Credicom Consumer Finance Bank SA...Credicom Consumer Finance Bank Directors’ Report Year ended...

Credicom Consumer

Finance Bank SA 2016 Annual Report

Certification of the Board of Directors and Board of Directors’ Report

Financial Statements

Notes to the Financial Statements including Financial Risk management disclosures

Independent Auditors’ Report

Availability of the Financial Statements

Credicom Consumer Finance Bank Directors’ Report Year ended 2016

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Certification of the Board of Directors and Board of

Directors’ Report


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Certification of the Board of Directors

Certification by the Chief Executive Officer and the BoD member in accordance with article 4 par. 2

of the Law 3556/2007)

We, the members of the Board of Directors of Credicom Consumer Finance Bank SA, certify that to

the best of our knowledge:

the annual financial statements for the year ended 31 December 2016, which have been

prepared in accordance with the applicable accounting standards, present fairly the assets,

liabilities, equity and annual results of the Bank, and

the annual report of the Board of Directors presents fairly the development, the

performance and the position of the Bank, including the description of the main risks and

uncertainties they face.

London, 5 September 2017

CEO A member of the Board of

Directors

Anastasia Sakellariou Anastasios Karkazis


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Board of Directors’ Report

Global outlook: Medium term risks skewed to the downside

Global economy gained speed from H2-2016 onwards anticipating a continuation of the current

positive momentum. Global economic growth is expected to accelerate to 3.6% compared to 3.1%

in 2016 according to April’s World Economic Outlook of the International Monetary Fund.

Current expectations of a stronger activity and a more robust global demand, along with agreed

restrictions on oil supply, supported the recovery in commodity prices from their troughs in the

first months of 2016. Higher commodity prices provided some relief to commodity exporters and

led to an increase in global headline inflation.

The outlook profile and growth drivers vary among advanced and emerging economies. In the

advanced economies group, the U.S. is projected to gather steam due to the ongoing expansionary

fiscal policy, whereas in Europe, the cyclical recovery from the 2008-09 & 2011-12 crises will help

retain growth modestly above potential over the next few years. Among emerging economies,

especially those that rely heavily on energy or metal exports, the adjustment to lower commodity

prices is a driver of the outlook, in both the short and medium term. The slowdown of productivity

growth remains a medium-term challenge for many emerging markets.

Downside risks stem from several potential factors:

• An inward shift in policies, such as a move towards protectionism, with lower global growth due

to reduced trade and cross-border investment flows.

• A faster-than-expected pace of interest rate hikes in the United States, which in turn could

trigger a more rapid tightening in global financial conditions and a sharp dollar appreciation,

with adverse repercussions for vulnerable economies.

• An abrupt rollback of financial regulation, which could spur excessive risk taking and increase

the likelihood of future financial crises.

Other factors of noneconomic nature include geopolitical tensions, domestic political discord, risks

from weak governance and corruption, extreme weather events, and terrorism and security

concerns.

Greece: Possible green-shoots in economic recovery

The better than expected economic recovery along with the completion of the long-waited second

review of the 3rd Economic Adjustment Programme for Greece have created a positive momentum

for the country in 2017. This has resulted in the release of an EUR 8.5bn tranche in July 2017,

allowing the Greek government to repay upcoming debt maturities amounting to EUR 6.6bn in the

same month, including the ECB (EUR 3.9bn.) and private-sector bondholders (EUR 2.3bn.). It will

also enable the settlement of some of the government's arrears, thereby injecting much-needed

liquidity into the economy.

The risk of a currency denomination has diminished substantially. While the events of 2015

illustrate the volatility of Greek politics, the current political situation is calmer, and opinion polls


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indicate a broad-based shift of support towards parties that are in favor of continued euro area

membership.

After three years of stagnation and a cumulative loss in output of more than 27% since the onset

of the crisis, Greece has started posting positive growth rates. Employment has been rising for

more than a year, thereby supporting private consumption. Investments are expected to be

supported by an acceleration of the EU structural funds that amount to EUR 15.2bn (8.4% of 2017

GDP) for the 2014-2020 period. On top of that, significant funding is available from the European

Investment Bank (EIB, Aaa stable) and the European Bank for Reconstruction and Development

(EBRD, Aaa stable).

In 2016, Greece’s fiscal targets were exceeded, posting a primary surplus of 4.2% of GDP as

opposed to the target of 0.5% of GDP. The budget deficit in the first five months of the current

year (on a modified cash basis for central government only) was EUR 1.24bn., circa 25% lower than

the deficit for the same period in 2016. The targeted fiscal deficit for this year according to the

medium-term fiscal plan stands at EUR 2.03bn. The primary surplus was also higher than last year,

by circa 26%. Revenues were slightly below target while overall spending was 3.8% lower than the

target.

Real GDP in Q1-2017 turned out more positive than first estimated, with growth at 0.4% both on a

quarterly and annual basis, compared to a first estimate of -0.1% QoQ and -0.5% YoY. The leading

indicators also point upwards, with industrial production expanding by more than 7% on average

in January-April compared to the previous year. The economic sentiment indicator has recovered

to 2015 levels, prior to the political turmoil caused by the July 2015 referendum.

For 2017, economic activity is expected to continue to recover even more, with consumer and

investor sentiment as the fundamental growth drivers in the short-term. According to the

European Commission, real GDP is expected to grow by 2.1% YoY in 2017 and 2.5% in 2018, while

private consumption is expected to be the main driver of growth in 2017, supported by the

increase in employment. Furthermore, exports are set to gain momentum in the upcoming years as

Greece’s tourism sector and related sectors are experiencing increased demand.

The main risks related to growth have been the completion of the second review, and that was

successfully concluded in H1-2017, allowing the disbursement of EUR 8.5bn from the ESM. This at

the same time has paved the way for a number of fiscal and structural measures that the

government has to legislate. These measures aim to provide a higher level of comfort than

previously that the fiscal stance will remain appropriately tight in 2017 and 2018, while some of the

other measures implemented could have a positive economic impact over the coming years. Inter

alia, these measures are focusing on the reduction of the particularly elevated stock of non-

performing exposures (NPEs) in the banking sector. Besides adoption of bank-specific NPE-

reduction targets and the legislation to allow the operation of specialized asset management

companies, the government has now also strengthened the process for out-of-court debt

restructuring and provided legal safeguards for those involved in such debt workouts. The process

of NPE reduction is back-loaded focusing on a reduction targeted period of 2019-2020. The

cleaning-up of the banks’ balance sheet is a pre-condition so as to return to bank lending as well

as corporate investment.


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All of the above have led to an upgrade of Greece’s sovereign bond rating by Moody’s in June by

one notch to Caa2 from Caa3 with a Positive Outlook. In detail, the three main drivers for this

upgrade were first the successful conclusion of the second review, second the improved fiscal

prospects on the back of 2016 fiscal outperformance and third the tentative signs of the economy

stabilizing. Equally important though is the Positive Outlook, implying a further upgrade of the

country’s sovereign rating should the completion of the third Economic Adjustment Programme

successfully conclude, leading to potential debt relief.

Credicom: The strategy for a ‘Challenger’ Bank

The Bank has traditionally been a specialist in consumer and car finance both directly by offering

consumer finance and car loans and indirectly through a car leasing subsidiary active in the long-

term rental of new or used private cars1. Its current performing loan portfolio consists almost

exclusively of car loans originated prior to 2013, when it ceased to pursue new business. In

essence, since 2013 the Company has operated in a rundown mode which it anticipates to be

completed by 2018.

As at 17/2/2017 and following the approval by the European Competent Authorities (ECB/SSM and

Bank of Greece), the Bank has been fully acquired by Atlas Merchant Capital LLC through its

affiliate AMC Oak Sarl, a Luxembourg entity. The ultimate purchaser is Atlas Merchant Capital Fund

LP (‘AMC’) which is an investment fund specializing in the financial services industry, particularly in

areas of growth and opportunity with a focus on investment management.

Our plan is to use the Company’s full banking license and operational platform to:

(a) provide comprehensive banking services (i.e. lending to corporates and SMEs, ancillary payment

services, accepting deposits, retail banking, etc.) and

(b) to acquire, restructure and refinance existing loans in companies (medium and large SMEs) that

have viable business models, but overleveraged capital structures requiring urgent capital and

funding infusions.

As a first step, we intend to pursue a “thematic approach by sector” for restructuring, new funding

and servicing, out of a fraction of the pool of €110bn NPE loans, which relate to viable operating

companies in Greece. At the same time, the Bank will also engage in more capital intensive

activities in order to develop into a clean Challenger bank, with state of the art IT infrastructure and

‘best in class’ personnel. Going forward, we will develop a multichannel proposition to acquire and

serve its customer base, based on 3 channels:

- Online

- Mobile and

- Branches / RMs (Hub branches and Kiosks).

Eventually and by 2020, the Bank’s business model will have matured and the Bank will have a fair

share of the Greek market.

1 Disposed on the 23rd of March to Atithasos Trading & Shipping S.A.


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Furthermore, management will build on the strong existing compliance culture of Credicom and

further align the current Internal Control Environment which is based on permanent and periodic

controls, to a 3 Lines of Defense model, with clear roles and responsibilities and a risk framework

interrelated to the Bank’s risk appetite.

The above strategy and actions are described in detail in the Bank’s Business Plan which has been

approved by the ECB/SSM and BoG on 17/2/2017.

2016 Financial Performance

Credicom’s 2016 Interest Income was significantly lower than that of the previous year, due to

lower loans outstanding. In addition, Interest Expense also moderated as a result of the full

repayment of interbank borrowings from the former shareholder CACF. The lower banking activity

had a similar negative effect on Net Fee and Commission Income that decreased by -78%, resulting

in Net Banking Income of €1.6 million compared to €5.5 million in the previous year.

Net Other Operating Income amounted to €1.8 million from €3.0 million of which €1.0 million

related to the one-off return of withheld tax on bonds interest. Excluding this item, the income

stemming from the collection activity of the written-off loan portfolio remained stable compared

to the previous year at circa €1.6 million. The Company’s total operating income amounted to €3.5

million from €8.5 million in 2015 posting a decline of 59% off the back of the amortising

underlying book.

The Company’s Operating Expenses continued to decline reaching €7.9 million, 17% lower than

2015. This drop was the result of lower (a) collection and legal costs, (b) depreciation costs

attributed to hardware and software equipment, and c) reduced payments to Service Providers. On

the other hand, Personnel expenses stood at €3.6 million vs. €3.1 million in the previous year, due

to the increased provision for the pre-existing Voluntary Exit Plan. Overall, the 2016 Pre-Provisions

Result amounted to €-4.4 million vs. €-1.0 million in the previous year.

During 2016 there was a reversal on provisions for loans and advances, to adjust for the better

macroeconomic environment and the improved recoveries compared to 2015. Moreover, the Bank

impaired its participation in Emporiki Rent by €2.1 million, following the disposal agreement

completed on 23.3.2017.

The recognition of deferred tax assets (€12 million) is based on the assumption that the Bank,

being a going concern, will generate sufficient taxable profits over the course of the next twenty

years to utilize losses relating solely to loan loss impairments and accounting write offs, also taking

advantage of recent favorable legislation. In 2016, Credicom’s after tax result was a profit of €9.6

million compared to a loss of €-2.2 million in 2015.

Regarding the Bank’s financial position as of the end of 2016, total assets amounted to €50.6

million compared to €52.8 million as of the end of 2015. Gross Loans in December 2016 reached

€33.7 million decreasing by €42.9 million compared to 31.12.2015 (€79.6 million) due to customer

repayments and accounting write-offs (€11.7 million). The accumulated loan loss allowances as at

the end of 2016 amounted to €14.6 million compared to €30.4 million in 2015. The coverage of

loans in arrears over 90 days reached 90.2%, whereas the NPL ratio of the portfolio stood at 44.3%.


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Cash and reserves amounted to €17.5 million, compared to just €0.9 million in 2015, even after the

full repayment of the Bank’s interbank liabilities to CACF (amounting to €11.2 million in 2015).

Other assets also declined due to the lower banking activity along with Tangible and Intangible

Assets.

On 31.12.2016, equity reached €45.8 million, and the Bank’s Common Equity Tier 1 ratio stood at

91.7%. Credicom’s active goal is to maintain a capital base at considerably higher levels than the

minimum requirements set by the regulators (Bank of Greece) and the other Greek banks based on

Basel III (CRD IV) rules.

2017 prospects

We believe that 2017 will be a turning point for the Bank and will lead to significant changes in the

Balance Sheet. Following several years in a run-down mode the Bank will overhaul its operating

model entirely, shifting from a run-down, auto-loans financier to a proper Challenger Bank. To this

end, the Bank and its advisors have developed a detailed plan that describes all steps and

investments required to transform Credicom into a full-service bank. The plan encompasses:

- offering credit advisory services to Greek corporations and NPL servicing and/or acquisition;

- transforming into a challenger bank within 12 months, focusing on medium and large SME /

corporate lending, and funding through retail deposits via a 'light' branch network and state-of-

the-art online / mobile value proposition;

- assessing expansion into additional retail and SME / corporate products in 3 – 4 years time

depending on customer demand.

The targeted organizational structure and operational model has been designed, in parallel with

the IT architecture and required IT investments for the core banking system and the peripheral

applications. The recruitment plan has been clearly formulated and will commence in the next 12

months.

In order to fund the envisaged plan, the BoD has decided to initiate a sizeable capital raising

process through a private placement that will be launched in the second half of 2017. Actual timing

and size of this effort is subject to market conditions.

Financial Risk management

Credicom is a fully standalone Bank with all key risk management functions performed internally.

The risk management function designs and implements a system of transversal supervision and

prevention mechanism, which was built upon the French regulatory system.

