Accruals and deferred income 27 29

Payments in transit 49 49

Other clearing accounts 126 148

Other creditors 117 105

Payables to Deposit insurance fund 17 15

Anticipated payables 38 25

VAT and other tax payables 4 4

Other 5 1

383 376

26 Provisions

(CZKm)

Provision for financial guarantees and other

contingent liabilities

Employeebenefits

provision

Other operating provision

Totalprovisions

As at 1 January 2012 9 20 4 33

Release (5) – – (5)

Cover of costs – (3) (1) (4)

Additions 4 4 3 11

As at 31 December 2012 8 21 6 35

Release (2) – (3) (5)

Cover of costs – (3) – (3)

Additions 3 8 1 12

As at 31 December 2013 9 26 4 39

Other operating provisions also cover possible losses regarding legal proceedings. The provision of CZK 0.3 million as at 31 December 2013 (31 December 2012: CZK 3 million) for litigation is not discounted to its net present value, as the timing of its utilization could not be predicted with sufficient certainty.

27 Subordinated debtThe Bank classifies its subordinated debt in the category of financial liabilities “measured at amortized cost”.

The Bank received a subordinated liability of EUR 10 million from the European Bank for Reconstruction and Devel-opment on 24 December 2004, which is payable in one installment on 9 April 2015. As at 31 December 2013 this debt bears 6M EURIBOR interest of 0.339% plus a margin of 1.5% p.a. (to the fifth year from the date of the agreement plus a margin 0.80% p.a.), which is payable semi-annually. This liability of CZK 275.5 million, including accrued interest, (31 December 2012: CZK 253 million) is subordinated to all other liabilities of the Bank and in the amount of CZK 110 million (31 December 2012: CZK 151 million) forms a part of the tier 2 capital of the Bank as defined by the CNB for the purposes of determination of its capital adequacy (Note 33 (g)). In the third year before the maturity of the debt an additional capital of 40% of the principal is included.

The Bank received a subordinated liability of EUR 77.3 million from Sberbank EU on 15 December 2013, which is payable in one installment on 19 December 2021. As at 31 December 2013 this debt bears 3M EURIBOR interest of 0.298% plus a margin of 5.61% p.a., which is payable quarterly. This liability of CZK 2,124.5 million, including accrued interest is subordinated to all other liabilities of the Bank and to its full amount forms a part of the tier 2 capital of the Bank (Note 33 (g)).

28 EquityIn 2013, there was no change in the amount of share capital. The preference shares were transformed to ordinary shares on 9 January 2013 and on 1 February 2013 the issues number 770980001406 and 770980001414 were united under one ISIN CZ0008040201. In the below table of share capital gradual increase, the uniting of original issues is reflected.

Share capital

(CZKm) 31.12.2013 31.12.2012

Voting shares 2,005 1,543

Non-voting shares – 462

Issued, paid and registered by the Commercial register 2,005 2,005


Issues of shares

ISIN Date of issueNominal value

of shareNumber

of sharesNominal

value

CZK CZKm

CZ0008040201 23.10.1998 5,000 30,000 150

CZ0008040201 23.10.1998 5,000 100,000 500

CZ0008040201 7.8.2002 5,000 4,600 23

CZ0008040201 7.8.2002 5,000 15,400 77

CZ0008040201 23.11.2005 5,000 3,165 16

CZ0008040201 23.11.2005 5,000 10,555 53

CZ0008040201 31.7.2006 5,000 6,565 33

CZ0008040201 31.7.2006 5,000 21,895 109

CZ0008040201 20.12.2006 5,000 8,479 42

CZ0008040201 20.12.2006 5,000 28,281 142

CZ0008040201 16.5.2007 5,000 8,336 42

CZ0008040201 16.5.2007 5,000 27,804 139

CZ0008040201 21.12.2007 5,000 16,488 82

CZ0008040201 21.12.2007 5,000 54,992 275

CZ0008040201 30.7.2008 5,000 14,882 74

CZ0008040201 30.7.2008 5,000 49,634 248

401,076 2,005

The nominal value of ordinary securities is CZK 5,000. As at 31 December 2012 the nominal value of ordinary and preference securities was CZK 5,000. Non-voting shares are not allowed to vote.

Cumulative gains not recognized in the profit for the period may be analyzed as follows:

(CZKm) 2013 2012

As at 1 January 8 (38)

Net gains/(losses) from changes in fair value of available-for-sale securities (54) 57

Changes in provision for employee benefits (2) –

Change in deferred income taxes (Note 20) 11 (11)

As at 31 December (37) 8

29 Contingent liabilities and commitmentsCommitments to provide a loan, loan guarantees to third parties and guarantees from acceptance of letters of credit expose the Bank to credit risk and to loss in the event of a client’s inability to meet his obligations. Various commit-ments and contingent liabilities arise in the normal course of business involving elements of credit, interest rate and liquidity risk.

Contingent liabilities include:

31.12.2013 31.12.2012

(CZKm) Contract amount Contract amount

Documentary credits 182 97

Financial guarantees 1,487 1,006

Provision for guarantees (Note 26) (6) (5)

Net financial guarantees 1,481 1,001

Un-drawn formal standby facilities, credit lines 7,782 5,784

Provision for un-drawn credit lines (Note 26) (3) (3)

Net un-drawn formal standby facilities, credit lines 7,779 5,781

Total in gross amount 9,442 6,879

Un-drawn credit lines are irrevocable.

30 Other contingent liabilities(a) Litigation

Apart from litigations for which provisions have already been raised (Note 26), the Bank is not involved in any other litigation with a material impact on its position.

(b) Taxation

Czech tax legislation, interpretation and guidance are still evolving. Consequently, under the current taxation envi-ronment, it is difficult to predict the interpretations the respective tax authorities may apply in a number of areas. As a result, the Bank has used its current understanding of the tax legislation in the design of its planning and accounting policies. The effect of the uncertainty cannot be quantified.

Czech tax authorities are authorized to perform tax inspections for three years retrospectively. The last tax inspection was for the year 2007.


(c) Assets under management and custody

(CZKm) 31.12.2013 31.12.2012

Assets held under custody 5,155 3,117

Assets held under custody are shown at their nominal value.

(CZKm) 31.12.2013 31.12.2012

Assets held under management 7,643 8,160

Assets held under management are shown at their fair value.

Management considers that no present obligations were associated with these fiduciary duties as at 31 December 2013 and 31 December 2012.

(d) Operating lease commitments (the Bank as lessee)

Future minimum lease payments (cash outflow) under land, building and equipment operating leases are as follows:

(CZKm) 31.12.2013 31.12.2012

Up to 3 months 23 23

Not later than1 year 65 60

Later than 1 year and not later than 5 years 153 162

Later than 5 years 11 7

252 252

(e) Operating lease receivables (the Bank as lessor)

Future minimum lease payments (cash inflow) under land, building and equipment operating leases are as follows:

(CZKm) 31.12.2013 31.12.2012

Up to 3 months – 1

Not later than1 year – 1

Later than 1 year and not later than 5 years – 3

– 5

31 Cash and cash equivalentsAnalysis of the balances of cash and cash equivalents as shown in the balance sheets:

(CZKm) 31.12.2013 31.12.2012 1.1.2012

Cash and balances with central banks (Note 11) 11,746 7,196 3,222

Due from banks due up to 3 months (Note 12) 470 1,584 3,163

Due to banks due up to 3 months (Note 22) (1,021) (2,398) (3,215)

11,195 6,382 3,170

32 Operating segmentsThe Bank has the following four reportable segments in 2013 (three segments in 2012). Newly appropriated segment SME was reported as part of Corporate banking segment in 2012. These operating segments are the Bank’s strategic business units which offer different products and services, and are managed separately because they require different technology, product distribution and service rendering methods and marketing strategies. The Board of Directors reviews the internal management reports for each of these strategic business units on a monthly basis.

• Retail banking: Private individuals and entrepreneurs and companies with a turnover of less than CZK 30 million;

• Corporate banking: Companies with turnover greater than CZK 50 million and non-banking institutions in the financial sector;

• SME banking: Small companies and entrepreneurs with turnover up to CZK 50 million;

• Treasury: Asset and liability management, dealing.

The result of other Bank activities (head office expenses, unallocated expenses and eliminating and reconciling items) is reported within the reconciliation of the reportable segment revenues, profit or loss, assets and liabilities and other material items with corresponding items in the Bank’s financial statements. The methods of reporting the segments’ profit and loss, assets and liabilities is in accordance with the methods of reporting profit and loss, assets and liabilities of the aggregate Bank level. In 2013 the definition of segments was changed – new SME segment was excluded from the Corporate banking segment.

In 2013 and 2012, no client of the Bank (or group of related persons) constituted more than 10 % of the total revenues of the Bank.

The accounting policies of the reportable segments are the same as described in Note 2.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Bank’s Board of Directors.


