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ANNUAL REPORT

2015Sberbank BH d.d.

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ANNUAL REPORT

2015Sberbank BH d.d.

32 SBERBANK BH | ANNUAL REPORT 2015 SBERBANK BH | ANNUAL REPORT 2015

Table of Contents

Impressum

Publisher:

Sberbank BH Fra Anđela Zvizdovića 1, 71000 Sarajevo Bosna i Hercegovina Tel: +387 33 954 700 Web stranica: www.sberbank.ba

Editor: Emir Jildizlar, PR manager

Design & DTP: Omnitask

Photos: Jasmin Fazlagić, internal archive

Print: Printline d.o.o.

Online version of Annual Report is available at the following link: http://sberbank.ba/bs/izvjestaji-o-poslovanju-banke

Disclaimer:

This annual report has been prepared and the data checked with the greatest possible care. Nonetheless, rounding and printing errors cannot be ruled out. This annual report was prepared in Bosnian. The annual report in English is a translation of the original Bosnian report. The only authentic version is the Bosnian version

About Sberbank 5

Address by the CEO 6

Addres by the Chairman of the Supervisory Board 8

Macroeconomic Environment 9

Key Indicators 11

Business Analysis 12

Responsibility for Financial Reports 31

Financial Reports 32

Independent Auditor’s Report 38

Notes to the financial statements 39

Managing Bodies 111

Organisational Structure 112

Business Units Network 113


About Sberbank

Sberbank Europe AG, headquartered in Vienna, Austria, is a banking group that is 100% owned by Sberbank Russia. Since Sberbank Russia acquired Volksbank International (VBI) in 2012 and rebranded it into Sberbank Europe, major steps were taken to gradually transform Sberbank Europe into a fully-fledged self-funded and profitable universal bank with a strong focus on retail and corporate customers. Sberbank Europe is present in 10 markets in Central and Eastern Europe: Austria, Bosnia and Herzegovina (Sarajevo and Banja Luka), Croatia, Czech Republic, Hungary, Slovakia, Slovenia, Serbia, Ukraine and Germany. In Germany, Sberbank Direct serves retail clients, offering online basic banking products. In Austria, Sberbank Europe serves corporate clients with business focus on CEE markets, Russia and CIS. Sberbank Europe has more than 700,000 customers, operates 280 branches and employs around 5,000 employees across CEE. Total assets of Sberbank Europe amount to EUR 14.3 bn (as of YE 2015).

In November 2014, Sberbank Europe has been classified as significant institution and is directly supervised by the ECB. In 2015, Sberbank Europe, previously supervised by Austrian authorities, successfully completed the Comprehensive Assessment exercise by the ECB. Sberbank Europe comfortably passed the AQR, resulting in a Common Equity Tier 1 (CET1) ratio of 9.6%, which is above the 8% threshold defined by ECB. The pre-AQR adjusted Stress Test results showed a CET1 ratio of 10.5% under baseline scenario and 6.3% under adverse scenario for year-end 2017. The post-AQR adjusted Stress Test

results led to a CET1 ratio of 8.9% under baseline scenario for year-end 2017 (above the defined 8% threshold).

The post-AQR adjusted Stress Test results for year-end 2017 under the adverse scenario showed a CET1 ratio of 4.2% (threshold 5.5%). The implied capital shortfall (EUR 138.5 mn) has been fully covered by capital measures executed already in the first nine months of 2015. In addition, CET1 capital increased by 100 mn EUR in Q4 2015, providing room for new business. Sberbank Europe created a solid base for business activities for 2016 and beyond by successfully converting 370 mn subordinated loans (Tier 2 capital) to CET1 capital.

The bank significantly improved both the capital structure as well as its CET1 capital ratio. After the conversion, Sberbank Europe’s estimated CET1 capital ratio increased to 14.5%. According to a 2015 report issued by the European Banking Authority (EBA), the average CET1 ratio among Austrian banks reaches 11.3%.

Corporate & Investment Banking business continued to grow in 2015. The loan volume increased year-on-year by 5%, reaching an all-time high of EUR 3.95 bn at year-end. In 2015, the volume of new corporate loans (incl. prolongations) disbursed within the Sberbank Europe network reached a record level of EUR 1.6 bn, mainly on the back of the strong performance of Sberbank Europe AG, with an annual growth of more than 35% in loans, and a 65% increase in customer base.

Sberbank Europe Headquarters, Vienna


Ladies and gentleman,

The best words to describe our business policy in 2015 are flexibility and adaptation to change. We have faced new and very often totally unknown business challenges, as a result of the global situation and its repercussions at the local and regional levels. I am pleased to emphasize that these challenges have made us stronger, better and more capable for some of the future competitions in the market.

The strength of a company is not only reflected in its size but, above all, in its ability to recognise market developments in a timely manner, identify market challenges and find adequate answers. Having analysed the results achieved, I have the pleasure to point out that we are a huge company indeed.

We are huge primarily because we have fully adapted our business strategy to the changes in the market while maintaining full awareness of the requirement to maintain the continuity of top quality of services. That is our core and, for most rivals, an unattainable advantage.

We are happy to note that our commitment to supreme quality service is recognised by our clients. According to an independent research carried out by a Swiss agency, we are the first choice of our clients when it comes to service quality, including overall impression. Our primary focus still remains on the satisfaction of our clients.

Another, even stronger confirmation that our bank is moving in a good direction came from our depositors, clients who have demonstrated confidence by

Address by the CEO

Edin Karabeg, CEO

committing their money to us for care and management. We have demonstrated equal success both in deposit management and loan management.

The deposit growth rate is substantially higher as compared to the industry average, which we find rather becoming, particularly in the context of the market circumstances under which these results have been achieved.

The previous year was marked by co-operation with a major BIH football celebrity. The co-operation continued in 2015. In the meantime, we involved a music celebrity in the promotion of our loan products. We did this with a single reason in mind: to ensure that our clients feel like stars because that is what they really are.

With the desire to improve the business operations of our clients, allow faster and simpler collection of outstanding debts and reduce insolvency, we introduced factoring to our product portfolio. The initial reactions to this service were really positive. I truly believe that the interest of clients will increase and that this product has a future.

I wish to take this opportunity to thank our clients for everything hereinabove but primarily for recognising our bank as a partner, a bank they wish to work with on the improvement of their private and business financial operations.

We will remember 2015, particularly its last quarter, as a time of intensive negotiations on a strategic partnership with one of the leading regional companies. This partnership, which will be announced at the start of 2016, will be a sort of revolution in the market because we will be in the position to offer our clients a unique set of financial and non-financial products and services.

Another key project occurred in the last quarter of 2015, which will have substantial impact on the business operations of Sberbank BH in the forthcoming years. At the end of November, we made a huge step forward in advancing our operations. We moved to a new, much more modern, better quality and more reliable processing system for card operations. In consequence, we can now focus stronger on card operations and

consider some, so far “unsolvable’’ problems, as ancient past. The new processing system, implemented in co-operation with the renowned US company First Data, offers vast opportunities for the development of card operations.

We achieved outstanding results in the area of socially responsible business and improvement of relations with the local community. During the past year, we implemented many community projects and I particularly wish to stress several joint activities which have been initiated by our employees. There will certainly be room for such initiatives in the following year and I am certain they will have even better results and involve more of our staff.

These, and many other things which I have not mentioned, would have been impossible without the valuable and diligent employees of Sberbank BH-my colleagues. I thank them for their efforts to make this bank even stronger and better.

By nurturing team values, we have shown that there is no such thing as an unsolvable problem, desperate situation or any other challenge which we are unable to handle. Team spirit and team power are great treasures which make Sberbank BH special. We intend to continue nurturing that spirit in order to demonstrate that we can compete with much bigger and stronger market players.

Undoubtedly, there will be major and minor business challenges in the coming year. Only if we work together as a team, in an atmosphere of mutual co-operation and trust, we shall be able to transform challenges into opportunities and make Sberbank an even more wanted brand.

Sincerely Edin Karabeg,

CEO


Address by the Chairman of the Supervisory Board

Macroeconomic Environment

The development of a modern, self-financing and profitable bank is not only the guideline of Sberbank Europe but the outstandingly successful Sberbank BH. Our approach in creating products and services based on the needs of our clients, with full consideration of modern trends, makes Sberbank BH a leader in innovation.

An above average growth of the deposit base has allowed Sberbank BH to strengthen its position on the market and a have a more intensive approach in the loan segment. As a result, the business achievement of Sberbank BH has significantly improved in comparison with the previous year, thereby substantially contributing to the overall financial results of the business operations of the Sberbank Europe Group. These results were achieved despite the global challenges and in a relatively small market, much smaller in comparison with other markets where the Sberbank Group operates. Sberbank BH, led by Mr. Edin Karabeg, has demonstrated success and an excellent concept of the applied business model.

I primarily wish to thank all Sberbank BH staff for the selfless efforts they have invested in order to make Sberbank BH stronger and more successful. Continued commitment to work and team efforts have resulted in well-deserved business success.

We owe particular gratitude to our clients for selecting a partner they can rely on in any situation. Continued increase of the number of clients as well as loan and deposit portfolios indicate that our clients recognize and appreciate out work, which is of enormous satisfaction to us. In the meantime, it bestows responsibility on us for our future activities.

We remain focused on increasing the satisfaction of our clients in the future and developing stable and long term working relationships with them.

Sincerely,

Alexey Bogatov Chairman of the Supervisory Board

Alexey Bogatov, Chairman of the Supervisory Board

The BIH economic growth in 2015 rose to 3%, following modest economic growth of 1% in the previous year. This is the highest growth rate in BIH since 2008, but GDP growth is mainly a consequence of the low baseline from 2014, due to a decrease of economic activity caused by the floods. It is partly a result of gradual improvement of the economic situation in the external environment and the dropping of world prices accompanied by deflation in Bosnia and Herzegovina.

Although the BIH economy achieved better economic growth than predicted, economic activities in 2015 remained quite weak. Along with the lack of an arrangement with IMF and restrictions in public spending, some earlier announced investments did not materialise. This primarily pertains to the electrical energy sector (Hydro-electric power plant Vranduk, Block 7 of the Tuzla Thermal Power Plant, Windpark Mesihovina) which could have brought economic momentum.

Modest economic growth was driven by increased export and production increase in the processing industry while lower domestic demand created weight on the other side of the balance.

Despite the accelerated economic growth in the external environment, BIH commodities export in 2015 marked a modest growth of 3.09%. Export was accompanied by a not so impressive 2.6% increase of the physical scope of industrial production, with the main contributions coming from furniture production

(27%), finished metal products (9.6%) and chemical products (7.6%).

Export growth is a result of a 28.5% increase of food export, up to a total of 722.4 million KM. This is largely due to the implementation of an agreement on export of meat and processed meat products to Turkey, which doubled the meat exports as compared with the previous year, including a 35.5% increase of fruit and vegetables export.

The processing industry marked a 4.8% increase. However, it was insufficient for higher total export rates.

There was a 3.3% decline in the export of base metals, which highly depends on global market developments.

Foreign trade is characterised by a high deficit of almost 10%, which is a result of lower domestic demand and global price changes.

Despite the (although low) export growth, import declined by 2.45% against the previous year, with a 3% decrease of capital commodities import. The import decline is partly a result of the drop of oil prices in the global market, which reduced export values in the mineral fuels sector, and also affected other segments of trade. The construction sector, previously a growth generator, stagnated in 2015. Following substantial progress in the period between 2010 and 2014, the situation in construction deteriorated due to the drop of investments, primarily regarding Corridor VC, resulting in a negative growth rate of 2% in construction. Tourism was a “bright spot“ last year, which contributed to GDP growth with its 21.5% increase of visits and 25,2% increase of overnights.

Last year, 1.03 million tourists visited BIH. The number of foreign tourists is increasing against the number of domestic tourists.