The Bank’s new management is currently building on the existing infrastructure in order to develop

a ‘3 lines of defense’ model, with an aim to align the risk management function to the new

business model. The main pillars of financial risk management are described below. The notes to

the financial statements also include the tables with current and prior year balances.


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Credit risk

Credit risk, is defined as the potential risk that a Bank’s borrower or counterparty will fail to meet

its obligations. The Bank has developed credit rating models in order to assess credit risk per

category of loan portfolios. Furthermore, the Bank, based on prior experience loan portfolio

evaluation, is able to establish policies in order to limit credit risk.

In order to analyze the credit risk, the Bank on a monthly basis monitors the ageing analysis of the

total loan portfolio as well as the collectability of defaulted loans. The Bank has developed an

impairment loss provision model based on historical performance of the loan book and the actual

data of recoveries. The booked impairment allowances cover the expected/estimated credit losses

as calculated by the provisioning model.

In the context of the continuous alignment with the Basel II[I] supervisory requirements and the

reinforcement of credit risk management processes the Bank has started to design and develop

new models of credit risk management.

The Board of Directors and the Management of the Bank, is responsible for setting up and

operating appropriate management structures that will further improve Bank’s Corporate

Governance. In that context, and for managing credit risk, the Bank has established the Credit

Committee.

Market Risk

Market risk is the risk that movements in market factors, such as foreign exchange rates, interest

rates, credit spreads, equity prices and commodity prices, will reduce the income or the value of

the Bank’s portfolios.

The Bank is mainly exposed to interest rate risk, which is monitored on a regular basis, with the use

of appropriate measures/ratios and the results are communicated on a monthly basis to the

shareholders and Asset Liability Committee (ALCO). The Bank has minimal interest rate risk which is

limited to the repricing of interest bearing assets (interbank deposits and its sovereign bonds

portfolio), since the largest part of the loan book includes fixed rate loans.

Liquidity risk

Liquidity risk is the risk that the Bank does not have sufficient financial resources to meet its

obligations as they fall due or that it can only do so at an excessive cost. Funding risk is the risk

that funding considered to be stable, and therefore used to fund assets, becomes not sustainable

over time.

Liquidity risk arises from mismatches in the timing of cash flows, whereas funding risk arises when

illiquid asset positions cannot be funded at the expected terms and when required.

As at 31/12/2016 the Bank has cash and cash equivalents of 18mln and during the years 2015 and

2016 the Bank has fully repaid its debt obligations amounting to 113mln. The Bank is currently

comfortably above the Bank of Greece Ratio A and B liquidity thresholds and LCR since the Bank’s

liabilities consist mainly of Equity.


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Related parties

As at 31/12/2016, the Bank’s related parties are i) entities of the Credit Agricole group (including E-

Rent) and ii) key management personnel. The balances and the profit and loss impact of

transactions with related parties for the period 1/1/2016 – 31/12/2016, are explained in note 23 of

the financial statements.

Environmental issues

Due to the nature of the Bank’s activities, the actual and potential impact to the environment from

the Bank’s activities, is not significant.

Labor issues

The Bank offers a working environment of equal opportunities to all staff, where rights deriving

from the local regulation are respected. Furthermore, the Bank supports its personnel through

trainings and other activities.

Anastasia Sakellariou

Chief Executive Officer


Credicom Consumer Finance Bank Financial Statements Year ended 2016

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Financial Statements

Income Statement and statement of comprehensive income

Balance Sheet

Statement of Changes in Equity

Cash Flow Statement


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Income Statement

amounts in € thousands Reference

Year ended

31.12.2016

Year ended

31.12.2015

Interest income 6 1.678 5.669

Interest expense 6 (353) (1.501)

Net interest income

1.325 4.168

Fee and commission income 7 305 1.367

Net Banking Income

1.630 5.535

Dividend income 8 - 107

Other operating income 9 1.838 2.851

Operating income

3.468 8.493

Operating expenses 10,11,16 (7.887) (9.495)

Profit before impairments and provisions

(4.419) (1.002)

Reversals of impairment and impairment losses on

loans and advances to customers 13 4.062 (1.234)

Other impairment losses and provisions 15 (2.068) -

Profit / (loss) before tax

(2.425) (2.236)

Income Tax 12 12.007 -

Profit / (loss) after tax

9.582 (2.236)

Statement of comprehensive income


Year ended

31.12.2016

Year ended

31.12.2015

Profit / (loss) after tax for the year

9.582

(2.236)

Other comprehensive income -

-

-

Total comprehensive income for the year

9.582

(2.236)

The above income statement and statement of comprehensive income should be read in conjunction with

the accompanying notes


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Balance Sheet

amounts in € thousands Reference 31.12.2016 31.12.2015

ASSETS

Cash & cash equivalents 14 17.540 879

Loans & advances to customers

(net of loan loss reserves) 13 19.126 46.168

Bond loans - 801

Investment in E-Rent 15 - 2.068

Property, Plant & Equipment 16 594 750

Intangible assets 16 193 519

Deferred tax assets 12 12.007 -

Other assets 17 1.177 1.611

Total assets 50.637 52.796

LIABILITIES

Due to customers 18 591 577

Due to banks 19 - 11.173

Voluntary Exit Plan provision 20 2.690 2.811

Other liabilities 21 1.563 2.017

Total liabilities 4.844 16.578

EQUITY

Share capital 22 48.700 48.700

Share premium 22 133.053 133.053

Reserves - 7

Retained earnings (135.960) (145.542)

Total equity 45.793 36.218

Total equity and liabilites 50.637 52.796

The above balance sheet should be read in conjunction with the accompanying notes


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Statement of Changes in Equity


Share

Capital

Share

Premium Reserves

Retained

Earnings

Total

equity

Opening balance 1.1.2015 22 48.700 133.053 10 (143.305) 38.458

Share Plan reserve - - (3) - (3)

Profit / (loss) after tax - - - (2.237) (2.237)

Closing balance 31.12.15 48.700 133.053 7 (145.542) 36.218

Opening balance 1.1.2016 22 48.700 133.053 7 (145.542) 36.218

Share Plan reserve - - (7) - (7)

Profit / (loss) after tax - - - 9.582 9.582

Closing balance 31.12.16 48.700 133.053 - (135.960) 45.793

The above statement of changes in equity should be read in conjunction with the accompanying notes


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The above cash flow statement should be read in conjunction with the accompanying notes

Cash Flow Statement


Year ended

31.12.16

Year ended

31.12.15

Profit / (loss) before tax (2.425) (2.237)

Adjustments for:

Depreciation 16 483 653

PP&E and intangible assets disposals and / or write offs 16 - 2

Impairment losses on loans and advances to customers 13 (4.062) 1.234

Other impairment losses and provisions 15 1.940 (798)

Dividends 8 - (107)

Cash flows from operating activities (4.064) (1.253)

Net (increase)/decrease in loans and advances to customers 13 31.905 62.253

Net (increase)/decrease in other assets 17 434 607

Net increase/(decrease) in due to customers 18 13 11

Net increase/(decrease) in other liabilities 21 (454) 25

Changes in operating assets and liabilities 31.898 62.896

Net cash flows from operating activities before taxes paid 27.834 61.644

Income tax paid - -

Net cash flows from operating activities after taxes paid 27.834 61.644

Proceeds from sale of tangible assets - 4

Purchases of intangible assets - (50)

Proceeds received from liquidation of subsidiary Credicom

Insurance Brokers - 60

Dividends received 8 - 107

Net cash flows from investing activities 0 121

Increase/(decrease) of due to banks (intercompany) 19 (11.173) (69.519)

Net cash flows from financing activities (11.173) (69.519)

Net increase/(decrease) in cash and cash equivalents 16.661 (7.755)

Cash & cash equivalents at the beginning of the year 14 879 8.634

Cash & cash equivalents at the end of the year 14 17.540 879

Credicom Consumer Finance Bank Notes to the Financial Statements Year ended 2016

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Notes to the Financial Statements and Financial Risk

Management Disclosures

1. General Information

2. Accounting Policies

3. Financial Risk Management

4. Capital management

5. Critical estimates and judgements

6. Interest income and interest expense

7. Fee and commission income

8. Dividend income

9. Other operating income

10. Personnel costs

11. Other operating expenses

12. Income tax and deferred tax

13. Loans and advances to customers

14. Cash and cash equivalents

15. Investment in E-Rent

16. Property, Plant & Equipment and intangible assets

17. Other assets

18. Due to customers

19. Due to banks

20. Voluntary Exit Plan provision

21. Other liabilities

22. Share capital and share premium

23. Related parties transactions

24. Contingent liabilities and other commitments

25. Subsequent events


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1. General information

Credicom Consumer Finance Bank SA (hereafter the “Bank”) is a financial institution with a full

banking license. The Bank was incorporated by Emporiki Bank and Credit Agricole Consumer

Finance (‘CACF’ – subsidiary of Credit Agricole SA -‘CASA’) in 2003. As at 31/12/2016 the Bank’s

sole shareholder was CACF. The Bank’s current activities include the management of a retail

loan portfolio, however the Bank can also become active, at its sole discretion, in several other

activities, i.e. corporate and private banking, asset management, NPLs management, insurance,

financial intermediation/advisory services, insurance etc.

As at 17/2/2017 and following the approval by the European Competent Authorities (ECB/SSM

and Bank of Greece), the Bank has been fully acquired by Atlas Merchant Capital LLC through

its affiliate, AMC Oak Sarl, a Luxembourg entity. The ultimate purchaser is Atlas Merchant

Capital Fund LP (‘AMC’) which is an investment fund specializing in the financial services

industry, particularly in areas of growth and opportunity with a focus on investment

management. The firm makes investments in global as well as emerging markets. Within global

markets, it seeks to invest in the capital-intensive businesses in developed world, including the

United States, Canada, Western Europe, and Japan. AMC makes majority controlled and

minority investments. Atlas Merchant Capital LLC was founded in 2013 and is based in New

York, New York. The Key Executives of the Fund are presented in the below table:

Atlas Merchant Capital LLC - Key Executives

Name Position

R.E. Diamond Jr Founding Partner and CEO

D.I. Schamis Founding Partner and CIO

T.J. Kacani Chief Operating Officer

P.J. Durkin Head of External Relations

M.D Hansen Head of U.K. and Europe

C.M. Savage Managing Director

Credicom’s current address is Syngrou Avenue 187, Nea Smyrni and the Company Registration

number is 55026/06/B/03/15.

These financial statements are the Bank's stand-alone financial statements. The Bank has opted

to apply the exemption provided by IFRS 10 and does not prepare consolidated financial

statements. The Bank's financial statements are included in the consolidated financial

statements of the parent company, CASA which holds 100% of the Bank's share capital, as at

31/12/2016.

The current composition of the Board of Directors and as well as that as at 31/12/2016, is

presented in the table below:


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Credicom BoD composition

current composition

as at 31 December 2016

Name Position

Name Position

Matthew Hansen President

Joseph Antoine Pierre Adam President

Anastasia Sakellariou CEO

Phillipe Genon Catalot CEO

John Sawyer Member

Jacques André René Fenwick Member

Anastasios Karkazis Member

Dimitrios Spentzas Member

Timothy Kacani Member

Dimitrios Passas Member

David Schamis Member

Buabid Abdelhakim Member

Corrado Passera Member

Michael Katounas Member

From 24/2 to 1/8/2017 the CEO position was temporarily held by Anthimos Thomopoulos.

The Bank’s financial statements have been approved by the BoD as at 5/9/2017 and are subject

to approval by the Annual General Meeting of Shareholders.

2. Accounting Policies

2.1 Basis of preparation

The financial statements of the Bank have been prepared in accordance with International

Financial Reporting Standards (IFRS) and the interpretations issued by the IFRS Interpretations

Committee (IFRS IC), as endorsed by the European Union (EU), issued and effective or issued

and early adopted as at the time of preparing these financial statements.

The financial statements of the Bank are presented in thousands euro and any roundings are

performed in the nearest thousand.

The main principle for the preparation of the financial statements is the historical cost

convention.

The preparation of the financial statements in conformity with IFRS requires the use of certain

critical accounting estimates. It also requires management to exercise judgment in the process

of applying the Company’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 5 “Critical judgments and estimates”.

The areas involving a higher degree of judgment or complexity, or areas where estimates and

assumptions are significant to the financial statements are the areas of impairment of loans

and advances to customers and the assessment of the recoverability of deferred tax assets

(‘DTA’). These areas are further analyzed in Note 5. Actual results in the future may differ from

those reported.

Going concern assessment

Management has performed a going concern assessment based on three pillars: liquidity,

macroeconomic conditions and capital adequacy.


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Liquidity

Currently, the Greek banking system is supported to a large extent by the Eurosystem (ECB and

ELA). According to the provisions of the ESM programme for Greece, liquidity will be provided

to the Greek banking system as long as the agreed targets between the Greek Government and

the Institutions are met. Following the completion of the 2nd review under the 3rd Economic

Adjustment Programme, €8.5bn were disbursed in July, a part of which will be injected in the

market through clearing of arrears by the Greek State to the private sector.

Eurosystem funding as at 31/12/2016 stands at €67bn (2015: €107bn) out of which €23bn is

provided by the ECB and €44bn by the ELA. In June 2017, the ELA funding limit was set at EUR

€43.6bn signaling a reduction of EUR 0.6bn compared to the previous period. The further

reduction of the Eurosystem funding is dependent on the stabilization of customer deposits

levels, which in turn is dependent on the stabilization of the Greek macroeconomic

environment and the expectations regarding future GDP growth and disposable income.

Credicom has zero exposure to the above mentioned mechanisms and its current liquidity

ratios are comfortably above the levels prescribed by banking regulation.