Operating segment information for 2013 – new segmentation reporting

(CZKm)Retail

BankingCorporate

Banking SME Treasury Total

Net interest income 448 499 487 5 1,439

Non-interest income 132 25 190 (11) 336

Total segment revenue 580 524 677 (6) 1,775

Segment expense (401) (38) (96) (22) (557)

Other material non-cash items:

Allocation to provision for loan impairment (271) (443) (356) – (1,070)

Reversal of provision for loan impairment 177 277 212 – 666

Loans written off during the year as uncollectible – – 4 – 4

Reportable segment profit before income tax 85 320 441 (28) 818

Reportable segment assets 18,456 17,717 17,084 17,215 70,472

Reportable segment liabilities 21,443 18,845 12,779 11,904 64,971

Capital expenditure 82 1 4 2 89

Depreciation 24 1 3 4 32

Operating segment information for 2013 – segmentation as of 2012 reporting

(CZKm)Retail

BankingCorporate

Banking Treasury Total

Net interest income 448 986 5 1,439

Non-interest income 132 215 (11) 336

Total segment revenue 580 1,201 (6) 1,775

Segment expense (401) (134) (22) (557)


Allocation to provision for loan impairment (271) (799) – (1,070)

Reversal of provision for loan impairment 177 489 – 666

Loans written off during the year as uncollectible – 4 – 4

Reportable segment profit before income tax 85 761 (28) 818

Reportable segment assets 18,456 34,801 17,215 70,472

Reportable segment liabilities 21,443 31,624 11,904 64,971

Capital expenditure 82 5 2 89

Depreciation 24 4 4 32

Operating segment information for 2012

(CZKm)Retail

BankingCorporate

Banking Treasury Total

Net interest income 463 887 (60) 1,290

Non-interest income 146 277 (14) 409

Total segment revenue 609 1,164 (74) 1,699

Segment expense (371) (219) (32) (622)


Allocation to provision for loan impairment (182) (750) (1) (933)

Reversal of provision for loan impairment 145 337 1 483

Loans written off during the year as uncollectible 2 3 – 5

Reportable segment profit before income tax 203 535 (106) 632

Reportable segment assets 14,735 31,591 14,978 61,304

Reportable segment liabilities 19,205 19,124 14,268 52,597

Capital expenditure 7 2 2 11

Depreciation 14 3 3 20

Reconciliations of reportable segment profit before income tax and assets and liabilities

(CZKm) 2013 2012

Profit before income tax

Total profit before income tax for reportable segments 818 632

Unallocated expenses (524) (362)


Assets

Total assets for reportable segments 70,472 61,304

Unallocated assets – 8

Total assets 70,472 61,312

Liabilities

Total liabilities for reportable segments 64,971 52,597

Unallocated liabilities – 3,405

Total liabilities 64,971 56,002

Total Bank revenue is generated solely by the reportable segments.

The vast majority of the Bank’s total revenues is generated from customers domiciled in the Czech Republic.

All of the Bank’s Property, plant and equipment and intangible assets are located in the Czech Republic.

SBERBANK CZ | NNUAL REPORT 2012 | NOTES TO THE FINANCIAL STATEMENTSSBERBANK CZ | ANNUAL REPORT 2013 | NOTES TO THE FINANCIAL STATEMENTS 8180

33 Financial risks(a) Strategy in using financial instruments

The Bank’s activities are principally related to the use of financial instruments. The Bank accepts deposits from customers at both fixed and floating interest rates and for various periods and seeks to earn above-average interest margins by investing these funds in high quality assets. The Bank seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might become due.

The Bank seeks to raise its interest margins by obtaining above-average margins, net of provisions, through lending to commercial and retail borrowers with a range of credit standings. Such exposures involve not just on-balance sheet receivables and advances but the Bank also enters into guarantees and other commitments such as letters of credit and other similar contingent liabilities.

The Bank also, to a limited extent, trades in financial instruments where it takes positions in traded and over-the-counter instruments to take advantage of short-term market movements in the debt securities markets, in currencies and interest rates. The Board of Directors places trading limits on the level of exposure that can be taken in relation to relevant market positions.

(b) Credit risk

The Bank defines credit risk as the risk that a counterparty will cause a financial loss for the Bank by failing to dis-charge a contractual obligation.

Credit risk management is performed in close co-operation with the Bank’s parent company, thus reflecting the risk strategy and risk-appetite.

A conservative strategy to credit risk management is applied. Considered within the general context of the overall business relations existing with each respective customer, every transaction for which the Bank knowingly under-takes risk should yield a contribution margin that is commensurate with the specific risk incurred.

The Bank structures the levels of accepted credit risk by regular measurement of the risk exposure, monitoring of the limits and taking appropriate procedures leading to a decrease in the accepted level of credit risk. This process is performed for each individual borrower and the whole loan portfolio. When deciding about the acceptance of a new exposure, an analysis of the customer’s cash flow and overall financial situation is a key factor, as well as the existing experience with the customer together with the quality of received collateral. The decision-making is performed independently from the sales units.

The capital requirement for credit risk in the investment portfolio is calculated using the standardized approach.

The table below summarizes maximum exposure to credit risk before collateral held or other credit enhancements. Included in the table are the Bank’s assets and liabilities at carrying amounts (after impairment).

Maximum exposure to credit risk before collateral held or other credit enhancements(CZKm) 31.12.2013 31.12.2012

Credit risk exposures relating to on-balance sheet assets

Loans and advances to banks 3 462 4,894

Loans and advances to customers:

– Corporate loans



Mortgages 102 100

– Retail loans




Consumer loans 1,079 654

Derivative financial instruments 269 283

Financial assets at fair value through profit or loss


Investment securities

Debt securities 3,058 2,314

Other exposures 61 68

Credit risk exposures relating to off-balance sheet items (nominal amount)


Loan commitments and other credit related liabilities 7,964 5,881

67,753 60,655

Corporate loans include loans and advances to customers with a total exposure above EUR 1 million or with annual turnover of at least EUR 50 million. Segments Corporate/Retail are determined in accordance with the Basel II standardized approach for calculation of the capital requirement for credit risk in investment portfolios as opposed to Note 32, where the segments are defined based on the Bank’s organizational structure.


Financial effect of collateral held and other credit enhancements(CZKm) 31.12.2013 31.12.2012

Credit risk exposures relating to on-balance sheet assets

Loans and advances to banks – –


– Corporate loans


Working capital financing 734 956

Mortgages 47 67

– Retail loans


Working capital financing 905 869


Consumer loans 742 482

34,756 32,059

Maximum exposure to credit risk after collateral held or other credit enhancements(CZKm) 31.12.2013 31.12.2012

Credit risk exposures relating to on–balance sheet assets

Loans and advances to banks 3,462 4,894


– Corporate loans



Mortgages 55 33

– Retail loans




Consumer loans 337 175


Financial assets at fair value through profit or loss


Investment securities

Debt securities 3,058 2,314

Other exposures 61 68

Credit risk exposures relating to off-balance sheet items (nominal amount)


Loan commitments and other credit related liabilities 7,964 5,881

32,997 28,596

Only balance sheet items are subject to collaterals and other credit enhancements received.


Collateral held and other credit enhancementsCollateral held and other credit enhancements may be summarized by the collateral type as follows:

(CZKm)

Financial effect of collateral held and other

credit enhancements

As at 31 December 2013

Bank and similar guarantees 3,302

Mortgage right on real estate 27,556

Financial collateral 704

Other 3,194

Total 34,756


Bank and similar guarantees 486

Mortgage right on real estate 27,795

Financial collateral 813

Other 2,965

Total 32,059

Accounting policies for collaterals are presented in the Note 2 (z).

Loans and advancesThe Bank’s exposure to credit risk from loans and advances is summarized as follows:

31.12.2013 31.12.2012

(CZKm)

Loans and advances

to customers

Loans and advances to banks

Loans and advances

to customers

Loans and advances to banks

Neither past due nor impaired 48,723 3,462 43,268 4,894

Past due but not impaired 78 – 60 –

Individually impaired 4,207 – 3,849 –

Loans and advances – gross 53,008 3,462 47,177 4,894

Allowances for impairment (Note 14) (1,587) – (1,233) –

Loans and advances – net 51,421 3,462 45,944 4,894

Total loans and advances to customers which are neither past due nor impaired represent CZK 26,682 million (31 December 2012: CZK 22,973 million) Corporate loans and advances and CZK 22,042 million (31 December 2012: CZK 20,295 million) belong to Retail loans and advances.

The total impairment provision for loans and advances as at 31 December 2013 is CZK 1,587 million (31 December 2012: CZK 1,233 million) of which CZK 1,413 million (31 December 2012: CZK 1,166 million) represents the individually impaired loans; the remaining amount of CZK 174 million (31 December 2012: CZK 67 million) represents the portfolio provision.

Internal rating of loans and advances and CNB categorizationThe Bank uses internal rating models for the purposes of managing and monitoring the quality of the loan portfolio.

Each borrower is based on its credit quality rating grade assigned to a specified probability of a failure of the client within one year (Probability of default, PD). The Bank uses two rating scales based on segment analysis and the rating model. First rating scale is used to assess the corporate customers with turnover over EUR 30 million, the other rating scale is used to assess other segments.

The rating scale for assessment of corporate customers with turnover over EUR 30 million consists of 25 grades, divided into five rating classes in five stages. In classes 1 to 4 loans and receivables are without failure, while a Class 5 consists of loans and receivables with a failure (1a–5e). Receivables without failure are assigned in the Classes 1–4, Class 5 represents receivables with failure.

Internal rating has to be periodically updated. Validation and parameter changes are carried out in cooperation with the parent company.

Individually not impaired loans and advances (loans and advances without default) are in accordance with CNB’s regulations classified as follows (rating grades 1–24, or 1a–4e):

• standard, when the principal and interest are duly paid and they are not overdue for more than 30 days,

• watched, when it is probable it will be fully repaid and they are not overdue for more than 90 days.

Individually impaired loans and advances (loans and advances in default) are in accordance with CNB’s regulations classified as follows (rating grades 25 and 5a–5e):

• substandard when their full repayment is uncertain or they are overdue for 91 to 180 days,

• doubtful, when their full repayment is highly improbable or they are overdue for 181 to 360 days,

• loss, when the full repayment is impossible or the receivable is overdue for more than 360 days or under bank-ruptcy proceedings.