The acceleration of economic growth led to a slight spending increase but not to a substantial increase of the life standard.

The 1.3% drop of consumer prices (deflation)

- 1,6%

2012 2014

- 1,2%

BDP BiH 2012 - 2015

2

3

1

-1

-2

-3

0

0,8%

3%

2013

GDP of Bosnia & Herzegovina, 2012.-2015.

2015


increased the citizens` income and strengthened final consumption. An indicator of this development is that retail trade in BiH marked a 5.3% rise, considering the current prices.

However, personal incomes have not increased. The BIH average net salary for the month of December was 842 KM and it is nominally 0.1 % lower than in the same period of 2014.

There was somewhat larger effect in the labour market with a slight increase of the employment rate. The total number of employed persons rose slightly last year, by almost 2%, bringing the total number of employed persons to above 715 thousand. Most of the employers were among wholesale and retail trade, reparation of motor vehicles and motorbikes and processing industry. The fastest employment growth was observed in real-estate business.

The total unemployment rate in December last year was reduced by 1.7% on annual level. The number of unemployed persons was over 537 thousand.

Due to the lack of an arrangement with IMF, public spending found itself under pressure, the governments struggled with budget shortfalls while the BiH current account deficit, according to IMF assessments, amounted to -7.6%.

It was not possible to cover fiscal deficits with increased revenues from indirect taxes. The revenues amounted to 6.35 billion, marking an increase by 1.8%, or by 113 million KM, as compared with the previous year.

The inflow of foreign investment did not remain at the level of the previous year-a total of 388.9 million KM invested. The first three quarters of 2015 marked a 33.8% decline as compared to the same period in the previous year. Direct foreign investments, led by investments in Thermal Power Plant Stanari- which is being

constructed on a “turnkey“ basis- also marked a lack of momentum as this first major post-war investment in the electrical energy sector was coming to its end.

Overall, signs of economic improvement were observed in 2015 but they can be described only as recovery from the difficult previous year and consolidation for possible growth in the coming years.

Tourist revenue, 2013 - 2015

Net salaries and prices, 2011 - 2015

Key Indicators

2013

2013

2013

2013

2014

2014

2014

2014 2015 2015

2015 20152012

2012

2012

2012

2011

2011

2011

2011

552.530 668.552

808.810879.400

324.399

451.428

519.669674.884

679.115

861.8831.006.003 1.101.537

117.103119.828

153.787159.994

502.957

299.670

817.012 116.940

Total Loans Thousands BAM

Total Deposits Thousands BAM

Total Assets Thousands BAM

Capital Thousands BAM

Thousands BAM 2015 2014 2013 2012 2011Total Loans 879.400 808.810 668.552 552.530 502.957

Total Deposits 674.884 519.669 451.428 324.399 299.670

Total Assets 1.101.537 1.006.003 861.883 679.115 817.012

Profil before tax 6.919 5.154 3.087 700 4.458

Profit after tax 6.207 4.622 2.725 163 4.012

Kapital 159.994 153.787 119.828 117.103 116.940

CIR (%) 67,1% 69% 73% 71% 64%

U hiljadama

500

00

844,18

1.822,921.711,480

2.143,11ArrivalsNights

846,58 1.029,00

1 1,5 2 2,5 3 3,5

1.000

1.500

2.000

-1-2

2011

3,1

1,8

-1,2-0,4

-1,3-1

0,70,80,4

1,3

Net Salaries Prices

2012 2013 2014 2015

01234


Retail and Entrepreneurs

An above average deposits increase during 2015 is a confirmation of our clients` confidence in the Bank and their general awareness of the Bank and its products. The growth trend in brand awareness is particularly evident in the spontaneous brand awareness rate, which reached the level of 33%, marking an almost 50% growth as compared with the previous year.

The increase in spontaneous brand awareness was observed among all age groups and it is particularly accentuated in towns with over 50,000 inhabitants. The encouraged brand awareness has increased from approx. 45% to 75%, with the largest growth observed among the population younger than 30. This is particularly important since it is a category with the highest potential, just entering a life phase in which it will need a partner bank. In parallel with deposit

growth, we maintained continuity in loan expansion. We achieved substantial growth rates in this segment too. We paid the highest attention to the debt consolidation

loan, which remained our key product during 2015. We began a huge campaign for debt consolidation loans at the beginning of Spring.

We continued co-operation with the former captain of the BIH national football team, Emir Spahic. Apart from that, we included Jelena Rozga, a regional music celebrity, in the promotion of debt consolidation loans. Both of them, each in their own way, contributed to

the materialisation of our idea, to show that all of our clients are treated as stars, from the moment they enter and all the way until they leave our offices. Our clients are stars for us and we wish to treat them accordingly. The campaign resulted in a splendid response from the market.

We paid particular attention to the promotion of our cards during last year. In a desire to acquire a distinct position of our Cash Card against similar rival products, we implemented several activities which contributed to its differentiation.

We began the programme “Bod po bod“, rewarding every transaction made with Cash Card. The payments made with this card during quarterly cycles were awarded special points which were transformed into gift vouchers at the end of each cycle. Apart from that,

Business Analysis

Jelena Rozga and Emir Spahić

2013 2014 201520120

300.000

450.000

150.000

333.771 348.539411.078 442.414

Krediti fizičkim licima U hiljadama KM

2013 2014 201520120

300.000

450.000

150.000

224.584 254.520274.816

368.270

Depoziti - stanovništvo U hiljadama KM

all Cash Card users were given preferential status in the largest shopping centre in Bosnia and Herzegovina, the Sarajevo City Centre. In co-operation with the Centre, we negotiated three hours of parking, free of charge for all card holders, and favourable shopping prices in more than half of the stores within the Centre.

However, we did not stop there. In order to favour our clients, we enabled the purchase of iPhone6 for very favourable prices and payment in instalments. We performed this activity in co-operation with our partner, AtStore, an authorised distributor of Apple products.

During the summer, we launched a new, conceptually very different card-the Visa Gold. This card is intended primarily for our clients that travel frequently, it is linked to their foreign exchange account and, with the benefits it offers, it is a must-have partner during any important trip abroad.

Acting with our partner MasterCard, we launched the MasterCard Gold Card, which offers numerous benefits including the particularly attractive VIP treatment at the airports in Sarajevo, Belgrade and Vienna, in VIP rooms, for all card owners and persons accompanying them.

In the Partnership segment, we made some important steps in co-operation with the insurance company “Merkur BH Osiguranje“, which is one of our key partners.

We introduced a new product-card insurance which includes risk of death, disability and misuse in case of loss or theft. We established this functionality for all debit cards in Plus Packages, including the Visa Cash Card. We also created a new credit insurance model, which will be implemented during the next year. In the credit

card segment, we created an option which covers risks of death, disability, medical absence and unemployment, which has also strengthened our competitiveness in relation to other market operators. We worked intensively on the promotion of insurance. We completed two successful campaigns for life insurance products in our branch offices. Together with Merkur BH Osiguranje, we organised an educational workshop and social gathering of the directors of branch offices and regional managers.

We expanded our commodity loans offer in the Partnership segment, introducing additional partners where our clients can purchase different types of goods

and services while paying in instalments (even up to 36 instalments.) We organised joint promotion campaigns with some of those partners with the aim to inform

Creative for Master Card Gold Debit TM

Creative for Consumer Loans

Branding of BH Post’s Branches


our clients about the benefits of commodity loans. In the segment of currency exchange, we established a strategic partnership “BH Posta“ (BH Postal Service) allowing our clients to change foreign currencies at over 200 locations, under very reasonable terms.

We have achieved significant results in the segment of Entrepreneurship. We achieved growth in all segments,

even above the planned parameters. We implemented the SFE system for sales staff during 2015, which improved their efficiency and encouraged better performance.

Sberbank Group has recognised our results and awarded us several times for different activities. Meanwhile, those activities have been characterised as good

business practices. We understand this recognition as an indicator that the key factor is not in the market’s size but in proactive approach to clients and team work. We completed our activities with one goal in mind: to make our clients feel better because they have chosen us to be their financial partner. We are pleased that our

clients recognise and appreciate this attitude. We get this feedback from clients almost every day. Apart from that level, we experienced the gratitude of our clients in the form of recognition that came from an independent research agency from Switzerland, at the end of last year. Based on a research performed by this agency among BIH citizens, we were acknowledged as bank with the highest level of services, most satisfactory for the clients and whose services they would recommend to their friends and relatives. We are especially fond of this recognition since it is confirmation that clients and the market as a whole recognise our work and efforts aimed at becoming better than others-a reliable partner which the client can rely on in any moment.

2013 2014 201520120

60.000

90.000

30.000

43.041 47.427

61.93672.267

Micro Loans Thousands BAM

2013 2014 201520120

30.000

45.000

15.00015.912

29.100 31.35535.664

Deposits - Micro Thousands BAM

Awards for achieved results in Retail

Creative for Master Card Promotion

Corporate Banking

The year 2015 was a year of challenge for the segment of Corporate Banking. However, regardless of all aggravating circumstances in the market, very prominent competition and many other challenges we faced in the past year, the segment achieved notable results in all fields. An increased market share, innovative products and acceleration of processes are just a small portion of activities performed during 2015.

The employees in this segment are prepared to react in any given moment to all requirements of their clients and offer services which will lead to the realisation of the client’s business goals.

While adapting to the needs of the clients and in our daily communication with them, we recognised the need to introduce a new product-Factoring. It is a product which has yet to be affirmed in the market.

Due to factoring, the clients can relatively quickly and easily collect the cash they need to reinstate into the

business process. Apart from improving liquidity, factoring allows our clients to manage outstanding debts, a better competitiveness and protection against the risk of non-payment and the reduction of potential loss. As a result of proactivity and successfully completed introduction of factoring as a new product to Sberbank BH-one of the first banks in F

BIH to have this product- Sberbank Europe AG awarded Sberbank BH with the reward titled ‘’Best Start Factoring Deal 2015’’. Apart from innovative new products, we

have improved electronic banking and some of the existing products. We optimised processes allowing our clients to obtain bank services quicker and in more favourable manner, thereby substantially contributing to an increased competitiveness of the Bank in the market. The concept Bank@Work, which we are implementing together with our colleagues from Retail, is well accepted by our clients.

Deposit Growth for 2012 - 2015 amounted to 205 million BAM.

Jan 2012 Dec 2012 Dec 2013 Dec 2014 Dec 2015

Depoziti (u milionima KM)

0

100

200

300

Awards for achieved results in SME segment

SME / Corporate Team Building

85,6 86,8

188,6228,8

290,9


Focusing on our clients and products, which will satisfy their needs in the best possible way, we worked on process improvement together with our colleagues from other sections, including the introduction of new products and cross-selling. As a result of daily efforts, the area of SME/Corporate was rewarded as the best SME bank at the group level. Innovative approach and

focus on the needs of our clients have singled us out as a Bank, a major player on the market, which participated in several important projects run by the largest companies in Bosnia and Herzegovina. The confidence of such important companies resulted in substantial results of the SME/Corporate segment in 2015.

Significant engagement and participation of Sberbank BH in the public sector through tenders has highly contributed to the achievement of significant results and an increased market share in this field.

The growth of the loan portfolio as compared to 2014 amounted 9.17% which strengthened our position in the market. Our goal to expand the quality and scope of our services has been recognised by our clients and resulted in a significant 29.73% growth of warrants in the past year.

Global Markets

At the beginning of 2015, the global foreign exchange markets were stunned by the sudden decision of the Central Bank of Switzerland to abandon the cap on the currency’s value against the Euro. The value of the Swiss Franc rose by more than 15% in just a few minutes, thereby causing a real explosion on the financial market.

The first trimester of 2015 in the Central and East Europe debt markets will be remembered by a proportionally strong narrowing of the yield spread on reference securities and drop of returns to the lowest level known in history. Such developments were largely a result of the expected and earlier announced European Central Bank government bonds redemption programme.