Macroeconomic environment

In 2016, the Greek economy entered a stabilization and recovery cycle, ratified by the better

than expected GDP growth in 2016 against previous, official estimates and following a

contraction of 0.3% in 2015. Additionally, GDP deflator marginally increased in 2016 against an

average annual decline of 1.5% in the 3 year until 2015. Despite the delayed completion of the

2nd review of the 3rd Economic Adjustment Programme, real GDP in Q1 2017 stood at 0.4% on

a yearly basis, while the Economic Sentiment indicator in H1-2017 continues to improve. These

evolutions signal the gradual improvement of the local economic activity, despite the

imposition of capital controls, which is expected to foster private consumption and capital

expenditure, leading to real GDP growth of 2.1% in 2017 and 2.5% in 2018 (European

Commission, Spring Forecasts 2017).

On the fiscal front, the general government balance turned to a surplus of 0.7% of GDP in 2016

and significantly over-performed the primary surplus target of 0.5% of GDP for 2016 according

to the ESM programme definition. The composition of the fiscal adjustment was broadly

balanced in 2016. Revenues were boosted by a robust growth in underlying tax bases but also

by several one-off factors related to clearing tax liabilities from previous years. Primary

expenditure decreased mainly due to exceptionally low military deliveries and a gradual

completion of the motorways concession project.

All of the above led to an upgrade of Greece’s sovereign bond rating by Moody’s in June by

one notch to Caa2 from Caa3 with a Positive Outlook, signaling a potential upgrade of the

country’s sovereign rating should the completion of the third Economic Adjustment

Programme successfully conclude.

Going forward the Greek Government’s targets are the restoration of consumer and business

confidence and the stabilization of the domestic economic environment, in an – inter alia –

challenging geopolitical arena. The risks and uncertainties during this process mainly relate to

the agreed reforms implementation risk and to political factors than can create external shocks.

Credicom’s management team has assessed the potential impact of the above factors in the

implementation of its Business Plan.


19

Capital

The Greek banking system has gone through a series of capital increases, Asset Quality Reviews

and Stress Tests that have resulted in a significant improvement in the capital adequacy ratios

since Greece first engaged in Economic Adjustment Programmes in April 2010. The average

Core Tier I ratio for the 4 systemic banks stands at 17% as at 31/12/2016.

Credicom has an exceptionally high CET1 ratio mainly due to low risk levels of its balance sheet

assets (mainly cash and sovereign bond securities).

Based on the above, the Bank’s financial statements have been prepared under the going

concern assumption.

Standards and Interpretations effective for the current financial year

- IAS 16 and IAS 38 (Amendments) “Clarification of Acceptable Methods of Depreciation and

Amortization

This amendment clarifies that the use of revenue-based methods to calculate the depreciation

of an asset is not appropriate and it also clarifies that revenue is generally presumed to be an

inappropriate basis for measuring the consumption of the economic benefits embodied in an

intangible asset.

The adoption of the amendment had no impact on the Bank’s financial statements.

- IAS 27 (Amendment) “Separate financial statements”

This amendment allows entities to use the equity method to account for investments in

subsidiaries, joint ventures and associates in their separate financial statements and clarifies the

definition of separate financial statements.


- IAS 1 (Amendments) “Disclosure initiative”

These amendments clarify guidance in IAS 1 on materiality and aggregation, the presentation

of subtotals, the structure of financial statements and the disclosure of accounting policies.


- IFRS 10, IFRS 12 and IAS 28 (Amendments) “Investment entities: Applying the consolidation

exception”

These amendments clarify the application of the consolidation exception for investment

entities and their subsidiaries.


Annual Improvements to IFRSs 2012

The amendments set out below describe the key changes to certain IFRSs following the

publication of the results of the IASB’s 2010-12 cycle of the annual improvements project.


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- IFRS 2 “Share-based payment”

The amendment clarifies the definition of a ‘vesting condition’ and separately defines

‘performance condition’ and ‘service condition’.

- IFRS 3 “Business combinations”

The amendment clarifies that an obligation to pay contingent consideration which meets the

definition of a financial instrument is classified as a financial liability or as equity, on the basis

of the definitions in IAS 32 “Financial instruments: Presentation”. It also clarifies that all non-

equity contingent consideration, both financial and non-financial, is measured at fair value

through profit or loss.

- IFRS 8 “Operating segments”

The amendment requires disclosure of the judgments made by management in aggregating

operating segments.

- IFRS 13 “Fair value measurement”

The amendment clarifies that the standard does not remove the ability to measure short-term

receivables and payables at invoice amounts in cases where the impact of not discounting is

immaterial.

- IAS 16 “Property, plant and equipment” and IAS 38 “Intangible assets”

Both standards are amended to clarify how the gross carrying amount and the accumulated

depreciation are treated where an entity uses the revaluation model.

- IAS 24 “Related party disclosures”

The standard is amended to include, as a related party, an entity that provides key

management personnel services to the reporting entity or to the parent of the reporting entity.


Annual Improvements to IFRSs 2014

The amendments set out below describe the key changes to four IFRSs.

- IFRS 5 “Non-current assets held for sale and discontinued operations”

The amendment clarifies that, when an asset (or disposal group) is reclassified from ‘held for

sale’ to ‘held for distribution’, or vice versa, this does not constitute a change to a plan of sale

or distribution, and does not have to be accounted for as such.

- IFRS 7 “Financial instruments: Disclosures”

The amendment adds specific guidance to help management determine whether the terms of

an arrangement to service a financial asset which has been transferred constitute continuing

involvement and clarifies that the additional disclosure required by the amendments to IFRS 7,

‘Disclosure – Offsetting financial assets and financial liabilities’ is not specifically required for all

interim periods, unless required by IAS 34.


21

- IAS 19 “Employee benefits”

The amendment clarifies that, when determining the discount rate for post-employment

benefit obligations, it is the currency that the liabilities are denominated in that is important,

and not the country where they arise.

- IAS 34 “Interim financial reporting”

The amendment clarifies what is meant by the reference in the standard to ‘information

disclosed elsewhere in the interim financial report’.

The adoption of the amendments had no impact on the Bank’s financial statements.

Standards and Interpretations effective for subsequent periods

- IFRS 9 “Financial Instruments” and subsequent amendments to IFRS 9 and IFRS 7 (effective for

annual periods beginning on or after 1 January 2018)

IFRS 9 replaces the guidance in IAS 39 which deals with the classification and measurement of

financial assets and financial liabilities and it also includes an expected credit losses model that

replaces the incurred loss impairment model used today. IFRS 9 establishes a more principles-

based approach to hedge accounting and addresses inconsistencies and weaknesses in the

current model in IAS 39. Below are highlighted the main points of IFRS 9 in the areas most

relevant to the Bank’s current and planned activities.

a. Classification & measurement

IFRS 9 classifies financial assets in the following measurement categories:

Fair value through profit and loss (‘FVTPL’)

Fair value through other comprehensive income

Amortized cost.

Debt instruments: instruments that do not meet the definition of an equity instrument in its

entirety, such as loans, government and corporate bonds and trade receivables.

Classification and subsequent measurement of these instruments depend upon:

The Bank’s business model for managing the asset and

The cash flow characteristics of the asset

Based on these factors, debt instruments are classified in the following 3 categories:

Amortized cost: financial assets held in order to collect contractual cash flows, and their

contractual cash flows represent solely payments of principle and interest (SPPI).

Fair value through other comprehensive income: held within a business model whose

objective is achieved by both collecting contractual cash flows and selling financial assets and

their contractual cash flows represent solely payments of principle and interest.

Fair Value through profit and loss: assets that do not meet the criteria of the previous

categories or designated upon initial recognition at fair value through profit or loss to

eliminate an accounting mismatch.


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Business model: The business model reflects how the Bank manages the assets in order to

generate cash flows, whether the objective is solely to collect contractual cash flows from the

asset, to realize cash flows from the sale of assets, or both. Financial assets that are held for

trading or that are managed on a fair value basis will be measured at FVTPL.

The Bank plans to perform a business model assessment consistently with its operating model

and the information provided to key management personnel. The Bank is currently in a

transformation process with the aim to become a ‘Challenger” bank and in making the above

assessment a number of factors will be considered, e.g. the stated policies and objectives for

each portfolio, how the performance of each portfolio is evaluated and reported, the risks

associated with the performance of the business model and how those risks are managed and

past experience on how the cash flows from those portfolios were collected, information about

past sales activity and expectations about future sales activity and how the Bank’s stated

objective for managing the financial assets is achieved.

SPPI: The Bank will consider whether the contractual terms of the instrument are consistent

with a basic lending arrangement i.e. interest includes only consideration for the time value of

money, credit risk, other basic lending risks and a profit margin. An assessment of whether a

financial asset contains a contractual term that could change the amount or timing of

contractual cash flows in a way that it would not be consistent with the above condition, will

have to take place. Where the contractual terms introduce exposure to risk or volatility that are

inconsistent with a basic lending arrangement, the related financial asset will be measured at

FVTPL.

Equity instruments: Instruments that do meet the definition of an equity instrument in its

entirety.

All equity investments are subsequently measured at fair value through profit and loss, except

where management has elected, upon initial recognition, to irrevocably designate an equity

investment at fair value through other comprehensive income. This would be the case where

the investment would be held for purposes other than generating investment returns. This is a

common case for entities of the banking sector.

b. Impairment

IFRS 9 requires a bank to determine an expected credit loss (ECL) amount on a probability-

weighted basis as the difference between the cash flows that are due to the bank in

accordance with the contractual terms of a financial instrument and the cash flows that the

bank expects to receive. IFRS 9 requires ECLs to reflect an unbiased and probability-weighted

amount that reflects a range of possible outcomes; and reasonable and supportable

information that is available without undue cost or effort about past events, current conditions

and forecasts of future conditions.

The new impairment model will apply to financial assets that are measured at amortized cost

and at fair value through other comprehensive income, including loans and advances to

customers, debt securities and loan commitments issued as well as lease receivables.

Given the size of the existing loan book and its deleveraging rate, the ECL model is not

expected to result to significantly higher loss allowance compared to the existing model under

IAS 39.

The Bank is currently in the process of performing a gap analysis between the existing

impairment loss calculation methodology and the guidance of IFRS 9. This task has been

undertaken by the Finance and Risk Divisions. IFRS 9 will be applied retrospectively by


23

adjusting the Bank’s balance sheet on the date of transition on 1 January 2018. At that point,

management will also decide on the determination of the business model. Furthermore, upon

adoption of IFRS 9, the Bank intends to apply the exemption not to restate comparative

balances for prior periods.

- IFRS 15 “Revenue from Contracts with Customers” (effective for annual periods beginning on or

after 1 January 2018)

IFRS 15 has been issued in May 2014. The objective of the standard is to provide a single,

comprehensive revenue recognition model for all contracts with customers to improve

comparability within industries, across industries, and across capital markets. It contains

principles that an entity will apply to determine the measurement of revenue and timing of

when it is recognised. The underlying principle is that an entity will recognise revenue to depict

the transfer of goods or services to customers at an amount that the entity expects to be

entitled to in exchange for those goods or services.

The Bank is currently investigating the impact of IFRS 15 on its financial statements.

- IFRS 16 “Leases” (effective for annual periods beginning on or after 1 January 2019)

IFRS 16 has been issued in January 2016 and supersedes IAS 17. The objective of the standard

is to ensure the lessees and lessors provide relevant information in a manner that faithfully

represents those transactions. IFRS 16 introduces a single lessee accounting model and

requires a lessee to recognise assets and liabilities for all leases with a term of more than 12

months, unless the underlying asset is of low value. IFRS 16 substantially carries forward the

lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases

as operating leases or finance leases, and to account for those two types of leases differently.

The Bank is currently investigating the impact of IFRS 16 on its financial statements. The

standard has not yet been endorsed by the EU.

- IAS 12 (Amendments) “Recognition of Deferred Tax Assets for Unrealised Losses” (effective for

annual periods beginning on or after 1 January 2017)

These amendments clarify the accounting for deferred tax assets for unrealised losses on debt

instruments measured at fair value.

The amendments have not yet been endorsed by the EU.

- IAS 7 (Amendments) “Disclosure initiative” (effective for annual periods beginning on or after 1

January 2017)

These amendments require entities to provide disclosures that enable users of financial

statements to evaluate changes in liabilities arising from financing activities.


- IFRS 2 (Amendments) “Classification and measurement of Shared-based Payment transactions”

(effective for annual periods beginning on or after 1 January 2018)

The amendment clarifies the measurement basis for cash-settled, share-based payments and

the accounting for modifications that change an award from cash-settled to equity-settled. It

also introduces an exception to the principles in IFRS 2 that will require an award to be treated

as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the


24

employee’s tax obligation associated with a share-based payment and pay that amount to the

tax authority.


- IFRS 4 (Amendments) “Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts”

(effective for annual periods beginning on or after 1 January 2018)

The amendments introduce two approaches. The amended standard will: a) give all companies

that issue insurance contracts the option to recognise in other comprehensive income, rather

than profit or loss, the volatility that could arise when IFRS 9 is applied before the new

insurance contracts standard is issued; and b) give companies whose activities are

predominantly connected with insurance an optional temporary exemption from applying IFRS

9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the existing

financial instruments standard—IAS 39.


- IAS 40 (Amendments) “Transfers of Investment Property” (effective for annual periods

beginning on or after 1 January 2018)

The amendments clarified that to transfer to, or from, investment properties there must be a

change in use. To conclude if a property has changed use there should be an assessment of

whether the property meets the definition and the change must be supported by evidence.


- IFRIC 22 “Foreign currency transactions and advance consideration” (effective for annual

periods beginning on or after 1 January 2018)

The interpretation provides guidance on how to determine the date of the transaction when

applying the standard on foreign currency transactions, IAS 21. The Interpretation applies

where an entity either pays or receives consideration in advance for foreign currency-

denominated contracts.

The interpretation has not yet been endorsed by the EU.