Rating scale for customers with turnover over EUR 30 million.

Rating Grade Risk Min PD Average PD Max PD

1 Low 0.00% 0.01% 0.02%

2 Low 0.02% 0.02% 0.03%

3 Low 0.03% 0.05% 0.07%

4 Low 0.07% 0.09% 0.14%

5 Low 0.14% 0.19% 0.27%

6 Low 0.27% 0.32% 0.38%

7 Low 0.38% 0.43% 0.49%

8 Low 0.49% 0.55% 0.63%

9 Low 0.63% 0.71% 0.81%

10 Low 0.81% 0.92% 1.04%

11 Low 1.04% 1.18% 1.34%

12 Medium 1.34% 1.52% 1.73%

13 Medium 1.73% 1.95% 2.22%

14 Medium 2.22% 2.51% 2.86%

15 Medium 2.86% 3.23% 3.67%

16 Medium 3.67% 4.15% 4.72%

17 High 4.72% 5.34% 6.08%

18 High 6.08% 6.87% 7.82%

19 High 7.82% 8.83% 10.05%

20 High 10.05% 11.36% 12.93%

21 High 12.93% 14.62% 16.64%

22 High 16.64% 18.80% 21.40%

23 High 21.40% 24.18% 27.52%

24 High 27.52% 31.11% 35.40%

25 High 35.40% 40.01% 100.00%

26 Default 100.00% 100.00% 100.00%

The rating scale for other segments:

Rating grade Description

PD(for 1 year)

Rating Moody’s Rating S&P

Rating Fitch

1a best creditworthiness 0.01%Aaa, Aa1,

Aa2 AAA, AA+AAA, AA+,

AA

1b best creditworthiness 0.02% Aa3 AA AA-

1c best creditworthiness 0.03% A1 AA- A+

1d best creditworthiness 0.04% A2 A+ A

1e best creditworthiness 0.05% A3 A A-

2a excellent creditworthiness 0.07% A3 A- A-

2b excellent creditworthiness 0.11% Baa1 BBB+ BBB+

2c very good creditworthiness 0.16% Baa2 BBB BBB+

2d very good creditworthiness 0.24% Baa2 BBB BBB

2e very good creditworthiness 0.35% Baa2 BBB BBB-

3a good creditworthiness 0.53% Baa3 BBB- BBB-

3b good creditworthiness 0.80% Ba1 BB+ BB+

3c good and medium creditworthiness 1.20% Ba2 BB BB+

3d medium creditworthiness 1.79% Ba3 BB- BB

3e acceptable creditworthiness 2.69% Ba3 B+ BB-

4a poor creditworthiness 4.04% B1 B+ B+

4b poor creditworthiness 6.05% B2 B B

4c very poor creditworthiness (Watch List) 9.08% B3 B B-

4d very poor creditworthiness (Watch List) 13.62% B3 B- B-

4e very poor creditworthiness (Watch List) 20.44% Caa, Ca, C CCC, CC, C CCC, CC, C

5a >90 days overduestate

of failure default default default

5b impairment due to the financial situationstate


5c renegotiation of the loanstate


5d insolvencystate


5e written off credit debtstate



Loans and advances neither past due nor impairedLoans and advances which are not overdue are allocated to this category. These loans and advances are not individually impaired.

Loans and receivables, individually not impaired –customers with consolidated turnover over EUR 30 million:

(CZKm) 31.12.2013

Low risk 8,000

Medium risk 2,166

High risk 1,865

Default –

Loans and receivables, individually not impaired – brutto 12,031

Portfolio allowance for impairment for credit risks (Note 14) (73)

Net loans and receivables, individually not impaired 11,958

Loans and receivables, individually not impaired – other segments:

(CZKm) 31.12.2013 31.12.2012

Class 1 34 38

Class 2 5,142 7,833

Class 3 24,101 25,790

Class 4 7,416 9,607

Class 5 – –

Gross loans and receivables, individually not impaired 36,693 43,268

Portfolio allowance for impairment for credit risks (Note 14) (100) (67)

Net loans and receivables, individually not impaired 36,593 43,201

As at 31 December 2012, the loans and receivables individually not impaired – other segments (e.i. Rating grades 1–5) include also loans and receivables that are reported under the rating scale for customers with consolidated turnover over EUR 30 million in 2013. The volume of these loans and receivables is CZK 5,252 million in 2012 (Rating grade 2: CZK 2,195 million, Rating grade 3: CZK 2,579 million, Rating grade 4: CZK 478 million) and corresponding portfolio allowance for impairment is CZK 8 million in 2012.

Loans and advances past due but not impaired Loans and advances from 1 up to 90 days overdue are generally not considered to be impaired by an individual impairment provision.

Loans and receivables, individually not impaired –customers with consolidated turnover over EUR 30 million:

(CZKm) 31.12.2013

Low risk 1

Medium risk –

High risk 8

Default –

Loans and receivables, individually not impaired – brutto 9

Portfolio allowance for impairment for credit risks (Note 14) –

Net loans and receivables, individually not impaired 9

Loan and receivables past due, individually not impaired

(CZKm) 31.12.2013 31.12.2012

Class 1 – –

Class 2 – –

Class 3 40 30

Class 4 29 30

Class 5 – –

Gross loans and receivables past due, individually not impaired 69 60

Portfolio allowance for impairment for credit risks (Note 14) (2) –

Net loans and receivables past due, individually not impaired 67 60

In 2012 there was not any customer with consolidated turnover over EUR 30 million reported in the Rating grades 1–5.


The table below summarizes the gross amount of loans and advances to customers past due but not impaired by business segment along with the fair value of related collateral held by the Bank as security.


Retail Corporate

Total loans and advances to customers(CZKm)

Loans and advances past due but not impaired 45 33 78

Financial effect of received collaterals 29 32 61


Retail Corporate


Loans and advances past due but not impaired 59 1 60

Financial effect of received collaterals 41 – 41

The table below summarizes the term structure of overdue:

Gross loans and receivables past due, individually not impaired

(CZKm) 31.12.2013 31.12.2012

1–30 days overdue 37 31



Total gross amount 78 60

From the total loans and advances past due but not impaired as at 31 December 2013 48% were overdue by up to 1 month (2012: 52%).

Individually impaired loans and advances The Bank performs an assessment for individual impairment of loans and advances that are above the materiality threshold. Individually impaired loans and advances include exposures corresponding to the sub-categories of sub-standard, doubtful and loss loans and receivables in accordance with regulatory classifications. Therefore, they also include loans and advances more than 90 days overdue. The remaining loans and advances from financial activities are considered within the collective evaluation of impairment and for calculation of the portfolio provision.

Loans and receivables past due, individually impaired

(CZKm) 31.12.2013 31.12.2012

Class 5 4,207 3,849

Gross loans and receivables past due, individually impaired 4,207 3,849

Individual allowance for impairment for credit risks (1,413) (1,166)

Net loans and receivables past due, individually impaired 2,794 2,683

The table below summarizes the gross amount of individually impaired loans and advances to customers by busi-ness segment along with the fair value of related collateral held by the Bank as security.


Retail Corporate


Individually impaired loans and advances 1,708 2,499 4,207

Financial effect of received collaterals 1,076 1,299 2,375


Retail Corporate


Individually impaired loans and advances 1,590 2,259 3,849

Financial effect of received collaterals 1,061 1,525 2,586

Loans and advances renegotiatedThe Bank performs the restructuring of loans and advances in cases where according to the assessment of the current legal and financial situation of the client it would probably suffers a loss if the restructuring was not performed. The restructuring mainly includes a modification of the repayment schedule, adjustment of interest rates, forgiveness of past due interests or extending the payment of the principal or accessory amounts.

In 2013, loans and advances totaling CZK 468 million (2012: CZK 337 million) were restructured. They were espe-cially for the prolonging of bridging loans in real estate, which had a maturity in 2013, and the prolonging of loans based on the requirements of clients in business sectors that were affected by economic conditions deteriorated. Restructuring is associated with a temporary worsening of the grade classification of the client. After the success-ful completion of restructuring and repayment methods for the clients, and in accordance with the rules of the CNB, they are reclassified back to a more creditworthy category. The client can be reclassified every six month by maximum 2 grades if he fulfils the terms of restructuring and does not delay with the repayments.


Loans and advances to banksThe Bank has a portfolio of only duly repaid loans and advances to banks, neither individually nor portfolio impaired.

For receivables from banks, the internal grade is derived from external ratings provided by recognized rating agencies.

Loans and advances to banks, individually not impaired

(CZKm) 31.12.2013 31.12.2012

Class 1 66 54

Class 2 2,900 4,686

Class 3 496 154

Total 3,462 4,894

Debt securitiesThe table below presents an analysis of debt securities by rating agency designation as at 31 December 2013, based on Moody’s external ratings.

(CZKm)Financial assets at fair value

through profit or loss Investment securities Total

Aaa to A3 31 3,058 3,089

Baa1 to Baa3 – – –

Unrated – – –

Total 31 3,058 3,089

Concentration of risks of financial assets with credit risk exposureDiversification is one of the key principles in managing credit risk. The Bank fully adheres to regulatory limits for an exposure to single economically-linked groups of customers. Additionally, the Bank places and monitors limits on the amount of risk accepted in relation to both geographical and industry sectors.