The second trimester was marked by the continuation of the expanded programme of bonds purchase by the ECB and negotiations between Greece and creditors, which eventually ceased with a large degree of uncertainty and the probability of Greece exiting the Eurozone.

The differences on monetary policies among the leading central banks remained as one of the key determinants of the developments on the world financial markets in the third trimester. ECB continues to run an expansive and unconventional monetary policy through the purchase of securities while maintaining the reference interest rate at historically low levels. Consumer prices were largely driven back by low prices at the commodity markets, particularly the low prices of crude oil.

At the end of 2015, the world markets focused on stronger differences in monetary policies between the two world’s largest central banks. Fed decided to tighten the policy of low interest rates. For the first time after June 2006, it decided to broaden the range for establishing reference interest rates by 25 base points i.e. to 0.25%-0.50%.

At the beginning of December 2015, the ECB rendered the decision to further loosen the monetary policy by broadening the set of measures of non-conventional monetary policy.

The ECB overnight deposit interest rate decreased to

Rast garancija u periodu 2012. - 2015. iznosio je 41 milion KM.


Garancije (u milionima KM)

0

20

40

60

Loans Growth for 2012 - 2015 amounted to 259 million BAM


Krediti (u milionima KM)

0

150

300

450

191,8

15,31

136,9

16,28

298,2

25,8

363,0

44,13

396,3

57,25

-0.30% while the programme of quantitative easing was extended until the end of March 2017.

The foreign exchange position of the Bank was maintained in accordance with the limits prescribed by the Banking Agency of the Federation of BIH, for

all currencies individually and for the overall foreign exchange position. Internal limits prescribed by Sberbank Group were respected and there were no breaches in that aspect.

The Global Markets Department continued to sign contracts with new clients that use the Customer Desk services. The services rendered through the Customer

Desk mainly pertained to currency trade. The primary goal was to gain and maintain the confidence of clients through prices and exchange rates which were competitive and realistic for the market developments at the time.

As an authorised participant in the F BIH securities market, the Bank continued to provide successful depositary and custodial services in 2015.

The clients, joint stock companies, recognised the bank as a partner in capital increase processes (capital increase through emission of stocks) including acquisition of other joint stock companies through tender offers.

Investment funds and fund management companies,

as institutional investors, demonstrated their years-long confidence in the bank allowing our bank to become their custodian for securities, which successfully continued in 2015. The positive trend of opening of custodial accounts for other investors (legal entities and natural persons) continued too. In 2015, the Bank provided its clients access to regional financial markets as well as the world’s leading financial markets through

its international network.

The years-long successful operations in the securities market continued in the field of depositary functions in securities trade. Although the Sarajevo Stock Exchange, the Bank’s client, has a relatively low liquidity, transactions worth over 30 million KM have

been carried through its special purposes account in 2015.

The Bank, as an authorised participant in the FBIH securities market, is under the constant scrutiny of the FBIH Securities Commission. By extending the Bank’s licence on an annual basis, the Commission confirms our professional attitude and demonstrated quality in depositary and custodial services.

Precious Metal prices in 2014

Oil price in 2014


Operations

Operations, as one of the key sectors that support the Bank’s operations, which integrates centralised administrative functions and operational functions, operates within the COO area.

Operations consist of the following departments: Groups for Assets/Back Office Processing and the Main Treasury operate within the Department for Assets/Back Office Processing and Cash Management. Loan administration is divided into Retail Loans and Corporate Loans. In the purpose of monitoring and realizing planned goals and the Bank’s business strategy, the year 2015 was a year of huge challenges and substantial achievements for this field. After the establishment of a stable and optimal organisation structure in 2014, the main challenges for Operations in 2015 were increase of staff efficiency, optimization of key business processes and initiation of several significant projects for the Bank. Operations had a very important position and role in these activities. Despite many parallel activities, all challenges were handled successfully. All key indicators of banking operations show growth and positive trends. Project 5S was implemented in two departments of Operations-Payment Systems and Documentary Affairs and Cards. The project was implemented through Lean Projects

and initiatives launched at the Group level together with the Organisation Department, thereby improving the working space and environment, advancing work processes and reducing operational costs.

PAYMENT SYSTEMS AND DOCUMENTARY AFFAIRS DEPARTMENT

Payment systems and documentary affairs support the processing of customer requests in three segments of the Bank’s operations:

1. Domestic payment transactions

2. External payment transactions (payments abroad)

3. Documentary affairs

The most important achievements the area of payment systems:

• Halcom electronic banking released at the very beginning of 2015

• Numerous improvements of existing functionalities in the Bank Core System, including the automatization of the end-of-day procedure

• Significant reduction of time required for the processing of domestic payment orders with the introduction of additional functionalities to the DMS application, which substantially increases efficacy and productivity in order processing.

• Numerous and important changes in the ELBA application on the part of user interface: checking account balance and available funds, introducing

Platni sistemi i dokumentarni poslovi

Kreditna administracija

Kartice

Call Centar

Operacije

Sredstva/Pozadinska obrada i upravljanje gotovinom

Administriranjeračuna

Migration to First Data process center

mandatory fields, logical checks between fields (e.g. BIC Code and name of the user’s bank), mandatory scanning functionality and forwarding of accompanying documents, automated reply to the client in case of order rejection, numerous notifications to the clients aimed at preventing mistakes in filling forms, etc.)

• Development of new functionalities in order to meet specific requirements of new and very important Bank clients such as JP BH Posta (authorised exchange offices and payment transactions), JP BH

Telecom (main bank account), JP Elektroprivreda BH, the Federal Ministry of Finance, etc.

• Increased share of electronic orders by 10% as compared to the end of 2014.

With the improvements mentioned above, the Bank achieved the following in 2015:

-increased number of outflows through the CBBIH /Central Bank of Bosnia and Herzegovina/ by approx. 15% and inflows by 7.5%

-Increased market share in domestic payment, through the CBBIH, by 10%

-Increased number of outflows to foreign countries by more than 30% and increase in inflow from abroad by 8%

LOAN ADMINISTRATION DEPARTMENT

There is an evident growth of all indicators of operational affairs in the loan operations segment, where the Department of Loan Administration plays a significant role.

As of March 2015, the loan process for natural persons has been improved with the introduction of the so-called DMS functionality. The system is supported by an application from the very beginning i.e. from the receipt of the request to payment of funds. All loan documents are scanned and submitted electronically to the next participant in the process. This enables not only electronic communication but also document protection as well as faster and more effective access to authorised participants in the loan process. The Loan Administration played a key and active role in the introduction of a new product for legal entities-Factoring- in the portion of analysis, preparation, setting of IT support parameters and the testing of final functionalities. The introduction of this product expanded the offer for this group of clients and they will have the opportunity to use all benefits which the product offers.

Apart from the mentioned activities, the Loan Administration initiated and took part in various activities aimed at increasing the efficacy and optimising processes such as improving the process of reception of

Finalization of 5s Project

Jan Feb Mar Apr Maj Jun Jul Aug Sept Okt Nov Dec0

0,5

1,0

1,5

2,0

Payment Orders - incoming(% market share)

2014

2015

Jan Feb Mar Apr Maj Jun Jul Aug Sept Okt Nov Dec0

1

2

3

4

Payment Orders - outgoing(% market share)

2014

2015


CRK reports, automatic collection of immediate liabilities, delivery of various reports and notices to clients through electronic communication channels, including the improvement and reduction of the end-of-the-month procedure.

CARDS DEPARTMENT

The entire year 2015 for this department was marked by migration to the new process centre, First Data.

The migration lasted from April until December 2015. Due to internal resources and efforts invested by

the employees, the Bank managed to complete the migration to a new processor in a timely manner. This has significantly improved this segment of operations. Two employees of the Cards Department where ‘’stream leaders’’ in this project.

Apart from better quality support to the implementation of new and further development of existing products and

services, this migration resulted in improvement of the following segments of card operations.

The assortment of cards and services was expanded in 2015. Visa/Master Card mandate has been implemented for the acceptance of OCT/Moneysend transactions, Loyalty programme for Visa Cash Cards. A new card has

also been launched-the Visa Debit Gold Card.

As of 31 December 2015, the Bank has the following in its network:

• 56 ATMs

• Five multifunctional ATMs

• Six info-terminals

• 31 POS cash terminals

The Bank’s efforts certainly provide good results. A substantial growth in cards operations has been observed in 2015. The number of issued cards on 31 December 2015 increased by approx. 30% as compared to 31 December 2014.

The expansion of the cards portfolio also resulted in a 30% increase in the number and volume of transactions (cards payment and ATM transactions) in 2015 as compared to 2014.

DEPARTMENT FOR THE ADMINISTRATION OF ACCOUNTS

The Department for Administration of Accounts covers

Monitoring procesiranjatransakcija

Implementacija mandata kartičnih kuća

Analiza i postupak charge back procesa

Monitoringbankomata

Kartičnoposlovanje

Opsluživanje bankomata putem administrativnih kartica

Automatsko preuzimanje procesiranja u slučaju

komunikacijskih problema;

POS cashacquiring

Risk monitoring

four segments of operations:

1. Legal entities - administration of accounts in the opening and closure of accounts, activation of transaction accounts and product packages, calculation of interest rates.

2. Forced collection from accounts belonging to legal entities or natural persons

3. Administration of accounts for natural persons which includes closure of accounts, early termination of contracts and special fixed deposit terms and conditions, calculation of interest rates and related compensations.

4. Management of Complaints

The number of accounts opened for legal entities increased in 2015 as compared to 2014.

In accordance with the general economic situation in the market, the number of blocked accounts increased in 2015 as compared to 2014.

The functionality of electronic communication and delivery of documentation was introduced to the process of account opening for legal entities. The Accounts Administration Department, as part of Operations, has a key role in this.

During 2015, many activities were undertaken in the Accounts Administration Department regarding the implementation of the Decision on Bank Proceedings Regarding Inactive Accounts. Activities on the implementation of the FBIH Law on Internal Payment Transactions were also initiated.

CALL CENTRE

The project of establishing the Call Centre, within the Operations area, was completed at the end of 2015. This took the services to a new level.

The purpose of the Call Centre is to provide our clients with easy access to information about the Bank, its services, products and modes of operation. This includes building on the existing knowledge and standardising and improving service.

With the establishment of the Call Centre, Sberbank BH d.d. has begun to provide its clients with full

communication support regarding its services, products and all other issues related to the client and the Bank. It also provides:

• A primary communication channel for the existing and potential clients

• Quick and easy access to information about the Bank, services, products and modes of operation in all segments for potential and existing clients

• Standardisation and improvement of services with optimum usage of existing knowledge

• A new sales channel

• Improving the quality of communication services and bringing them to a very high professional standard

• Keeping existing clients

• Preventing potential complaints and softening adverse opinions of the clients

• Maintaining and improving the loyalty of the clients

• Creating and maintaining a positive image of the Bank

The Call Centre allows the existing and future clients to check all information about the Bank’s services and products quickly and simply, over the phone or e-mail, and obtain clear and detailed answers.

By calling the number +387 33 954 700, the clients can obtain all necessary information about the Bank’s products and services


Technical Support

The Technical Support Department mainly focused on cost optimizing and proper resource management. The Technical Support Department implemented important projects during 2015, resulting in substantial savings for the Bank. In the period when the Bank is achieving income growth, it is reasonable to expect an increase of operational costs. The following steps were taken in the purpose of generating positive financial results:

Optimisation of Archive Space

In order to reduce the cost of rental for archive premises, the Bank initiated a project aimed at moving the archives from the central archive to another location where the Bank is already renting quite a large space. The movement required transportation, loading and unloading of approx. 32,000 register files.

