Financial Statements 31 December 2010 - MobiasBanca · PDF fileThe Bank was registered by the...

BC "Mobiasbancă - Groupe Société Générale" S.A.

Financial Statements

31 December 2015

Prepared in accordance with

International Financial Reporting Standards

CB "Mobiasbanca - Groupe Société Générale" S.A.

Contents

Independent Auditors’ Report

Statement of Comprehensive Income for the year ended 31 December 2015 2

Statement of Financial Position as at 31 December 2015 3

Statement of Changes in Equity for the year ended 31 December 2015 4

Statement of Cash Flows for the year ended 31 December 2015 5

Notes to the Financial Statements 6-77


Statement of Comprehensive Income for the year ended 31 December 2015

Note 2015 2014

(in thousands MDL) Interest income 3 532,825 362,143

Interest expense 3 (171,437) (99,766)

Net interest income 361,388 262,377 Fee and commission income 4 138,967 115,161

Fee and commission expense 4 (49,807) (31,113)

Net fee and commission income 89,160 84,048 Net trading income 5 154,755 60,983

Other revenue 993 149

Revenue 606,296 407,557 Net impairment loss on financial assets 6 (67,126) (22,582)

Personnel expenses 7 (136,144) (117,765)

Depreciation of property and equipment 15 (19,262) (20,506)

Amortisation of intangible assets 16 (15,293) (13,839)

Other expenses 8 (129,217) (114,440)

Profit before tax 239,254 118,425 Income tax expense 9 (9,599) (16,753)

Profit 229,655 101,672 Basic earnings per share (in MDL) 10 22.98 10.17

The accompanying notes on pages 6 to 77 form an integral part of the financial statements.

Ridha Tekaia President of the Management Board - CEO CB "Mobiasbanca - Groupe Société Générale" S.A. 18 April 2016

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Statement of Financial Position as at 31 December 2015

Note 31 December 2015

31 December 2014

(in thousands MDL) Assets Cash and balances with Central Bank 11 1,741,459 1,132,856

Due from banks 12 1,260,845 835,689

Financial investments – loans and receivable 14 428,224 298,914

Financial investments - available for sale 14 1,639 1,479

Loans and advances to customers 13 3,717,575 3,309,405

Property and equipment 15 148,760 128,861

Intangible assets 16 31,757 40,837

Other assets 17 26,483 29,200

Total assets 7,356,742 5,777,241 Liabilities Due to Central Bank 14 84 110,273

Deposits from banks 18 2,620 3,544

Deposits from customers 19 5,541,681 4,043,813

Borrowings from IFIs 20 489,648 528,553

Derivative liabilities held for risk management - 3,411

Deferred tax liabilities 9 2,141 18,221

Other liabilities 21 133,895 88,242

Total liabilities 6,170,069 4,796,057 Equity Issued capital 22 99,944 99,944

Share premium 151,410 151,410

General reserve 10,674 10,674

Prudential reserve 110,449 122,448

Reserves 8,694 (554)

Retained earnings 805,502 597,262

Total equity 1,186,673 981,184 Total liabilities and equity 7,356,742 5,777,241


Ridha Tekaia President of the Management Board - CEO CB "Mobiasbanca - Groupe Société Générale" S.A. 18 April 2016

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Statement of Changes in Equity for the year ended 31 December 2015

Issued capital

Share premium

General reserve

Prudential reserve

Reserves Retained earnings

Total

(in thousands MDL)

At 1 January 2014 99,944 151,410 10,674 82,771 (191) 557,355 901,963

Reserves - - - - (363) - (363)

Profit - - - - - 101,672 101,672

Prudential reserves - - - 39,677 - (39,677) -

Dividends - - - - - (22,088) (22,088) At 31 December 2014 99,944 151,410 10,674 122,448 (554) 597,262 981,184

Reserves - - - - 3,131 (3,131) - Contribution from parent (Société Générale)

- - - - 6,117 - 6,117

Profit - - - - - 229,655 229,655 Prudential reserves allocation - - - (11,999) - 11,999 -

Dividends - - - - - (30,283) (30,283) At 31 December 2015 99,944 151,410 10,674 110,449 8,694 805,502 1,186,673

Reserves relate to the allocation of additional contribution from Société Générale required under Ambition plan 2015 (Note 21).

Contribution from parent relates to compensation from Société Générale under Ambition plan 2015 (Note 21).

General reserve represents a statutory non-distributable reserve that according to the legislation consists of 10% of the share capital.

Prudential reserve represent general reserves for covering the bank risks related to the differences between the asset impairment losses and provisions for contingent liabilities, according to the IFRS, and the amount calculated but unformed of allowances for losses on contingent assets and liabilities, according to the prudential regulations. This reserve is created since 2012 according to the chart of accounts approved by the National Bank of Moldova and may not be distributable.


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Statement of Cash Flows for the year ended 31 December 2015

Note 2015 2014

(in thousands MDL) Cash flows from operating activities Profit 229,655 101,672 Adjustments for: Depreciation and amortisation 15,16 34,555 34,345 Loss on disposal of property and equipment 8 199 83 Net impairment losses on financial assets 6 (67,126) (22,582) Foreign exchange loss (97,505) (153,945) Interest income (532,825) (362,143) Interest expenses 171,437 99,766 Tax expense 9 9,599 16,753 Changes in: Mandatory reserves (710,267) (183,864) Due from Banks (1) (2)

Loans and advances to customers, net (357,185) (635,476)

Other assets 3,932 490

Deposits from banks (924) 1,051

Deposits from customers 1,493,071 1,088,714

Other liabilities 57,503 11,301

Cash received/(used) in operating activities before interest 234,118 (3,837) Interest paid (165,020) (101,973)

Interest received 568,932 359,903

Income tax paid (16,175) (13,981)

Cash received in operating activities 621,855 240,112

Investing activities Purchase of property and equipment (37,694) (29,994)

Purchase of intangible assets (6,213) (8,810)

Proceeds from sale of property and equipment 245 200

Purchase of securities (1,973,604) (3,394,365)

Proceeds from sale of securities 1,772,531 3,579,305

Cash received/(used) from investing activities (244,735) 146,336 Financing activities Proceeds from loans from banks and IFI’s 283,714 393,554

Repayment of loans from banks and IFI’s (336,923) (106,309)

Dividends paid (30,302) (22,097)

Cash received/(used) from financing activities (83,511) 265,148 Increase in cash and cash equivalents 293,609 651,596 Cash and cash equivalents at 1 January 26 1,495,319 843,723

Cash and cash equivalents at 31 December 26 1,788,928 1,495,319


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Notes to the Financial Statements

1 Corporate information

Commercial Bank BC “Mobiasbanca – Groupe Société Générale” S.A. (“the Bank”) was established in the Republic of Moldova in 1990. The Bank was registered by the National Bank of Moldova (“NBM”) in July 1990 as a commercial bank and transformed into a joint stock commercial bank in 1996.

During June 2002 the Bank was reregistered as an open joint stock commercial bank and its shares became listed on the Moldova Stock Exchange.

The Bank’s head office is located on Boulevard Stefan cel Mare si Sfant, 81A, Chisinau, Republic of Moldova.

Holder of banking license, the Bank offers a complete set of banking operations and services to enterprises and private customers.

As at 31 December 2015 the bank has 56 points of sale, out of which 54 universal points of sale, 1 VIP branch and 1 specialised (2014: 58 points of sale: 54 universal points of sale, 2 cash desks, 1 VIP branch and 1 specialised).

During 2007 there was a change in major shareholders of the Bank – the new shareholder became Société Générale, France owing 95.35% of the share capital of the Bank. Société Générale was created in 1864 as a banking company, registered in France. Its head office is located on 29 Boulevard Haussmann, 75009, Paris, France, and its shares are listed on the Paris Stock Exchange.

During 2008 there was an additional increase of share capital of the Bank, as a result of which the major shareholders’ structure changed by adding 2 new shareholders – EBRD subscribing for 8.84% of the share capital of the Bank and BRD – Groupe Société Générale S.A. subscribing for 20% of the share capital of the Bank. The share of the Société Générale decreased as a result of this transaction and since the end of 2008 effectively represents 79.51%, taking into account its shareholding in BRD.

2 Accounting policies

2.1 Basis of preparation

The financial statements have been prepared on the historical cost basis except for financial instruments measured at fair value: derivative financial instruments, financial assets and liabilities at fair value through profit and loss (no such instruments were held by the Bank as of 31 December 2015 and 2014), and available-for-sale financial assets. If a reliable measure of fair value is not available for available-for-sale financial assets they are measured at cost less impairment provision.

Going concern

The Bank’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Bank’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

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2.1 Basis of preparation (continued)

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

Presentation of financial statements

The Bank presents its statement of financial position in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non–current) is presented in Note 27. Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the income statement unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Bank.

2.2 Significant accounting judgements, estimates and assumptions

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements

In the process of applying the Bank’s accounting policies, management has not made any judgements, which would have the significant effect on the amounts recognised in the financial statements.

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2.2 Significant accounting judgements, estimates and assumptions (continued)

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Bank based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Bank. Such changes are reflected in the assumptions when they occur.

Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values. The judgements include considerations of liquidity and model inputs such as volatility for longer–dated derivatives and discount rates, prepayment rates and default rate assumptions for asset-backed securities. The valuation of financial instruments is described in more detail in Note 23.

Impairment losses on loans and advances

The Bank reviews its individually significant loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in the income statement.

In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

For each homogeneous portfolio the risk is assessed based on Loss Given Default (LGD) associated with Probability of Default (PD). Provision rates for collective provisioning are computed based on yearly PD observed during 12 months horizon (average). The LGD collectively evaluated for impairment are estimated based on historical loss or recovery experience observed during 5 years for secured assets and 2 years for unsecured. The exposure taken into account for the calculation of provision are net of first rate guaranties (cash collaterals, government guaranties, etc) and is considered the current outstanding including off balance sheet commitments.

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2.2 Significant accounting judgements, estimates and assumptions (continued)

For the purpose of specific provisions calculated for individually assessed counter-parties that are declared “in default”, the bank assess the cash flow that is expected to recover from client’s operation (if there is an activity that generates cash flows) or by exercising the guaranties and collaterals. The expected cash flows are spread other the time so that their value is discounted at the time of provisioning closing. The uncovered part of exposure by estimated recoveries is provisioned.

Loans and advances that have been assessed individually (and found not to be impaired) are assessed together with all individually insignificant loans and advances in groups of assets with similar risk characteristics. This is to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident.

The impairment loss on loans and advances is disclosed in more detail in Note 13. With the scope of a better presentation of comparative figures in prior year figures related to impairment allowance for loans and advances to customers for both specific and collective allowances for impairment was done a reclassification of provision charges for the year, amounts of loans written off, loans recoveries and foreign currency translation. As a result no changes the balance of provision charges have being done.

Impairment of available-for-sale financial investments

The Bank reviews its debt securities classified as available-for-sale investments at each reporting date to assess whether they are impaired. This requires similar judgement as applied to the individual assessment of loans and advances.

The Bank also records impairment charges on available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgement. In making this judgement, the Bank evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.

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2.3 Summary of significant accounting policies

(1) Foreign currency translation

The financial statements are presented in Moldovan Lei (“MDL”), rounded to the nearest thousand, which is the Bank’s functional and presentation currency.

(i) Transactions and balances

Transactions in foreign currencies are initially recorded at the spot rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate of exchange at the reporting date. All differences arising on non–trading activities are taken to Net trading income in the income statement.

Non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rates as at the date of recognition. Non–monetary items measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined.