- IFRIC 23 “Uncertainty over income tax treatments” (effective for annual periods beginning on

or after 1 January 2019)

The interpretation explains how to recognise and measure deferred and current income tax

assets and liabilities where there is uncertainty over a tax treatment. IFRIC 23 applies to all

aspects of income tax accounting where there is such uncertainty, including taxable profit or

loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.

The interpretation has not yet been endorsed by the EU.

https://inform.pwc.com/inform2/show?action=informContent&id=1648131709105909


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- Annual Improvements to IFRSs 2014 (2014 – 2016 Cycle) (effective for annual periods

beginning on or after 1 January 2017). The amendments set out below describe the key

changes to two IFRSs.


- IFRS 12 “Disclosures of Interests in Other Entities”

The amendment clarified that the disclosures requirement of IFRS 12 are applicable to interest

in entities classified as held for sale except for summarized financial information.

- IAS 28 “Investments in associates and Joint ventures”

The amendments clarified that when venture capital organisations, mutual funds, unit trusts

and similar entities use the election to measure their investments in associates or joint ventures

at fair value through profit or loss (FVTPL), this election should be made separately for each

associate or joint venture at initial recognition.

2.2 Investments in subsidiaries

The Bank consolidates the financial statements of an entity that is controlled by the Bank and

its subsidiaries. Control is achieved when the Bank:

has power over the investee;

is exposed, or has rights, to variable returns from its involvement with the investee; and

has the ability to use its power to affect its returns.

Where an entity is governed by voting rights, the Bank consolidates when it holds, directly or

indirectly, the necessary voting rights to pass resolutions by the governing body.

In all other cases, the assessment of control is more complex and requires judgement of other

factors, including having exposure to variability of returns, power to direct relevant activities

and whether power is held as agent or principal.

The Bank reassesses whether or not it controls an investee if facts and circumstances indicate

that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power

over the investee when the voting rights are sufficient to give it the practical ability to direct

the relevant activities of the investee unilaterally. The Bank considers all relevant facts and

circumstances in assessing whether or not the Bank’s voting rights in an investee are sufficient

to give it power, including:

the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings

of the other vote holders;

potential voting rights held by the Bank, other vote holders or other parties;

rights arising from other contractual arrangements; and

any additional facts and circumstances that indicate that the Bank has, or does not have, the

current ability to direct the relevant activities at the time that decisions need to be made,

including voting patterns at previous shareholders’ meetings.


26

Consolidation of a subsidiary begins when the Bank obtains control over the subsidiary and

ceases when the Bank loses control of the subsidiary. Specifically, income and expenses of a

subsidiary acquired or disposed of during the year are included in the consolidated statement

of profit or loss and other comprehensive income from the date the Bank gains control until

the date when the Bank ceases to control the subsidiary.

The Bank has only one investment, 100% of the issued shares of E-Rent, that was designated as

non core activity and sold subsequent to year end.

2.3 Interest income and expense

Interest income and expense on loans and advances at amortised cost, financial investments

debt securities, and interest expense on financial liabilities held at amortised cost, are

calculated using the effective interest method which allocates interest, direct and incremental

fees and costs, over the expected lives of the assets and liabilities and presented as ‘Interest

income’ and ‘Interest expense’ in the income statement

The effective interest method requires the Bank to estimate future cash flows, considering all

contractual terms of the financial instrument, as well as the expected lives of the assets and

liabilities.

Interest on impaired financial assets is recognized using the rate of interest used to discount

the future cash flows for the purpose of measuring the impairment loss.

2.4 Net fee and commission income

Fees and commission charged for services provided or received by the Bank are recognized as

the services are provided (for instance, asset management services). Fee income earned on the

execution of a significant act is recognized as revenue when the transaction is completed (for

instance, investment advisory fees)

2.5 Net trading income

Financial assets and financial liabilities held for trading are stated at fair value, with any gains or

losses arising on remeasurement, recognised in profit or loss. The net gain or loss recognised

in profit or loss incorporates any dividend or interest earned on the financial asset and is

included in the ‘Net trading income' line item.

Dividend income is recognized in profit or loss when the Bank’s right to receive the dividends is

established. This is the ex-dividend date for listed equity securities, and the date when

shareholders approve the dividend for unlisted equity securities.

Net income/(expense) arising from remeasurement of financial instruments designated at fair

value includes all gains and losses from changes in the fair value of financial assets and

liabilities designated at fair value through profit or loss, including derivatives that are managed

in conjunction with those financial assets and liabilities, and liabilities under investment

contracts. Interest income, interest expense and dividend income in respect of those financial

instruments are included in the “Net trading income” line item.


27

2.6 Financial instruments

Financial assets and financial liabilities are recognised when the Bank becomes a party to the

contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Fair 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 measurement date. Transaction costs that are directly

attributable to the acquisition or issue of financial assets and financial liabilities (other than

financial assets and financial liabilities at fair value through profit or loss) are added to or

deducted from the fair value of the financial assets or financial liabilities, as appropriate, on

initial recognition. Transaction costs directly attributable to the acquisition of financial assets or

financial liabilities at fair value through profit or loss are recognised immediately in profit or

loss.

i. Financial assets

Financial assets are classified into the following specified categories: financial assets ‘at fair

value through profit or loss' (FVTPL), ‘held-to-maturity' investments, ‘available-for-sale' (AFS)

financial assets and ‘loans and receivables'. The classification depends on the nature and

purpose of the financial assets and is determined at the time of initial recognition. All regular

way purchases or sales of financial assets are recognised and derecognised on a trade date

basis. Regular way purchases or sales are purchases or sales of financial assets that require

delivery of assets within the time frame established by regulation or convention in the

marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt

instrument and of allocating interest income over the relevant period. The effective interest

rate is the rate that exactly discounts estimated future cash receipts (including all fees and

points paid or received that form an integral part of the effective interest rate, transaction costs

and other premiums or discounts) through the expected life of the debt instrument, or, where

appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for debt instruments other than those

financial assets classified as at FVTPL.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is (i) contingent

consideration that may be paid by an acquirer as part of a business combination to which IFRS

3 applies, (ii) held for trading, or (iii) it is designated as at FVTPL.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling it in the near term; or

on initial recognition it is part of a portfolio of identified financial instruments that the Bank

manages together and has a recent actual pattern of short-term profit-taking; or

it is a derivative that is not designated and effective as a hedging instrument.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on

remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss


28

incorporates any dividend or interest earned on the financial asset and is included in the ‘other

gains and losses' line item.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable

payments and fixed maturity dates that the Bank has the positive intent and ability to hold to

maturity. Subsequent to initial recognition, held-to-maturity investments are measured at

amortised cost using the effective interest method less any impairment.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. Loans and receivables (including trade and other

receivables, bank balances and cash, and others) are measured at amortised cost using the

effective interest method, less any impairment.

Interest income is recognised by applying the effective interest rate, except for short-term

receivables when the effect of discounting is immaterial.

Available-for-sale financial assets (AFS financial assets)

AFS financial assets are non-derivatives that are either designated as AFS or are not classified

as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value

through profit or loss.

Listed redeemable notes held by the Bank that are traded in an active market are classified as

AFS and are stated at fair value at the end of each reporting period. The Bank’s investments in

unlisted shares that are not traded in an active market but that are also classified as AFS

financial assets and stated at fair value at the end of each reporting period (because the

directors consider that fair value can be reliably measured). Changes in the carrying amount of

AFS monetary financial assets relating to changes in foreign currency rates, interest income

calculated using the effective interest method and dividends on AFS equity investments are

recognised in profit or loss. Other changes in the carrying amount of available-for-sale financial

assets are recognised in other comprehensive income and accumulated under the heading of

investments revaluation reserve. When the investment is disposed of or is determined to be

impaired, the cumulative gain or loss previously accumulated in the investments revaluation

reserve is reclassified to profit or loss.

Dividends on AFS equity instruments are recognised in profit or loss when the Banks right to

receive the dividends is established.

AFS equity investments that do not have a quoted market price in an active market and whose

fair value cannot be reliably measured and derivatives that are linked to and must be settled by

delivery of such unquoted equity investments are measured at cost less any identified

impairment losses at the end of each reporting period.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end

of each reporting period. Financial assets are considered to be impaired when there is objective

evidence that, as a result of one or more events that occurred after the initial recognition of the


29

financial asset, the estimated future cash flows of the investment have been affected. Losses

which may arise from future events are not recognized.

For AFS equity investments, a significant or prolonged decline in the fair value of the security

below its cost is considered to be objective evidence of impairment. In assessing whether it is

significant, the decline in fair value is evaluated against the original cost of the asset at initial

recognition. In assessing whether it is prolonged, the decline is evaluated against the

continuous period in which the fair value of the asset has been below its original cost at initial

recognition.

For all other financial assets, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or

breach of contract, such as a default or delinquency in interest or principal payments; or

becoming probable that the borrower will enter bankruptcy or financial re-organization; or

the disappearance of an active market for that financial asset because of financial

difficulties.

The fair value of financial instruments is generally measured on an individual basis. The factors

considered in determining whether a loan is individually significant for the purposes of

assessing impairment include the size of the loan, the number of loans in the portfolio, the

importance of the individual loan relationship and how this is managed. Loans that are

determined to be individually significant will be individually assessed for impairment, except

when volumes of defaults and losses are sufficient to justify treatment under a collective

methodology. Currently, Credicom has some loans of ‘stock financing’ which are individually

assessed.

For certain categories of financial assets, such as trade receivables, assets are assessed for

impairment on a collective basis even if they were assessed not to be impaired individually.

Impairment is assessed collectively to cover losses which have been incurred but have not yet

been identified on loans subject to individual assessment or for homogeneous groups of loans

that are not considered individually significant, generally retail lending portfolios.

Objective evidence of impairment for a portfolio of receivables could include the Bank's past

experience of collecting payments, an increase in the number of delayed payments, as well as

observable changes in national or local economic conditions that correlate with default on

receivables.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is

the difference between the asset's carrying amount and the present value of estimated future

cash flows, discounted at the financial asset's original effective interest rate.

For financial assets that are carried at cost, the amount of the impairment loss is measured as

the difference between the asset's carrying amount and the present value of the estimated

future cash flows discounted at the current market rate of return for a similar financial asset.

Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all

financial assets with the exception of trade receivables, where the carrying amount is reduced

through the use of an allowance account. When a trade receivable is considered uncollectible,

it is written off against the allowance account. Subsequent recoveries of amounts previously


30

written off are credited against the allowance account. Changes in the carrying amount of the

allowance account are recognised in profit or loss.

Loans (and the related impairment allowance accounts) are normally written off, either partially

or in full, when there is no realistic prospect of recovery. Where loans are secured, this is

generally after receipt of any proceeds from the realization of security. In circumstances where

the net realizable value of any collateral has been determined and there is no reasonable

expectation of further recovery, write-off may be earlier.

Loans subject to collective impairment assessment whose terms have been renegotiated are no

longer considered past due, but are treated as up-to-date loans for measurement purposes

once a minimum number of payments required has been received. Where collectively assessed

loan portfolios include significant levels of renegotiated loans, these loans are segregated from

other parts of the loan portfolio for the purposes of collective impairment assessment to reflect

their risk profile.

When an AFS financial asset is considered to be impaired, cumulative gains or losses previously

recognised in other comprehensive income are reclassified to profit or loss in the period.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of the

impairment loss decreases and the decrease can be related objectively to an event occurring

after the impairment was recognised, the previously recognised impairment loss is reversed

through profit or loss to the extent that the carrying amount of the investment at the date the

impairment is reversed does not exceed what the amortised cost would have been had the

impairment not been recognised.

In respect of AFS equity securities, impairment losses previously recognised in profit or loss are

not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss

is recognised in other comprehensive income and accumulated under the heading of

investments revaluation reserve. In respect of AFS debt securities, impairment losses are

subsequently reversed through profit or loss if an increase in the fair value of the investment

can be objectively related to an event occurring after the recognition of the impairment loss.

Derecognition of financial assets

The Bank derecognises a financial asset when the contractual rights to the cash flows from the

asset expire, or when it transfers the financial asset and substantially all the risks and rewards of

ownership of the asset to another party. If the Bank neither transfers nor retains substantially

all the risks and rewards of ownership and continues to control the transferred asset, the Bank

recognises its retained interest in the asset and an associated liability for amounts it may have

to pay. If the Bank retains substantially all the risks and rewards of ownership of a transferred

financial asset, the Bank continues to recognise the financial asset and also recognises a

collateralised borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying

amount and the sum of the consideration received and receivable and the cumulative gain or

loss that had been recognised in other comprehensive income and accumulated in equity is

recognised in profit or loss.


31

ii. Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments issued by the Bank are classified as either financial liabilities or as

equity in accordance with the substance of the contractual arrangements and the definitions of

a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity

after deducting all of its liabilities. Equity instruments issued by the Bank are recognised at the

proceeds received, net of direct issue costs.

Repurchase of the Bank's own equity instruments is recognised and deducted directly in equity.

No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the

Bank's own equity instruments.

Compound instruments

The component parts of compound instruments (convertible notes) issued by the Bank are

classified separately as financial liabilities and equity in accordance with the substance of the

contractual arrangements and the definitions of a financial liability and an equity instrument.

Conversion option that will be settled by the exchange of a fixed amount of cash or another

financial asset for a fixed number of the Bank's own equity instruments is an equity instrument.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at FVTPL' or ‘other financial

liabilities'.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent

consideration that may be paid by an acquirer as part of a business combination to which IFRS

3 applies, (ii) held for trading, or (iii) it is designated as at FVTPL.

A financial liability is classified as held for trading if:

it has been incurred principally for the purpose of repurchasing it in the near term; or

on initial recognition it is part of a portfolio of identified financial instruments that the Bank

manages together and has a recent actual pattern of short-term profit-taking; or

it is a derivative that is not designated and effective as a hedging instrument.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on

remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss

incorporates any interest paid on the financial liability and is included in the ‘other gains and

losses' line item.