Optimisation of Distribution of Ingoing and Outgoing mail

The analysis of significant problems and costs in the distribution of mail resulted in the idea to optimize the whole process. The initiative was realised in the Technical Support Department in October 2015. The optimization consisted of several steps:

•ContractsignedwithBHPosta-lowerpricereachedformail distribution

• Delivery of consignments directed towards RegionalCentres/groups of branch offices

• Initiative undertaken to have the staff internally re-distribute mail upon departure to meetings, client visits. Branch Office Tuzla 1 was involved in the pilot project. The project was declared successful and then implemented in the remainder of the network.

The goals of optimisation of mail distribution are:

•Costreduction

•Controlincrease

•Qualityimprovement

The expected saving in the optimisation of express mail is more than 50% as compared to 2014.

Open space, a modern concept of office space has been implemented in December 2015, at two locations within the Bank’s Central Office. The goal of this project was to optimize the existing working space and achieve subsequent financial savings.

The actions taken in order to implement the Open Space Concept were:

• Development of project documentation

• Selection of suppliers

• Temporary relocation of staff to an alternative location

• Procurement of new furniture

• Creation of jobs

Hiring New Suppliers

New suppliers were hired through tenders and bids in order to improve quality and get better prices. This engagement is expected to result in substantial financial savings.

New Open Space concept

Risk

Integrated Risk Management

A new risk appetite has been defined for 2015 and new indicators for risk monitoring were introduced. The Bank identified its targeted risk structure and the readiness to assume certain risks. The IRM established a stable internal limit monitoring system together with other relevant departments, which allowed timely identification of the situation and reaction should the need for corrective action arise.

Successful activities related to the RWA Optimization Project continued. The monitoring is performed on a weekly and monthly basis in order to take timely and appropriate action. In 2015, the average RWA declined as compared with the overall exposition of assets, thereby achieving budgetary goals.

Bearing in mind that Basel III Regulations are implemented at the Group level, it is necessary to implement the same standards in all its branches, including Sberbank BH. The internal capital adequacy assessment process (ICAAP) is an implementation of the second pillar of the Basel Agreement, which pertains to capital adequacy.

Therefore, an identification and assessment of the materiality of all risks the bank is facing was performed at the beginning of the year. Quantitative and qualitative assessment of all material risk was completed subsequently with the aim of defining the Bank’s overall risk profile. In order to measure and monitor whether the Bank operates with an adequate level of capital for covering all material and relevant risks in any given moment, a calculation of risk bearing capacities (RBC) was performed. It is monitored on a monthly basis. Once the capital for risk coverage has been identified, a limit system for different risk types was established. It is subject to permanent control, monitoring and reporting. This completes the entire process of capital adequacy assessment for 2015.

The Bank also took an active part in the preparation and analysis of new regulations pertaining to Pillar I and Pillar II regulations, as per Basel III. The material has been distributed to other banks in BIH for analysis. The 2016 Risk Strategy was created at the end of the year. An important part of the strategy are the key goals of the

business strategy, key goals related to risks and the limits and goals which define the Bank’s risk apetite. All data are based on the 2015-2017 budget. Also, all departments in the Risk Stream have presented their basic goals and focuses for 2016, which will contribute to the realization of the Risk Strategy.

Coordination, monitoring, reporting and risk management aimed at providing timely, complete and accurate information on risk level, which contribute to timely and conscientious decision making by the Bank Management, are the essence of activities performed by the Integrated Risk Management Department.

In the purpose of improving the Bank’s business operations, we are planning constant improvement of existing and implementation of new risk management processes.

Credit Risk (Corporate & Retail)

During 2015, Credit Risk (Corporate and Retail) worked intensively to improve the process of identification, assessment, monitoring and control of risks, including the improvement of internal reporting on risk exposure. An adequate risk management system is one of the key elements of ensuring the stability of the Bank’s operations. In relation to that, the Credit Risk Department guided the Bank and identified clear risk management guidelines through clear procedures, policies, methodologies and strategies.

Due to the loyalty and knowledge of the professional team working in the Department, the Bank is establishing a comprehensive and reliable risk management system, which is fully integrated into all of its business activities and which provides that the Bank’s risk profile matches the defined inclination towards ‘’risk appetite’’.

Adequate Portfolio Management

The aim of the loan portfolio quality review is to allow the Bank to assess potential losses from assumed risks and to take possible corrective action.

In order to calculate the credit rating of its customers, Sberbank BH d.d. uses the rating model applied in the entire SBEU Group, which can be assessed as an ‘’Advanced Model’’.


The Model can recognise early warning signs before the risk is assumed. Ratings for all clients are subject to regular annual review. In 2Q2015, rating tools for micro-clients were integrated with local systems (CBS and Tron), which allowed quicker rating calculation and a higher degree of data quality. In 4Q2015, the Bank began the development of tools for automated calculation of credit ratings for natural persons. The aim is to enable the calculation of credit risk parameters (knock-out/KO criteria, costs of living, exposure to other banks, DTI, PTI% /expansion unknown/) and form an automatic decision proposal.

Automated processing will improve and accelerate the crediting process and improve the processing of parameters which are taken into account during the calculation of the client’s credit rating.

Furthermore, the Bank uses a tool which allows the monitoring of exposure of the Group of Connected Clients (GCC) in accordance with various regulations (local, Basel III, etc.). This tools allows monitoring, management and reporting on risk concentration and can be classified as an ‘’Advanced Model’’.

The implementation of the Monitoring Methodology advanced the portfolio management and all legal entities were assigned appropriate risk-zones at the end of 2015 (green/yellow/red/black).

The risk zones allow the Bank to easier recognise losses as a result of early warning signals. The reports that result in monitoring zones are a quality base for control as well as

further strategies for client handling.

In an effort to move towards EU Directives, the Bank began the development of a Methodology for the Recognition of Forbearance. The goal of the Forbearance Methodology is to present a detailed understanding of regulatory terms related to the identification of non-contributory exposures and procedural handling of forbearance, as well as the obligation to report on forbearance (FINFREP) in accordance with EBA ITS on ‘’Supervisory reporting on forbearance and non-performing exposure under Article 99(4) of the EU Directive No. 575/2013’’, published on 24 July 2014.

The forbearance concept is aimed at identifying transactions whose risk profile could be concealed by contractual changes imposed by the bank in the purpose of preventing default. Forbearance can be identified as a performing and non-performing portfolio.

The above activities resulted in prevention and early identification of delays in the portfolio, which reduced the NPLs in each. The 6.51% NPL ratio from the beginning of the year dropped to 5.99% at the end of 2015 (diagram attached).

Adequate collateral management

The Bank uses insurance instruments as a credit risk reduction technique. A materially recognised collateral for the reduction of credit risk is conditioned by the ‘’Advanced Model’’, a banking parameter for the management of insurance instruments. It is harmonised with the local regulations and with the Basel III rules. The system allows registration, allocation and monitoring of the degree of utilization of the collateral’s value at the level of one or more credit volumes and, in every moment, provides information on the type of loan, type of collateral, order of recoverability, harmonisation with Basel III, haircut, discounted value, etc.

Substantial progress has been achieved in the area of collaterals re-evaluation, which resulted in better collateral monitoring, while credit risk is better assessed and managed. Re-evaluation of real-estate is performed by the Bank’s associates, professionals in the field of architecture, and provides timely professional assessment of possible changes of the quality and value of collaterals. For some loans and collateral values, internal assessments of real-estate, offered as collaterals, are part of the acquisition. In the case of potentially higher exposure and collaterals value, such an assessment allows the Bank to measure and assess potential risk in the early phase of the risk assumption.

Collaterals quality management and control has been improved through the Lean Six Sigma Project, which is being implemented in SBBIH since the middle of 2015.

Lean Six Sigma is a project aimed at optimising the collaterals monitoring process for mortgages in terms of monitoring insurance policy time limits, checking whether the mortgage has been properly registered in the land registries and monitoring of regular re-evaluations of the lien. The project imposed co-operation with insurance companies, new information channels, centralisation of collected information and registration in the banking system. The results of the optimization have substantially

contributed to the quality of collaterals in 2H 2015, as shown in the attached diagram.

Operational Risk

Operational risk is the possibility of loss and negative impact on the Bank’s capital due to inadequate internal systems, procedures and controls, weaknesses and omissions in the performance of operations, illegal activity and external events which may expose the bank to loss.

Since the Bank is exposed to these risks, an appropriate operational risk management has been established, which is carried out in accordance with the requirements of the FBIH Banking Agency and Sberbank Group standards. The Operational Risk Management Policy has been adopted by the Supervisory Board and it is the umbrella document of the operational risk management system.

The Bank uses various tools for operational risk management and control, which allow detailed data collection and documenting of events, reporting tools, and early warning system tools (KRI). The collected information is analysed and appropriate corrective measures are taken. Apart from using these tools, the Bank continuously works on risk awareness through the risk control self-assessment (RCSA) in all operational units.

The Supervisory Board, the Management and the Risk Management Board regularly discuss reports on operational risks which the Bank is exposed to.

Colateral Quality Graph

% NPL-a in total Portfolio

31.12.2014. 31.3.2015. 30.6.2015. 30.9.2015. 31.12.2015.

6,51% 6,49% 6,25% 6,02% 5,99%

Portfolio overview - Forbearance analysis as of 31st of December 2015 (Millions EUR):

Clients Segment

Total Exposure

ForbearenaceExposure

% from Total

% from Forbearance

Retail 282 1.8 0.6% 14%SME 177 10.7 6.0% 85%

CIB 107 0.2 0.2% 1%

Total 565.8 12.6 2.2% 100%

31.11.2014.0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

30.6.2015. 31.7.2015. 31.8.2015. 31.9.2015. 31.10.2015. 30.11.2015. 31.12.2015. AIM

Mortgage Insuranace Policy % Missing LR statement % Outdated appraisals %


Marketing & Communication

Intensive communication with our clients and other target audiences continued during 2015.

The Department focused its communication activities on two main segments. The first is the marketing of new products and services to the existing and potential clients. The other is communication of socially responsible activities performed by the Bank and its staff, with the aim of promoting the Bank’s image and perception among the clients and other target audiences. We had a lot of work in both of these segments.

The beginning of the year marked the continuation of the promotion of fixed term deposits, which resulted in outstanding communication results. Initial contact was established with numerous new clients, while the existing clients were encouraged to use the benefits offered through this marketing campaign.

In parallel with this activity, together with our colleagues from Product Development and Partnership, we worked on establishing a platform for the Cash Card, a unique product among the cards for payment in instalments. Our activities were performed in several segments in an effort to make Cash Card a unique product. We worked on the promotion of user loyalty, allowing our clients to collect points for each Cash Card transaction. Apart from promoting the programme ‘’Bod po bod, poklon bon’’ (‘’In for a point, in for a gift voucher’’) we promoted the possibility of using the Cash Card for the purchase of an iPhone 6, and paying in instalments. The highlight of promotion of the Cash Card was our co-operation with the largest shopping mall in Bosnia and Herzegovina. Sberbank BH, with its Cash Card, became an official partner of the Sarajevo City Centre (SCC) allowing the card users free parking in the SCC, favourable prices for

shopping in many stores within the SCC and the possibility of paying in instalments in all stores within the SCC.

Co-operation with the former captain of the national football team continued in 2015, again promoting the Debt Consolidation Loan. Jelena Rozga, a regional music celebrity, joined the famous BH football player, Emir Spahic, in our spring campaign. Acting in an amusing and

Creative for Winter Savings promotion

Creative for SCC Benefits

Making of TVC

somewhat intriguing way in the video, the two celebrities demonstrated that we perceive our clients as stars.

The idea for this promotion video was developed internally, with a joint effort of the Department. It was implemented with the help of our colleagues-‘’actors’’- who showed that they were equally capable in acting as they were in banking. In the corporate segment, we focused on introducing new products and services. We first communicated the internet banking service for legal entities, which is available for all legal entities regardless of their organisational form. We are proud to be the first to offer this service in the BiH market.