The official exchange rates for major foreign currencies at year-end were as follows:

31 December 2015

31 December 2014

(in Moldovan Lei per unit of foreign currency) US dollar 19.6585 15.6152 Russian Rouble 0.2692 0.2763

Euro 21.4779 18.9966

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2.3 Summary of significant accounting policies (continued)

(2) Financial instruments – initial recognition and subsequent measurement

(i) Date of recognition

All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Bank becomes a party to the contractual provisions of the instrument. This includes regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

(ii) Initial measurement of financial instruments

The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management’s intention in acquiring them. All financial instruments are measured initially at their fair value plus/net of transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

(iii) Derivatives recorded at fair value through profit or loss

The Bank uses derivatives such as cross-currency swaps and forward foreign exchange contracts. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are included in Net trading income.

Derivatives embedded in other financial instruments shall be treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contract, and the host contract is not itself held for trading or designated at fair value through profit or loss. The embedded derivatives separated from the host are carried at fair value in the trading portfolio with changes in fair value recognised in the income statement.

(iv)Financial assets or financial liabilities held for trading

Financial assets or financial liabilities held for trading are recorded in the statement of financial position at fair value. Changes in fair value are recognised in Net trading income. Interest and dividend income or expense is recorded in Net trading income according to the terms of the contract, or when the right to the payment has been established.

Included in this classification are debt securities, equities and short positions and customer loans that have been acquired principally for the purpose of selling or repurchasing in the near term.

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(2) Financial instruments – initial recognition and subsequent measurement (continued) (v) Available-for-sale financial investments

Available-for-sale investments include equity and debt securities. Equity investments classified as available-for sale are those which are neither classified as held for trading nor designated at fair value through profit or loss.

Debt securities in this category are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions.

The Bank has not designated any loans or receivables or debt securities as available-for-sale.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value. Where no reliable estimate of fair value is available, equity investments are stated at restated cost less impairment.

Unrealised gains and losses are recognised directly in equity (Other comprehensive income) in the Available-for sale reserve. When the investment is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the income statement in Other operating income. Where the Bank holds more than one investment in the same security, they are deemed to be disposed of on a first–in first–out basis. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the EIR. Dividends earned whilst holding available-for-sale financial investments are recognised in the income statement as Other operating income when the right of the payment has been established. The losses arising from impairment of such investments are recognised in the income statement in ‘Impairment losses on financial investments’ and removed from the Available-for-sale reserve.

(vi) Financial investments - loans and receivables

Financial investment – loans and receivables are those which carry fixed or determinable payments and

have fixed maturities and which the Bank has the intention and ability to hold to maturity. These state

securities are part of “Loans and receivables” according to IAS 39, because they are not traded on an

active market. After initial measurement, financial investments – loans and receivables are subsequently

measured at amortised cost using the effective interest rate method, less allowance for impairment.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that

are an integral part of the effective interest rate. The amortization is included in “Interest and similar

income” in the income statement. The losses arising from impairment of such investments are recognized

in the income statement line “Impairment losses on financial investments”.

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(2) Financial instruments – initial recognition and subsequent measurement (continued) (vii) Loans and receivables Loans and receivables include non–derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

• Those that the Bank intends to sell immediately or in the near term and those that the Bank, upon initial recognition, designates as at fair value through profit or loss

• Those that the Bank, upon initial recognition, designates as available-for-sale

• Those for which the Bank may not recover substantially all of its initial investment, other than because of credit deterioration.

The Bank has loans and receivables in the form of Due from banks, Loans and advances to customers and other receivables.

The Bank has classified as loans and receivables state securities issued by Ministry of Finance and certificates issued by the Central Bank, while there is no active market for such instruments.

After initial measurement, loans and receivables are subsequently measured at amortised cost using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in Interest and similar income in the income statement. The linear interest method is the Bank’s best estimate of the effective interest method. The Bank is performing yearly an estimation of the impact between linear and effective interest methods by which the difference is concluded to be not significant for the financial statements. The losses arising from impairment are recognised in the income statement in Credit loss expense.

(viii) Other financial liabilities

Financial liabilities issued by the Bank that are not designated at fair value through profit or loss, are classified as other financial liabilities, where the substance of the contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

After initial measurement, other financial liabilities are subsequently measured at amortised cost using the EIR. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the EIR.

The Bank has other financial liabilities in the form of Due to banks, Due to customers, Borrowings from International Financial Institutions (IFI’s) and other liabilities.

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(2) Financial instruments – initial recognition and subsequent measurement (continued) (viii) Other financial liabilities (continued)

A compound financial instrument which contains both a liability and an equity component is separated at the issue date. A portion of the net proceeds of the instrument is allocated to the debt component on the date of issue based on its fair value (which is generally determined based on the quoted market prices for similar debt instruments).

The equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the debt component. No compound financial instruments were present as at 31 December 2015. An analysis of the Bank’s borrowings is disclosed in Note 20.

(ix) Reclassification of financial assets

Reclassifications, if any, are recorded at fair value at the date of reclassification, which becomes the new amortised cost.

For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is recycled to the income statement.

The Bank may reclassify a non–derivative trading asset out of the held for trading category and into the loans and receivables category if it meets the definition of loans and receivables and the Bank has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Bank subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate.

Reclassification is at the election of management, and is determined on an instrument by instrument basis.

The Bank does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. No reclassifications of financial assets took place in 2015.

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(3) Derecognition of financial assets and liabilities

(i) Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• The rights to receive cash flows from the asset have expired,

or

• The Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement, and either:

o The Bank has transferred substantially all the risks and rewards of the asset

or

o The Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass–through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Bank’s continuing involvement in the asset. In that case, the Bank also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Bank has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay.

(ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss.

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(4) Determination of fair value

The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison with similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models.

Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate at the balance sheet date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the balance sheet date. Where a fair value cannot be reliably be estimated, unquoted equity instruments that do not have a quoted market price in an active market are measured at cost and periodically tested for impairment.

(5) Impairment of financial assets

The Bank assesses at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include: indications that the borrower or a group of borrowers is experiencing significant financial difficulty; the probability that they will enter bankruptcy or other financial reorganisation; default or delinquency in interest or principal payments; and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. (i) Financial assets carried at amortised costs

For financial assets carried at amortised cost (such as amounts due from banks, loans and advances to customers as well as held to maturity investments), the Bank first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

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(5) Impairment of financial assets (continued) (i) Financial assets carried at amortised costs (continued) Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of Interest and similar income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Bank. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write–off is later recovered, the recovery is credited to the ’Credit loss expense’. The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. If the Bank has reclassified trading assets to loans and advances, the discount rate for measuring any impairment loss is the new EIR determined at the reclassification date. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

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(5) Impairment of financial assets (continued)

(i) Financial assets carried at amortised costs (continued) For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past–due status and other relevant factors. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group.

The estimates may significantly differ from the value that would have been obtained had sufficient historical experience on the timing and the amounts of the expected future cash flows been available.

The Bank has developed a methodology for assessing impairment on loans and advances that is based on three years historical information on the timing and the amounts of the expected future cash flows. The Bank regularly reviews the methodology and assumptions used for estimating future cash flows in order to reduce any differences between loss estimates and actual loss

(ii) Available-for-sale financial investments

For available-for-sale financial investments, the Bank assesses at each reporting date whether there is objective evidence that an investment is impaired.

In the case of debt instruments classified as available-for-sale, the Bank assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement. Future interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

The interest income is recorded as part of Interest and similar income. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

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(5) Impairment of financial assets (continued) (iii) Renegotiated loans

Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, any impairment is measured using the original EIR as calculated before the modification of terms and the loan is no longer considered past due. Management continually reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original EIR.

(iv) Collateral valuation

The Bank seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the Bank’s quarterly reporting schedule, however, some collateral, for example, cash or securities relating to margining requirements, is valued daily.

To the extent possible, the Bank uses active market data for valuing financial assets, held as collateral. Other financial assets which do not have a readily determinable market value are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by third parties such as mortgage brokers, housing price indices, audited financial statements, and other independent sources.

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(6) Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the Statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in the Statement of financial position.

Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions.

(7) Leasing

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

(i) Bank as a lessee

Leases that do not transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Contingent rental payable is recognised as an expense in the period in which they are incurred.

(ii) Bank as a lessor

Leases where the Bank does not transfer substantially all of the risk and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.

Contingent rents are recognised as revenue in the period in which they are earned.

(8) Recognition of income and expenses

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

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(8) Recognition of income and expenses (continued)

(i) Interest and similar income and expense

For all financial instruments measured at amortised cost, interest bearing financial assets classified as available-for-sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR. EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.

The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Interest and similar income’ for financial assets and Interest and similar expense for financial liabilities.

Fee and commission directly attributable to the financial asset or liability origination (both income and expense) is recognised in the income statement as part of the effective interest rate calculation. Loan commitments fees that are likely to be drawn down, are deferred, together with the related direct costs, and are recognised as part to the effective interest rate of the loan.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

(ii) Fee and commission

Fee and commission income arises on financial services provided by the Bank including card fees, cash management services, brokerage services.

Fee and commission income arising on the financial services provided by the Bank including cash management services, brokerage services is recognized in the income statement on the accrual basis i.e. when the corresponding service is provided.

Other fee and commission expense relates mainly to transaction and service fees, which are expensed as the services are received.

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(8) Recognition of income and expenses (continued) (iii) Dividend income

Revenue is recognised when the Bank’s right to receive the payment is established, which is generally when the shareholders approve the dividend.

(iv) Net trading income

Net trading income comprises all fair value changes of derivative instruments, gain less loss related to foreign exchange operations and net result on trading securities.

(9) Cash and cash equivalents

Cash and cash equivalents comprise cash balances on hand, cash in transit and cash in cash dispensers.

For the purposes of the statement of cash flows, cash and cash equivalents comprise: cash balances on hand, cash deposited with National Bank of Moldova, Nostro accounts with banks, placements with NBM and with other banks with less than 90 days original maturity and short term treasury investments with a maturity of less than 90 days.

(10) Property and equipment

Property and equipment (including equipment under operating leases where the Bank is the lessor) is stated at cost excluding the costs of day–to–day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.

Depreciation is calculated using the straight–line method to write down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated. The estimated useful lives are as follows:

• Buildings: 40-56 years

• Vehicles: 5-7 years

• Computers: 3.75 years

• Furniture and office equipment: 2.5-15 years

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(10) Property and equipment (continued)

Property and equipment is derecognized on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in Other operating income in the income statement in the year the asset is derecognised.

(11) Intangible assets

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives up to 5 years.

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

Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives over 5 years.

Licenses are capitalized on the basis of the costs incurred to acquire the specific license. These costs are amortised on the basis of the license period (5-20 years). Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

(12) Impairment of non financial assets

The Bank assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

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. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

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(12) Impairment of non-financial assets (continued)

For assets, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Bank estimates the asset’s or CGU’s recoverable amount.

A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement.

(13) Financial guarantees

In the ordinary course of business, the Bank gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within Other liabilities) at fair value, being the premium received. Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortization recognised in the income statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to financial guarantees is recorded in the income statement in Credit loss expense. The premium received is recognised in the income statement in Net fees and commission income on a straight line basis over the life of the guarantee.

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(14) Employee benefits The Bank’s short term employment benefits includes wages, bonuses, holiday pay and social security contributions and they are recognised as an expense as incurred.

Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

The Bank, in the normal course of business makes payments to the National House of Social Insurance and to the National House of Medical Insurance on behalf of its Moldovan employees for pension, health care and unemployment benefit. All employees of the Bank are members and are also legally obliged to make defined contributions (included in the social security contributions) to the Moldovan State pension plan (a State defined contribution plan). All relevant contributions to the Moldovan State pension plan are recognised as an expense in the income statement as incurred. The Bank does not have any further obligations.