Other financial liabilities

Other financial liabilities (including borrowings and trade and other payables) are subsequently

measured at amortised cost using the effective interest method.


32

Financial guarantee contracts

A financial guarantee contract is a contract that requires 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.

Financial guarantee contracts issued by the Bank are initially measured at their fair values and,

if not designated as at FVTPL, are subsequently measured at the higher of:

the amount of the obligation under the contract, as determined in accordance with IAS 37;

and

the amount initially recognised less, where appropriate, cumulative amortisation recognised

in accordance with the revenue recognition policies.

Derecognition of financial liabilities

The Bank derecognises financial liabilities when, and only when, the Bank's obligations are

discharged, cancelled or have expired. The difference between the carrying amount of the

financial liability derecognised and the consideration paid and payable is recognised in profit

or loss.

2.7 Employee compensation and benefits

Retirement benefit costs and termination benefits

A defined contribution plan is a post-employment benefit plan under which the Bank pays

fixed contributions into a separate entity (a Fund) - and has no legal or constructive obligation

to pay further contributions, if the fund does not hold sufficient assets to pay all employee

benefits relating to employee service in the current and prior periods. The Bank makes

contributions to defined contribution plans on a contractual and voluntary basis.

Payments to defined contribution retirement benefit plans are recognised as an expense when

employees have rendered service entitling them to the contributions.

A defined benefit plan is a post-employment benefit plan, other than a defined contribution

plan, which normally defines an amount of benefit that an employee will receive upon

retirement, usually dependent on one or more factors such as age, years of service and

compensation. The Bank currently has no such plans. The Bank doesn’t have any defined

benefit plans.

2.8 Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from

‘profit before tax’ as reported in the statement of profit or loss and other comprehensive

income because of items of income or expense that are taxable or deductible in other years

and items that are never taxable or deductible. The Bank's current tax is calculated using tax

rates that have been enacted enacted by the end of the reporting period.


33

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets

and liabilities in the financial statements and the corresponding tax bases used in the

computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable

temporary differences. Deferred tax assets are generally recognised for all deductible

temporary differences to the extent that it is probable that taxable profits will be available

against which those deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences associated with

investments in subsidiaries and associates, and interests in joint ventures, except where the

Bank is able to control the reversal of the temporary difference and it is probable that the

temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from

deductible temporary differences associated with such investments and interests are only

recognised to the extent that it is probable that there will be sufficient taxable profits against

which to utilise the benefits of the temporary differences and they are expected to reverse in

the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and

adjusted to the extent that it is no longer probable that sufficient taxable profits will be

available to allow all or part of the asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in

the period in which the liability is settled or the asset realised, based on tax rates (and tax laws)

that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would

follow from the manner in which the Bank expects, at the end of the reporting period, to

recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax for the year

Current and deferred tax are recognised in profit or loss, except when they relate to items that

are recognised in other comprehensive income or directly in equity, in which case, the current

and deferred tax are also recognised in other comprehensive income or directly in equity

respectively.

The Bank provides for potential current tax liabilities that may arise on the basis of the amounts

expected to be paid to the tax authorities.

Income tax comprises current tax and deferred tax. Income tax is recognized in the income

statement except to the extent that it relates to items recognized in other comprehensive

income or directly in equity, in which case the tax is recognized in the same statement as the

related item appears.

Current tax is the tax expected to be payable on the taxable profit for the year and any

adjustment to tax payable in respect of previous years.

Deferred tax is recognized on temporary differences between the carrying amounts of assets

and liabilities in the balance sheet, and the amounts attributed to such assets and liabilities for

tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods in

which the assets will be realized or the liabilities settled.


34

Current and deferred tax is calculated based on tax rates and laws enacted, or substantively

enacted, by the balance sheet date.

2.9 Provisions, contingent liabilities and guarantees

Provisions

Provisions are recognised when the Bank has a present obligation (legal or constructive) as a

result of a past event, it is probable that the Bank will be required to settle the obligation, and a

reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to

settle the present obligation at the end of the reporting period, taking into account the risks

and uncertainties surrounding the obligation. 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 recognised as interest

expense.

When some or all of the economic benefits required to settle a provision are expected to be

recovered from a third party, a receivable is recognised as an asset if it is virtually certain that

reimbursement will be received and the amount of the receivable can be measured reliably.

Contingent liabilities

Contingent liabilities are recognised when the Bank has a possible obligation that arises from

past events and whose existence will be confirmed only by the occurrence or non-occurrence

of one or more uncertain future events not wholly within the control of the Bank or has a

present obligation that arises from past events but is not recognised because either it is not

probable that an outflow of resources embodying economic benefits will be required to settle

the obligation or the amount of the obligation cannot be measured with sufficient reliability.

Contingent liabilities, which include certain guarantees and letters of credit pledged as

collateral security, and contingent liabilities related to legal proceedings or regulatory matters,

are not recognized in the financial statements but are disclosed unless the probability of an

outflow of resources embodying economic benefits is remote.

2.10 Functional currency

The functional and business currency of the economic environment in which the Bank operates,

is the Euro. Transactions in currencies other than the Euro are recognized at the rates of

exchange prevailing at the dates of the transactions. At the end of each reporting period,

monetary items denominated in foreign currencies are retranslated at the rates prevailing at

that date. Non-monetary items carried at fair value that are denominated in foreign currencies

are retranslated at the rates prevailing at the date when the fair value was determined. Non-

monetary items that are measured in terms of historical cost in a foreign currency are not

retranslated.

Exchange differences on monetary items are recognised in profit or loss in the period in which

they arise except for:

exchange differences on transactions entered into in order to hedge certain foreign

currency risks; and


35

exchange differences on monetary items receivable from or payable to a foreign operation

for which settlement is neither planned nor likely to occur (therefore forming part of the net

investment in the foreign operation), which are recognised initially in other comprehensive

income and reclassified from equity to profit or loss on repayment of the monetary items.

2.11 Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less

accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a

straight-line basis over their estimated useful lives. The estimated useful life and amortisation

method are reviewed at the end of each reporting period, with the effect of any changes in

estimate being accounted for on a prospective basis. Intangible assets with indefinite useful

lives that are acquired separately are carried at cost less accumulated impairment losses.

An intangible asset is derecognised on disposal, or when no future economic benefits are

expected from use or disposal. Gains or losses arising from derecognition of an intangible

asset, measured as the difference between the net disposal proceeds and the carrying amount

of the asset, are recognised in profit or loss when the asset is derecognised.

2.12 Property, Plant and equipment

Property, plant and equipment held for use in the production or supply of goods or services, or

for administrative purposes are stated at cost, which includes direct and incremental

acquisition costs less accumulated depreciation and any accumulated impairment losses.

Subsequent costs are capitalised if these result in the enhancement to the asset. Freehold land

is not depreciated and is stated at cost less any impairment losses.

Depreciation is recognised so as to write off the cost of assets, other than freehold land and

properties under construction, less their residual values over their estimated useful lives, using

the straight-line method. The estimated useful lives, residual values and depreciation method

are reviewed at the end of each reporting period, with the effect of any changes in estimate

accounted for on a prospective basis.

Assets held under finance leases are depreciated over their expected useful lives on the same

basis as owned assets. However, when there is no reasonable certainty that ownership will be

obtained by the end of the lease term, assets are depreciated over the shorter of the lease term

and their useful lives.

An item of property, plant and equipment is derecognised upon disposal or when no future

economic benefits are expected to arise from the continued use of the asset. Any gain or loss

arising on the disposal or retirement of an item of property, plant and equipment is

determined as the difference between the sales proceeds and the carrying amount of the asset

and is recognised in profit or loss.

Impairment of tangible and intangible assets

At the end of each reporting period, the Bank reviews the carrying amounts of its tangible and

intangible assets to determine whether there is any indication that those assets have suffered

an impairment loss. If any such indication exists, the recoverable amount of the asset is

estimated in order to determine the extent of the impairment loss (if any). Intangible assets

with indefinite useful lives and intangible assets not yet available for use are tested for


36

impairment at least annually, and whenever there is an indication that the asset may be

impaired.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In

assessing value in use, the estimated future cash flows are discounted to their present value

using a pre-tax discount rate that reflects current market assessments of the time value of

money and the risks specific to the asset for which the estimates of future cash flows have not

been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its

carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its

recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the

relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a

revaluation decrease.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-

generating unit) is increased to the revised estimate of its recoverable amount, but so that the

increased carrying amount does not exceed the carrying amount that would have been

determined had no impairment loss been recognised for the asset (or cash-generating unit) in

prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless

the relevant asset is carried at a revalued amount, in which case the reversal of the impairment

loss is treated as a revaluation increase.

2.13 Related parties

Parties are considered to be related if i) an entity that has control over the Bank and entities

controlled, jointly controlled or significantly influenced by this entity, as well as members of its

key management personnel and their close family members, ii) members of key management

personnel of the Bank, their close family members and entities controlled or jointly controlled

by the abovementioned persons, iii) associates and joint ventures and iv) fellow subsidiaries.

Transactions of similar nature are disclosed on an aggregate basis. All banking transactions

entered into with related parties are in the normal course of business and are conducted on an

arm's length basis.

2.14 Cash and cash equivalents

Cash and cash equivalents include cash in hand, unrestricted deposits with central banks, due

from credit institutions and other short-term highly liquid investments with original maturities

of three months or less.

2.15 Share capital

Ordinary shares and preference shares are classified as equity. Incremental costs directly

attributable to the issue of new shares or options are shown in equity as a deduction from the

proceeds, net of tax.

Dividend distribution on shares is recognized as a deduction in the Bank’s equity when

approved by the General Meeting of shareholders. Interim dividends are recognized as a

deduction in the Bank’s equity when approved by the Board of Directors.


37

2.16 Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all

the risks and rewards of ownership to the lessee. All other leases are classified as operating

leases

The Bank as lessor

Finance leases

Amounts due from lessees under finance leases are recognised as receivables at the amount of

the Bank's net investment in the leases. Finance lease income is allocated to accounting

periods so as to reflect a constant periodic rate of return on the Bank's net investment

outstanding in respect of the leases.

Operating leases

Rental income from operating leases is recognised on a straight-line basis over the term of the

relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are

added to the carrying amount of the leased asset and recognised on a straight-line basis over

the lease term.

The Bank as lessee

Finance leases

Leases of property, plant and equipment where the Bank has substantially all the risks and

rewards of ownership are classified as finance leases. Finance leases are recognized, at the

inception of the lease term, at the lower of the fair value of the leased asset or the present

value of the minimum lease payments. The corresponding liability to the lessor is included in

the consolidated statement of financial position as a finance lease obligation

Lease payments are apportioned between finance expenses and reduction of the lease

obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Finance expenses are recognised immediately in profit or loss, unless they are directly

attributable to qualifying assets, in which case they are capitalised. Contingent rentals are

recognised as expenses in the periods in which they are incurred The property, plant and

equipment acquired under finance leases is depreciated over the shorter of the useful life of

the asset or the lease term.

Operating leases:

Operating lease payments are recognised as an expense on a straight-line basis over the lease

term, except where another systematic basis is more representative of the time pattern in

which economic benefits from the leased asset are consumed. Contingent rentals arising under

operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives

are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of

rental expense on a straight-line basis, except where another systematic basis is more

representative of the time pattern in which economic benefits from the leased asset are

consumed


38

3. Financial Risk Management

The Bank is exposed to financial risks such as credit risk, liquidity risk and market risks, mainly

interest rate risk. The Bank’s risk management strategy aims at dealing effectively with the

existing uncertainty in the domestic and international financial markets and also seeks to

minimize any potential adverse effect on its financial performance. The Bank, as part of the

CASA group, in 2016 followed the risk management guidelines of the group.

The responsibility for the implementation of the risk management framework, besides credit

risk management, lies with central treasury unit, which reports directly to the Finance

Department, and operates according to policies and procedures set and approved by the

Board Of Directors. Credit risk management is performed by the Credit Policy Committee, who

is responsible for the development and overseeing of Bank’s credit policy strategy. Financial

risks are identified and evaluated by the Risk Management Department in cooperation with

other departments facing those risks. The Bank’s management sets the general guidelines for

risk management and precise guidelines for dealing with specific risks such as foreign

exchange risk, interest risk and credit risk.

The Bank’s new management is currently building on the existing infrastructure in order to

develop a ‘3 lines of defense’ model.

3.1 Credit risk

Credit risk, is defined as the potential risk that a Bank’s borrower or counterparty will fail to

meet its obligations. The Bank has developed credit rating models to assess credit risk per

category of loan portfolios. Furthermore, the Bank, based on prior experience loan portfolio

evaluation, is able to establish policies in order to limit credit risk.

Management has a comprehensive

framework to steer the evolution of the

Bank’s corporate governance, risk

management and control functions. The

main objectives of this framework are:

- Effective board/senior management

line of sight into and ability to limit

risk taking

- Alignment of risk and strategic

objectives

- Consistent understanding of key

drivers and levels of material risks

across the Bank

- Risk / returns trade offs analysis and

- Interconnection of business and risk

management tools.


39

To analyze the credit risk, the Bank on a monthly basis monitors the ageing analysis of the total

loan portfolio as well as the collectability of defaulted loans. The Bank has developed an

impairment loss provision model based on historical performance of the loan book and the

actual data of recoveries. The booked impairment allowances cover the expected/estimated

credit losses as calculated by the provisioning model.

In the context of the alignment with the Basel supervisory requirements and the reinforcement

of credit risk management processes the Bank has started to design and develop new models

of credit risk management.

The Board of Directors and the Management of the Bank, is responsible for setting up and

operating appropriate management structures that will improve Bank’s Corporate Governance.