Geographical sectors


DomesticEuropean

UnionOther

Europe Other Total(CZKm)

Assets

Loans and advances to banks 7 1,833 1,616 6 3,462

Loans and advances to customers 46,213 4,744 434 30 51,421

Financial assets at fair value through profit or loss 31 – – – 31

Debt investment securities 3,058 – – – 3,058

Other financial assets 114 215 1 – 330

Total financial assets 49,423 6,792 2,051 36 58,302


DomesticEuropean

UnionOther

Europe Other Total(CZKm)

Assets

Loans and advances to banks 213 3,925 750 6 4,894


Financial assets at fair value through profit or loss 2 263 – – 265

Debt investment securities 2,314 – – – 2,314

Other financial assets 88 263 – – 351

Total financial assets 46,911 5,649 1,178 30 53,768

Industry sectors

As at 31 December 2013Real

estate

Trade and

servicesManu-

facturingHouse-

holds

Financial institu-

tionsPublic sector

Other indus-

tries Total(CZKm)

Assets

Loans and advances to banks – – – – 3,462 – – 3,462

Loans and advances to customers 15,487 11,316 10,860 12,303 390 945 120 51,421

Financial assets at fair value through profit or loss – 1 – – – 30 – 31

Investment securities – 61 – – – 2,997 – 3,058

Other financial assets 16 14 1 – 299 – – 330

Total financial assets 15,503 11,392 10,861 12,303 4,151 3,972 120 58,302


As at 31 December 2012Real

estate

Trade and

servicesManu-

facturingHouse-

holds

Financial institu-

tionsPublic sector

Other indus-

tries Total(CZKm)

Assets

Loans and advances to banks – – – – 4,894 – – 4,894

Loans and advances to customers 16,634 7,534 10,635 10,104 144 762 131 45,944

Financial assets at fair value through profit or loss – 1 – – 262 2 – 265

Investment securities – 61 – – – 2,253 – 2,314

Other financial assets 20 2 1 – 328 – – 351

Total financial assets 16,654 7,598 10,636 10,104 5,628 3,017 131 53,768

DerivativesThe Bank maintains strict control limits on credit risk from derivative positions, by both amount and term. Credit risk exposure is expressed by a credit equivalent, which in relation to derivatives is only a small fraction of the derivative’s notional amount outstanding. This credit risk exposure is managed as part of the overall lending limits with cus-tomers, together with potential exposures from market movements. Collateral or other security which is required for credit transactions is obtained for credit risk exposures on these instruments.

Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for each banking counterparty so as to cover the aggregate of all settlement risk arising from the Bank’s market transactions on any single day.

Financial instruments subject to offsetting, enforceable master netting arrangements and similar arrangementsThe following table sets out the analysis of possible impact of enforceable master netting agreements to the Bank’s financial position.

31 December 2013Gross amounts – enforceable master

netting agreements

(CZKm)Gross

amount

Gross amount netting

Net amount

reportedFinancial

instrumentFinancial collateral

Net amount

Assets

Derivatives 192 – 192 (78) (111) 3

Total Assets 192 – 192 (78) (111) 3

Liabilities

Derivatives 208 – 208 (78) (130) –

Total Liabilities 208 – 208 (78) (130) –

31 December 2012Gross amounts – enforceable master

netting agreements

(CZKm)Gross

amount

Gross amount netting

Net amount

reportedFinancial

instrumentFinancial collateral

Net amount

Assets

Derivatives 261 – 261 (132) (110) 19

Total Assets 261 – 261 (132) (110) 19

Liabilities

Derivatives 271 – 271 (132) (133) 6

Total Liabilities 271 – 271 (132) (133) 6

The Bank discloses interest swaps as financial instruments that meet the condition for discosure of offsetting, enforceable master netting arrangements and similar arrangements.

Credit–related commitmentsThe primary purpose of these instruments is to ensure that funds are available to a customer as required. Payment guarantees and standby letters of credit with the characteristics of credit substitutes carry the same credit risk as loans. Documents and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitments represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

(c) Currency risk

The Bank defines currency risk as a risk of financial loss because of changes in foreign exchange rates.

The Bank takes on exposure resulting from fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Bank manages its open foreign exchange position using foreign exchange deals (spots and forwards). Foreign exchange derivatives made on behalf of clients are included in terms of accounting in the trading portfolio. The Board of Directors sets limits on the level of currency position by currency and in total for all currencies, which are monitored daily.

Sensitivity analysisThe tables below summarize the Bank’s exposure to currency risk. It is expressed by the sensitivity analysis showing the effect of change in the CZK foreign exchange rate against significant currencies on the balance sheet, on the Bank’s annual net profit and other movements in equity.


In the year 2013 the effect of appreciation (+) / depreciation (-) in the CZK foreign exchange rate against the EUR by 10% and against USD by 20% was tested (in 2012: against the EUR by 10% and against USD by 20%) on the Bank’s annual net profit and other movements in equity.

In the Bank’s management judgment such an annual change in foreign exchange rates may be reasonably possible based on historical development. Included in the table are the respective changes in the Bank’s annual net profit and other movements in equity from assets and liabilities denominated in the above mentioned currencies.

The Bank has set limits on open currency positions in each currency. Within these limits, the Bank manages currency position so that it is balanced in all currencies (see the table Currency position). The impact of foreign exchange rate changes in net profit in the individual currencies, as well as in the aggregate for all currencies, is immaterial.

As at 31 December 2013 EUR USD

(CZKm) 10% -10% 20% -20%

Assets

Cash and balances with central banks (5) 5 (4) 4

Loans and advances to banks (338) 338 (1) 1

Loans and advances to customers (647) 647 (143) 143

Other assets (21) 21 – –

Unsettled transactions with currency instruments (1,490) 1,490 (152) 152

(2,502) 2,502 (301) 301

Liabilities

Deposits from banks 179 (179) – –

Due to customers 488 (488) 279 (279)

Debt securities in issue 33 (33) 12 (12)

Subordinated debt 240 (240) – –

Other liabilities 27 (27) 1 (1)

Unsettled transactions with currency instruments 1,536 (1,536) 11 (11)

2,503 (2,503) 303 (303)

Total (annual net profit) 1 (1) 3 (3)

Changes in the CZK foreign exchange rate against EUR and USD do not have any effect on the Bank’s movements in equity other than annual net profit.

As at 31 December 2012 EUR USD

(CZKm) 10% -10% 20% -20%

Assets

Cash and balances with central banks (5) 5 (3) 3

Loans and advances to banks (420) 420 (74) 74

Loans and advances to customers (317) 317 (87) 87

Other assets (27) 27 – –

Unsettled transactions with currency instruments (930) 930 (5) 5

(1,699) 1 699 (169) 169

Liabilities

Deposits from banks 240 (240) 1 (1)

Due to customers 418 (418) 145 (145)

Debt securities in issue 30 (30) 14 (14)

Subordinated debt 25 (25) – –

Other liabilities 31 (31) 3 (3)

Unsettled transactions with currency instruments 951 (951) 6 (6)

1 695 (1,695) 169 (169)

Total (annual net profit) (4) 4 – –

Changes in the CZK foreign exchange rate against the EUR and USD do not have any effect on the Bank’s movements in equity other than annual net profit.


Currency positionThe tables below summarize the Bank’s exposure to currency risk expressed by an open currency position. Included in the table are the Bank’s assets, liabilities and equity at carrying amounts, categorized by currency.


CZK EUR USD Other Total(CZKm)

Assets

Cash and balances with central banks 11,642 52 20 32 11,746




Investment securities 3,058 – – – 3,058

Other assets 539 215 – – 754

59,479 10,121 742 130 70,472

Liabilities and equity

Deposits from banks 2,698 1,787 – 3 4,488

Due to customers 41,240 4,881 1,396 491 48,008

Debt securities in issue 9,007 334 59 – 9,400

Provisions 34 5 – – 39

Subordinated debt 0 2,400 – – 2,400

Other liabilities 360 269 7 – 636

Equity 5,501 – – – 5,501

58,840 9,676 1,462 494 70,472

Net assets/(liabilities and equity) 639 445 (720) (364) –Net assets/(liabilities) from unsettled transactions with currency instruments including derivatives (612) (461) 705 370 2

Net open currency position 27 (16) (15) 6 2



Off-balance sheet items

Financial guarantees 851 600 36 – 1,487

Loan commitments and other credit related liabilities 6,831 1,124 9 – 7,964

Currency position from off-balance sheet items 7,682 1,724 45 0 9,451



Assets

Cash and balances with central banks 7,108 52 13 23 7,196




Investment securities 2,314 – – – 2,314

Other assets 431 268 – – 699

52,450 7,681 814 367 61,312

Liabilities and equity

Deposits from banks 4,516 2,403 4 4 6,927

Due to customers 36,399 4,180 724 339 41,642

Debt securities in issue 6,110 302 68 13 6,493

Provisions 30 5 – – 35

Subordinated debt – 253 – – 253

Other liabilities 330 307 15 – 652

Equity 5,310 – – – 5,310

52,695 7,450 811 356 61,312

Net assets/(liabilities and equity) (245) 231 3 11 –Net assets/(liabilities) from unsettled transactions with currency instruments including derivatives 232 (216) (6) (10) –

Net open currency position (13) 15 (3) 1 –



Off-balance sheet items

Financial guarantees 641 352 12 – 1,006

Loan commitments and other credit related liabilities 4,558 1,318 5 – 5,881

Currency position from off-balance sheet items 5,199 1,670 17 – 6,887


(d) Interest rate risk

The Bank defines interest rate risk as the risk of financial loss because of changes in market interest rates.