The Bank does not operate any independent pension scheme and, consequently, has no obligation in respect of pensions. The Bank does not operate any other defined benefit plan or post retirement benefit plan. The Bank has no obligation to provide further services to current or former employees. The Bank has entered in a share-based payment arrangement by which it is offering a free grant of 40 Société Générale shares in the form of share equivalents (share appreciation rights) to its employees, subject to performance and service conditions. The fair value of the amount payable to employees in respect of share appreciation rights that are settled in cash is recognized as an expense with the corresponding increase in liabilities over the period that the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of the share appreciation rights. The receivable is reflected for the accrued contribution related to the of the above expenses to SG, except for indexation and social charges.

(15) Provisions

Provisions are recognised when the Bank has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the income statement net of any reimbursement.

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(16) Taxes

(i) Current tax Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. (ii) Deferred tax Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except:

• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

• In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

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(16) Taxes (continued)

(ii) Deferred tax (continued)

Deferred tax assets are recognized in respect of deductible temporary differences associated with investments in subsidiaries only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Current tax and deferred tax relating to items recognised directly in equity are also recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Since 1 January 2012 the corporate income tax rate is 12%.

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(17) Own shares

Ordinary shares acquired by the Bank are deducted from equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

(18) Dividends on ordinary shares

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Bank.

Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.

(19) Equity reserves

The reserves recorded in equity on the Bank’s statement of financial position include:

• Reserves relates to contribution from Société Générale under Ambition plan 2015

• General and prudential reserves that are required by the legislation.

(20) Segment reporting

The Bank performed during 2015 and 2014 banking transactions delivered only on the Moldovan market. The management considers that the inherent risks and benefits specific to the banking activity are not significantly different between the categories of clients as well as between various geographical regions, and consequently does not believe identifying separate reportable segments is necessary and would provide any additional benefits. The Bank does not monitor the business in different segments since it considers irrelevant when taking the internal decisions. Please see Note 13 for the structure of loans portfolio per industry and Note 19 for the structure of deposits.

(21) Earnings per share

The Bank presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated based by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effect of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

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2.4 Standards issued but not yet effective and not early adopted

• IAS 16 Property, Plant & Equipment and IAS 38 Intangible assets (Amendment): Clarification of Acceptable Methods of Depreciation and Amortization The amendment is effective for annual periods beginning on or after 1 January 2016. The amendment provides additional guidance on how the depreciation or amortization of property, plant and equipment and intangible assets should be calculated. This amendment clarifies the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, the ratio of revenue generated to total revenue expected to be generated cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The management of the Bank believes that the straight-line method is the most appropriate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly, the management of the Bank do not anticipate that the application of these amendments to IAS 16 and IAS 38 will have a material impact on the Bank's financial statements.

• IFRS 9 Financial Instruments: Classification and Measurement The standard is effective for annual periods beginning on or after 1 January 2018, with early application permitted. The final version of IFRS 9 Financial Instruments reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting.

• IFRS 11 Joint arrangements (Amendment): Accounting for Acquisitions of Interests in Joint Operations The amendment is effective for annual periods beginning on or after 1 January 2016. IFRS 11 addresses the accounting for interests in joint ventures and joint operations. The amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business in accordance with IFRS and specifies the appropriate accounting treatment for such acquisitions.

• IFRS 15 Revenue from Contracts with Customers The standard is effective for annual periods beginning on or after 1 January 2018. IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard’s requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity’s ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgments and estimates.

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2.4 Standards issued but not yet effective and not early adopted (continued)

• IAS 27 Separate Financial Statements (amended) The amendment is effective for annual periods beginning on or after 1 January 2016. This amendment will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements and will help some jurisdictions move to IFRS for separate financial statements, reducing compliance costs without reducing the information available to investors.

• Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting.

• IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (Amendments)

The amendments address three issues arising in practice in the application of the investment entities consolidation exception. The amendments are effective for annual periods beginning on or after 1 January 2016. The amendments clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Also, the amendments clarify that only a subsidiary that is not an investment entity itself and provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. Finally, the amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries.

• IAS 1: Disclosure Initiative (Amendment) The amendments to IAS 1 Presentation of Financial Statements further encourage companies to apply professional judgment in determining what information to disclose and how to structure it in their financial statements. The amendments are effective for annual periods beginning on or after 1 January 2016. The narrow-focus amendments to IAS clarify, rather than significantly change, existing IAS 1 requirements. The amendments relate to materiality, order of the notes, subtotals and disaggregation, accounting policies and presentation of items of other comprehensive income (OCI) arising from equity accounted Investments.

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2.4 Standards issued but not yet effective and not early adopted (continued)

• The IASB has issued the Annual Improvements to IFRSs 2012 – 2014 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2016.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: The amendment

clarifies that changing from one of the disposal methods to the other (through sale or through distribution to the owners) should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. There is therefore no interruption of the application of the requirements in IFRS 5. The amendment also clarifies that changing the disposal method does not change the date of classification.

IFRS 7 Financial Instruments: Disclosures: The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. Also, the amendment clarifies that the IFRS 7 disclosures relating to the offsetting of financial assets and financial liabilities are not required in the condensed interim financial report.

IAS 19 Employee Benefits: The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used.

IAS 34 Interim Financial Reporting: The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the greater interim financial report (e.g., in the management commentary or risk report). The Board specified that the other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. If users do not have access to the other information in this manner, then the interim financial report is incomplete.

• IFRS 16: Leases

The standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). The new standard requires lessees to recognize most leases on their financial statements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged.

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2.4 Standards issued but not yet effective and not early adopted (continued) • IAS 12 Income taxes (Amendments): Recognition of Deferred Tax Assets for Unrealised Losses

The amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. The objective of these amendments is to clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. For example, the amendments clarify the accounting for deferred tax assets when an entity is not allowed to deduct unrealised losses for tax purposes or when it has the ability and intention to hold the debt instruments until the unrealised loss reverses.

• IAS 7 Statement of Cash Flows (Amendments): Disclosure Initiative The amendments are effective for annual periods beginning on or after 1 January 2017, with earlier application permitted. The objective of these amendments is to enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments will require entities to provide disclosures that enable investors to evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes.

The Bank has elected not to adopt these standards, revisions and interpretations in advance of their effective dates.

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3 Net interest income

Interest income

2015 2014

(in thousands MDL) Cash and balances with Central Bank 57,541 1,808 Due from banks 762 338 Financial investments – loans and receivables 66,327 30,885 Loans and advances to customers 408,195 329,112

532,825 362,143

The interest income accrued on impaired Loans and advances to customers during 2015 amounted to MDL’000 7,852 (2014: MDL’000 5,555).

Interest expense

2015 2014

(in thousands MDL) Due to Central Bank 10 13 Deposits from banks 87 59 Deposits from customers 140,183 82,156 Repo expenses with Central Bank 8,311 1,449 Borrowings from IFI’s 22,846 16,089

171,437 99,766

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4 Net fee and commission income

Net fee and commission income includes fees and commission income from various banking services, including income from banking services regarding domestic and international payments, less fees and commission expenses paid for similar services received by the Bank.

Fee and commission income

2015 2014

(in thousands MDL) Payment processing 42,282 37,417 Transactions with cards 22,821 17,988 Cash transactions 22,320 18,904 Current accounts administration 11,835 9,767 Cash transactions in foreign currency-interbank 10,849 7,714 Changes in loans terms and conditions 8,893 7,336 Guarantees issued 6,088 5,525 Transfers through international payment systems 3,814 2,777 Remote banking 1,898 1,690 Letters of credit 645 595 Other 7,522 5,448

138,967 115,161

Fee and commission expense

2015 2014

(in thousands MDL) Transactions with cards 17,509 9,692 Cash transactions in foreign currency - interbank 13,221 10,443 Commissions on interbank transfers 10,000 8,087 Financial Risk Insurance 6,515 523 Contributions to deposit guarantee fund 2,113 1,693 Contribution to the State financial stability fund - 405 Other 449 270 49,807 31,113

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5 Net trading income

2015 2014

(in thousands MDL)

Foreign exchange result on transactions with: Individuals 49,573 20,974 Corporate clients 138,450 64,500 Banks (23,223) (8,657) Result from revaluation (10,045) (15,834) 154,755 60,983

6 Net impairment loss on financial assets

2015 2014

(in thousands MDL) Loans and advance to customers (Note 13) 45,372 18,711 Other assets (Note 17) 1,213 3,624 Financial guarantee contracts 20,541 247

67,126 22,582

7 Personnel expenses

2015 2014

(in thousands MDL) Wages and salaries 72,173 68,610 Social security costs 26,806 23,930 Bonuses 18,494 14,091 Provision for employee benefits 7,232 6,254 Medical insurance contributions 4,702 3,879 Other payments 6,737 1,001 136,144 117,765

The average number of staff employed by the Bank in 2015 was 722 (2014: 709).

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8 Other expenses

2015 2014

(in thousands MDL) Rent and utilities (1) 30,633 29,403 Repair and maintenance of fixed assets 16,015 12,696 Maintenance of intangibles 19,276 14,201 Consulting and auditing (2) 15,921 15,211 Telecommunication 8,494 8,230 Advertising and publishing 9,119 8,731 Security costs 6,781 6,408 Consumables and LVA 3,813 3,466 Other provision for operational risk 1,451 226 Information cost 3,043 2,545 Insurance 3,581 2,843 Training 1,783 1,834 Travel and transportation 2,034 1,531 Result of disposal of fixed assets 199 83 Representation expenses 586 411 Taxes and duties 434 526 Charity 288 503 Other 5,766 5,592

129,217 114,440 (1) Rent expenses are analysed below: Operating lease commitments – Bank as lessee The Bank has entered into commercial leases for premises and equipment. These leases have an average life of between three and five years with no renewal option included in the contracts. There are no restrictions placed upon the lessee by entering into these leases.

Future minimum lease under non-cancellable operating leases as at 31 December 2015 are, as follows:

2015 2014

(in thousands MDL) Within one year 23,965 21,813

After one year but not more than five years 67,534 60,832 More than five years 22,533 31,595

114,032 114,240

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8 Other expenses (continued)

(2) Consulting and audit costs are analysed below:

2015 2014

(in thousands MDL) Technical assistance – SG 11,741 11,509

Audit and consulting 2,590 2,385 Legal fees 1,590 1,317

15,921 15,211

Technical assistance provided by Société Générale (“SG”) mainly include cost of man days related to assistance in aligning of processes, procedures and general organization in accordance with SG Group norms.

9 Income tax expense

2015 2014 (in thousands MDL) Current tax Current income tax 25,678 10,545 Deferred tax Relating to origination and reversal of temporary differences (16,079) 6,208 Income tax expense 9,599 16,753

During 2015 the corporate income tax rate was 12% (2014: 12%).

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9 Income tax expense (continued)

Reconciliation of the total tax charge Reconciliation between the tax expense and the accounting profit multiplied by the tax rate enforced in the Republic of Moldova for the years ended 31 December 2015 and 2014 is, as follows: 2015 2014

(in thousands MDL)

Accounting profit before tax 239,254 118,425

At statutory income tax rate of 12% (2014: 12%) 28,710 14,211

Adjustment in respect of current income tax of prior years 324 (683)

Income not subject to tax (24,135) (3,804)

Non–deductible expenses 4,699 7,305

Losses carried forward - (276)

Income tax expense reported in the income statement 9,599 16,753 The effective income tax rate for 2015 is 4% (2014: 14%). Effective 2015 Impairment losses on loans and advances to customers are deductible based on IFRS rules (previously based on prudential requirements), resulting in release of related deferred tax liabilities. Income not subject to tax mainly includes the effect of deductibility of impairment losses based on IFRS rules and interest income on financial investments issued by the Ministry of finance. Non–deductible expenses mainly include accruals and provisions which do not meet the deductibility requirements based on tax rules.