We improved the electronic banking service shortly after, entering the ‘’Hal E- Bank’’ system. This services offers enormous benefits to our clients since it allows them to review and manage all of the accounts they hold in all banks that are using this service.

The service that marked the second half of the year regarding the Corporate sector communications is factoring. The introduction of this service aimed at improving liquidity and accelerating payment transactions caused very positive reactions in the market.

The previous year was full of socially responsible activities. We continued to support schools and education institutions, primarily by donating computers and computer equipment. We simultaneously organised a staff supported activity, purchasing school bags and stationery for pupils from the SOS Children’s Village in Sarajevo. The beauty of it is in the fact that it was a staff activity financially supported by the Bank. A similar activity was carried out prior to the New Year holidays, collecting gift packages for the members of the association ‘’Osmijeh nade’’ (Smile of Hope) in Ilidza.

At the end of the year, the Bank donated furniture to the newly opened Dialysis Centre in the Kakanj Community Health Centre. We supported its equipping and enabled quicker and easier access to therapy for the patients. The department played and active role in the organisation of different team building events for the Management Board, B-1 leaders and other levels. All participants almost unanimously agreed that the events had been organised in a supreme manner and that they would remain in their memories for many years, as positive experiences.

Finally, the crown of our work and the work of all other colleagues, is the recognition that came from a Swiss independent research agency and BH clients that characterised Sberbank BH as a brand they trusted most and which they would recommend to their friends for the quality of service it provides. This recognition is a sort of summary of all of our activities aimed at having a well-informed and educated client, that is aware of all options offered and that sees Sberbank as a genuine partner they wish to do business with.

Retail Team Building

Sberbank’s 174th Birthday Celebration

Making of promotional bags at Des Sarajevo

CEO Karabeg visiting SOS Children village in Sarajevo


Human Resources

The year 2015 was extremely dynamic in the area of human resources management. Organisational changes were made in order to react to the strategic goals in the most adequate manner possible.

At the end of 2015, Sberbank BH had 420 employees, out of which 68% possessed a university or master degree. The average length of service in Sberbank BH is 6.5 years, which indicates a high level of satisfaction and the staff’s commitment to contribute to the Bank’s development on a longer term basis.

We have intensively worked on career development and allowed the Bank employees to prove their abilities on new posts. Sberbank BH d.d. employs highly educated and motivated personnel, who are eager to face professional challenges, who take initiative but who are also prepared to engage in team work.

In the hiring process during 2015, we put an emphasis on employees with proven results and working experience in the local market, so that they could use

their knowledge to contribute to the fulfilment of goals set before them.

We took an active part and contributed to employment fairs, providing information and presenting Sberbank BH to students who wished to gain their first working experience in the banking sector.

Acting in accordance with its needs, the Bank provided ambitious students with the opportunity to go through practical training in the Bank, thereby allowing them to build up their theoretical knowledge with practical knowledge about banking.

We continued to rate the performance of employees and as of this year, through on-line applications. The creation of a working environment, which nurtures continued feedback in the fulfilment of clearly set goals, development of desired competencies and career development, remained in our focus during 2015. By building a culture of providing feedback information, we strive to fulfil our ambition to be a result-oriented company.

We organised different activities in 2015, which supported the idea of introducing the Bank’s corporate values into everyday lives of our staff.

Our goal was to support a highly professional, friendly and motivating working environment, where every individual can contribute and thereby significantly

Obrazovna struktura zaposlenih

9% 59% 32%

Magistrate Graduate and Undergraduate

High School

Most Desired Employer Awards Ceremony

promote both business operations and the working environment.

Internal training and education programmes on business operations are still important elements of our strategy.

We paid particular attention to our visual identity and presence on social networks such as LinkedIn and Facebook.

As a socially responsible company, we supported various humanitarian activities and our employees have been always happy to join us in these efforts. We wish

to continue improving human resources management and development within the Bank. We also wish to be recognised in the Bank and in the labour market as an employer that supports socially responsible corporate responsibility. The visitors of the BiH portal Posao.ba awarded us with the ‘Most Wanted Employer’’ award for 2015. We took the highly rated 5th place among the first 10 most wanted employers. As per the opinion of the visitors of the portal www.posao.ba , we were the best positioned financial institution.

66%

EmployeeGender

Structure

34%

Awards for 10 years in service

Board Members donating blood

ALLFOR CUSTOMER

WEARE A TEAM

IAM A LEADER


Responsibility for Financial Reports

The Management Board is required to prepare financial statements for each financial year, which give a true and fair view of the financial position of the Bank and of the results of it’s operations and cash flows in accordance with applicable accounting standards, and is responsible for maintaining proper accounting records which enable the preparation of financial statements at any time. The Management Board has a general responsibility for taking such steps which are reasonably available to safeguard the assets of the Bank and to prevent and detect fraud and other irregularities.

The Management is responsible for selecting suitable accounting policies which conform to applicable legal requirements and apply them consistently; for making judgements and estimates which are reasonable and prudent; and for preparation of the financial statements

on a going concern basis unless it is inappropriate to presume that the Bank will continue in business.

The Management Board is responsible for the submission of annual report to the Supervisory Board together with the annual financial statements, following which the Supervisory Board is required to approve the annual financial statements for submission to the General Assembly for adoption.

The financial statements set out on pages 32 to 110 were authorised by the Management Board on 29 April 2016 for issuance to the Supervisory Board, and are signed below to signify this on behalf of the Bank:

Left to right: Edin Karabeg, Denis Hasanić, Jasmin Spahić, Senad Tupković,

CEO Edin Karabeg

Executive Director Denis Hasanić

Excutive Director Senad Tupković

Excutive Director Jasmin Spahić

33SBERBANK BH | ANNUAL REPORT 2015

Financial Reports

Statement of comprehensive income

Note 2015000 BAM

2014 000 BAM

Interest income 7 58.739 54.661

Interest expense 8 (19.740) (18.853)

Net interest income 38.999 35.808

Fee and commission income 9 12.553 10.649

Fee and commission expense (1.274) (971)

Net fee and commission income 11.279 9.678

Dividend income 10a 57 -

Net gains and losses on financial instruments at fair value through profit and loss and result from foreign exchange trading and translation of monetary assets and liabilities

10b 1.861 1.356

Operating revenue 52.196 46.842

Other income 10c 617 1.187

Net impairment losses and provisions 11 (8.476) (7.926)

Personnel expenses 12 (15.708) (15.468)

Depreciation and amortization (3.750) (2.973)

Other expenses 13 (17.960) (16.508)

Other Income and expenses (45.277) (41.688)

Profit before Tax 6.919 5.154

Income tax expense 14 (712) (532)

Net profit for the year 6.207 4.622

Other comprehensive income - -

Total comprehensive income for the year 6.207 4.622

For the year ended 31 December


Statement of financial position

2015. 000 BAM

2014. 000

BAMAssets

Cash and cash equivalents 114.414 72.325

Obligatory reserve with the Central Bank 60.546 49.731

Loans and receivables from banks 10.926 36.846

Financial assets available for sale 988 3.988

Loans and receivables from customers 879.400 808.810

Income tax prepayments 472

Accrued interest and other assets 14.461 11.244

Investment in associates 580 580

Investment property 1.832 1.873

Property and equipment 13.066 15.626

Intangible assets 4.508 4.508

Total assets 1.100.721 1.006.003

Liabilities

Current accounts and deposits from banks 162.490 239.137

Current accounts and deposits from customers 674.884 519.669

Borrowings and subordinated debt 78.073 73.684

Accrued interest and other liabilities 22.955 17.474

Provision for liabilities and charges 1.385 1.507

Deferred tax liability 753 745

Liabilities for income taxes 187

Total liabilities 940.727 852.216

Equity

Share capital 76.337 76.337

Share premium 27.773 27.773

Regulatory reserves for credit losses 24 815 24.815

Retained earnings 31.069 24.862

Total equity 159.994 153.787

Total liabilities and equity 1.100.721 1.006.003


Statement of changes in equity

Share ca-pital

000‘BAM

Share premium 000‘BAM

Regulatory reserves for credit

losses 000‘BAM

Retained earnings 000‘BAM

Total 000‘BAM

Balance as at 1 January 2015 76.337 27.773 24.815 24.862 153.787

Share capital issue - - - - -

Profit for the year 6.207 6.207

Other comprehensive income - - - - -

Total comprehensive income for the year

- - - 6.207 6.207

Balance as at 31 December 2015 76.337 27.773 24.815 31.069 159.994

Balance as at 1 January 2014 47.000 27.773 24.815 20.240 119.828

Share capital issue 29.337 - - - 29.337

Profit for the year - - - 4.622 4.622

Other comprehensive income - - - - -

Total comprehensive income for the year

- - - 4.622 4.622

Balance as at 31 December 2014 76.337 27.773 24.815 24.862 153.787



2015. 2014.Cash flow from operating activities

Profit before income tax 6.919 5.154

Adjustments for:

Depreciation and amortization 3.750 2.973

Net impairment losses and provisions 5.865 4.302

Other items (5.224) (2.270)

Cash flow changes in operating assets and liabilities

Change in obligatory reserve with the Central Bank (10.815) (609)

Change in loans and receivables from banks 25.919 25.367

Change in financial assets available for sale 3.000 (3.000)

Change in loans and advances to customers (70.590) (141.485)

Change in accrued interest and other assets (3.216) (356)

Change in current accounts and deposits from banks (76.648) 34.585

Change in current accounts and deposits from customers 155.214 68.241

Change in accrued interest and other liabilities 5.486 2.083

Net cash flow from operating activities before income tax

39.660 (5.045)

Income taxes paid (45) (179)

Net cash flow used in operating activities 39.615 (5.224)

Statement of cash flowsFor the year ended 31 December

2015. 2014.Cash flow from investing activities

Acquisition of property and equipment (738) (6.905)

Acquisition of intangible assets (1.177) (2.261)

Net cash flow used in investing activities (1.915) (9.166)

Cash flow from financing activities

Increase/(repayment) of borrowings and subordinated debt

4.389 4.621

Increase in share capital - 29.337

Net cash flow generated from/(used in) financing activities

4.389 33.958

Net increase/(decrease) in cash and cash equivalents 42.089 19.568

Cash and cash equivalents at the beginning of the year

72.325 52.757

Cash and cash equivalents at the end of the year 114.414 72.325

Interest paid 18.315 17.336

Interest received 53.984 48.698

Dividends received 57 -


to the sharholder of Sberbank BH d.d. Sarajevo:

We have audited the accompanying financial statements of Sberbank BH d.d. Sarajevo (hereinafter the “Bank”), which comprise the statement of financial position as at 31 December 2015, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information (as set out on pages 33 to 110).

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Intenational Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects the financial position of the Bank as at 31 December 2015, and of its financial performance and its cash flows for the year then ended in accordance with Intenational Financial Reporting Standards

Ostale činjenice

Bez modifikacije našeg mišljenja, naglašavamo činjenicu da su ovi skraćeni finansijski izvještaji pripremljeni u formama propisanim od strane Federalnog ministarstva finansiranja i imaju drugačiju klasifikaciju od one korištene u revidiranim finansijskim izvještajima, te sadrže samo informacije koje su zahtjevane članom 8. Odluke o minimumu obina, oblika i sadržaja programa i izvještaja o ekonomsko – finansijskoj reviziji u bankama u svrhu javne objave u dnevnim novinama, te se ne može smatrati da su pripremljeni na osnovu nekih drugih osnova za pripremu finansijskih izvještaja.

Independent auditor’s report

Notes to the financial statements


Sberbank BH d.d. Sarajevo is a company founded in the Federation of Bosnia and Herzegovina. The address of the Bank’s registered head office is Fra Anđela Zvizdovića 1, Sarajevo.