The Bank takes on exposure resulting from fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Bank exposure to interest rate risk is monitored daily using gap analysis in each foreign currency and is aggregated for all currencies. Sensitivity to changes in the market interest rate is regularly measured via a simulated change of the present value of the interest cash flows from individual interest instruments where the interest rate is increased by a standardized value of interest rate shock of 200 basis points (b.p.). Interest rate swaps or other fixed-rate instruments are used to manage interest rate positions.

Sensitivity analysisThe table below summarizes the Bank’s exposure to interest rate risks. It is expressed by the sensitivity analysis showing the effect of change in market interest rates by 100 b.p. on the Bank’s annual net profit and other move-ments in equity. The two week repo rate, which is a key interest rate for the CNB’s monetary policy, is usually changed several times a year. Having observed this rate’s average annual change over the last 5 years, in the Bank’s management judgment a noticeable change in annual market interest rates by 100 b.p. may reasonably be possible. Included in the table is the respective change in the Bank’s annual net profit and other movements in equity from:

• interest-bearing financial assets and liabilities at fair value through profit or loss and interest-bearing available-for-sale financial assets and

• loans and receivables, interest-bearing financial liabilities and held-to-maturity investments carried at amortized cost.

As at 31 December 2013 100 b.p. -100 b.p.

(CZKm) Annual net profit

Assets

Cash and balances with central banks 109 (109)

Loans and advances to banks 16 (16)

Loans and advances to customers 214 (214)

Financial assets at fair value through profit and loss – –

Investment securities (114) 114

225 (225)

Liabilities

Deposits from banks (35) 35

Due to customers (262) 262

Debt securities in issue (40) 40

Subordinated debt (20) 20

(358) 358


Total (132) 132

As at 31 December 2012 100 b.p. -100 b.p.

(CZKm) Annual net profit

Assets

Cash and balances with central banks 60 (60)

Loans and advances to banks 43 (43)

Loans and advances to customers 245 (245)

Financial assets at fair value through profit and loss (1) 1

Investment securities 9 (9)

356 (356)

Liabilities

Deposits from banks (46) 46

Due to customers (283) 283

Debt securities in issue (19) 19

Subordinated debt (1) 1

(349) 349

Derivative financial instruments 1 (1)

Total 8 (8)

Changes in the market interest rates do not have material effect on the Bank’s movements in equity other than annual net profit.

(e) Liquidity risk

The Bank defines liquidity risk as the risk that difficulties in meeting obligations associated with financial liabilities are encountered, or the risk of losing the ability to finance assets.

The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from the settlement of derivatives. Liquidity risk management is based on both the planning of the cash inflows and cash outflows based on the remaining maturity of the assets and liabilities, and on the experience gained from progress analysis of the previous years. The Bank prepares a liquidity plan which is approved by the Board of Directors together with the business plan, and both these plans are closely interconnected.


Cash flows from balance sheet financial instrumentsThe table below presents the contractual undiscounted cash flows from the Bank’s financial liabilities as compared with total financial assets based on the remaining contractual period as at the balance sheet date to the contractual maturity date.

As at 31 December 2013 Total

(CZKm)Within

3 months3–12

months1–5

yearsOver

5 yearsUndiscounted

cash flowsCarrying amount

Financial liabilities

Deposits from banks 1,242 880 2,086 402 4,610 4,488

Due to customers 40,189 6,517 1,453 17 48,176 48,008

Debt securities in issue 2,656 2,964 4,248 – 9,868 9,400

Subordinated debt 6 – 281 2,491 2,778 2,400

Total financial liabilities

(remaining contractual maturities) 44,093 10,361 8,068 2,910 65,432 64,296

Total financial assets


Net financial assets/(liabilities) (26,856) (4,469) 11,828 39,120 (19,623) 5,422


(CZKm)Within

3 months3–12

months1–5

yearsOver

5 yearsUndiscounted



Deposits from banks 2,682 1,336 999 2,145 7,162 6,927

Due to customers 29,864 9,331 2,685 17 41,897 41,642

Debt securities in issue 563 2,682 3,692 – 6,937 6,493

Subordinated debt 1 – 262 – 263 253

Total financial liabilities


Total financial assets


Net financial assets/(liabilities) (19,995) (6,161) 9,507 34,708 18,059 5,581

Negative net financial liability with remaining maturity of less than three months is influenced by the fact that customers are strictly divided into maturity time bands according to their remaining contractual maturities (e.g. current accounts are contained within the “Within 3 months” column). However, as statistical evidence shows it is unlikely that a majority of those customers will actually withdraw their deposits from the Bank on contractual maturity.

Cash flows from derivative financial instruments

Derivatives settled on a net basisThe Bank’s derivatives to be settled on a net basis include interest rate swaps. The table below analyses contractual undiscounted cash flows from the Bank’s derivative financial liabilities settled on a net basis according to the remain-ing period as at the balance sheet date to the contractual maturity date.


(CZKm)Within

3 months3–12

months1–5

yearsOver

5 yearsUndiscounted


Trading derivatives

– Interest derivatives

Interest rate swaps: assets 14 72 147 (14) 219 7,266

Interest rate swaps: liabilities 13 70 142 (14) 211 6,390

Interest options: assets – – 5 6 11 1,680

Interest options: liabilities – – 5 5 10 1,643

– Equity derivatives

Equity options: assets – – – – – –

Net financial assets/(liabilities) 1 2 5 1 9


(CZKm)Within

3 months3–12

months1–5

yearsOver

5 yearsUndiscounted


Trading derivatives

– Interest derivatives

Interest rate swaps: assets 16 39 56 (4) 107 4,023

Interest rate swaps: liabilities 15 38 61 (3) 111 3,794

Interest options: assets – – – – – 898

Interest options: liabilities – – – – – 862

– Equity derivatives

Equity options: assets – – – – – 250

Net financial assets/(liabilities) 1 1 (5) (1) (4)


Derivatives settled on a gross basisThe Bank’s derivatives to be settled on a gross basis include foreign exchange forwards, foreign exchange swaps and foreign exchange options. The table below analyses contractual undiscounted cash flows from the Bank’s derivative financial instruments settled on a gross basis according to the remaining period as at the balance sheet date to the contractual maturity date.


(CZKm)Within

3 months3–12

months1–5

yearsOver

5 yearsUndiscounted

cash flowsNominal amount

Trading derivatives

– Foreign exchange derivatives

Outflow 1,990 1,628 274 – 3,892 3,892

Inflow 1,990 1,626 274 – 3,890 3,890


(CZKm)Within

3 months3–12

months1–5

yearsOver

5 yearsUndiscounted

cash flowsNominal amount

Trading derivatives

– Foreign exchange derivatives

Outflow 687 447 88 – 1,222 1,222

Inflow 687 448 88 – 1,223 1,223

Off-balance sheet itemsThe table below analyses the off-balance sheet items of the Bank exposed to a liquidity risk into relevant maturity bands based on the remaining period as at the balance sheet date to the contractual maturity date.


(CZKm)Within

3 months3–12

months1–5

yearsOver

5 years Total

Financial guarantees 459 472 488 68 1,487

Loan commitments and other credit related liabilities 7,964 – – – 7,964

Capital commitments – – – – –

Total 8,423 472 488 68 9,451


(CZKm)Within

3 months3–12

months1–5

yearsOver

5 years Total

Financial guarantees 237 492 222 55 1,006

Loan commitments and other credit related liabilities 5,881 – – – 5,881

Capital commitments 23 162 – – 185

Total 6,140 654 222 55 7,072

Future minimum lease payments under operating lease commitments are analyzed in Note 30 (d).

(f) Operational risk

The Bank defines operational risk as the risk of a financial loss resulting from inadequate or failed internal processes, people and systems or from external factors including legal risks. In cases of the breakdown of business processes it also includes reputational risk.

In accordance with CNB measures, the Bank has an internal database of requisite regulations for operational risk management, including those for the areas of information security, continuity of operations or internal control systems. The Bank has also established an internal control system of individual processes, which is one of the fun-damental elements of operational risk management.

The operational risk management process includes identification, collection and recording of operational risk events, evaluation and valuation, measures and risk minimization, along with controlling the implementation of the de-signed measures and their effectiveness. The Bank applies the operational risk management process at the levels of both actual events and hypothetical risks.

Every identified event is assessed and considered individually, and the measures to be taken are designed in accord-ance with the frequency of the event’s occurrence, the amount of the actual or anticipated loss or profit, as well as its seriousness and cause. The objective is to ensure that the measures taken will effectively minimize or eliminate occurrences of similar events in future.

Operational risk management is performed in close co-operation with the Bank’s parent company. The Bank applies a standardized method for calculating the capital requirement for operational risk.


(g) Capital management

The capital management process is coordinated within Sberbank Group in close communication with the Bank’s shareholder. It is aimed at:

• ensuring the Bank’s long-term stability in relation to existing risks,

• compliance with the supervisory capital requirements (capital adequacy) and

• maintaining a strong capital base to support business expansion

The Bank fulfils the requirement of CNB Decree No. 123/2007 (“the Decree“) for ongoing compliance with the capital adequacy limit by daily monitoring of risk-weighted assets. Required regulatory capital adequacy reports are filed with the CNB on a monthly basis. The Bank also informs the parent company on compliance with the regulatory capital requirements with the same frequency.

The methodology for calculation of capital is defined by the Decree. The Bank ensures that the capital level exceeds regulatory capital requirements in coordination with the parent company.

The Bank estimates capital requirements for coverage of individual risks in compliance with the valid regulatory legislation.

Additionally, the Bank’s internal capital adequacy assessment system ensures that internally determined capital resources exceed the internally assessed capital required.