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9 Income tax expense (continued)

The following table shows deferred tax recorded on the statement of financial position in other assets and other liabilities and changes recorded in the Income tax expense: 31 Dec

2015 31 Dec

2015 31 Dec

2015 31 Dec

2015 31 Dec

2014 31 Dec

2014 31 Dec

2014 31 Dec

2014 (in thousands MDL)

Assets Liabilities Net Income statement

Assets Liabilities Net Income statement

Loans and advances to customers - 3,669 3,669 (12,401) - 16,070 16,070 (6,371) Property and equipment - 2,944 2,944 762 - 2,182 2,182 225 Borrowings from IFI's (554) - (554) (1,157) - 603 603 (257) Other liabilities (3,918) - (3,918) (3,284) (634) - (634) 194

(4,472) 6,613 2,141 (16,079) (634) 18,855 18,221 (6,209)

10 Basic earnings per share

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

2015 2014

(in thousands MDL) Net profit attributable to ordinary equity holders 229,655 101,672

Weighted average number of ordinary shares 9,994,394 9,994,394 Basic earnings per share (MDL/share) 22.98 10.17 Dividends per share (MDL/share) 3.03 2.21

No diluted earnings per share were calculated as there are no dilutive instruments as at the end of year.

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of the completion of these financial statements which would require the restatement of earnings per share.

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11 Cash and balances with Central Bank

31 December 2015

31 December 2014

(in thousands MDL)

Cash on hand 379,770 491,415

Current account with Central bank 918,200 114,960

Overnight placements with Central bank - 250,120

Mandatory reserve deposit held in foreign currency 443,489 276,361

1,741,459 1,132,856

Current account and obligatory reserves

The National Bank of Moldova (NBM) requires commercial banks to maintain for liquidity purposes mandatory reserves calculated at a certain rate of the average funds borrowed by banks during the previous month (period between date 8 of the previous month and date 7 of the current month) including all customer deposits. The NBM decided to facilitate the long term lending to the economy by the commercial banks, applying 0% mandatory reserves rate for long term funding (contractual maturity over 2 years) starting from August 2011.

The Bank maintains its mandatory reserves in a current account opened with the NBM on funds attracted in Moldovan Lei and non-convertible currencies. Mandatory reserves on funds denominated in USD and EUR are held in a special compulsory reserve account with NBM.

As of 31 December 2015 the rate for calculation of the mandatory reserve in local currency was 35% (31 December 2014: 14%) and in foreign currencies 14% (31 December 2014: 14%).

As of 31 December 2015 the Bank had to maintain as mandatory reserve in MDL an average of MDL’000 769,887 (2014: MDL’000 226,869), in USD of USD’000 9,016 (2014: USD’000 5,696) and in EUR of EUR’000 12,396 (2014: EUR’000 9,866). As of 31 December 2015 and 2014 the Bank is in line with the above mentioned limits.

12 Due from banks

31 December 2015

31 December 2014

(in thousands MDL) Current accounts 822,449 835,689 Overnight deposits 438,396 -

1,260,845 835,689

As of 31 December 2015 and 2014 the major balances on current accounts were held with Société Générale.

40



13 Loans and advances to customers

The Bank’s commercial lending is concentrated on companies and individuals domiciled in Moldova.

31 December 2015

31 December 2014

(in thousands MDL) Loans and advances to customers, gross 3,890,597 3,430,761 Less: Allowance for impairment losses (173,022) (121,356) 3,717,575 3,309,405

As of 31 December 2015 the outstanding of loans granted to related parties amounted at MDL’000 12,540 (2014: MDL’000 9,998) at an average interest rate of 11.39% per annum (2014: 10.22% per annum) (Note 28).

As of 31 December 2015 there were no loans pledged as security under loan agreements with international financial institutions.

Impairment allowance for loans and advances to customers

A reconciliation of the allowance for impairment losses for loans and advances, by class, is as follows:

2015 2014

Total Corporate Individual Total Corporate Individual

(in thousands MDL) Specific allowances for impairment

At 1 January 82,683 65,126 17,557 56,039 38,665 17,374

Charge for the year 15,845 14,070 1,775 23,876 23,822 54

Amounts written off (3,941) (2,246) (1,695) (2,850) (2,097) (753)

Recoveries 930 411 519 909 1 908

FCY translation 10,117 10,476 (359) 4,709 4,735 (26)

At 31 December 105,634 82,683 17,797 82,683 65,126 17,557

Collective allowances for impairment

At 1 January 38,673 8,147 30,526 42,637 16,551 26,086 Charge for the year 29,527 48,770 (19,243) (5,165) 4,406 (9,571) Amounts written off (7,861) - (7,861) (5,968) (88) (5,880) Recoveries 7,049 235 6,814 7,169 247 6,922

At 31 December 67,388 38,673 10,236 38,673 21,116 17,557

Total impairment allowance at 31 December

173,022 144,989

28,033 121,356

86,242

35,114

41



13 Loans and advances to customers (continued)

31 December 2015 31 December 2014

(in thousands MDL)

Loans to individuals Consumer loans 542,151 489,507

Mortgage loans 485,640 339,992

1,027,791 829,499 Less allowance for impairment losses (24,382) (37,620)

Net loans to individuals 1,003,409 791,879 Loans to corporate customers Industry and commerce 1,734,242 1,518,816

Agriculture and food industry 492,107 446,954

Fuel and energy 10,359 122,231

Construction and development 248,668 221,507

Overdrafts 7,264 4,974

Micro-enterprises 163,601 183,594

Other 206,565 103,186

2,862,806 2,601,262 Less allowance for impairment losses (148,640) (83,736) Net loans to corporate customers 2,714,166 2,517,526

Total net loans and advances to customers

3,717,575 3,309,405

The Bank’s lending activities are conducted in Moldova. The ability of borrowers to repay their debt is dependent on a number of factors including the overall financial wealth of the borrower and the Moldovan economy.

42



14 Financial investments

31 December 2015

31 December 2014

(in thousands MDL)

Loans and receivables

Treasury bills issued by the Ministry of Finance 420,567 250,831

State bonds issued by the Ministry of Finance 7,657 18,079

NBM certificates - 30,004

428,224 298,914

Available-for-sale investments

Equity investments 1,639 1,479

1,639 1,479

429,863 300,393

Securities issued by the Ministry of Finance

As of 31 December 2015 treasury bills issued by the Ministry of Finance represent fixed rate MDL treasury bills issued with discount with original maturity between 91 and 364 days yielding an average interest rate of 19.71% per annum (31 December 2014: 6.72% per annum).

State bonds issued by the Ministry of Finance bear a revisable interest rate linked to weighted average rate on 6 months treasury bills. The average interest rate as of 31 December 2015 was 20.30% per annum for two year period and 12.32% for 3 years (31 December 2014: 7.62% per annum for 2 years and for 3 years – 8.65%). Starting with August 2015 State Bonds for 3 year period are no longer issued.

As of 31 December 2014 treasury bills issued by the Ministry of Finance were pledged to the National Bank of Moldova on REPO transactions, reflected in Due to Central Bank. The amount of MDL ’000 110,273 in Due to Central Bank includes two transaction of MDL ’000 80,000 and MDL ’000 30,000 matured at 15 January 2015 and 22 January 2015 respectively. As of 31 December 2015 there are no REPO transactions with NBM.

NBM certificates

As of 31 December 2015 NBM certificates represent fixed rate financial instruments issued with discount with original maturity of up to 14 days yielding an average interest rate of 15.11% per annum (31 December 2014: 3.52% per annum).

43



14 Financial investments (continued)

Equity investments

All equity investments as of the end of 2015 and 2014 are classified as available for sale and are carried at cost less impairment losses as presented below:

Field of activity

Ownership 2015, %

31 December 2015

31 December 2014

(in thousands MDL)

Credit Bureau Research of credit

information 6.70%

1,019

1,019 "Garantinvest" S.R.L. Investment fund 9.92% 440 440 Bursa de Valori a Moldovei Stock Exchange 2.56% 7 7 "Depozitarul Naţional de Valori Mobiliare" S.A. Securities register 1.52%

172

12

Equity investments in commercial banks (Moldova) (less than 1 % ownership) Banking

1

1

Other (less than 1 % ownership) Other -

10

Gross amount 1,639 1,489 Allowance for impairment - (10)

Carrying amount 1,639 1,479

All available for sale investments as of 31 December 2015 and 2014 are unquoted and are recorded at cost because there is no quoted market price in an active market for them and the fair value cannot be reliably estimated.

44



15 Property and equipment

Land and

buildings

Assets under

construction Vehicles

Computers and

equipment Others Total

(in thousands MDL)

Cost

At 1 January 2014 88,413 6,091 8,570 87,202 30,722 220,998 Additions 3,856 13,275 - 3,135 8,846 29,112 Disposals - - (672) (5,985) (1,463) (8,120) Transfers 705 (7,744) 968 5,103 968 -

At 31 December 2014 92,974 11,622 8,866 89,455 39,073 241,990

Additions 2,405 110,859 - 2,260 4,226 119,750 Disposals (1,045) (80,064) (479) (6,900) (868) (89,356) Transfers 13,282 (36,896) - 23,614 - -

At 31 December 2015 107,616 5,521 8,387 108,429 42,431 272,384

Depreciation and impairment

At 1 January 2014 22,433 - 4,386 57,435 17,380 101,634 Disposals (1,179) - (647) (5,881) (1,304) (9,011) Depreciation charge for the year 4,726 - 1,348 10,219 4,213 20,506

Balance at 31 December 2014 25,980 - 5,087 61,773 20,289 113,129 Disposals (1,045) - - (3,182) (4,540) (8,767) Depreciation charge for the year 5,199 - 1,298 8,288 4,477 19,262

Balance at 31 December 2015 30,134 - 6,385 66,879 20,226 123,624

Net book value

at 1 January 2014 65,980 6,091 4,184 29,767 13,342 119,364 at 31 December 2014 66,994 11,622 3,779 27,682 18,784 128,861 at 31 December 2015 77,482 5,521 2,002 41,550 22,205 148,760

As of 31 December 2015 the cost of fully depreciated assets amounted at MDL’000 55,644 (31 December 2014: MDL’000 52,200).

During 2015 and 2014 the Bank carried capital construction works in the rented premises in line with the network development plan. As of 31 December 2015 the cost of such investments included in “Land and buildings” category amounts to MDL’000 505 (2014: MDL’000 4,934) and included in “Assets under construction” category of MDL’000 402 (2014: MDL’000 77). These investments are being amortized over the period lower of useful life or rent agreement term starting from date of opening of the point of sale.

45



16 Intangible assets

Informational System

development costs Software Licenses Other Total

(in thousands MDL)

Cost

At 1 January 2014 110,073 7,968 4,786 2,009 124,836

Additions 26,132 317 1,559 85 28,093 Disposals (19,282) - - (87) (19,369)

Balance at 31 December 2014 116,923 8,285 6,345 2,007 133,560 Additions 33,627 1,987 862 4,433 40,909 Disposals (34,696) - - - (34,696)

Balance at 31 December 2015 115,854 10,272 7,207 6,440 139,773

Amortisation and impairment

Balance at 1 January 2014 74,931 1,745 1,912 382 78,970

Disposals - - - (86) (86)

Amortisation charge for the year 10,829 1,582 909 519 13,839 Balance at 31 December 2014 85,760 3,327 2,821 815 92,723 Disposals - - - - - Amortisation charge for the year 10,828 1,861 1,017 1,587 15,293 Balance at 31 December 2015 96,588 5,188 3,838 2,402 108,016

Net book value

at 1 January 2014 35,142 6,223 2,874 1 45,866 at 31 December 2014 31,163 4,958 3,524 1,191 40,837 at 31 December 2015 19,266 5,084 3,369 4,038 31,757

As of 31 December 2015 the cost of fully amortized intangible assets amounts at MDL’000 16,035 and mainly represents the cost of Cards Module (which represent MDL’000 12,315).