The bank was founded in The Cantonal Court in Sarajevo No. UF / I (3962/00 dated on 10.05.2000 under the name “Volksbank BH d.d. Sarajevo”. Change of the name Volksbank BH Plc. to Sberbank BH d.d. Sarajevo has been made on 15 February 2013, by decision of the Municipal court in Sarajevo.

The Bank is licensed in the Federation of Bosnia and Herzegovina to perform banking operations related to corporate and retail lending, deposit taking activities in the country and abroad and payment operations. In accordance with the banking legislation in the Federation of Bosnia and Herzegovina, the Bank has to operate based on principles of liquidity, solvency and profitability.

As of 31 December 2015, the Bank had it’s head office in Sarajevo and 30 branches located in the cities Sarajevo, Mostar, Zenica, Visoko, Kakanj, Tuzla, Živinice, Gradačac, Gračanica, Banovići, Lukavac, Tešanj, Kraševo, Bihać, Cazin, Sanski Most, Brčko, Orašje and Široki Brijeg.

On 15 February 2012, one of the most important financial institutions in Europe, Sberbank, acquired 100% stake of the group Volksbank International AG (“VBI”) and became the sole owner of VBI. During the year 2012, VBI

changed its name to Sberbank Europe AG.

Sberbank Russia is the largest banking group in Russia and one of the leading global financial institutions. Sberbank holds almost one-third of total assets of the Russian banking sector and is a key lender to the national economy and the largest depositary in Russia. The Central Bank of the Russian Federation is the founder and major shareholder of Sberbank which owned 50% of the share capital of the Bank increased by one additional voting share, while the remaining ownership is held by domestic and foreign investors. Sberbank has more than 110 milion individual customers and one million corporate clients in 22 countries. Sberbank has the largest distribution network in Russia with more than 18,000 branches, and the international business operations includes UK, U.S., Commonwealth of Independent States, Central and Eastern Europe, Turkey and other countries.

Sberbank Europe AG:

Sberbank BH is a member of Sberbank Europe AG which is headquartered in Vienna and 100% owned by Sberbank Russia and operates a network in ten countries in Central and Eastern Europe: Austria, Bosnia and Herzegovina (Satajevo and Banja Luka), Croatia, Czech Republic, Hungary, Germany, Slovakia, Slovenia, Serbia and Ukraine. Sberbank Europe AG has 282 branches and employs over 5,051 people (based on the data available as at 30 June 2015).

1. Reporting entity

a) Basis of preparation

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

The accounting regulation applicable in Federation of Bosnia and Herzegovina (hereinafter „Federation“ or „FB&H“) are based on the provisions of the Law on accounting and auditing (“Law”) (Official Gazette 83/09). Companies prepare and present their financial statements in accordance with International Accounting Standards (“IAS”), their amendments and interpretations (Standard Interpretations), International Financial Reporting Standards (“IFRS”) and their amendments and interpretations (“International Financial Reporting Interpretations”) issued by IASB, as translated and published by Association of accountants, auditors and financial employees in FB&H (by the authorisation of Accounting Commission of Bosnia and Herzegovina number 2-11/06). The decision on publishing Standards number O-1/4-2010 dated 28 April 2010 is binding for the periods starting 1 January 2010. This decision includes IAS, IFRS and interpretations published by IASB and endorsed by EFRAG until October 2009. Any previously issued but subsequently EFRAG endorsed standards nor new or amended IFRS and IFRIC interpretations issued by the IASB subsequent to October 2009 have not yet been translated and published.

In preparation of these IFRS financial statements for the year ended 31 December 2015 the Bank has considered whether application of standards that have been issued by the IASB subsequent to and applicable for the current accounting period but which were not translated and published in FB&H results in a material departure from relevant applicable local accounting regulation. The Bank has concluded that this is not the case and therefore in the opinion of the management these IFRS financial statements also satisfy the Bank’s legal statutory requirement to publish financial statements in accordance with relevant applicable local accounting regulations.

b) Basiss of preparation and measurement basis

These financial statements are separate standalone financial statements of the Bank. The Bank has an investment in one associate (20.03% investment in Bamcard d.d.). The Bank is an

indirect subsidiary of Sberbank of Russia (Russian Federation) which prepares financial statements in accordance with IFRS and which are available for public use on the web site of Sberbank of Russia. Investments in associates in these separate financial statements of the Bank are stated at cost less any impairment losses.

The financial statements have been prepared on a historical cost basis except for financial assets and liabilities carried at fair value through profit and loss (loans and receivables are carried at amortized cost).

c) Functional and presentation currency

The financial statements are presented in convertible marks (“BAM”), which is the functional currency. Amounts are rounded to the nearest thousand (unless otherwise noted).

The Central Bank of Bosnia and Herzegovina (“Central Bank “or” CBBH”) has implemented a course based on “currency board” according to which BAM is exchanged to EUR at 1:1.95583 ratio (this rate was used in 2015 and 2014). It is expected that this exchange rate will continue in the foreseeable future.

d) Use of estimates and judgments

The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies in use and the amounts of disclosed assets, liabilities, income and expenses. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which the estimates are changed and possibly in future periods if they are affected.

Information on areas with significant uncertainties in estimates, and information on critical judgments in application of accounting policies which have most significant effect on the amounts dislcosed in these financial statements of the Bank are presented in Note 6.

2. Basis of preparation


The accounting policies set out below have been consistently applied for all years presented in these financial statements.

a) Foreign currency transactions

Transactions in foreign currency are translated into the functional currency at the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end are recognised in the statement of comprehensive income. Non-monetary assets and items measured at historical cost in foreign currency are translated using the exchange rate at the date of the transaction and are not retranslated on the reporting date.

b) Interest income and expense

Interest income and expense are recognised in statement of comprehensive income as they accrue using the effective interest rate method. The effective interest rate is the rate that discounts estimated future cash flows of financial assets or liabilities over the life of the financial instrument (or, if appropriate, over the shorter period) to its net carrying value. In the calculation of effective interest rates the Bank estimates future cash flows considering all contractual terms, but not future credit losses.

Calculation of the effective interest rate includes all paid or received transaction costs, fees and other items which are an integral part of the effective interest rate. Transaction costs include all incremental costs incurred directly in connection with the issuance or acquisition of financial assets or financial liabilities.

Interest income and expense recognised in statement of comprehensive income includes interest on financial assets and financial liabilities that are measured at amortized cost calculated using the effective interest rate method.

c) Fee and commission income and expenses

Fee and commission income and expenses which are

an integral part of the effective interest rate applied to a financial asset or liability are included in the interest income and expense.

Fee and commission income and expenses comprise mainly fees related to credit card transactions, the issuance of guarantees and letters of credit, domestic and foreign transactions and other services and are recognised in the statement of comprehensive income upon performance of the relevant service.

d) Net gains and losses on financial instruments at fair value through profit or loss, result from foreign exchange trading and translation of monetary assets and liabilities

The position “Net gains and losses on financial instruments at fair value through profit or loss, result from foreign exchange trading and translation of monetary assets and liabilities” includes gains from foreign exchange trading, realised and unrealised gains and losses from derivative financial instruments and net gains and losses from the translation of foreign currency denominated monetary assets and liabilities on the reporting date.

e) Dividend income

Dividend income is recognised in the statement of comprehensive income when the rights to receive the dividend are realised.

f) Lease payments

Operating lease expenses are recognised in statement of comprehensive income on a straight-line basis over the term of the lease.

g) Income taxes

The income tax charge is based on taxable profit for the year and comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in other comprehensive income. Current tax is the expected tax payable on the taxable income

3. Significant accounting policies

for the year, using the tax rates enacted or substantially enacted on the balance sheet date and any adjustments to tax payable in respect of previous years.

The amount of deferred tax is calculated using the balance sheet liability method whilst taking into account the temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and amounts used for income tax purposes. Deferred tax assets and liabilities are recognized using the tax rates that are expected to apply on taxable income in the period in which those temporary differences are expected to be recovered or settled based on the tax rates enacted on the reporting date.

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Bank expects on the reporting date to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are not discounted and are classified as non-current assets or liabilities in the statement of financial position. Deferred tax assets are recognised only to the extent that it is probable that sufficient taxable future profits will be available against which the deferred tax assets can be utilised. At each reporting date the Bank reassesses unrecognised potential deferred tax assets and the carrying amount of deferred tax assets for indications of impairment.

h) Financial instruments

Classification

The Bank classifies its financial instruments in the following categories: loans and receivables, financial assets available for sale, financial assets and financial liabilities at fair value through profit or loss and other financial liabilities. The classification depends on the purpose for which the financial assets and liabilities were acquired. Management determines the classification of financial assets and liabilities upon initial recognition and re-evaluates this classification at each reporting date.

(a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determined payments that are not quoted in an active market. Loans and receivables are originated when the Bank provides funds to a debtor with no intention of trading with these receivables and include placements with and loans to other banks, loans and receivables from customers and balances with the Central Bank.

(b) Assets available for sale

Financial assets available for sale are non-derivative financial assets which are either designated in this category or are not classified into any of the other categories. Financial assets classified as available for sale are intended to be held for an undefined time period, but may be sold in response to liquidity needs or changes in interest rates, foreign exchange rates or equity prices. Financial assets available for sale include equity and debt securities.

(c) Financial assets and financial liabilities at fair value through profit or loss

Financial assets and financial liabilities at fair value through profit or loss have two sub-categories: financial instruments held for trading (including derivatives) and those designated by management at fair value through profit or loss at inception. A financial instrument is classified in this category only if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term for the purpose of short-term profit taking or designated as such by management at initial recognition. The Bank designates financial assets and financial liabilities at fair value through profit or loss when:

• the assets or liabilities aremanaged,measured andreported internally on a fair value basis;

•thedesignationeliminatesorsignificantlyreducesanaccounting mismatch which would otherwise have arisen; or

•itheassetorliabilitycontainsanembeddedderivative


that significantly modified cash flows that would otherwise be required under the contract.

Financial assets and financial liabilities at fair value through profit or loss include derivative financial instruments classified as financial instruments held for trading.

(d) Other financial liabilities

Other financial liabilities comprise all financial liabilities which are not at fair value through profit and loss and include current accounts and deposits, subordinated debt and borrowings.

Recognition

Loans and receivables and other financial liabilities are recognised when they are placed to customers or received from lenders (settlement date).

The Bank recognises financial assets available for sale and financial assets and liabilities at fair value through the profit or loss on the trade date which is the date when the Bank commits to purchase or sell the instruments.

Initial and subsequent measurement

Loans and receivables are initially recognised at fair value. After initial recognition, loans and receivables are measured at amortised cost using the effective interest rate method, less any impairment.

Financial assets available for sale are measured initially at their fair value plus transaction costs that are directly attributable to the acquisition or issuance of the financial asset. Subsequent to initial recognition financial assets available for sale are measured at fair value (changes in fair value are recorded within in available for sale reserve in equity), except for equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are stated at cost less impairment.

Financial assets and liabilities at fair value through profit or loss are initially recognised at fair value.

All transaction costs are immediately expensed. Subsequent measurement is also at fair value.

Other financial liabilities are initially measured at fair value including transaction costs. Subsequent to initial recognition the Bank measures other financial liabilities at amortised cost using the effective interest rate.

Derecognition

The Bank derecognises financial assets (in full or partially) when the rights to receive cash flows from the financial instrument have expired or when it loses control over the contractual rights on those financial assets. This occurs when the Bank transfers substantially all the risks and rewards of ownership to another business entity or when the rights are realised, surrendered or have expired.

The Bank derecognises financial liabilities only when the financial liability ceases to exist, i.e. when it is discharged, cancelled or has expired. If the terms of a financial liability change, the Bank will cease recognising the liability and it will instantaneously recognise a new financial liability with new terms and conditions.

The fair value of financial assets and liabilities at fair value through profit or loss is determined based on quoted market prices or on models which are based on inputs which are obserevable on the market.