The table below summarizes the composition of the Bank’s capital and risk-weighted assets. During both years, the Bank complied with the regulatory capital adequacy limit of 8%.

(CZKm) 31.12. 2013 31.12. 2012

Tier 1

Share capital (net of treasury shares) 2,005 2,005

Share premium account 2,695 2,695

Obligatory reserve funds 120 110

Retained earnings from previous period 482 283

Less: Intangible assets other than goodwill (115) (110)

Other deductible items – –

Tier 1 capital 5,187 4,983

Tier 2

Subordinated debt A 2,230 151

Tier 2 capital 2,230 151

Total capital 7,417 5,134

Risk-weighted assets

Credit risk in investment/banking portfolio 44,320 40,968

Credit risk in trading portfolio – –

General interest rate risk – –

Operational risk 2,712 2,626

Total risk-weighted assets 47,032 43,594

Capital adequacy 15.77 % 11.78%


(h) Maturity analysis of assets and liabilities

The table below analyses assets and liabilities and summarizes the composition of the Bank’s capital and risk-weighted assets according to when they are expected to be settled or recovered:


(CZKm)Within

12 monthsAfter

12 months Total

ASSETS

Cash and balances with central banks 11,430 316 11,746

Loans and advances to banks 2,206 1,256 3,462



Financial assets at fair value through profit or loss – 31 31


– Available for sale 2,533 464 2,997

– Loans and receivables – 61 61

Intangible assets – 115 115

Property and equipment – 262 262

Current income tax assets – – –

Deferred income tax assets 47 – 47

Other assets 39 – 39

Deferred items 22 – 22

Total assets 24,311 46,161 70,472

LIABILITIES

Deposits from banks 2,115 2,373 4,488

Due to customers 46,602 1,406 48,008


Debt securities in issue 5,553 3,847 9,400

Current income tax liability 2 – 2

Other liabilities 356 – 356


Provisions 29 10 39

Subordinated debt 6 2,394 2,400

Total liabilities 54,693 10,284 64,977


(CZKm)Within

12 monthsAfter

12 months Total

ASSETS

Cash and balances with central banks 7,196 – 7,196

Loans and advances to banks 4,876 18 4,894



Financial assets at fair value through profit or loss 256 9 265


– Available for sale – 2,253 2,253

– Loans and receivables – 61 61

– Held to maturity – 110 110

Intangible assets – 193 193

Property and equipment 32 – 32

Deferred income tax assets 13 – 13

Other assets 40 – 40


Total assets 20,083 41,229 61,312

LIABILITIES

Deposits from banks 4,010 2,918 6,927

Due to customers 39,092 2,549 41,642


Debt securities in issue 3,221 3,272 6,493

Other liabilities 347 – 347


Provisions 12 23 35

Subordinated debt 1 252 253

Total liabilities 46,716 9,286 56,002


34 Fair value of financial assets and liabilitiesThe following table summarizes the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value:

Fair value of financial assets and liabilitiesAs at 31 December 2013

(CZKm) Level 1 Level 2 Level 3Fair value

totalCarrying amount

Financial assets


Loans and advances to customers thereof: 44,149 44,149 51,421

Retail 8,692 8,692 12,820

Corporate 35,457 35,457 38,601

Securities in category loans and receivables 63 63 61


Deposits from banks 2,954 1,457 4,411 4,488

Due to customers thereof: 21,808 26,429 48,237 48,008

Retail 460 12,666 13,126 13,048

Corporate 21,348 13,763 35,111 34,960

Debt securities in issue thereof: 9,527 9,527 9,400

Retail 92 92 89

Corporate 9,435 9,435 9,311

Subordinated Debt 2,412 2,412 2,400

Fair value of financial assets and liabilitiesAs at 31 December 2012

(CZKm) Level 1 Level 2 Level 3Fair value

totalCarrying amount

Financial assets


Loans and advances to customers thereof: 41,554 41,554 45,944

Retail 18,189 18,189 21,490

Corporate 23,365 23,365 24,454

Securities in category loans and receivables 64 64 61


Deposits from banks 5,520 1,442 6,962 6,927

Due to customers thereof: 16,025 25,919 41,944 41,642

Retail 13,945 19,704 33,649 33,394

Corporate 2,080 6,215 8,295 8,248

Debt securities in issue thereof: 6,614 6,614 6,493

Retail 986 986 980

Corporate 5,628 5,628 5,513

The following methods and assumptions were used in estimating the fair values of the Bank’s financial assets and liabilities:

Loans and advances to banksThe carrying amounts of current account balances are, by definition, equal to their fair values. The fair values of term placements with banks are estimated by discounting their future cash flows using current inter-bank market rates. A majority of the loans and advances re-price within relatively short time spans; therefore, it is assumed their car-rying amounts approximate their fair values.

Loans and advances to customersA substantial majority of the loans and advances to customers re-price within relatively short time spans; therefore, it is assumed that their carrying amounts approximate their fair values. The fair values of fixed-rate loans to cus-tomers are estimated by discounting their future cash flows using current market rates adjusted for appropriate risk premium. Fair value incorporates expected future losses, while amortized cost and related impairment include only incurred losses as at the balance sheet date.

Deposits from banksThe carrying amounts of current account balances are, by definition, equal to their fair values. For other amounts due to banks with equal to or less than one year remaining maturity, it is assumed their carrying amounts approxi-mate their fair values. The fair values of other amounts due to banks are estimated by discounting their future cash flows using current inter-bank market rates.


Due to customersThe fair values of current accounts as well as term deposits with equal to or less than one year remaining maturity approximate their carrying amounts. The fair values of other term deposits are estimated by discounting their future cash flows using rates currently offered for deposits of similar remaining maturities.

Debt securities in issueMortgage bonds issued are not publicly traded and their fair values are based upon the quoted market prices of the debt securities with similar characteristics. The carrying amounts of promissory notes and certificates of de-posit approximate their fair values.

Fair value hierarchyThe table below analyses financial instruments measured at fair value at the end of the reporting period. Information about fair value measurements are disclosed using a hierarchy that reflects the significance of inputs used in meas-uring the fair values of financial instruments (they are categorized into three levels):

• Level 1 – fair value measurements using quoted prices (unadjusted) in active markets for identical assets and liabilities.

• Level 2 – fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active, or other valuation techniques in which significant inputs are directly or indirectly observable from market data.

• Level 3 – fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e., unobservable inputs) and these data have significant influence on the measurement. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unob-servable adjustments or assumptions are required to reflect differences between the instruments.

The Bank has an established control framework with respect to the measurement of fair values of assets and lia-bilities. These controls include the verification of observable pricing, re-performance of model valuations, a review and approval process for new models and changes to models, quarterly calibration and back-testing of models against observed market transactions, analysis and investigation of significant daily valuation movements and review of significant unobservable inputs, valuation adjustments and significant changes to the fair value measurement of Level 3 instruments.


(CZKm) Level 1 Level 2 Level 3 Total

Financial assets

Derivative financial instruments – 269 – 269

Financial assets at fair value through profit or loss 31 – – 31


– Available for sale 2,997 – – 2,997



Due to customers – – – –

In 2013 there were no transfers of financial assets or liabilities between level 1 and 2.


(CZKm) Level 1 Level 2 Level 3 Total

Financial assets


Financial assets at fair value through profit or loss 2 263 – 265


– Available for sale 2,253 – – 2,253



Due to customers – 506 – 506

In 2012 there were no transfers of financial assets or liabilities between level 1 and 2.


35 DividendsFinal dividends are not accounted for until they have been ratified at the Annual General Meeting. The dividends for the year 2012 and 2013 has not been declared yet. (At the Annual General Meeting held on 28 March 2012 the pay-ment of dividends on 2011 profit and retained earnings was approved. The dividend amounted to CZK 863.75 per ordinary share and CZK 863.75 per preferred share. The total amount of dividends paid from profit for the year 2011 is CZK 346 million).

Distribution of the net profit after tax for the year 2011 346

Transfer to statutory reserve funds (17)

Transfer from retained earnings 17

Dividends to shareholders (346)

Distribution of the net profit after tax for the year 2012 209

Transfer to statutory reserve funds (10)

Transfer from retained earnings 10

Dividends to shareholders –

36 ShareholdersThe shareholder structure of the Bank as at 31 December 2012 was as follows:

Voting shareholders

Name and registered office Share in %

Sberbank Europe AG, Schwarzenbergplatz 3, Vienna (formerly Volksbank International AG) 100.00

100.00

The shareholder structure of the Bank as at 31 December 2013 was as follows:

Voting shareholders

Name and registered office Share in %

Sberbank Europe AG, Schwarzenbergplatz 3, Vienna (formerly Volksbank International AG) 100.00

100.00

37 Related PartiesThe amounts of the income, expense and assets and liabilities balances regarding related parties were as follows:

As at 31 December 2013 and year then ended

NoteUltimate

ParentManage-

ment

Other relatedparties Total(CZKm)

Interest income 3 14 – 93 107

Commission and fee income 4 – – – –

Other operating income 8 – – 7 7

Interest expense 3 – – 15 15

Commission and fee expense 4 – – 17 17

Administrative expense 7 – – 11 11

Due from banks 12 1,284 – 2,066 3,350

Loans and advances 13 – 21 – 21

Securities classified as a financial assets from the beginning at fair value through profit or loss 16 – – – –

Other assets 21 – – 1 1

Due to banks 22 24 – 2,167 2,191

Due to customers 23 – 12 – 12

Other liabilities 25 – – – –

Guarantees granted and commitments given 29 410 5 15 430

Guarantees granted and commitments received – – 4,058 4,058

Assets under custody – 2 2,005 2,007

The ultimate parent company is Sberbank RU. The parent company Sberbank Europe AG (formerly Volksbank Inter-national AG) and companies within Sberbank Group other than the parent company are part of Other related parties.