46



17 Other assets

31 December 2015

31 December 2014

(in thousands MDL) Receivable from SG (free share plan) (1) 8,694 11,839

Commission fees receivable 6,860 5,263

Other prepayments 3,236 3,661

Clearing and transit amounts 2,755 2,184

Consumables and LVA 2,399 2,322

Operations with payment cards 2,259 2,340

Prepaid insurance 2,028 2,029

Prepaid rent fees 1,420 694

Income and other taxes receivable 1,071 1,492

Due from employees 136 232

Other receivables 971 1,277

31,829 33,333 Less allowance for impairment losses (2) (5,346) (4,133)

26,483 29,200

(1) During 2010 the Bank signed an agreement with SG by which the Bank entered into free share plan as part of 2015 Ambition plan of the Group. Part of costs related to this plan is to be covered by SG (Note 21).

(2) Allowance for impairment losses related to non-recoverable commission fees receivable.

18 Deposits from banks

31 December 2015

31 December 2014

(in thousands MDL) Current accounts 2,620 3,544

2,620 3,544

47



19 Deposits from customers

31 December 2015

31 December 2014

(in thousands MDL) Retail customers Current/savings accounts 1,248,842 920,406 Term deposits 1,775,161 1,045,719

3,024,003 1,966,125 Corporate customers Current/savings accounts 2,193,924 1,651,870 Term deposits 323,754 425,818

2,517,678 2,077,688

5,541,681 4,043,813 Included in Due to customers were deposits of MDL’000 44,426 (2014: MDL’000 35,149) held as collateral for loans and guarantees.

48



20 Borrowings from IFI’s

31 December 2015

31 December 2014

(in thousands MDL) European Bank for Reconstruction and Development (EBRD) (Note 30) 236,711 163,417 Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden N.V. (FMO) 12,083 20,460 International Development Association (IDA) 129,793 19,709 International Fund for Agricultural Development (FIDA) 6,668 6,071 European Investment Bank (EIB) 100,140 316,712 Millennium Challenge Account Moldova (MCA) 3,156 2,184 "Filere du Vin" (UCIP - EIB) 1,097 -

489,648 528,553

Below are the descriptions of the main financing lines:

Loans from EBRD

Maturity Security 31 December

2015 31 December

2014 (in thousands MDL) Multicurrency (USD/EUR) loan dated April 2013 (1) December 2017 SG Guarantee 37,507 43,116 Multicurrency (USD/EUR) loan dated November 2008

May 2016

Unsecured 20,328 48,425

Multicurrency (USD/EUR) loan dated December 2013 (2)

June 2019 SG Guarantee 161,070 67,901

Multicurrency (USD/EUR) loan (MoREEFF) (3)

Uncommitted/ May 2019

SG Guarantee 18,278 4,753

Multicurrency (USD/EUR) loan (MoREEFF) (3) deferred commission

- (208)

Multicurrency (USD/EUR) loan (MSME_BERD 2013) deferred commission (4)

Uncommitted/ June 2019

SG Guarantee (472) (570)

236,711 163,417

The loans are secured with the right to collect receivables under sub-loans granted by the Bank.

(1) On 10 April 2013 the Bank signed the first Moldovan Sustainable Energy Financing Facility (MoSEFF) in amount of EUR 3 million. By 31 December 2014 the loan is fully disbursed and matures in December 2017. The facility was used for sub-loans to SME and corporate clients for energy efficiency purposes. The loan is secured by financial guarantee issued by Société Générale.

49



20 Borrowings from IFI’s (continued)

(2) On 27 December 2013 the Bank signed the second Moldovan Sustainable Energy Financing Facility (MoSEFF) in amount of EUR 7 million. By 31 December 2015 the loan is fully disbursed and maturity of the loan falls on June 2020. The facility is to be used for sub-loans to SME and corporate clients for energy efficiency purposes. The loan is secured by financial guarantee issued by Société Générale. (3) On 20 May 2013 it was signed the Moldovan Residential Energy Efficiency Financing Facility (MoREEFF) in amount of EUR 2 million . The maturity of the loan falls on June 2018. The facility is to be used for sub-loans to individual’s clients for energy efficiency purposes. By 31 December 2015 the Bank made disbursements totalling EUR 1 million. The loan is secured by financial guarantee issued by Société Générale. (4) On 18 September 2013 the Bank signed the Micro, Small and Medium Sized Enterprises Facility – (MSME) facility in amount of EUR5 million. The maturity of the loan falls on June 2019. The Loan is for SME and Microenterprises financing. By 31 December 2015 the loan is uncommitted. The loan is secured by financial guarantee issued by Société Générale. On February 6th, 2014 the Bank signed with EBRD Framework Agreement for Unfunded Risk Sharing Facility (MCFF) in amount of EUR 10 million. The purpose of facility is to increase the flow of loans to large companies based on which EBRD will share up to 50 per cent of credit risk. By 31 December 2015 the facility is uncommitted. (5) On 27 December 2015 the Bank signed the third Moldovan Sustainable Energy Financing Facility (MoSEFF) in amount of EUR 5,5 million. The maturity of the loan falls on December 2020. The facility is to be used for sub-loans to SME and corporate clients for energy efficiency purposes. The loan is secured by financial guarantee issued by Société Générale.

Loan from FMO

The Bank signed a long term loan agreement with FMO in October 2006 for the total amount of EUR 4 million. The loan is directed to finance mortgage sub-loans in local currency. The loan is converted into Moldovan Lei at the date of disbursement and is further denominated in MDL. The loan is unsecured.

As of the end of 2007 the loan is fully disbursed and matures in October 2017. Payment of principal is to be made semi-annually starting from April 2009

Loans from IDA

Starting with November 2004 the Bank joined the programs (RISP 1 and RISP 2) launched by International Development Association (IDA). The facilities are available for finance of entrepreneurs, as well as young entrepreneurs, program which includes a grant –component. The Ministry of Finance, which acts as a representative of the Republic of Moldova under the loan agreements signed with IDA, granted to the Bank sub-loans denominated in local currency, USD and EUR. Both facilities mature in 2022.

On November 2014 the Bank became the partner bank of the Competitiveness Enhancement Project (CEP II) launched by World Bank (WB). The purpose of facility is financing of investment and working capital needs of exporters and economic activity related to generation of exports revenue. The sub-loans may be denominated in local currency, USD and EUR. The loan is unsecured.

50



20 Borrowings from IFI’s (continued)

Loan from IFAD

On December 2014 the Bank signed a long term Loan Agreement with the Ministry of Finance, which acts as a representative of the Republic of Moldova under the loan agreement signed with International Fund for Agricultural Development (IFAD). This is a new program for finance small and medium agricultural enterprises, as well as for young entrepreneurs, program which includes a grant-component. The sub-loans granted to the Bank are denominated in local currency, USD and EUR. The loan is unsecured.

Loan from MCA Moldova

In October 2011 the Bank signed a loan agreement with the Millennium Challenge Account Moldova (MCA Moldova), which acts as a representative of the Republic of Moldova and ensure implementation of the Compact Agreement signed between the United States of America and Moldovan Government. The total amount of loan agreement (USD 12.0 million) was directed for stimulation of private investment in post-harvest infrastructure. The sub-loans granted to the Bank were denominated in local currency, USD and EUR. The facility was matured on August 31st, 2015

Loan from European Investment Bank (EIB)

In December 2010 the Bank signed the loan agreement with EIB for the total amount of EUR 20 million. The facility is bi-currency (EUR/USD). The loan is designated for sub-loans to SME for the term up to 15 years. The scope of sub-loans is quite broad (working capital, investments, etc.). Société Générale, Paris issued a financial guarantee under this facility, covering the full amount (Note 28). No other securities are provided under this facility. The loan is fully disbursed and matures in 2022.

In November 2013 the Bank signed new loan agreement with EIB for 10 year for the total amount of EUR 20 million. The purpose of facility is long term financing of SME and Large Companies. The facility is secured by financial guarantee issued by Société Générale, Paris. No other securities are provided under this facility.

Loan from European Investment Bank (EIB) under “Filiera du Vin” facility

In December 2011 the Bank signed a loan agreement with the Ministry of Finance, which acts as a representative of the Republic of Moldova and ensure implementation of the “Filiera du Vin” facility signed between the European Investment Bank and Moldovan Government. The total amount of loan agreement (EUR 75.0 million) is directed for stimulation of wine industry. The sub-loans granted to the Bank are denominated in local currency, USD and EUR. The loan is unsecured.

The Bank did not have any defaults of principal or interest or other breaches with respect to its borrowings during the years ended 31 December 2015 and 2014.

51



21 Other liabilities

31 December 2015

31 December 2014

(in thousands MDL) Obligations under financial guarantees 21,774 1,153 Due to related party – SG 21,020 11,969 Due to employees (premiums and bonuses) 18,549 14,877 Money transfers pending execution (1) 13,972 15,023 Provision related to free share plan under SG Ambition 2015 program (2) 12,067 12,178 Due to budget 11,834 2,853 Other accruals 9,558 9,756 Accrual for litigation 9,957 7,132 Accrual for unused vacation 4,314 3,646 Due to related party – BRD GSG SA 2,807 3,828 Due to suppliers of property and equipment 1,911 293 Accrued audit and consulting fees 1,288 1,056 Due to international payment systems 296 187 Documentary transactions 2 1,320 Due to employees (salaries and wages) 153 135 Dividends payable 113 132 Settlements on FCY swap transaction (103) 70 Other liabilities 4,383 2,634 133,895 88,242

(1) Money transfer pending execution as of 31 December 2015 mainly represents card transactions pending processing.

(2) Provision related to free share plan under SG Ambition 2015 program:

In 2010 the Bank signed an agreement with SG by which the Bank entered into free share plan as part of 2015 Ambition plan of the Group. As a result of the staff motivation program an equivalent of 40 shares is to be paid to eligible employees subject to certain performance indicators. The first vesting period was on 31 March 2015, when an equivalent of 16 shares were paid to eligible employees and the second vesting period ends up on 31 March 2016, when the remainder of 24 shares are to be released subject to compliance with certain qualitative indicators.

Part of costs related to this plan is to be covered by SG, which equals to the number of eligible shares at the price of EUR 42.1/share. All social insurance costs related to this program are to be covered by the Bank. As of the end of December 2015 a liability of MDL’000 12,067 was recorded with respect to this program (31 December 2014: MDL’000 12,178) (Note 21). At the same time a receivable from SG related to the part of cost to be re-invoiced was booked in amount of MDL’000 8,694 (31 December 2014: MDL’000 11,839) (Note 17).

52



22 Issued capital

The list of major shareholders as of 31 December 2015 and 2014 is presented below:

2015 2014

Shareholding

Number of shares ‘000

Value Shareholding Number of

shares ‘000 Value

(in thousands MDL) Authorised and paid in share capital (nominal value) Société Générale 67.85% 6,785 67,850 67.85% 6,785 67,850 “BRD – Group Société Générale” SA 20.00% 2,000 20,000 20.00% 2,000 20,000 EBRD 8.84% 884 8,842 8.84% 884 8,842 Other legal entities (<10%) 0.25% 25 247 0.49% 49 491 Other individuals (<10%) 3.00% 300 3,005 2.76% 276 2,761 Treasury shares 0.06% 6 56 0.06% 6 56

100.00% 10,000 100,000 100.00% 10,000 100,000 Less: Treasury shares (56) (56)

Issued capital 99,944 99,944

As of 31 December 2015 all shares are ordinary and have a nominal value of MDL 10 (31 December 2014: MDL 10). As of 31 December 2015 the total authorized share capital in amount of 10 million of ordinary shares was fully paid in.