Identification and measurement of impairment of financial assets

(a) Financial assets carried at amortised cost

The Bank reviews loans and receivables as well as other financial assets on each reporting date to determine whether there is objective evidence of impairment.

If there is objective evidence of impairment of loans and receivables on an individual basis, the impairment loss is determined as the difference between the carrying value of the assets and the present value of the expected future cash flows discounted by the original effective interest rate of the financial assets. The carrying value of the assets is decreased using the impairment allowance

account, and the loss is recognized in the statement of comprehensive income. If loans and receivables have a variable interest rate, the discount rate for determining impairment allowance represents the current effective interest rate determined by an agreement in the moment of impairment.

Financial assets for which no impairment was recognised on an individual basis are grouped with other financial assets of similar characteristics, which are then reviewed for impairment on a group basis. Group impairment also includes impairment on a portfolio basis (IBNR) in cases where the Bank (on an individual or group basis) determined that there is no objective evidence of impairment.

If a loan cannot be collected and all legal procedures have been completed and the final amount of the loss is known, the loan is directly written off. In the subsequent period, if the amount of the impairment loss decreases and the decrease can be directly linked to an event that has occured after the impairment (or write-off), the reduction in the impairment allowance (or collection per written-off assets) is then presented as income in profit or loss. Write-off of uncollectible receivables is performed based on the decision of the relevant Bank’s committee, and in accordance with court decisions, agreements between the interested parties and the Bank’s assessments.

The Bank also calculates impairment allowance in accordance with the relevant regulations of the Banking Agency of the Federation of Bosnia and Herzegovina („the Agency“). Loans, placements and other financial assets of the Bank are classified into categories as prescribed by the Agency according to the expected recoverability which is determined on the basis of the number of days overdue, an assessment of the debtor’s financial position and the quality of the collateral. The assessed amount of the reserve for potential losses is calculated by applying percentages prescribed by the Agency.

The impairment allowance calculated in accordance with the regulations of the Agency was higher than the impairment allowance calculated in accordance with IFRS, and the Bank presented the difference (an

excess) as an appropriation within equity in accordance with local regulations. Until 31 December 2012 a transfer from retained earnings to non-distributable regulatory reserves in the amount of the difference in allowance for credit losses has been performed.

From 31 December 2012 the Bank was not obliged to allocate profits to cover the excess of impairment allowance calculated per Agency rules. However, if the impairment allowance calculated per Agency rules exceeds regulatory reserves, the difference is a deductible item for capital adequacy calculation purposes.

(b) Financial assets available for sale

Financial assets available for sale which are carried at cost include equity securities classified as available for sale for which there is no reliable measure of fair value. The Bank assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment loss is calculated as the difference between the carrying amount of the financial asset and the present value of expected future cash flows discounted by the current market interest rate for similar financial assets. An impairment loss on such instruments is recognised in the statement of comprehensive income.

After initial measurement, debt securities available for sale financial assets are subsequently measured at fair value with unrealised gains or losses recognised in other comprehsive income and (if the remeasurement result is significant) credited in the available for sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the available for sale reserve to the statement of profit or loss in finance costs. Interest earned whilst holding AFS financial assets is reported as interest income using the effective interest rate method.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial


position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

Specific financial instruments

(a) Derivative financial instruments

Derivative financial instruments may include portfolio securities option contracts and embedded derivatives. In accordance with its treasury policy, the Bank does not hold or issue derivative financial instruments for speculative trading purposes. There are no derivatives which are accounted for as hedging instruments. All derivatives are classified as financial instruments at fair value through profit or loss.

Derivative financial instruments are initially recognised in the statement of financial position at fair value. Subsequent to initial recognition derivatives are measured at their fair value. Fair values are determined based on quoted prices. All derivatives are stated as assets when their fair value is positive and as liabilities if their fair value is negative.

Changes in the fair value of derivatives are included in net gains and losses on foreign exchange trading which are included in other operating income.

Some hybrid contracts might contain both a derivative and a non-derivative component. In such cases, the derivative component is referred to as an embedded derivative. When the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract and when the hybrid contract is not itself carried at fair value through profit or loss, the embedded derivative is treated as a separate derivative and classified at fair value through profit and loss with all unrealised gains and losses recognised in the profit and loss.

(b) Cash and cash equivalents

Cash and cash equivalents for the purpose of cash flow comprise cash in hand, current account with Central Bank, current accounts with other banks and items in

the course of collection.

(c) Placements with banks and obligatory reserve with the Central Bank

Placements with banks and obligatory reserve with the Central Bank are classified as loans and receivables and they are carried at amortised cost less impairment.

(d) Loans and receivables from customers

Loans to customers are presented at amortised cost net of impairment allowances to reflect the estimated recoverable amounts.

(e) Equity and debt securities

Equity securities classified as available-for-sale are carried at fair value, unless there is no reliable measure of the fair value in which case equity securities are carried at cost.

Debt securities are classified as available-for-sale and are carried at fair value.

(f) Investment in associates

Investment in associates are accounted at cost less impairment.

(g) Borrowings and subordinated debt

Interest-bearing borrowings and subordinated debt are classified as other financial liabilities and are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, these are carried at amortised cost with any difference between proceeds (net of transaction costs) and redemption value being recognised in the statement of comprehensive income throughout the period of the borrowing using the effective interest rate method.

(h) Current accounts and deposits from banks and customers

Current accounts and deposits are classified as other liabilities; they are initially measured at fair value

plus transaction costs and subsequently measured at amortised cost using the effective interest method.

(i) Investment property

Investment properties are carried at cost less any accumulated depreciation and any accumulated impairment losses. Investment properties include Bank’s investment properties which are held either to earn rental income or for capital appreciation.

All investment properties, other than assets under construction, are depreciated on a straight line basis at prescribed rates which are determined as cost of the asset written off over their estimated life, as follows:

2015. 2014.Buildings 50 years 50 years

Useful life is reviewed and adjusted if appropriate at each reporting date.

( j) Property and equipment

Property and equipment are measured at historical cost less accumulated depreciation and impairment losses. The cost includes expenditures that are directly attri-butable to the acquisition of the asset. Subsequent cost is included in net book value or it is accounted for as separate asset, depending on what is applicable, only if it is probable that the future economic benefits em-bodied within this asset will flow to the Bank and if the cost of the asset can be measured reliably. Mintenance costs and usual costs of the day to day operations are recognised in profit and loss as incurred.

Depreciation is charged for all property and equipment items (except for land and assets in the course of con-struction) on a straight-line basis at prescribed rates designed to write off the cost over the estimated use-ful lives of the assets. The estimated useful lives are as follows:

Computers 5 years

Furniture and equipment 6,5 – 10 years

Motor vehicles 6,5 years

Leasehold improvements Shorter of 12 years or lease duration

Business premises 50 years

Depreciation method and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

Gains and losses on disposal are determined by comparing proceeds with the carrying amount, and are included in statement of comprehensive income as other income or operating expense.

(k) Intangible assets

Intangible assets are stated at cost less accumulated amortisation and impairment. Expenditures on development activities are capitalised if all of the features required by IAS 38 Intangible assets (IAS 38) are satisfied.

Amortisation is calculated on all intangible assets (except assets in the course of construction) on a straight line basis at prescribed rates designed to write off the cost over the estimated useful lives of the assets. The estimated useful lives are as follows:

Software 5 years

Amortisation method and useful lives are reviewed and adjusted if appropriate at each reporting date.

(l) Impairment of non-financial assets

The carrying amounts of the Bank’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the statement of comprehensive income.


The recoverable amount of other assets is the greater of their value in use and fair value less cost to sell. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate independent cash inflows, the recoverable amount is determined within the cash-generating unit to which the asset belongs.

An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, as if no impairment loss had been recognised.

(m) Employee benefits

Short-term benefits

On behalf of its employees, the Bank pays pension and health insurance which is calculated on the gross salary paid, as well as tax on salaries which are calculated on the net salary paid. The Bank pays these contributions into the state pension and health funds according to statutory rates during the course of the year. In addition, meal allowances, transport allowances and vacation bonuses are paid in accordance with local legislation. These expenses are recorded in profit or loss in the period in which the benefit expense occurred.

Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss, as incurred.

Long-term employee benefits: retirement severance payments and early retirement bonuses

The Bank pays retirement severance benefit upon retirement to its employees in the amount which represents three times the average salary in the Federation of Bosnia and Herzegovina (as calculated by the Federal Bureau of Statistics in the period of last

three months).

The liabilities and costs of these benefits are determined using a projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final liability. The liability is measured at the present value of estimated future cash flows using a discount rate that is similar to the estimated interest rate on government bonds.

(n) Provisions

Provisions are recorded when the Bank has a present legal or constructive obligation as a result of past events for which it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made, or as required by law in the case of provisions for unidentified impairment of off-balance-sheet credit risk exposures.

Provisions for liabilities and charges are maintained at the level which the Bank’s management considers sufficient for coverage of incurred losses. The Management determines the sufficiency of provisions on the basis of insight into specific matters, current economic circumstances, risk characteristics of certain transaction categories as well as other relevant factors.

Provisions are utilised only for the expenditures in respect of which provisions were initially recorded. If the outflow of economic benefits to settle the obligations is no longer probable, the provision is reversed.

(o) Share capital

Issued share capital

Issued share capital comprises ordinary and preference shares and it is stated in BAM at nominal value.

The reserve for credit losses formed from profit

The reserve for credit losses was formed from profit and it represents the excess of impairment losses calculated

in accordance with the regulations of the Agency compared to an allowance calculated according to the requirements of IFRS.

Retained earnings

Profit for the year after distribution to owners is allocated to retained earnings.

Dividends

Dividends on ordinary shares and preference shares are recognised as a liability in the period in which they are approved by the Bank’s shareholders.

Off-balance sheet commitments and contingent liabilities

In the ordinary course of business, the Bank enters into credit related commitments which are recorded as off-balance sheet items and primarily comprise guarantees, letters of credit, undrawn loan commitments and credit card limits. Such financial commitments are recorded in the statement of financial position if and when they become payable.

(p) Off-balance sheet commitments and contingent liabilities

In the ordinary course of business, the Bank enters into credit related commitments which are recorded as off-balance sheet items and primarily comprise guarantees, letters of credit, undrawn loan commitments and credit card limits. Such financial commitments are recorded in the statement of financial position if and when they become payable.

(q) Managed funds for and on behalf of third parties

The Bank manages funds for and on behalf of corporate and retail clients. These amounts do not represent Bank’s assets and are not included in the statement of financial position of the Bank. For the services rendered the Bank charges a fee.

(r) New standards and interpretations, changes and amendments in existing standards

The accounting policies adopted are consistent with those of the previous financial year, except for the following standards and amendments to IFRS effective as of 1 January 2015:

Annual Improvements to IFRSs 2011 – 2013 Cycle

The IASB has issued the Annual Improvements to IFRSs 2011 – 2013 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2015. Management of the Bank has assessed that these amendments did not have significant impact on these financial statements.

• IFRS 3 Business Combinations: This improvement clarifies that IFRS 3 excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.

• IFRS 13 Fair Value Measurement: This improvement clarifies that the scope of the portfolio exception defined in paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definition of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation.

• IAS 40 Investment Properties: This improvement clarifies that determining whether a specific transaction meets the definition of both a business combination as defined in IFRS 3 Business Combinations and investment property as defined in IAS 40 Investment Property requires the separate application of both standards independently of each other.

• IAS 19 Defined Benefit Plans (Amended): Employee Contributions


The amendment is effective for annual periods beginning on or after 1 February 2015. The amendment applies to contributions from employees or third parties to defined benefit plans. The objective of the amendment is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. Management has assessed that these amendments don’t have significant impact on these financial statements.