The Bank has three recorded received guarantees from Sberbank Europe AG in total amount of CZK 4,058 million, one denominated in CZK in amount of CZK 2,260 million and two denominated in EUR in total amount of EUR 65.5 million.


As at 31 December 2012 and year then ended

Note.Ultimate

ParentManage-

ment

Other relatedparties Total(CZKm)

Interest income 3 2 – 49 51

Commission and fee income 4 – – 1 1

Other operating income 8 – – – –

Interest expense 3 – – 22 22

Commission and fee expense 4 – – – –

Administrative expense 7 – – 12 12

Due from banks 12 372 – 4,155 4,527

Loans and advances 13 – 5 – 5

Securities classified as financial assets from the beginning at fair value through profit or loss 16 – – – –

Other assets 21 – – – –

Due to banks 22 1 – 793 794

Due to customers 23 – 15 – 15

Other liabilities 25 – – – –

Guarantees granted and commitments given 29 47 5 38 90

Guarantees granted and commitments received – 6 2,552 2,558

Assets under custody – 11 2,005 2,016

The ultimate parent company is Sberbank RU. The parent company Sberbank Europe AG (formerly Volksbank Inter-national AG) and companies within Sberbank Group other than the parent company are part of Other related parties.

The Bank has a recorded promise for the refinancing of a loan from Sberbank Europe AG in the amount of CZK 2,514 mil-lion denominated in EUR (100 million).

Loans and advances to customers and individuals include the following receivables from related parties (Note 13):

Receivables from related parties

(CZKm) 31.12.2013 31.12.2012

VB Leasing CZ, spol. s r.o. – –

Management of the Bank 21 5

Members of Supervisory Board and Board of Directors – –

Other related parties (companies in the group) – –

Total receivables from related parties 21 5

In the opinion of the management, all receivables from related parties were made in the ordinary course of business on substantially the same terms and conditions, including interest rates, as those prevailing at the same time for comparable transactions with other customers, and did not involve more than the normal credit risk or present other unfavorable features.

Due to customers includes the following position with related parties:

Deposits from related parties

(CZKm) 31.12.2013 31.12.2012

Management of the Bank 9 10

Members of Supervisory Board and Board of Directors 3 5

Deposits from related parties 12 15

Due to banks includes the following position with related parties:

Deposits from related parties

(CZKm) 31.12.2013 31.12.2012

Sberbank Moscow 24 1

Volksbank AG 2,124 –

Other related parties (banks in the group) 43 793

Deposits from related parties 2,191 794

In the opinion of the management, deposits from related parties were accepted on substantially the same terms and conditions, including interest rates, as those prevailing at the same time for comparable transactions with other customers, and did not involve more than the normal interest rate and liquidity risk or present other unfavorable features (Note 23).

SBERBANK CZ | ANNUAL REPORT 2013 | NOTES TO THE FINANCIAL STATEMENTS SBERBANK CZ | ANNUAL REPORT 2013 | QUANTITATIVE INDICES 119118

Key management personnel salaries, benefits and contributions paid:

(CZKm) 31.12.2013 31.12.2012

Short-term employee benefits 70 49

Post-employment benefits – –

Other long-term benefits – –

Termination benefits 2 –

Share-based payments – –

Salaries and bonuses of senior management and Supervisory Board members 72 49

Other personnel expenses are disclosed in Note 7.

38 Subsequent eventsThere were no other important events which have occurred subsequent to the year-end until the date of prepara-tion of the financial statements and which would have a material impact on the financial statements of the Bank as at 31 December 2013 or would have to be presented in the Notes to the financial statements of the Bank as at 31 December 2013.

Quantitative indices

CZK thousand 2013 2012 2011 2010 2009

Return on average assets (ROAA) 0.35% 0.37% 0.69% 0.56% 0.37%

Return on own average equity (ROAE) 4.48% 4.20% 6.97% 5.37% 3.68%

Assets per employee 98,014 91,784 81,303 79,315 68,487

Administrative costs per employee 1,381 1,287 1,269 1,220 1,081

Net profit per employee 320 313 544 435 266

Capital structure

Tier 1 5,187,228 4,982,605 4,979,432 4,964,401 5,148,132

Paid-up share capital 2,005,380 2,005,380 2,005,380 2,005,380 2,005,380

Paid up share premium 2,694,628 2,694,628 2,694,628 2,694,628 2,694,628

Legal reserve funds 120,369 109,902 92,578 79,049 69,804

Retained earnings from previous years 481,523 282,636 299,914 308,188 498,122

Tier 2 2,229,653 150,840 206,400 250,600 264,650

Provisions for general risks

Deductible items (114,672) (109,941) (113,068) (122,843) (119,801)

Intangible assets (114,672) (109,941) (113,068) (122,843) (119,801)

Capital 7,416,880 5,133,445 5,185,832 5,215,001 5,412,782

Capital requirementsTotal capital requirements relating to credit risk 3,545,617 3,277,445 2,920,592 2,725,622 2,611,068

Total capital requirements relating to operational risk 216,979 210,067 217,539 212,567 190,368

Capital adequacy 15.77% 11.78% 13.22% 14.20% 15.46%

SBERBANK CZ | ANNUAL REPORT 2013 | REPORT ON RELATIONSSBERBANK CZ | ANNUAL REPORT 2013 | REPORT ON RELATIONS 121120

Report on relationsPrepared in accordance with section 66a, paragraph 9 of the Commercial Code

AffidavitSberbank CZ with registered office at Na Pankráci 1724/129, 140 00 Praha 4 is responsible for the data in its 2013 Annual Report.

The undersigned hereby declare that, in exercising all due care, the data contained in the Annual Report of Sber-bank CZ for 2013 is accurate and that no substantial facts that could change the meaningfulness of the Annual Report of Sberbank CZ were concealed.

Vladimír Šolc Jiří Antoš Frank Guthan Martin Muránsky Karel Soukeník

As at the date of annual accounts (31 December 2013), Sberbank CZ, a.s. (“Sberbank CZ”) was a part of the interna-tional financial group Sberbank of Russia, 19 Vavilova St., 117997 Moscow, Russian Federation (“Sberbank of Russia”). Sberbank CZ operates in the Czech market as an independent bank under Act No. 21/1992 Sb., the Banking Act. As at the date of annual accounts, Sberbank CZ was a controlled entity under Act No. 513/1991 Sb., the Commercial Code. As at the publication hereof, Sberbank CZ is a controlled entity under Section 74 of Act No. 90/2012 Sb., the Business Corporations Act effective as of 1 January 2014. Sberbank CZ is controlled by its controlling entity, Sberbank of Russia, indirectly through Sberbank Europe AG, Schwarzenbergplatz 3, 1010 Vienna, Austria (“Sberbank Europe”); Sberbank Europe AG is a direct controlling entity of Sberbank CZ.

In 2013, Sberbank CZ and Sberbank Europe entered into: a subordinated loan agreement, under which Sberbank CZ was provided with long-term funds by Sberbank

Europe under standard market conditions. The agreement and loan utilization was approved by the Czech National Bank. Sberbank CZ pays interest under standard market conditions;

an intra-group revolving loan facility agreement, under which Sberbank CZ can draw necessary funds under standard market conditions to further develop Sberbank CZ business activities;

a master services agreement, under which Sberbank CZ provides credit risk evaluation services relating to loan transactions with clients. Sberbank CZ provides these services also to companies directly controlled by Sberbank Europe (Sberbank Croatia, Sberbank Hungary, Sberbank Slovakia and Sberbank Slovenia) under separate agree-ments entered into in the basis of the master services agreement. Sberbank CZ provides these services for standard market fees;

a master participation agreement, under which Sberbank CZ and Sberbank Europe can enter into mutual rela-tionships under standard market conditions in respect of consortium financing of corporate client transactions.

In 2013, Sberbank CZ and Sberbank Europe entered into several short-term loan agreements for refinancing purposes of Sberbank Europe. The applicable interest rates and fees were agreed in the said agreements in compliance with the standard market conditions.

In 2009, Sberbank CZ and Sberbank Europe entered into an agreement for the provision of services, under which Sberbank CZ is provided with professional advisory services required by Sberbank CZ. For the provisions of these services, Sberbank CZ pays standard market fees.

Sberbank CZ and Sberbank of Russia entered and/or continuously enter into additional relationships under standard market conditions:a) relationships regarding interbank deposits for which Sberbank CZ receives / pays interest under standard market

conditions; b) relationships regarding current account maintenance for which Sberbank CZ receives / pays fees and receives /

pays interest under standard market conditions; c) relationships regarding long-term export finance loans for which Sberbank CZ receives / pays interest under

standard market conditions; andd) ISDA master agreement for trading in financial instruments under market conditions.

Sberbank CZ and Sberbank Europe entered and/or continuously enter into additional relationships under standard market conditions:a) relationships regarding interbank deposits for which Sberbank CZ receives / pays interest under standard market

conditions; b) relationships regarding current account maintenance for which Sberbank CZ receives / pays fees and receives /

pays interest under standard market conditions; andc) relationships regarding corporate finance loans for which Sberbank CZ receives / pays interest under standard

market conditions.