In that context, and for managing credit risk, the Bank has established the Credit Committee.

The Credit Committee is responsible for Corporate and Retail Credit, including purchases of

loan portfolios and other products, as well as for the renewals or amendments in the existing

credit limits in accordance with its approval authority level set by the shareholders, the Board

of Directors and the Management of the Bank.

The main responsibilities of the Credit Committee are:

Approval of new credit requests within its approval authority level

Forming and submitting for approval to senior executives and authorized Committees new

credit requests

Monitoring the credit quality of loan portfolios approved under its authority and taking

corrective actions and decisions for past due loans

Monitoring the credit quality of loan portfolios granted by senior executives and proposing

corrective actions for the exposures that are past due.

Monitoring Bank’s total loan exposure.

Credit Risk Management

All credit transactions require in-depth analysis of the customer’s ability to repay the debt and

the most efficient way of structuring the transaction, particularly in terms of security and

maturity. This analysis must comply with the risk strategy of the business line or entity

concerned and with all limits in force, both individual and aggregate. The final lending decision

is based on an internal rating and is taken by the commitment units or by the Credit

Committees, on the basis of an independent opinion given by a representative of the Risk

Management and Permanent Controls function as part of the authorization system in place.

The Risk Management Committee and its Chairman constitute the Group’s ultimate decision-

making authority.

Each lending decision requires a risk-return analysis. In the case of the Corporate and

investment banking business line this means an ex ante calculation of the profitability of the

transaction. In addition, the principle of an individual risk limit applies to all types of

counterparty, whether corporates, banks, financial institutions, public sector or semi-public

sector entities.

Credit risk is mitigated by the use of collaterals or guarantees, which are intended to provide

full of partial protection against credit risk. For the consumer financing portfolio, the Bank has

retained the license of the car until full repayment of the loan, as a guarantee.


40

The Bank’s Write off committee has established 2 criteria for write offs:

Proactive discount policy (see section on forbearance) and

24 months in litigation status without any payment.

3.1.1 Maximum credit risk exposure

The maximum exposure to credit risk coincides with the balance sheet carrying amounts, since

there are no undrawn facilities and commitments.

3.1.2 Loans and advances to customers by asset quality

Impaired loans include exposures which are in arrears for more than 90 days or earlier in case

there is an objective evidence of impairment and carry a collective impairment allowance.

Furthermore, impaired retail loans under forbearance measures may include loans in arrears

less than 90 days. Accrued interest is included in the balance of each exposure category.

Loans and advances to customers by asset quality

As at 31.12.2016

Non impaired loans and

advances

Impaired loans

and advances

Impairment

loss reserves

amounts in € thousands

Neither past

due nor

impaired

Past due but

not impaired

Collectively

assessed Gross value

Collective

assessment

Carrying

amount

Retail

Consumer Loans 11.342 4.446 6.770 22.558 8.169 14.389

Credit cards 1.040 697 3.583 5.320 1.927 3.393

Other 665 364 1.078 2.107 763 1.344

Wholesale

SME (stockfinancing) 145 57 3.534 3.736 3.736 0

Total 13.191 5.565 14.965 33.721 14.595 19.126

As at 31.12.2015

Non impaired loans and

advances

Impaired loans

and advances

Impairment

loss reserves


Neither past

due nor

impaired

Past due but

not impaired

Collectively

assessed Gross value

Collective

assessment

Carrying

amount

Retail

Consumer Loans 28.889 11.192 14.054 54.135 21.496 32.639

Credit cards 3.638 1.918 7.654 13.210 5.246 7.965

Other 1.354 619 2.012 3.985 1.582 2.402

Wholesale

SME (stock financing) 586 284 4.374 5.244 2.082 3.162

Total 34.467 14.012 28.095 76.575 30.406 46.168


41

3.1.3 Analysis of neither past due nor impaired loans and advances to customers

The geographical concentration of loan exposures is in Greece.

Analysis of neither past due nor impaired loans and advances

to customers As at 31.12.2016

amounts in €

thousands Satisfactory

Total neither past

due nor impaired

Retail

Consumer Loans 11.342 11.342

Credit cards 1.040 1.040

Other 665 665

Wholesale

SME (stock

financing) 145 145

Total 13.191 13.191

As at 31.12.2015

amounts in €

thousands Satisfactory

Total neither past

due nor impaired

Retail

Consumer Loans 28.889 28.889


Other 1.354 1.354

Wholesale

SME (stock

financing) 586 586

Total 34.467 34.467

3.1.4 Aging Analysis of past due but not impaired loans and advances to customers by

product line

Aging Analysis of past due but not impaired loans and

advances to customers by product line

As at 31.12.2016

Retail Wholesale

amounts in € thousands Consumer

Loans

Credit

cards

Other retail

loans

SME

(stock

financing)

Total past

due but not

impaired

1-29 days past due

3.064

440

229

34

3.767

30-59 days past due

969

165

93

8

1.235

60-89 days past due

413

92

42

16

563

90-179 days past due

-

-

-

-

-


-

-

-

-

-

>360 days past due

-

-

-

-

-

Total

4.446

697

364

57

5.565


42

As at 31.12.2015 Retail Wholesale


Loans

Credit

cards

Other retail

loans

SME

(stock

financing)

Total past

due but not

impaired

1-29 days past due

7.571

1.190

423

211

9.394

30-59 days past due

2.582

521

124

67

3.294

60-89 days past due

1.039

206

72

6

1.324


-

-

-

-

-


-

-

-

-

-

>360 days past due

-

-

-

-

-

Total

11.192

1.918

619

284

14.012

3.1.5 Movement in impaired loans and advances to customers by product line

Impaired loans and advances to customers



Loans

Credit

cards

Other

retail

loans

SME

(stock

financing)

Total

impaired

Opening balance

14.054

7.654

2.012

4.374

28.095

New impaired loans during the

year

514

364

62

(46)

894

Transfers to non impaired

(229)

(50)

(7)

(12)

(298)

Repayments from impaired

loans

(1.503)

(838)

(112)

(150)

(2.603)

Write offs

(6.066)

(3.547)

(877)

(633)

(11.123)

Gross value of impaired

loans

6.770

3.583

1.078

3.534

14.965

Impairment loss reserves

(2.930)

(1.551)

(467)

(3.534)

(8.481)

Carrying amount of

impaired loans

3.840

2.032

611

0

6.484


43



Loans

Credit

cards

Other

retail

loans

SME

(stock

financing)

Total

impaired

Opening balance

27.994

14.759

3.086

5.244

51.083

New impaired loans during the

year

2.785

1.577

432

94

4.887

Transfers to non impaired

(169)

(55)

(12)

(19)

(255)

Repayments from impaired

loans

(4.268)

(2.396)

(219)

(220)

(7.102)

Write offs

(12.289)

(6.231)

(1.274)

(725)

(20.519)

Gross value of impaired

loans

14.054

7.654

2.012

4.374

28.095


(5.581)

(3.039)

(799)

(1.737)

(11.156)

Carrying amount of

impaired loans

8.474

4.615

1.213

2.637

16.939

3.1.6 Aging Analysis of impaired loans and advances to customers by product line

Aging Analysis of impaired loans and advances to

customers by product line

As at 31.12.2016

Retail Wholesale


Loans

Credit

cards

Other

retail

loans

SME (stock

financing)

Total

impaired

1-29 days past due

-

-

-

-

-

30-59 days past due

-

-

-

-

-

60-89 days past due

-

-

-

-

-


126

37

5

-

168


172

49

12

-

233

>360 days past due

3.541

1.947

595

-

6.083

Total 3.840 2.032 611 - 6.484


44



Loans

Credit

cards

Other

retail

loans

SME (stock

financing)

Total

impaired

1-29 days past due

-

-

-

-

-

30-59 days past due

-

-

-

-

-

60-89 days past due

-

-

-

-

-


587

165

53

1.981

2.786


503

168

139

9

819

>360 days past due

7.383

4.282

1.020

648

13.333

Total 8.474 4.615 1.213 2.637 16.939

3.1.7 Repossessed collaterals

During the year the Bank has repossessed 91 cars (2015: 400) while 127 cars have been sold

during 2016 (2015: 398).

3.1.8 Interest income recognized by quality of loans and advances to customers by

product line

Interest income includes the “unwinding” of Loan Loss Allowances i.e. the time effect related to

the discounting of the expected recovered values (2016: -€680 thousand; 2015: €286

thousand).

3.1.9 Forbearance

Responding to the challenges of the current economic environment, the Bank has several

forbearance measures in place align with Banking Code of Conduct to manage its loan

exposure.

Such measures include:

interest-only payments;

grace period;

capitalization of arrears whereby arrears are added to the principal balance;

reduced payment plans;

arrears repayment plan;

loan term extensions;

interest rate reduction;

collateral’s voluntary surrender

partial debt forgiveness and

combination of several of the above measures.

Since December 2015, the Bank has initiated a ‘Proactive Discount Policy’ which is applicable to

loan exposure with payment delay of more than 90 days. This policy has significantly increased

the amount of loan write offs, but has also improved recovery rates. The Bank also monitors

the historical evolution of acceptance of this policy by clients and per portfolio category (i.e.

Buckets 3, 4, litigated and write off). In parallel, the Bank is actively implementing the

framework created by the Bank of Greece and has stratified its portfolio into cooperative and

non-cooperative clients.


45

3.1.9.1 Forborne loans and advances to customers by type of forbearance measure

Forborne loans and advances to customers by type of

forbearance measure

amounts in €

thousands 31.12.2016 31.12.2015

Measures

Repayment plan

-

-

Reduced payments

-

-

Grace period

-

-

Loan term extension

10

52

Capitalisation of arrears

121

49

Partial debt forgiveness

91

247

Combination of the

above

-

-

Total 222 348

3.1.9.2 Credit quality of forborne loans and advances to customers

Credit quality of forborne loans and advances to customers

As at 31.12.2016


Total loans and

advances to

customers

out of which

Forborne % of forborne

Neither past due nor

impaired

13.191

77 0,6%

Past due but not impaired

5.565

265 4,8%

Impaired loans

14.965

49 0,3%

Gross values

33.721

392 1,2%


(14.595)

(169) 1,2%

Carrying amount

19.126

222 1,2%


46

As at 31.12.2015


Total loans and

advances to

customers

out of which

Forborne % of forborne

Neither past due nor

impaired

34.467

166 0,5%

Past due but not impaired

14.012

325 2,3%

Impaired loans

28.095

86 0,3%

Gross values

76.575

577 0,8%


(30.406)

(229) 0,8%

Carrying amount

46.168

348 0,8%

3.1.9.3 Reconciliation of forborne loans and advances to customers

Reconciliation of forborne loans and advances to customers

amounts in € thousands 31.12.2016 31.12.2015

Opening balance (carrying

amount)

348

1.369

Forbearance during the

years

392

582

Accrued interest

49

13

Repayments

(373)

(154)

Transfers out of

forbearance status during

the year

(179)

(1.448)

Impairment losses

(14)

(14)

Total

222

348

3.1.9.4 Forborne loans and advances to customers by product line

Forborne loans and advances to customers by product line


Retail

Consumer Loans

186

303

Credit cards

11

17

Other

22

20

Wholesale

SME (stock financing)

4

8

Total

222

348


47

3.2 Market Risk

Market risk is the risk that movements in market factors, such as foreign exchange rates,

interest rates, credit spreads, equity prices and commodity prices, will reduce the income or the

value of the Bank’s portfolios.

Interest rate risk

The Bank is mainly exposed to interest rate risk, which is monitored on a regular basis, with the

use of appropriate measures/ratios and the results are communicated on a monthly basis to

the shareholders and Asset Liability Committee (ALCO). The Bank has minimal interest rate risk

which is limited to the repricing of interest bearing assets, since loans have been fully repaid

during 2016 and the largest part of the loan book includes fixed rate loans.

The repricing of assets and liabilities are presented in the table below.

Interest rate risk

December 31st, 2016

amounts in € thousands Up to 1

month

from 1 to

3 months

from 3 to

12 months

Over 12

months

Non

interest

bearing

Total

Cash & cash equivalents

17.540

-

-

-

-

17.540 Loans & advances to

customers

2.558

565

4.299

11.704

-

19.126

Other assets

-

-

-

-

1.177

1.177

Total assets

20.098

565

4.299

11.704

1.177

37.843

Due to customers

591

-

-

-

-

591

Other liabilities

-

-

-

-

1.563

1.563

Total liabilities

591

-

-

-

1.563

2.153

Repricing gap

19.508

565

4.299

11.704

(386)

35.690

December 31st, 2015

Total assets

5.354

981

10.350

60.502

(24.390)

52.797

Total liabilities

577

-

-

11.000

5.002

16.579

Repricing gap

4.777

981

10.350

49.502

-

65.610

Foreign exchange risk

The Bank is not exposed to foreign exchange risk as all its transactions are in Euro.

Price risk

The Bank is not exposed to equity securities price risk as the Bank does not hold any equity

securities at fair value. The Bank is not exposed to commodity price risk either.


48

Liquidity management

Liquidity risk is the risk that the Bank does not have sufficient financial resources to meet its

obligations as they fall due or that it can only do so at an excessive cost. Funding risk is the risk

that funding considered to be sustainable, and therefore used to fund assets, is not sustainable

over time.

Liquidity risk arises from mismatches in the timing of cash flows, whereas funding risk arises

when illiquid asset positions cannot be funded at the expected terms and when required.

The Bank’s liquidity profile is presented in the table below. In the table are presented the cash

outflows resulting from financial liabilities as of the reporting dates. The amounts presented in

the table are the contractual undiscounted cash flows.