53



23 Fair value of financial instruments

Fair value estimations

The following is a description of how fair values are determined for financial instruments using valuation techniques. These incorporate the Bank’s estimate of assumptions that a market participant would make when valuing the instruments.

Placement with banks: These include inter-bank placements and items in the course of collection. The fair value of floating rate placements and overnight deposits is their carrying amount. Fixed interest bearing deposits mature in less than three months and it is assumed that their fair value is not significantly different from its carrying value because these instruments have short maturity terms and are convertible into cash or are settled without significant transaction costs.

Loans and advances to customers: These are net of provisions for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. To determine the fair value the expected cash flows are discounted at rates available in industry publications and other industry materials. For loans and advances to customers maturing within one-year it is assumed that their fair value is not significantly different from carrying value.

Financial investments: Fair value for financial investments classified as loans and receivable is presumed to be equal to the carrying amount having a short maturity and the observable rates are not generated by the active market.

Deposits from banks and customers: For demand deposits and deposits with no defined maturities, fair value is taken to be the amount payable on demand at the balance sheet date. The estimated fair value of fixed-maturity deposits is based on discounted cash flows using rates available in industry publications and other industry materials. For deposits maturing within one-year it is assumed that their fair value is not significantly different from carrying value. The value of long-term relationships with depositors is not taken into account in estimating fair values.

Loans from banks, IFI and companies: Loans from banks, IFI and companies are carried at cost which approximates their fair value because these instruments have short maturity terms or bear a floating interest rate to reflect the market changes.

Determination of fair value and fair value hierarchy

The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;

54



23 Fair value of financial instruments (continued)

Determination of fair value and fair value hierarchy (continued)

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. In arriving at fair value for the items in this hierarchy the Bank is using industry publications and other industry materials with relevant data on pricing. The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: Level 1 Level 2 Level 3 Total

(in thousands MDL) 31 December 2015 Financial assets

Placements with Central Bank - - 1,361,690 1,361,690

Due from banks - - 1,260,845 1,260,845

Financial investments-Loans and receivables - - 428,224 428,224

Loans and advances to customers - - 3,825,079 3,825,079

- 6,875,838 6,875,838

Financial liabilities Due to Central Bank - - 84 84 Deposits from banks - - 2,620 2,620 Borrowings from IFI’s - - 487,705 487,705 Deposits from customers - - 5,587,879 5,587,879

- - 6,078,288 6,078,288

Level 1 Level 2 Level 3 Total

(in thousands MDL) 31 December 2014 Financial assets

Placements with Central Bank - - 641,441 641,441

Due from banks - - 835,689 835,689

Financial investments-Loans and receivables - 298,914 298,914

Loans and advances to customers - - 3,294,103 3,294,103

- - 5,070,147 5,070,147

Financial liabilities Due to Central Bank - - 110,273 110,273 Deposits from banks - - 3,544 3,544 Borrowings from IFI’s - - 521,873 521,873 Deposits from customers - - 4,041,860 4,041,860 Derivative liabilities held for risk management - - 3,411 3,411

- - 4,680,961 4,680,961

55



23 Fair value of financial instruments (continued)

Determination of fair value and fair value hierarchy (continued)

The table below sets out the Bank’s classification of each class of financial assets and liabilities, and their fair values:

2015 2014

Total Fair value Total Fair value carrying amount

carrying amount

(in thousands MDL)

Financial assets

Placements with Central Bank 1,361,690 1,361,690 641,441 641,441

Due from banks 1,260,845 1,260,845 835,689 835,689 Financial investments-Loans and receivables 428,224 428,224 298,914 298,914

Loans and advances to customers 3,717,574 3,825,079 3,309,405 3,294,103

6,768,333 6,875,838 5,085,449 5,070,147

Financial liabilities Due to Central Bank 84 84 110,273 110,273

Deposits from banks 2,620 2,620 3,544 3,544

Borrowings from IFI’s 489,648 487,705 528,553 521,873

Deposits from customers 5,541,681 5,587,879 4,043,813 4,041,860

6,034,033 6,078,288 4,686,183 4,677,550

There were no reclassifications between financial assets and liabilities categories done in 2015 and 2014.

56



24 Risk management

Introduction and overview

The Bank has exposure to the following risks from its use of financial instruments:

• Credit risk • Liquidity risk • Interest rate risk • Operational risks • Currency risk

This note present information about the Bank’s exposure to each of the above risks, the Bank’s objectives, policies and processes for measuring and managing risk, and the Bank’s management of capital.

Business environment and country risk

The Bank's operations are subject to country risk being the economic, political, and social risks inherent in doing business in the Republic of Moldova. These risks include matters arising out of the policies of the government, economic conditions, imposition of or changes to taxes and regulations, foreign exchange fluctuations and the enforceability of contract rights. The accompanying financial statements reflect management's assessment of the impact of the Moldovan business environment on the operations and the financial position of the Bank. The future business environment may differ from management's assessment. The impact of such differences on the operations and financial position of the Bank may be hard to estimate.

Risk management framework

The Executive Board has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Board has established the Bank’s Assets and Liabilities, Credit and Operational Risk Committees, which are responsible for developing and monitoring Group risk management policies in their specified areas. All committees report regularly to the Executive Board on their activities.

The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank, through its training and management standards and procedures set up at the SG Group level, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

Credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank’s loans and advances customers and other banks and investment securities. Also the Bank exposes itself to a credit risk in cases where it acts as an intermediary on behalf of customers or other third parties or issues guarantees. The Bank manages and controls credit risk having a complex matrix of individual competencies, monitoring the evolution of risk indicators per market segments and products, by setting limits on the share of portfolio per industry concentrations, and by monitoring exposures in relation to such limits.

57



24 Risk management

Credit risk (continued) The Bank has established a credit quality review process to provide early identification of possible changes in the creditworthiness of counterparties, including regular collateral revisions. Counterparty level risk are established by the use of a credit risk classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality review process aims to allow the Bank to assess the potential loss as a result of the risks to which it is exposed and take corrective action.

Impairment assessment For accounting purposes, the Bank uses an incurred loss model for the recognition of losses on impaired financial assets. This means that losses can only be recognized when objective evidence of a specific loss event has been observed. Triggering events include the following:

• A breach of contract such as a default of payment • Where the Bank grants the customer a concession due to the customer experiencing financial

difficulty • It becomes probable that the customer will enter bankruptcy or other financial reorganization • Other observable data that suggests that there is a decrease in the estimated future cash flows

from the loans This approach differs from the expected loss model used for regulatory capital purposes in accordance with Basel II.

Individually assessed allowances The Bank determines the allowances appropriate for each individually significant loan or advance on an individual basis, taking into account any overdue payments of interests, credit rating downgrades, or infringement of the original terms of the contract. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance if it is in a financial difficulty, projected receipts and the expected payout should bankruptcy ensue, the availability of other financial support, the realizable value of collateral and the timing of the expected cash flows. Impairment allowances are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.

Collectively assessed allowances Allowances are assessed collectively for losses on loans (including credit cards, residential mortgages, unsecured consumer lending) and for individually significant exposures excluding impaired (nonperforming) exposures.

Collateral The collateral type and value depends on assessment of the credit risk of the counterparty. Existing guidelines are covering the acceptability and valuation criteria of each type of collateral. The main types of collateral obtained are as follows: real estate premises (residential, commercial, land), stock of goods and materials, trade receivables, securities, cash and other types (if object can be identified, evaluated and pledged).

58



24 Risk management (continued)

Credit risk (continued)

Collateral (continued)

The Bank also obtains guarantees from parent companies for loans to their subsidiaries. The Bank monitors the market value of collateral and request additional collateral in accordance with the underlying agreement.

It is the Bank’s policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In general, the Bank does not occupy repossessed properties for business use.

Concentration and exposures

The major concentrations of credit risk arise by location and type of customer in relation to the Bank investments, loans and advances and guarantees issued. The Bank has no significant exposure to any individual customer or counterparty. The Bank’s lending activities are conducted in the Republic of Moldova. The ability of borrowers to repay their debt is dependent on a number of factors including the overall financial wealth of the borrower and the Moldovan economy. The loan portfolio comprises loans to approximately 893 legal entities (2014: 1,440) and 49,405 individuals (2014: 48,835).

The maximum credit exposure to any client or counterparty as of 31 December 2015 was at MDL’000 137,159 (2014: MDL’000 119,128).

As at 31 December 2015 ten major net exposures have a total outstanding balance of MDL’000 882,080 (31 December 2014: MDL’000 698,938).

The following table represents the credit risk exposures structured by category of risk profile (see following description of the profiles).

Category 1-6: Low risk represents internal rating for Healthy exposures past due not more than 30 days

Category 7: watch list represents the rating for clients considered as sensitive due to presence of elements indicating vulnerable situation.

Category 8: doubtful represents the rating for clients with indications of significant deterioration of the financial situation of the counterparty with or without unpaid debts. Counterparties in default in pre-litigation stage are rated in this category.

Category 9: doubtful represents the rating when at least one payment default has been noted and a recovery procedure has been initiated.

Category 10: doubtful represents the rating when the counterparty operates within a legal framework. Entry into the litigation phase.

59

CB "Mobiasbanca - Groupe Société Générale" S.A. Notes to the Financial Statements

24 Risk management (continued) Credit risk (continued) Loans and advances

to Corporate Loans and advances

to Individuals Loans and advances to

banks Investment securities

(in thousands MDL) 2015 2014 2015 2014 2015 2014 2015 2014 Individually impaired Category 1-6: Low risk - - - - - - - - Category 7: watch list - - - - - - - - Category 8: doubtful 50,010 42,887 6,365 1,188 - - - - Category 9-10: non-performing 63,273 59,049 16,468 23,806 - - - - Gross amount 113,283 101,936 22,833 24,994 - - - - Allowance for impairment (87,837) (65,126) (17,797) (17,557) - - - - Carrying amount 25,446 36,810 5,036 7,437 - - - - Collectively impaired Category 1-6: Low risk - - - - - - - - Category 7: watch list - - - - - - - - Category 8: doubtful 27,324 1 3,522 3,197 - - - - Category 9-10: non-performing 25,585 26,344 441 4,390 - - - - Gross amount 52,909 26,345 3,963 7,587 - - - - Allowance for impairment (18,942) (6,462) (2,233) (3,386) - - - - Carrying amount 33,967 19,883 1,730 4,201 - - - - Past due but not impaired Category 1-6: Low risk 31,973 25,472 94,422 91,154 - - - - Category 7: watch list 29,465 14,688 18,852 6,414 - - - - Category 8: doubtful - - - - - - - - Category 9-10: non-performing - - - - - - - - Gross amount 61,438 40,160 113,274 97,568 - - - - Allowance for impairment (5,537) (146) (4,059) (6,709) - - - - Carrying amount 55,901 40,014 109,215 90,859 - - - - Neither past due nor impaired Category 1-6: Low risk 2,170,937 2,081,001 1,111,822 963,836 2,622,535 1,477,130 429,863 300,393

Category 7: watch list 239,430 85,503 708 1,831 - - - - Category 8: doubtful - - - - - - - - Category 9-10: non-performing - - - - - - - -

Gross amount 2,410,367 2,166,504 1,112,530 965,667 2,622,535 1,477,130 429,863 300,393 Allowance for impairment (32,672) (1,539) (3,945) (20,431) - - - - Carrying amount 2,377,695 2,164,965 1,108,585 945,236 2,622,535 1,477,130 429,863 300,393 Total carrying amount 2,493,009 2,261,672 1,224,566 1,047,733 2,622,535 1,477,130 429,863 300,393

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Impaired loans and securities

Impaired loans and securities are loans and securities, for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan / securities arrangements.