Sberbank CZ made no other legal acts or adopted other measures in the interest of, or initiated by, connected com-panies. Sberbank CZ suffered no damage or loss caused by business relations with the above connected companies or the above mentioned legal acts made by Sberbank CZ in the name of connected companies or in relation to activities made by Sberbank CZ in the name of, or initiated by, connected companies.

The business relations maintained with the controlling entities were assessed by Sberbank CZ board of directors as with prevailing benefit to Sberbank CZ, which is primarily a result of Sberbank CZ incorporation to the Sberbank European banking group. The business relations maintained with its controlling entities allow Sberbank CZ to provide better banking services to clients and manage the business-related risks effectively and efficiently. By maintaining these business relations, Sberbank CZ benefits from the opportunities offered by the financially strong controlling entity. These relations are fully comparable to similar contractual relationships entered into by Sberbank CZ in the area of interbank transactions and as such bear no specific or increased risks. Sberbank CZ incurred no damage caused by the business relations maintained with its controlling entities.

In 2013, within the relations with the controlling entities, Sberbank CZ acted in the Czech market as a universal and independent bank providing banking services in compliance with law and duly observed and complied with statutory and regulatory requirements. Sberbank CZ confirms that the controlling entity’s influence was not misused in order to force adoption of a measure or execution of a contract due to which financial loss could arise to Sberbank CZ as a controlled entity and that the relations between Sberbank CZ and the controlling entities conformed to the standard market conditions.

Relations with other controlled entities

Sberbank CZ also maintains business relationships with some commercial or financial companies: indirectly controlled by Sberbank of Russia or directly by Sberbank Europe; namely with banks in Croatia, Hungary,

Slovakia and Slovenia, which at as the date of closing the accounts were controlled by Sberbank Europe. directly controlled by Sberbank of Russia, namely with banks in Belarus, Kazakhstan, Turkey and Switzerland. With

the said banks, Sberbank CZ maintains standard banking relations and conducts standard banking transactions. Sberbank CZ incurred no damage caused by its business relations with the above mentioned companies.

With the said companies, Sberbank CZ maintains standard banking relations and conducts standard banking trans-actions. Sberbank CZ incurred no damage caused by its business relations with the above mentioned companies.

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Independent auditor’sreportTo the Shareholder of Sberbank CZ, a.s.:

I. We have audited the financial statements of Sberbank CZ, a.s., (“the Company”) as at 31 December 2013 presented in the annual report of the Company on pages 31–118 and our audit report dated 14 April 2014 stated the following:

“We have audited the accompanying financial statements of Sberbank CZ, a.s., which comprise the statement of financial position as at 31 December 2013, statement of comprehensive income for the year ended 31 December 2013, statement of changes in equity for the year ended 31 December 2013 and statement of cash flows for the year then ended 31 December 2013, and a summary of significant accounting policies and other explanatory informa-tion. For details of Sberbank CZ, a.s., see Note 1 to the financial statements.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and 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.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Act on Auditors and International Standards on Auditing as amended by implementation guidance of the Chamber of Auditors of the Czech Republic. 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 an 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 entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting 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 Sber-bank CZ, a.s., as at 31 December 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

II. We have also audited the consistency of the annual report with the financial statements described above. The management of Sberbank CZ, a.s. is responsible for the accuracy of the annual report. Our responsibility is to express, based on our audit, an opinion on the consistency of the annual report with the financial statements.

We conducted our audit in accordance with International Standards on Auditing and the related implementation guidance issued by the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the information presented in the annual report that describes the facts reflected in the financial statements is consistent, in all material respects, with the fi-nancial statements. We have checked that the accounting information presented in the annual report on pages 31–118 is consistent with that contained in the audited financial statements as at 31 December 2013. Our work as auditors was confined to checking the annual report with the aforementioned scope and did not include a review of any information other than that drawn from the audited accounting records of the Company. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accounting information presented in the annual report is consistent, in all material respects, with the financial statements described above.

III. In addition, we have reviewed the accuracy of the information contained in the report on related parties of Sberbank CZ, a.s., for the year ended 31 December 2013 presented in the annual report of the Company on pages 120–121. As described in Note 1 of report on related parties, the Company prepared this report in accordance with section 66a, paragraph 9 of the Commercial Code. The management of Sberbank CZ, a.s., is responsible for the preparation and accuracy of the report on related parties. Our responsibility is to issue a report based on our review.

We conducted our review in accordance with the applicable International Standard on Review Engagements and the related Czech standard No. 56 issued by the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the review to obtain moderate assurance as to whether the report on related parties is free from material misstatement. The review is limited primarily to enquiries of company personnel, to analytical procedures applied to financial data and to examining, on a test basis, the accuracy of information, and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the report on related parties of Sberbank CZ, a.s., for the year ended 31 December 2013 is materially misstated.

Ernst & Young Audit, s.r.o.License No. 401Represented by partner

Michaela KubýováAuditor, License No. 1810

30 April 2014 Prague, Czech Republic

SBERBANK CZ | ANNUAL REPORT 2013 | INDEPENDENT AUDITOR’S REPORTSBERBANK CZ | ANNUAL REPORT 2013 | INDEPENDENT AUDITOR’S REPORT

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Report of the Supervisory BoardIn its two meetings held during the 2013 business year, on 23 April and 26 November 2013, the Supervisory Board reviewed the correctness, appropriateness and economic efficiency of the management of Sberbank CZ. The Su-pervisory Board further acknowledged the ongoing reports of the Board of Directors and issued resolutions as necessary for the 2013 business year.

At its 36th meeting, held on 29 April 2014, the Supervisory Board approved a resolution acknowledging the report presented by the Board of Directors and approved the financial statements for 2013. These included the balance sheet and off-balance sheet as at 31 December 2013, as well as the income statement for the year ended 31 Decem-ber 2013. The Supervisory Board approved a proposal for profit distribution as well. The Board also reviewed the Report on Relations in accordance with section 66a, paragraph 9 of the Commercial Code.

The closing financial statements for the year ended 31 December 2013 were examined by the audit company Ernst & Young Audit, s.r.o. The auditor issued an unqualified opinion.

On the basis of the report of the Board of Directors, the Supervisory Board states its affirmative appraisal to the Sole Shareholder at the general Shareholders’ Meeting and recommends that appropriate resolutions be approved.

The Supervisory Board would like to thank the Board of Directors and all of the Bank’s employees for their excellent cooperation and the efforts that they made throughout 2013.

Mark ArnoldChairman of the Supervisory Board

Prague, April 2014

SBERBANK CZ | ANNUAL REPORT 2013 | REPORT OF THE SUPERVISORY BOARD

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Praha

Plzeň

České BudějoviceJihlava

Liberec

Hradec KrálovéKarlovy Vary

Olomouc

Ostrava

ZlínBrno

Znojmo

Our network

SBERBANK CZ | ANNUAL REPORT 2013 | OUR NETWORKSBERBANK CZ | ANNUAL REPORT 2013 | OUR NETWORK

PlzeňAnglické nábřeží 12301 00 PlzeňTel.: +420 377 350 211

PrahaNa Příkopě 860/24110 00 Praha 1Tel.: 267 267 911

PrahaLazarská 8120 00 Praha 2Tel.: +420 221 584 283

PrahaKarla Engliše 1 (Anděl)150 00 Praha 5Tel.: +420 257 257 301

PrahaStrossmayerovo nám. 11/966170 00 Praha 7Tel.: +420 220 410 611

PrahaValentinská 20/10110 00 Praha 1Tel.: +420 221 778 711

PrahaVinohradská 40120 00 Praha 2Tel.: +420 222 922 828

PrahaNa Pankráci 129140 00 Praha 4Tel.: +420 234 706 933

ZlínŠtefánikova 5293760 01 ZlínTel.: +420 577 002 111

ZnojmoMariánské nám. 6669 02 ZnojmoTel.: +420 515 282 511

Head office

PrahaNa Pankráci 129140 00 Praha 4Tel.: +420 800 133 444

Regionalhead office

BrnoM-Palác, Heršpická 5658 26 BrnoTel.: +420 800 133 444

Branches and corporate centres

BrnoM-Palác, Heršpická 5658 26 BrnoTel.: +420 543 525 410

BrnoPalackého 38612 00 BrnoTel.: +420 549 122 622

BrnoPanská 2/4602 00 BrnoTel.: +420 542 424 970

BrnoGalerie Vaňkovka, Ve Vaňkovce 1602 00 BrnoTel.: +420 543 552 214

BrnoEDEN, Purkyňova 35 E612 00 Brnotel.: +420 549 428 966

České Budějovicenám. Přemysla Otakara II. č. 27370 01 České BudějoviceTel.: +420 386 105 810

Hradec KrálovéNa Kropáčce 30 (Velké náměstí)500 03 Hradec KrálovéTel.: +420 495 000 356 JihlavaBenešova 15586 01 JihlavaTel.: +420 567 584 511

Karlovy VaryT. G. Masaryka 854/25360 01 Karlovy VaryTel.: +420 353 244 713

Liberec1. máje 59/5460 01 LiberecTel.: +420 482 428 354

OlomoucKřížkovského 5771 11 OlomoucTel.: +420 585 208 313

Ostrava28. října 3138/41702 00 OstravaTel.: +420 595 133 411

128© 2014 Sberbank CZ, a.s.

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Sberbank CZ, a.s.Na Pankráci 1724/129140 00 Praha 4, Czech RepublicTel.: +420 221 969 911, Fax: +420 221 969 [email protected], www.sberbankcz.cz

Sberbank Europe AGSchwarzenbergplatz 31010 Vienna, AustriaTel.: +43 1 [email protected], www.sberbank.at

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