Liquidity risk

December 31st, 2016

amounts in €

thousands

Up to 1

month

from 1 to

3 months

months

months

from 3 to

12 months

Over 12

months Total

Due to customers

591

-

-

-

591

Other liabilities

239

344

6

974

1.563

Total liabilities

830

244

6

974

2.153

December 31st, 2015

Due to banks

-

-

-

11.173

11.173

Due to customers

577

-

-

-

577

Other liabilities

230

375

879

534

2.017

Total liabilities

807

375

879

11.707

13.767

As at 31/12/2016 the Bank has cash and cash equivalents of 18mln and during the years 2015

and 2016 the Bank has fully repaid its debt obligations amounting to 81mln and for the 2 year

period. The Bank is currently comfortably above the Bank of Greece Ratio A and B liquidity

thresholds and LCR.

4. Capital management

The regulatory framework regarding minimum capital adequacy requirements is described by

Directive 2013/36/EU (CRD IV) and Regulation EU 575/2013 (CRR).

Regulation EU 575/2013 (Pillar 1) sets the minimum capital requirements, whereas Directive

2013/36/EU provides Competent Authorities, at their discretion and following the Supervisory

Review and Evaluation Process (‘SREP’), the right to set additional capital and liquidity

requirements, based on the Bank’s profile.

Credicom uses the standardized approach for the measurement of its Risk Weighted Assets. As

presented in the below table, the Bank’s capital adequacy ratio is above the minimum

threshold of 8%.


49

5. Critical estimates and judgements

The preparation of the financial statements requires the use of estimates and assumptions

which affect the reported assets and liabilities, the recognition of contingent liabilities, as well

as the recognition of income and expenses in the financial statements, as well as items

recognized in the financial statements of the next financial year, including relevant disclosures.

The areas below involve a high degree of uncertainty and have a material impact on the

financial statements:

5.1 Impairment losses on loans and advances to customers

Loan impairment allowances represent management’s best estimate of losses incurred in the

loan portfolios at the balance sheet date. Management is required to exercise judgment in

making assumptions and estimates when calculating loan impairment allowances on both

individually and collectively assessed loans and advances.

Collective impairment allowances are subject to estimation uncertainty, in part because it is not

practicable to identify losses on an individual loan basis due to the large number of individually

insignificant loans in the portfolio. The estimation methods include the use of statistical

analyses of historical information, supplemented with significant management judgement, to

assess whether current economic and credit conditions are such that the actual level of

incurred losses is likely to be greater or less than historical experience. Management has

performed ‘look back’ procedures to calibrate the existing roll rate methodology.

Risk factors include unemployment rates and bankruptcy trends, account management policies

and practices, changes in laws and regulations, and other influences on customer payment

patterns. The methodology and the assumptions used in calculating impairment losses are

reviewed regularly in the light of differences between loss estimates and actual loss experience.

In this context, management has changed its estimates regarding the recoveries time window

used for the calculation of Loss Given Defaults (LGDs), from 36 months to 12 months and

based on monthly weighted average basis. The rationale for this change is:

a. The calibration of the model parameters to be compatible to the results of ‘look back’

procedures performed for 31/12/2016,

b. The continuing decrease of sensitive loan book outstandings,

c. The positive effect of the Proactive Discount Policy in the recovery rates

d. The stabilization of the economy and the need to use representative recoveries/LGDs,

which do not include the turbulent period of 2015, and

e. The removal of political/macro risk parameter from the loan loss provision

methodology, initially factored in the model during Q4 of 2014.

The effect of this change is presented in the below table:

Capital management


Year

ended

31.12.2016

31.12.2016

Year

ended

31.12.2015

Risk Weighted Assets

40.765

68.922

Tier 1 Capital

37.376

35.699

Tier I and Tier II ratio 91,7% 51,8%


50

Effect of changes in accounting estimates

New Previous


Year

ended

31.12.2016

Year

ended

31.12.2016

Reversals of impairment and impairment

losses on loans and advances to customers

4.062

816

Loan loss reserves (Balance Sheet)

14.595

17.843

Gross loans

33.721

33.721

Gross loans coverage ratio (cash

coverage) 42,5% 50,3%

Loans in arrears for over 90dpd: coverage

by Loan Loss Reserves 90,6% 103,4%

A 5% decrease in the overall recovery rates would increase the loan loss reserves for loans and

advances to customers by 1.7mln.

5.2 Tax

Income tax comprises current tax and deferred tax. Income tax is recognized in the income

statement except to the extent that it relates to items recognized in other comprehensive

income or directly in equity, in which case the tax is recognized in the same statement as the

related item appears. Current tax is the tax expected to be payable on the taxable profit for the

year and any adjustment to tax payable in respect of previous years. Credicom provides for

potential current tax liabilities that may arise on the basis of the amounts expected to be paid

to the tax authorities.

Deferred tax is recognized on temporary differences between the carrying amounts of assets

and liabilities in the balance sheet, and the amounts attributed to such assets and liabilities for

tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods in

which the assets will be realized or the liabilities settled. Current and deferred tax is calculated

based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.

The recognition of a deferred tax asset relies on an assessment of the probability and

sufficiency of future taxable profits, future reversals of existing taxable temporary differences

and ongoing tax planning strategies. In the absence of a history of taxable profits, the most

significant judgements relate to expected future profitability.

In this context and considering management’s assessment of the going concern assumption,

the approved by the competent authorities Business Plan has been used in order to estimate

future taxable profits.

The approved Business Plan includes the following revenue streams:

o Lending activities (wholesale, retail)

o Investment advisory services and

o NPLs servicing fees.

According to the Business Plan, the Bank will change its operating model to a “Challenger”

Bank, based on the successful examples of other European countries. The Bank’s

transformation process is expected to mature by 2020-2021.


51

Management has followed a prudent approach based on which deferred tax assets have been

recognized only on temporary differences that relate to loan loss reserves and accounting write

offs, which under the current legislation expire within 20 years. No deferred tax assets have

been calculated on temporary differences and tax losses that expire within the next 5 years.

Management will revisit this approach as the business plan is implemented.

Based on management's assessment as at 31 December 2016 the recognition of deferred tax

assets was restricted to Euros 12m at that date which represents future deductible temporary

differences relating to loan impairment losses as more fully described in Note 12.

5.3 Provisions

Provisions are recognized when it is probable that an outflow of economic benefits will be

required to settle a present legal or constructive obligation that has arisen as a result of past

events and for which a reliable estimate can be made.

Judgement is involved in determining whether a present obligation exists and in estimating the

probability, timing and amount of any outflows. Professional expert advice is taken on the

assessment of litigation, property (including onerous contracts) and similar obligations.

Provisions for legal proceedings and regulatory matters typically require a higher degree of

judgement than other types of provisions. When matters are at an early stage, accounting

judgements can be difficult because of the high degree of uncertainty associated with

determining whether a present obligation exists, and estimating the probability and amount of

any outflows that may arise.

As a result, it is often not practicable to quantify a range of possible outcomes for individual

matters. It is also not practicable to meaningfully quantify ranges of potential outcomes in

aggregate for these types of provisions because of the diverse nature and circumstances of

such matters and the wide range of uncertainties involved.

6. Interest income and interest expense

The composition of net interest income is presented below:

Interest Income and expense

amounts in € thousands Period

1.1.2016 -

31.12.2016

Period

1.1.2015 -

31.12.2015 Interest income

Interbank placements

6

13

Bond loan interest income

2

8

Loans and advances to

customers

1.670

5.648

Total

1.678

5.669


52

Interest Expense

Interbank placements

(253)

(1.380)

Time deposits

(16)

(13)

Other interest

(84)

(108)

Total

(353)

(1.501)

Net interest income

1.325

4.168

The reduction in interest income from Loans and advances to customers, is in line with the

decrease of the loan book during 2016 and the lower interest expense relates to the repayment

of the intragroup funding from Credit Agricole.

7. Fee and commission income

The Bank earns fees from the administration of loans.

Commission income

amounts in € thousands Period 1.1.2016

- 31.12.2016

Period

1.1.2015 -

31.12.2015

Subscriptions and cash withdrawals via credit

cards

-

-

Lending related fees and commissions

305

1.367

Insurance fees and commissions

-

-

Total fee income

305

1.367

The reduction of net fee income is due to the significant decrease of the loan book during the

period.

8. Dividend income

Dividend income

amounts in € thousands Period

1.1.2016 -

31.12.2016

Period

1.1.2015 -

31.12.2015

Income from shares and other variable-

yield securities

-

107

Total dividend income

-

107

The amount recorded in period 1.1.2015 – 31.12.2015 relates to dividend received from the

former subsidiary Credicom Insurance Brokers SA, upon the completion of its liquidation.


53

9. Other operating income

The analysis of other income is as follows:

Other operating income


- 31.12.2016

Period 1.1.2015

- 31.12.2015

Rental income

29

39

Other income

1.809

2.812

Total net other income

1.838

2.851

Other Income includes mainly cash recoveries of the written-off portfolio amounting €1,6mln in

2016.

10. Personnel cost

The analysis of personnel cost is as follows:

Personnel costs


- 31.12.2016

Period 1.1.2015

- 31.12.2015

Wages, salaries and

performance

remuneration

3.102 3.121

Social security costs 550 609

Termination benefits (205) (906)

Other benefits 201 181

Total personnel costs 3.648 3.005

The number of personnel employed as at 31 December 2016 was 55 (2015: 64).

The positive effect on the Termination benefits relates to the movement of the Voluntary Exit

Plan provision (see note 20).

11. Other Operating Expenses

The analysis of operating expenses is as follows:


54

Other Operating Expenses


- 31.12.2016

Period 1.1.2015

- 31.12.2015

Third parties fees and

expenses

1.743

3.448

Service Providers' fees

1.140

1.297

Fees and taxes

346

474

Other Expenses

527

618

Total

3.756

5.837

The evolution of operating expenses is in line with the decline in the business activity. During

2016, there have been no advertising and other promotion expenses, which have to be

disclosed under the provisions of art.4, L.4374/2016.

12. Income tax and deferred tax

In accordance with the provisions of the enacted Greek Tax Law (Law 4172/2013), as amended

by Law 4334/2015 (Gazette Α΄80/16.07.2015) and being in effect today, the income tax rate for

Greek legal entities increased from 26% to 29% from the tax year 2015 and thereon. A tax rate

of 10% is imposed on dividend income acquired until 31.12.2016, whereas from 1.1.2017 and

thereon, the tax rate increases to 15% after the voting of Law 4389/2016.

Income tax


Current tax

-

-

Deferred tax

12.007

-

Total income tax

12.007

-

The tax obligation for the year ended 31/12/2016 is zero. The reconciliation of the income tax

expense is presented below:


Loss before tax 2.425 2.237

Tax at the applicable tax rate 29% 703 649

Tax effect of the following items:

- non deductible expenses (471) (17)

- unrelieved tax losses for the year (987) (488)

- unrecognised net deductible/taxable temporary differences 755 (211)

- deferred tax assets on previously unrecognised deductible

temporary differences 12.007 -

- change in tax rate - 67

Total relief / (charge) 12.007 0


55

Deferred income taxes are calculated on all deductible temporary differences under the liability

method as well as for unused tax losses at the rate in effect at the time the reversal is expected

to take place.

As explained in section “Critical Estimates and judgments” the Bank has recognized deferred

tax assets of €12mln as at 31st December 2016 on the basis that the Bank is a going concern,

based on the approved by the competent authorities Business Plan.

Deferred tax assets comprise:


Total deferred tax assets

31.638

18.471

less: deferred tax assets not recognised

(19.631)

(18.471)

Deferred tax asset recognised

12.007

-

The deferred tax asset recognised relates to the following temporary differences:

amounts in € thousands | DTA / (DTL) 31.12.2016 31.12.2015

Loan impairment and accounting write

offs

12.007

-

According to L.4172/2013 Art.27 par. 3, the write off of debtors’ debts resulting from a final

write off or a debt settlement agreement of debtors’ loans or credits, is tax deductible in 20

annual and equal installments, starting from the tax year in which the final write-off of the debt

or the transfer of the loan or credit was performed, respectively. The total amount of the debit

difference cannot exceed the amount of the aggregated provisions of credit risk, which have

been formed for accounting purposes by June 30, 2015, which amounted to €41.8mln.

Under the provisions of Law 4456/2017, Art.43 par.1, the Bank is eligible to amortize over the

20-year period, the losses incurred in cases where they relate to transfers or write-offs of debts

either due to a court or an out of court settlement or contractual arrangement of the loan

existing in the balance sheet as of June 30, 2015. The tax benefit of the 20-year amortization

period is granted only to realized losses.

The total eligible amount of credit risk provisions for the Bank amounts to €41.4 mln as at

31/12/2016 that give rise to deferred tax asset on loan impairment and accounting write offs of

€12mln.

The Bank has not recognized deferred tax assets of 19.6mln on other temporary differences

and unused tax losses of 68mln, which expire within the next 5 years.

Audit Tax certificate

For the fiscal years 2011, 2012 and 2013 the Bank and all Greek Societe Anonyme Companies

were subject to compulsory tax audit in accordance with L. 2238/1994 art.82, which was

conducted by the same statutory auditor that issues the audit opinion on the statutory financial

statements. Credicom has been issued with an unqualified "Tax Compliance Report" for each

year respectively. This report is submitted to the Ministry of Finance. In case of a non-qualified

Tax Compliance Report, a tax audit by the regulatory authorities is not initially performed, but

only if certain criteria defined by the Ministry of Finance, are met.


56

For fiscal years 2014 and 2015, all Greek Societe Anonyme and Limited Liability Companies that

were required to prepare audited statutory financial statements were obliged to obtain

additionally an “Annual Tax Certificate” as provided by article 65A of Law 4174/2013. Credicom

has been issued with an unqualified tax certificate for both years.