Past due but not impaired loans

Loans that are “past due but not impaired” are those for which contractual interest or principle payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security or collateral and/or the stage of collection of amounts owed to the Banks.

Neither past due nor impaired loans

This category included loans and securities, for which incurred loss ratio equals to zero. Loans and advances to customers included in this category represent mortgage and lombard loans, for which the loss given default ratio is considered to be zero due to a sound collateral coverage, which is in average at the level of 140% from granted amount, low rate of overdue and high level of recoverability of the collaterals in the past.

Loans with renegotiated terms

Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Bank has made concessions that it would not otherwise consider. Once the loan is restructured it remains in the corresponding risk category based on the risk assessment at the moment of renegotiation, independent of satisfactory performance after restructuring.

Allowances for impairment

The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.

Write off policy

The Bank writes off a loan / security balance (and any related allowance for impairment losses) when the Bank determines that the loans / securities are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower / issuer’s financial position such that the borrower / issuer can no longer pay the obligation and that proceeds from collateral will not be sufficient to pay back the entire exposure. Exposures with no collateral coverage (consumer unsecured loans) are written off after 180 days past due. Exposures covered by real collateral are written off provided all the recovery actions were done and there is a basis to conclude that exposure cannot be recovered. The write off can be conditioned by the following events: the borrower may not recover the debt through sell of pledge; the collateral is depleted or impaired; the exposure is in default for more than 5 years.

61





Analysis of individually impaired assets:

Loans and advances to customers

Loans and advances to banks

Investment securities

(in thousands MDL) Gross Net Gross Net Gross Net

31 December 2015

Category 1-6: Low risk - - - - - -

Category 7: watch list - - - - - -

Category 8: doubtful 56,375 28,324 - - - -

Category 9-10: non-performing 79,741

2,158

- - - -

Total 136,116 30,482 - - - -

31 December 2014

Category 1-6: Low risk -

- - - - -

Category 7: watch list -

- - - - -

Category 8: doubtful 44,075 27,733 - - - -

Category 9-10: non-performing

82,855

16,514

- - - -

Total 126,930 44,247 - - - -

Ageing analysis of past due but not impaired loans by class of financial assets as of 31 December 2015 and 2014 is presented below:

Less than 30 days

31 to 60 days

61 to 90 days

More than 91 days

Total

(in thousands MDL) Loans and advances to customers

31 December 2015 Corporate lending 20,703 - - - 20,703 Small businesses lending 32,128 2,403 6,203 - 40,734 Consumer lending 47,330 8,241 3,589 1,138 60,298 Residential mortgages 45,549 6,834 591 - 52,974 145,709 17,478 10,383 1,138 174,709 31 December 2014 Corporate lending - - - - - Small businesses lending 27,830 4,426 3,410 - 35,666 Consumer lending 47,300 10,670 1,805 58 59,833 Residential mortgages 34,188 6,492 1,549 - 42,229 109,318 21,588 6,764 58 137,728

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Carrying amount by class of financial assets has been renegotiated as of 31 December 2015 and 2014 is analyzed below:

31 December 2015

31 December 2014

(in thousands MDL) Loans and advances to customers Corporate lending 119,109 6,511 Small businesses lending 156,325 21,448 Consumer lending 318 978 Residential mortgages 116 175 275,868 29,112

Maximum exposure to credit risk

The table below shows the maximum exposure to credit risk for the components of the balance sheet. The maximum exposure is shown gross, before the effect of mitigation through the use of master netting and collateral agreements.

31 December

2015

31 December

2014

(in thousands MDL) Placements with Central Bank 1,361,690 641,441

Loans and advances to banks 1,260,845 835,689

Investment securities 428,224 298,914

Loans and advances to customers 3,890,597 3,430,761 Other assets 21,822 22,986 Total 6,963,178 5,229,791 Commitments (Note 26) 995,720 792,701 Total credit risk exposure 7,958,898 6,022,492

Collateral

The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property, stock of materials and equipment as well as corporate guarantees and cash deposits. The fair value of collateral placed against individually impaired loans as of 31 December 2015 is estimated at MDL’000 30,482 (31 December 2014: MDL’000 44,247). The fair value of collateral placed against past due but not impaired loans as of 31 December 2015 is estimated at MDL’000 174,709 (31 December 2014: MDL’000 137,728).

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Collateral generally is held over loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. Collateral usually is not held against investment securities, and no such collateral was held as of 31 December 2015 and 2014.

The Bank monitors concentrations of credit risk by sector and by geographic location. An analysis of concentrations of credit risk at the reporting date is shown below:

Loans and advances to customers

Loans and advances to banks

Investment securities (in thousands

2015 2014 2015 2014 2015 2014

Concentration by sector

Sovereign - - - - 428,224 268,910

Central Bank - - 1,361,690 641,441 - 30,004 Commercial

- - 1,260,845 835,689 1 1

Individuals 1,224,572 1,047,732 - - - - Corporate

2,493,003 2,261,673 - - 1,638 1,478

Off balance sheet items:

Individuals 82,787 83,670 - - - - Corporate

912,933 709,021 - - - -

4,713,295 4,102,096 2,622,535 1,477,130 429,863 300,393

Concentration by location

Moldova 4,557,996 4,033,500 1,361,690 643,694 429,863 300,393

CIS 134 106 1,451 - - -

EU 151,716 67,346 1,247,020 557,244 - -

USA - 1 12,374 269,167 - -

Other 3,449 1,143 - 7,025 - -

4,713,295 4,102,096 2,622,535 1,477,130 429,863 300,393

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Commitments and contingencies

At any time, the Bank has outstanding commitments to extend credit. These commitments take the form of approved loans and credit lines.

The Bank provides letters of guarantee and letters of credit to guarantee the performance of customers to third parties. These agreements have fixed limits and generally extend for up to one year. The guarantees are secured with cession of money agreements and other type of security.

The amounts reflected in the table of guarantees and letters of credit represent the maximum loss that would be recognised at the balance sheet date if counterparties failed completely to perform as contracted and no guarantees are provided to the Bank. The credit risk amounts are minimised by the quality of security (deposits, real estate, etc).

The contractual amounts of commitments and contingent liabilities are set out in the following table by category. The amounts reflected in the table for commitments assume that amount is fully advanced.

31 December 2015

31 December 2014

(in thousands MDL) Commitments to grant loans 630,660 490,618

Guarantees issued 362,502 291,395

Letters of credit 2,558 10,688

995,720 792,701

These commitments and contingent liabilities have off-balance-sheet risk because only organisation fees and accruals for probable losses are recognised in the balance sheet until the commitments are fulfilled or expire. Many of the contingent liabilities and commitments will expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash flows. The policy of the Bank provides that only fully secured letters of credit are issued, i.e. all letters of credit are secured with a blocked deposit on the clients’ accounts and other types of security. As of 31 December 2015 provision related to commitments to grant and loans amounts to MDL’000 10,651 (31 December 2014: MDL’000 1,075) and related to guarantees issued amounts to MDL’000 11,110 (31 December 2014: MDL’000 78).

As of 31 December 2015 the Bank issued counter-guarantees in favour of SG Group banks under the commercial guarantee transactions in the total amount of MDL’000 25,851 (31 December 2014: MDL’000 44,859).

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Commitments and contingencies (continued)

Contingent liabilities

As of 31 December 2015 and 2014 the Bank acts as plaintiff in a number of litigation cases.

Legal claims

Litigation is a common occurrence in the Banking industry due to the nature of the business undertaken.

The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Bank makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year-end, the Bank had several unresolved legal claims, for which provisions has been made in these financial statements. The three most significant ones being in respect of a claim on disputed unauthorised withdrawal of means from a third party current account, disputed penalties due to tax authorities and another related to claims from a third party on removal of sequester from its’ debtors account. The possible outflow which could result from such litigation, based on the current status of the legal proceeding, is estimated to be MDL’000 9,957 (2014: MDL’000 7,132) (Note 21) while the timing of the outflow is uncertain.

Liquidity risk and funding management

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial liabilities.

Management of liquidity risk

The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.

On a short term basis the liquidity is managed by the Treasury based on received information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short term liquid assets, largely made up of short term liquid investment securities, loans and advance to banks and other interbank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole.

On a medium to long term basis the liquidity is managed through ALM function reporting to ALCO on the funding needs in the future.

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Liquidity risk and funding management (continued)

The table below summarizes the maturity profile of the Bank’s financial liabilities at 31 December 2015 and 2014 based on contractual undiscounted repayment obligations.

Total

Less 1 month

Between 1 month and

1 year

Between 1 and 5 years

More than 5 years

(in thousands MDL) As at 31 December 2015 Due to banks and to customers 5,623,737 3,701,788 1,796,665 124,604 680

Debt issued and other borrowings 533,008 5,147 184,992 314,418 28,451

Total financial liabilities 6,156,745 3,706,935 1,981,657 439,022 29,131 As at 31 December 2014

Due to banks and to customers

4,203,201

2,833,384

1,180,546

184,353

4,918

Debt issued and other borrowings

564,722

3,415

105,462

341,247

114,598

Total financial liabilities 4,767,923 2,836,799 1,286,008 525,600 119,516

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Market risk

Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit spreads will affect the Bank’s or the value of its holdings of financial instruments. The objective of the market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

As of the end of 2015 and 2014 the Bank did not hold trading portfolios and its exposure to price risk was insignificant.

Interest rate risk

The Bank’s operations are subject to risk of interest rate fluctuations to the extent that interest-earning assets and interest bearing liabilities mature at different times or in different amounts. Risk management activities are aimed at optimizing net interest income, given market interest rate levels consistent with the Bank’s business strategies.

The sensitivity on net interest income of the Bank is analysed separately for variable rates (as effect of interest rate changes for variable rate assets and liabilities) and fixed rates (by revaluing fixed rate financial assets for the effects of the assumed changes in interest rates based on the assumption that there are parallel shifts in the yield curve). According to financial market evolution, the Bank estimates a fluctuation of +/- 100 basis points for its assets and liabilities, and determine the impact of this fluctuation on the net interest income.

Change in basis

points

Sensitivity related to variable rates

Sensitivity related to fixed rates 31 December 2015

(in thousands MDL)

0-to 6

months 6 months to 1

year 1 to 5 years > 5 years Total

MDL +100 (606) (708) (1,762) 3,183 8,903 9,615

EUR +100 (52) 833 1,174 2,854 (357) 4,504

USD +100 (361) (80) (115) 389 (161) 33

Total (1,019) 45 (703) 6,426 8,385 14,152

MDL -100 606 716 1,787 (3,293) (9,359) (10,149)

EUR -100 52 (845) (1,195) (2,920) 388 (4,572)

USD -100 361 81 117 (370) 176 4 Total 1,019 (49) 710 (6,584) (8,795) (14,718)

68

BC "Mobiasbancă - Groupe Societe Generale" S.A



Change in basis

points

Sensitivity related to

variable rates

Sensitivity related to fixed rates – 31 December 2014

(in thousands MDL)

0-to 6

months 6 months to 1

year 1 to 5 years > 5 years Total

MDL +100 (492) (1,015) (1,653) 5,780 15,095 18,207 EUR +100 (593) 724 1,160 403 (186) 2,101 USD +100 (308) (235) 430 (491) (136) (432) Total (1,393) (526) (63) 5,692 14,773 19,876

MDL -100 492 1,028 1,680 (5,996)

(16,174)

(19,462)

EUR -100 593 (735) (1,180) (357)

201

(2,071) USD -100 308 238 (437) 531 150 482 Total 1,393 531 63 (5,822) (15,823) (21,051)

Currency risk

The Bank is exposed to currency risk through transactions in foreign currencies against MDL. There is also a balance sheet risk that the net monetary assets/liabilities in foreign currencies will take a lower/higher value when translated into MDL as a result of currency movements.