Regarding 2016, L.4174/2013 was amended after the voting of Law 4410/2016, which stated

that from 2016 and thereon the issue of the “Annual Tax Certificate” is optional. The Tax

Administration retains its right to proceed with a tax audit, within the applicable statute of

limitations in accordance with article 36 of Law 4174/2013. Credicom engaged the tax auditors

to audit the fiscal year 2016 and the relevant unqualified tax audit certificate was issued on July

26, 2017.

13. Loans and advances to customers

Loans and advances to customers include mainly consumer financing and wholesale lending.

Since 2013, the Bank has been in a Stop Any New Financing Activity process, following the

previous shareholders’ strategy to disinvest from Greece. This strategy has led to a significant

decrease in the loan book outstanding of approximately 88% for the period 2013-2016, out of

which an amount of 134mln relates to write offs and an amount of approximately 113mln

relates to repayments.

The analyses of the loan portfolios and the respective impairment loan loss reserves are

presented below:

Loans & advances to customers


Retail lending


Consumer loans 22.498 53.988

Other retail loans 2.103 3.976

Total retail

29.917 71.162

Wholesale

Stock financing 3.735 5.241

Bond loans - 800

Total wholesale 3.735 6.041

Accrued interest 69 173

Gross Loans & advances to customers 33.721 77.376

Less: Impairment loan loss reserves (14.595) (30.406)

Carrying amount of Loans and advances to customers 19.126 46.969

Floating rate loans 4.803 11.485

Fixed rate loans 28.918 65.890


57

The fair value of the loans outstanding does not vary significantly to their book values due to

the fact that the remaining loans outstanding relate to recent vintages with relatively high

credit spreads.

The movement of the impairment loss reserves per product line is presented below.

Impairment allowance for loans and

advances to customers


Retail and wholesale

Balance at 1 January

30.406

51.177

Reversal of impairment loss for the year

(4.062)

1.234

Amounts written off

(11.749)

(22.004)

Balance at 31 December

14.595

30.406

Retail


28.324

48.729

Impairment loss for the year

(3.449)

739

Amounts written off

(10.668)

(21.144)


14.206

28.324

Wholesale


2.082

2.448

Impairment loss for the year

(613)

495

Amounts written off

(1.081)

(860)


388

2.082

The reversal of the impairment loss for 2016 amounting to 4.1mln reflects mainly the retail

portfolio (3.4mln) in line with the better macro environment and the improved recoveries

compared to 2015 (see note 5.1).

14. Cash and cash equivalents

The Bank’s cash and cash equivalents comprise of cash in hand and cash in central banks, as

well as deposits in other credit institutions.


58

Cash and balances with central banks


Cash in hand

24

18

Balances with the central bank

7.488

1

Total cash and balances with central banks

7.512

19

Due from credit institutions


Placements and other receivables from domestic

banks

9.936

694 Placements and other receivables from banks

abroad

92

165

Total due from credit institutions

10.028

860

During Q1 2016, the Bank has fully repaid its debt obligation to the Credit Agricole group and

since then, excess liquidity from the loan cash receipts have been placed mainly in Alpha Bank,

a Greek systemic bank, and the Central Bank of Greece.

For the purpose of the cash flow statement, cash and cash equivalents comprise the following

balances with less than 90 days maturity from the date of their acquisition.

Cash and cash equivalents


Cash and balances with central banks

7.512

19

Due from credit institutions

10.028

861

Total cash and cash equivalents

17.540

880

15. Investment in E-Rent

As at 31/12/2016 the Bank had only one investment, 100% of the issued shares of E-Rent.

Investment in E-Rent

Name

Country of

Recommendation

% Ownership

31.12.16

Balance

31.12.2016

in €

% Ownership

31.12.15

Balance

31.12.2015

in €

E-Rent

(ΕΜΠΟΡΙΚΗ RENT

ΜΑΚΡΟΧΡΟΝΙΕΣ

ΜΙΣΘΩΣΕΙΣ

ΟΧΗΜΑΤΩΝ Α.Ε.)

GREECE 100,0% 1 100,0% 2.068.250

Total carrying

amount

1

2.068.250


59

Subsidiary companies

Affiliates

amounts in €

thousands 31.12.2016 31.12.2015

31.12.2016 31.12.2015

Balance at the beginning

of the period

2.068

2.128

-

-

Investments Additions - -

- -

Impairement of

Investments

(2.068)

(60)

-

-

Balance at period end 0 2.068

- -

Following the acquisition of Credicom by AMC and the designation of E-Rent as non core

activity, management has decided to disinvest from E-Rent. On 23/3/2017 a SPA was signed

between the Bank and the unrelated entity ‘Atithasos Shipping and Trading S.A.” whereby E-

Rent was sold for €1. This transaction has been considered as an impairment indication for the

31/12/2016 carrying amount of the investment in the Bank’s books and therefore, an adjusting

post balance sheet event. As at 31/12/2016 the Bank’s investment in E-Rent has been written

down to the value of the consideration received and the impairment loss has been debited to

the profit and loss item “Other impairment losses and provisions”.

16. Property, Plant & equipment and intangible assets

As at 31.12.2016, property, plant & equipment and intangible assets are as follows.

Property, plant & equipment and

intangible assets

Intangible

Assets Tangible Assets

amounts in € thousands Software

Properties Plant &

Equipement Total

Cost 31.12.2015 8.697

721

3.378 4.098

Accumulated depreciation 31.12.2015

(8.178)

(268)

(3.080)

(3.348)

Net Book Value 31.12.2015 519

452

298

750

Cost :

Balance at 1.1.2016 8.697

721

3.378 4.098

Additions -

-

-

-

Disposals and write-offs -

-

(44)

(44)

Balance at 31.12.2016 8.697

721

3.334

4.054


60

Accumulated depreciation:

Balance at 1.1.2016

(8.178)

(268)

(3.080)

(3.348)

Charge for the year

(326)

(29)

(128)

(157)

Disposals and write-offs -

-

44 44

Balance at 31.12.2016

(8.504)

(297)

(3.163)

(3.461)

Net Book Value 31.12.2016 193

423

170

594

Depreciation expense for 2016 amounts to 0.5mln, out of which 0.3mln relate to intangible

assets and 0.2mln relates to property, plant & equipment. Depreciation expense is included in

line item “Operating Expenses” of the income statement.

17. Other assets

Other assets include the following items.

Other assets


Prepaid expenses and accrued income

163

141

Other receivables and advances

1.014

1.470

Total Other assets

1.177

1.611

The line items “Other receivables and advances” involve transactions that take place during the

normal course of business and which are settled within a short time period.

18. Due to customers

The line item “Blocked deposits, guarantee deposits and other accounts (ΤΕΚΕ)“ refers to

mandatory float rating deposits to Hellenic Deposits and Investment Guarantee Fund ( TEKE ),

in accordance with the Bank of Greece ‘s regulatory framework.

Due to customers


Savings and current accounts (ΤΕΚΕ)

591

577

Total

591

577


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19. Due to Banks

The analysis of line item “Due to banks” is as follows.

Due to banks


Borrowings from international

financial and other institutions

-

11.000

Accrued interest due to credit

institutions

-

173

Total

-

11.173

During Q1 2016, the Bank proceeded to full repayment of interbank loans originally obtained

from CASA and CACF.

20. Voluntary Exit Plan provision

The Bank has not calculated personnel retirement obligations based on an actuarial report,

since a voluntary exit plan provision has been calculated for all the personnel up to 21 February

2017.

Voluntary exit plan

provision



2.811

3.608

Cost for the current year

250

(378)

Usage of provisions

(455)

(528)

Remeasurements

84

108


2.690

2.811

21. Other liabilities

The analysis of accruals and other liabilities is as follows.

Other liabilities


Deferred income and accrued expenses

746

665

Suppliers

244

375

Tax payables

134

99

Standard legal personnel retirement indemnity

obligations

105

121

Other liabilities

333

757

Total other liabilities

1.563

2.017


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22. Share capital and share premium

- On 18.05.2007, the Extraordinary General Meeting of Shareholders decided an increase of

the share capital of € 1.500.000. A total of 500,000 new registered shares of nominal value

€ 3 and a disposal price of € 30 each were issued. The total amount paid amounted to €

15,000,000. The total share capital of the Bank after the aforementioned increase

amounted to € 38.700.000.







the share capital of € 900.000. A total of 500,000 new registered shares of nominal value €

3 and a disposal price of € 30 each were issued. The total amount paid amounted to €

9,000,000. The total share capital of the Bank after the aforementioned increase amounted

to € 41.400.000.







the share capital of € 5.499.000. A total of 1.833.333 new registered shares of nominal

value € 3 and a disposal price of € 30 each were issued. The total amount paid amounted

to € 54.999.990. The total share capital of the Bank after the aforementioned increase


The composition of share capital is as follows.

Share capital

31.12.2016 31.12.2015

Number of shares

16,233,333

16,233,333

Nominal value per share

3

3

Share capital in €

48.699.999

48.699.999

23. Related party transactions

Related parties as at 31/12/2016 include CACF and CASA, which mainly provided funding as

mentioned in note “Due to Banks”.


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Related Party Transactions

Interest expense attributable to

shareholders and other related parties

amounts in € thousands Year ended

31.12.2016

Year ended

31.12.2015

CACF

158

1.170

CASA

-

-

Total

158

1.170

a) Transactions with key management personnel

Short term benefits for key management personnel as at 31.12.2016 amount to €0.8mln (2015:

0.6mln).

b) Transactions & balances with subsidiaries and associate companies

Subsidiaries


Assets

Loans and advances to customers

-

801

Other assets

102

120

Total

102

921

Liabilities

Other liabilities

19

47

Total

19

47

Income

Net interest income

2

8

Dividend income

-

107

Property rentals

29

31

Support services

82

92

Total 113 238


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Expenses

Other operating expenses

70

90

Total 70 90

Associate Companies


Assets

Fee Receivable 0 0

Other assets 36 0

Total 36 0

Liabilities

Other liabilities 0 0

Total 0 0

Income

Management fees 0 0

Total 0 0

Expenses

Management fees - CACF 48 118

Software Licenses - GECICA 53 62

Total 101 180

24. Contingent liabilities and other commitments

There are some legal proceedings against the Bank in the normal course of business. Against

these exposures, the Bank has booked provisions of 0.2mln as at 31st December 2016. The final

outcome of these legal proceedings is not expected to have a significant impact on the Bank’s

financial position.

Regarding other commitments, as at 31st December 2016 the Bank has booked provisions of

0.1mln.

25. Subsequent events

Management has identified the following subsequent events:

1. As at 17/2/2017 and following the approval by the European Competent Authorities

(ECB/SSM and Bank of Greece), the Bank has been fully acquired by Atlas Merchant

Capital LLC through its affiliate AMC Oak Sarl, a Luxembourg entity. The ultimate

purchaser is Atlas Merchant Capital Fund LP (‘AMC’) which is an investment fund

specializing in the financial services industry, particularly in areas of growth and

opportunity with a focus on investment management.

2. On 23/3/2017 the subsidiary E-Rent was sold for Euro 1 to the unrelated entity ”Atithasos

Shipping and Trading S.A.”. This has been evaluated as an adjusting post balance sheet


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event and the investment in E-Rent as at 31/12/2016 has been written down to the value

of the consideration received.

3. On 23/6/2017, Moody's upgraded Greece's sovereign bond rating to Caa2 and changed

the outlook to positive. The drivers were the successful conclusion of the 2nd review under

the 3rd Program, the improved fiscal prospects for the coming years and reversal in the

debt trend and the tentative signs of a stabilization of the economy.

4. On 25/7/2017 the Hellenic Republic sold €3bn worth of its new five-year bond, at a

coupon of 4.625%, lower than 4.95% which was the coupon of the last bond sale in 2014.

5. During May and June 2017, the Bank has proceeded with purchases of Greek Treasury Bills

of nominal value of 15mln.

6. On 18 August 2017, Fitch Ratings upgraded Greece's long-term foreign-currency issuer

default ratings to 'B-' from 'CCC', citing reduced political risk and sustained GDP growth.


Chairman of the Board Chief Executive Officer Chief Operating Officer Chief Accountant

Matthew Hansen Anastasia Sakellariou Anastasios Karkazis Panagiotis Tsichlis


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Independent auditors’ report


67

[Translation from the original text in Greek]

Independent Auditors’ Report

To the Shareholders of “Credicom Consumer Finance Bank SA”

Report on the Audit of the Financial Statements

We have audited the accompanying financial statements of Credicom Consumer Finance Bank SA which comprise the statement of financial position as of 31 December 2016, and the statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management 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 separate and consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing which have been transposed into Greek Law (GG/B’/2848/23.10.2012). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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.


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Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Credicom Consumer Finance Bank SA as of December 31, 2016, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union.

Report on Other Legal and Regulatory Requirements

Taking into consideration, that management is responsible for the preparation of the Board of Directors’ report and Corporate Governance Statement that is included in this report according to provisions of paragraph 5 article 2 of Law 4336/2015 (part B), we note the following: a) In our opinion, the Board of Directors’ report has been prepared in accordance with the

legal requirements of articles 43a of the Codified Law 2190/1920 and the content of the Board of Directors’ report is consistent with the accompanying financial statements for the year ended 31/12/2016.

b) Based on the knowledge we obtained from our audit for the Company “Credicom

Consumer Finance Bank SA” and its environment, we have not identified any material misstatement to the Board of Directors report.

Athens, 8 September 2017

The Certified Auditor

PricewaterhouseCoopers S.A

Certified Auditors

268 Kifisias Avenue

152 32 Halandri Konstantinos Michalatos

SOEL reg. no. 113 SOEL reg. no. 17701


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Availability of the Financial Statements

The Financial Statements accompanied by their Auditor’s Report and the Directors’ Report, are

posted to at the website address: www.credicom.gr

Credicom Consumer Finance Bank SA...Credicom Consumer Finance Bank Directors’ Report Year ended...

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