The Bank is analyzing permanently the structure of assets and liabilities in different currencies. The principal foreign currencies held by the Bank are EUR, USD and RUB. The Bank carries out operations in both the local currency and hard currencies and monitors its foreign currency exposure on a daily basis and close out its positions within individually defined limits set up by NBM for each and all currencies together. It is the Bank’s policy to minimize its exposure to currency risk by maintaining an open currency position at a minimum level.

The Bank’s transactional exposures give rise to foreign currency gains and losses that are recognised in the income statement. These exposures comprise the monetary assets and monetary liabilities of the Bank that are not denominated in the measurement currency of the Bank.

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Currency risk (continued)

The table below provides the information on the effect to net profit before tax and effect in equity of the change in foreign currency rates against MDL:

The amounts of assets and liabilities held in MDL and in foreign currencies at 31 December 2015 and 31 December 2014 can be analysed as follows:

31 December 2015 Euro US dollar MDL Other Total

(in thousand MDL) Assets Cash and balances with Central Bank 343,556 251,508 1,103,108 43,287 1,741,459 Due from banks 756,330 455,257 - 49,258 1,260,845 Financial investments - Loans and receivables - - 428,224 -

428,224

Financial investments - available for sale - - 1,639 -

1,639 Loans and advances to customers, net 861,448 854,735 2,001,391 - 3,717,575 Other assets 11,720 1,655 8,316 156 21,848 Total assets 1,973,054 1,563,155 3,542,678 92,701 7,171,590 Liabilities Due to Central Bank - - 84 - 84 Due to banks 1,086 964 570 - 2,620 Due to customers 1,842,715 1,314,325 2,339,690 44,951 5,541,681 Borrowings from IFI’s 129,333 208,953 151,362 - 489,648 EUR/USD, EUR/RUB swaps 34,365 4 - (34,363) 6 Other liabilities 49,115 21,999 62,773 8 133,895

Total liabilities

2,056,614

1,546,245 2,554,479 10,596 6,167,934

Net position 31 December 2015 (83,560) 16,910 988,199 82,105 1,003,656

FCY gap Possible rate

increase

Income / (loss) effect

Effect in equity

Possible rate decrease

Income / (loss) effect

Effect in equity

(in thousand MDL)

31 December 2015

EUR (14,830) +10% (1,305) (1,148) -10% 1,305 1,148

US Dollars 16,917 +10% 1,489 1,310 -10% (1,489) (1,310)

31 December 2014

EUR (19,450) +10% (1,712) (1,507) -10% 1,712 1,507

US Dollars (14,774) +10% (1,300) (1,144) -10% 1,300 1,144

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Currency risk (continued)

31 December 2014 Euro US dollar MDL Other Total

(in thousand MDL) Assets Cash and balances with Central Bank 389,640 196,979 533,810 12,428 1,132,856 Due from banks 554,092 269,574 2,253 9,769 835,689 Financial investments - Loans and receivables - - 298,914 -

298,914

Financial investments- available for sale - - 1,479 -

1,479 Loans and advances to customers, net 714,691 683,399 1,911,315 - 3,309,405 Other assets 14,851 825 7,210 100 22,986 Total assets 1,673,274 1,150,777 2,754,981 22,297 5,601,329 Liabilities Due to Central Bank - - 110,273 - 110,273 Due to banks 1,323 1,838 382 1 3,544 Due to customers 1,501,167 809,149 1,706,562 26,935 4,043,813 Borrowings from IFI’s 150,333 332,966 45,254 - 528,553 Derivative liabilities held for risk management 3,411 - - - 3,411 EUR/USD, EUR/RUB swaps 836 (14,101) 5,602 7,581 (82) Other liabilities 37,348 7,497 40,603 2,794 88,242 Total liabilities 1,694,418 1,137,349 1,908,676 37,311 4,777,754 Net position 31 December 2014 (21,144) 13,428 846,305 (15,014) 823,575

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Operational risks

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risk such those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Bank’s operations and are faced by all business entities.

The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Bank’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Bank standards for the management of operational risk in the following areas:

• Requirements for appropriate segregation of duties including the independent authorization of transactions

• Requirements for the reconciliation and monitoring of transactions

• Compliance with regulatory and other legal requirements

• Documentation of controls and procedures

• Requirements for the periodic assessment of operational risk faced and the adequacy of controls and procedures to address the risks identified

• Requirements for the reporting of operational losses and proposed remedial action

• Development of contingency plans

• Training and professional development

• Ethical and business standards

• Risk mitigation including insurance where this is effective

25 Capital management

The Bank’s objectives when managing capital are to safeguard the Bank’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. No changes were made in the objectives, policies and processes from the previous years.

Capital adequacy and the use of regulatory capital are monitored by the Bank’s management, employing techniques based on the guidelines developed by the National Bank of Moldova.

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25 Capital management (continued)

The National Bank of Moldova requires each bank to hold the minimum level of the regulatory capital as at 31 December 2015 (MDL’000 200,000), and maintain a ratio of total regulatory capital to the risk-weighted asset at minimum of 16%.

During the past year, the Bank had complied in full with all its externally imposed capital requirements.

31 December 2015

31 December 2014

(in thousands MDL) Tier I capital 1,036,747 818,761 Ordinary shares 99,944 99,944 Non-cumulative preferred shares, issued with unlimited term - - Capital surplus 151,410 151,410 Undistributed profit and formed reserves from profit 926,624 730,383 Calculated amount but unreserved of the allowances for impairment losses on asset and conditional commitments

110,449 122,448

Net intangible assets 30,782 40,528 Total tier II capital - - Cumulative and partially cumulative preferred shares with unfixed maturity

- -

Surplus of capital related to cumulative and partially cumulative preferred shares

- -

Subordinated debts with unfixed maturity - - Subordinated debts with maturity and preferred shares with limited term

- -

Revaluation of securities of certain issuers - - Amount of Tier II capital exceeding the amount of Tier I capital - - Total Tier I capital and Tier II capital 1,036,747 818,761 Shareholdings in the bank’s capital 1 1 Total regulatory capital 1,036,746 818,760 Capital adequacy ratio 27.73% 23.01%

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26 Cash and cash equivalents

The placement with the Central Bank which represent mandatory reserves requirements are not available to finance the Bank’s day–to–day operations and, therefore, are not part of cash and cash equivalents. This includes the balance of current accounts with Central bank disclosed in Note 12 amounting MDL’000 918,200 reduced by the level of mandatory reserves held in MDL (MDL’000 769,887). Financial investments – loans and receivables are NBM certificates and represents short-term, investments that are up to two weeks, which are subject to an insignificant risk of changes in value.

27 Maturity analysis of assets and liabilities

The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled.

31 December 2015 Within 12 months

After 12 months

Total

(in thousand MDL) Assets Cash and balances with Central Bank 1,357,519 383,940 1,741,459 Due from banks 1,260,845 - 1,260,845 Financial Investments – loans and receivables 425,674 2,550 428,224 Financial Investments – available for sale - 1,639 1,639 Loans and advances to customers, net 1,951,241 1,766,334 3,717,575 Other assets 21,848 - 21,848 Total assets 5,017,127 2,154,463 7,171,590 Liabilities Due to Central Bank 33 51 84 Deposits from banks 2,620 - 2,620 Due to customers 3,976,550 1,565,131 5,541,681

Borrowings from IFI’s 306,458 183,190 489,648 Other liabilities 133,895 - 133,895 Total liabilities 4,419,556 1,748,372 6,167,928 Net 597,571 406,091 1,003,662

Note 31 December 2015

31 December 2014

(in thousands MDL)

Cash on hand 12 379,770 491,415 Placements with Central Bank 12 148,313 138,211 Loans and advances to banks, net 13 1,260,845 835,689 Financial Investments -loans and receivables 15 - 30,004

1,788,928 1,495,319

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27 Maturity analysis of assets and liabilities (continued)

The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled.

31 December 2014 Within 12 months

After 12 months

Total

(in thousand MDL) Assets Cash and balances with Central Bank 559,912 572,944 1,132,856 Due from banks 835,689 - 835,689 Financial Investments – loans and receivables 291,446 7,468 298,914 Financial Investments – available for sale - 1,479 1,479 Loans and advances to customers, net 1,841,679 1,467,726 3,309,405 Other assets 22,986 - 22,986 Total assets 3,551,712 2,049,617 5,601,329 Liabilities Due to Central Bank 110,190 83 110,273 Deposits from banks 3,544 - 3,544 Due to customers 2,785,980 1,257,833 4,043,813

Borrowings from IFI’s 250,849 277,704 528,553 Derivative liabilities held for risk management 3,411 - 3,411 Deferred tax liability - 18,221 18,221 Other liabilities 78,653 9,589 88,242 Total liabilities 3,232,627 1,563,430 4,796,057 Net 319,085 486,187 805,272

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28 Related party transactions

The list of related parties, with whom the Bank entered into transactions during 2015 were as follows: • Société Générale (companies within the group, including major shareholder) • “BRD Group Société Générale” SA (major shareholder, significant influence) • EBRD (major shareholder, significant influence) • Key management including Executive Board and Supervisory Board members (significant

influence) • Parties related to those above

During 2015 a number of banking transactions were entered into with related parties in the normal course of business. The results of the transactions are presented in the table below:

Total 2015

SG BRD GSG

EBRD Key manage-

ment

Other

(in thousands MDL) Balance sheet items as of 31 December 2015

Due from banks 1,244,235 1,242,880 1,356 - - - Loans and advances to customers, net

12,540

-

-

-

2,260

10,280

Other assets (Note 17) - - - - - - Due to banks 570 - - 570 - - Due to clients 17,504 - - 63 1,948 15,493 Borrowings (Note 20) 236,711 - - 236,711 - - Other liabilities 25,313 22,492 2,807 11 - 3 *Out of which accrual 24,070 21,263 2,807 - - - Result from transactions during 2015

Interest and similar income 2,100 733 - - 252 1,115 Interest and similar expense 10,834 2,528 - 7,828 48 431 Personnel costs 34,329 - - - 14,912 19,417 Other non-interest expenses 22,405 6,460 13,137 178 2,356 275 Off balance sheet items Guarantee under EIB line (Note 20) 429,558 - - - - 429,558

Counter guarantees 273,466 1,804 24,047 246,996 67 552

76



28 Related party transactions (continued)

Total 2014

SG BRD GSG

EBRD Key manage-

ment

Other

(in thousands MDL) Balance sheet items as of 31 December 2014

Due from banks 822,007 818,720 2,744 - - 543 Loans and advances to customers, net 9,998 - - - 2,239 7,759

Other assets(Note 17) 2 - - - 2 - Due to banks 299 - - 299 - - Due to clients 12,109 - - 162 3,050 8,897 Borrowings (Note 20) 163,417 - - 63,417 - - Other payables 1,238 1,227 - 11 - - Result from transactions during 2014 - - - - - -

Interest and similar income 1,183 191 - - 189 803 Interest and similar expense 8,452 2,237 - 5,758 199 258 Personnel costs 30,283 - - - 10,974 19,309 Other non-interest expenses 20,213 4,735 3,394 131 1,466 487 Off balance sheet items Guarantee under EIB line (Note 20) 379,932 - - - - 379,932

Counter guarantees 47,247 - 44,859 - 100 2,288

29 Post reporting date events

During 2015, up to the moment of signing these financial statements there were no significant events having an impact on the financial statements.

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Financial Statements 31 December 2010 - MobiasBanca · PDF fileThe Bank was registered by the...

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