The IASB has issued Annual Improvements to IFRSs 2010-2012 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 July 2014. Management does not expect that application of these amendments has significant impact on financial statements.

Standard issued and/or amended 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. Management of the Bank has assessed that amendments will not have significant impact on determination of amortization and depreciation.

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. The amendment has not yet been endorsed by the EU. Management of the Bank has assessed that the amendments will have an impact on financial statements but there will be no early application.

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. Management of the Bank has assessed that these amendments will not have significant impact on financial statements of the Bank.

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. The standard has not been yet endorsed by the EU. Management of the Bank has assessed that these changes will have an

impact on financial statements.

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. Management of the Bank has assessed that these amendments will not have significant impact on financial statements.

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. The amendments have not yet been endorsed by the EU. Management of the Bank has assessed that these amendments will not have an impact on financial statements.

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. These amendments have not yet been endorsed by the EU. Management of the Bank has assessed that these amendments will not have significant impact on financial reporting of the Bank.

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. Management of the Bank has assessed that these amendments will not have significant impact on financial reporting.

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. Management of the Bank has assessed that these amendments will not have significant impact on financial statements of the Bank.


The Bank’s activities expose it to a variety of financial risks: credit risk, liquidity risk, market risk and operating risk. Market risk includes currency risk, interest rate and other price risk.

The Bank has established an integrated system of risk management by introducing a set of policies and procedures for analysis, evaluation, acceptance and risk management. Taking risk is core to the financial operations of the Bank and operational risks are an inevitable consequence of being in business.

The Management Board has overall responsibility for the establishment and oversight of Bank’s risk management

framework.

Risk management is carried out by Bank’s senior risk director together with departments in charge for individual risks, in accordance with policies approved by the Management Board and Supervisory Board.

The key board for risk management on Bank’s level is RICO (Risk committee). President of RICO is the executive director for risks.

Risk steering and risk controlling processes are adjusted in a timely manner to reflect changes in the operating environment.

4. Risk management

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. The standard has not been yet endorsed by the EU. Management of the Bank has assessed that this will not have significant impact on financial statements.

IAS 12 Income taxes (Amendments): Recognition of Deferred Tax Assets for Unrealized 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 unrealized 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 unrealized losses for tax purposes or when it has the ability and intention to hold the debt instruments until the unrealized loss reverses. Management of the Bank has assessed that these amendments will not have significant impact on financial statements.

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. These amendments have not yet been endorsed by the EU. Management of the Bank has assessed that there will be no significant impact on

financial statements.

The Bank chooses not to apply new standards, ammendments or interpretation before they become effective. Except IFRS9 whose impact the Bank will assess in upcoming period, the Bank assesed that the adoptiong of new standards, ammendments and interpretations will not have significant impact on financial statements of the Bank in period after initial recognition.


5. Financial risk management

5.1 Credit risk

The Bank is exposed to credit risk, which is defined as a possibility that the borrower will default on its obligations defined in lending agreements, which may result in a financial loss for the Bank. Such risks are monitored continuously and are subject to a monthly review.

5.1.1 Risk limit control and mitigation policies

Credit risk is the most important risk in the Bank’s operations. The Management Board therefore carefully manages its exposure to credit risk. Credit exposures arise primarily from lending activities that lead to loans issuance. There is also credit risk in off-balance-sheet financial instruments, such as contingent liabilities related to loans.

Credit risk management and control are placed within the Department for Credit Risk (Corporate and Retail), Department for Integrated Risk Management, Risk Manager Department, and Department for collection and restructuring, all under responsibility of the Executive Director for Risk management.

Credit decision-making process is centralized at a Bank level without the possibility of making credit decisions without at least one decision maker from the “Risk Manager” Department and/or the Executive Director for

Risk management.

Monitoring and analysis of credit risk are primarily located in the Department for Credit Risk and Department for Integrated Risk Management. Presentation of monitoring and analysis is done at least once a month at RICO (Risk Committe).

Collection and restructuring are centralized at the level of the Bank in all aspects in both early and in late stages.

(a) Collateral

With the aim to minimise the credit risk, the Bank has a Rulebook for security of loans and other placements. The Bank secures its credit exposures by taking one or more of the following instruments:

•cash; •bankandcorporateguarantees; •mortgagesoverproperties; •pledgeoverbusinessassetssuchaspremises,inventory and accounts receivable •securities.

(b) Loans-related contingencies

The primary purpose of these instruments is to ensure that funds are available to a customer as required.

Maximum exposure to credit risk before collateral held or other credit enhancement

Notes 2015. ‘000 BAM

2014.‘000 BAM

Current accounts with Central Bank and other banks 15 87.988 52.866

Obligatory reserve with the Central Bank 16 60.546 49.731

Loans and receivables from banks 17 10.926 36.846

Loans and receivables from customers 19 879.400 808.810

Financial assets available for sale 18 988 3.988

Income tax prepayment - 472

Accrued interest and other assets 20 14.461 11.244

Off-balance sheet exposure

Undrawn lending commitments 33 61.237 62.193

Financial guarantees and letters of credit 33 68.830 51.783

Total 1.184.376 1.077.933

Guarantees and standby letters of credit carry the same credit risk as loans and are secured with similar collateral as are loans.

For items in the statement of financial position, the ex-posures set out above are based on net carrying amounts as reported in the statement of financial position. The above table represents maximum credit risk exposure of the Bank as at 31 December 2015 and 31 December 2014 without taking into account any collateral held or other credit enhancements attached.

5.1.2 Credit risk management and policies for impairment and provisions

The Bank manages counterparty risks arising from the loan portfolio by recording allowances for impaired lo-ans. A financial asset or a group of financial assets is impaired and impairment losses are incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets and it can be reliably estimated. The Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired.

The Bank has defined and adopted a document “Metho-dology for calculation of impairment losses for financi-al assets and off-balance sheet items” (hereinafter: “the Methodology”) which defines methods and techniques used by the Bank for calculation of impairment losses for balance sheet and off–balance sheet items. The Metho-dology defines criteria for identification of receivables which are necessary to be assessed on an individual basis as well as criteria for evaluating receivables assessed un-der group impairment.

For the purpose of credit monitoring and the manage-ment of credit risk, the Bank divides its credit portfolio into the following groups:

•Performingloanstocustomers–loansthatareneit-her due nor impaired •Pastduebutnotimpairedloans •Non-performingloans(impairedloans).

An analysis of the loan portfolio according to the above mentioned categories is presented below.

For the purpose of determining impairment allowance for loans and receivables, the Bank distinguishes the three approaches:

•Loansandreceivablesassessedonanindividualbasis •Loansandreceivablesassessedonagroupbasis •Loansandreceivablesassessedonaportfoliobasis

Loans and receivables assessed on individual basis

Loans assessed on an individual basis are all loans for which the objective evidence of impairment exists. Objective evidence of impairment, i.e. factors that can influence the ability and willingness of debtors to fulfil their obligations to the Bank are:

• delinquencies in contractual payments of interest or principal,

• breach of covenants or conditions, • initiation of bankruptcy proceedings,• any specific information on the customer’s business

(e.g. reflected by cient’s liquidity difficulties),• changes in the customer’s market environment,• general economic situation. The Bank’s policy requires the review of individual financial assets above determined materiality thresholds at least annually or more regularly when individual circumstances require. Impairment allowances on individually assessed exposures are determined by an evaluation of the incurred loss at the reporting date on a case-by-case basis, and are applied to all individually significant accounts. Besides the overdue days of receivables, the assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account derived based on debotors’ financial statements and other available information.

Loans assessed on a group basis

For assessing the impairment of loans which are not individually significant, loans are grouped on the basis of similar characteristics of credit risk, i.e. days of delay in


repayment, internally specified individual limit significant and other similar characteristics based on which the Bank records impairment allowance.

Loans assessed on a portfolio basis

The Bank also recognises impairment for losses which are incurred but are not reported “IBNR”. This impairment allowance is calculated on all exposures for which there is no evidence of impairment. Exposures with similar characteristics are grouped into homogenous groups and for each group the Bank applies a certain percentage taking into consideration the emergence period of identification of the losses.

Restructured loans and receivables

During the year the Bank has restructured certain loans to clients aiming at improvement of their final recoverability. Restructuring is mainly performed as a response to deterioration of the clients’ financial position or for the prevention of further deterioration of the clients’ financial position. Where possible, the Bank seeks to restructure loans rather than to take possession of collateral (aldtough in certain cases the Bank’s position can be improved only by obtaining additional collaterals). 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.

Write-off policy

The Bank writes off a loan when the Bank determines that the loan is uncollectible. This determination is made after considering information such as occurrence of significant changes in the borrower’s position such that borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For loans that are not individually significant, write-off decisions generally are based on a product type and historical information.

Value of collateral

The Bank holds collateral against loans and receivables to customers in the form of mortgage and other securities over assets and guarantees. Collateral value estimates are based on value of collateral assessed by the chartered court surveyors at the time of loan approval, which is then haircuted by certain fixed percentage, depending on internal valuation of the collateral. Collateral is in principle not negotiated in case of loans and placements to banks.

Considering the impact of the global financial and economic crisis, there is a significant uncertainty in relation to value of collateral, including the time needed for their realisation, and this may have an impact on impairment allowance.

2015. godina‘000 BAM

2014. godina‘000 BAM

Loans Impairment % Loans Impairment %Performing loansCorporate 436.287 (3.647) 0,84 390.381 (3.404) 0,8

Retail 419.743 (2.651) 0,63 390.215 (2.937) 0,8

856.030 (6.298) 0,74 780.596 (6.341) 0,8

Non-performing loans (provided)Corporate 29.633 (12.669) 42,75 31.239 (11.749) 37,6

Retail 27.625 (14.921) 54,01 26.751 (11.686) 43,7

57.258 (27.590) 48,19 57.990 (23.435) 40,4

Total Loans 913.288 (33.888) 3,71 838.586 (29.776) 3,6

The table below presents the amount of the impairment for each predefined loan risk category:

2015. 2014.'000 BAM '000 BAM

CorporateLoans to customers that are neither past due nor impaired 416.820 380.794

Past due but not impaired loans 19.467 9.587

Non-performing loans (impaired loans) 29.633 31.239

Gross exposure 465.920 421.620Less: impairment allowance (16.316) (15.153)

Net exposure 449.604 406.467RetailLoans to customers that are neither past due nor impaired 390.879 357.002

Past due but not impaired loans 28.864 33.213

Non-performing loans (impaired loans) 27.625 26.751

Gross exposure 447.368 416.966Less: impairment allowance (17.572) (14.623)

Net exposure 429.796 402.343Total gross exposure 913.288 838.586Portfolio impairment allowance (IBNR) (7.730) (6.341)

Individual and group impairment allowance (26.158) (23.435)

Net exposure 879.400 808.810

The table below presents the analysis of gross and net (net of impairment allowance) loans to customers:

Provision coverage of non-performing provided loan portfolio amounts to 48.19% (2014: 40.4%)


2015. 2014.’000 ’000

Retail LoansConsumer Loans 319.047 288.769

Housing Loans 53.932 53.387

Credit card loans and overdrafts 13.375 10.286

Craftsmen 4.525 4.560

Total retail 390.879 357.002Corporate LoansMedium 360.441 335.418

Micro 56.379 45.376

Total Corporate 416.820 380.794

Overview of gross exposure of loans to customers that are neither past due nor impaired according to the type of loan is as follows:

2015 '000

Low risk (1-11)

Moderate risk (12-16)

High risk (17-25) Total 2014.

’000 BAM ’000 BAM ’000 BAM ’000 BAM Retail LoansConsumer Loans 49.932 157.646 81.191 288.769

Housing Loans 8.406 35.582 9.399 53.387

Credit card loans and overdrafts 1.859 5.846 2.581 10.286

Craftsmen 571 780 3.209 4.560

Total retail 60.768 199.854 96.380 357.002Corporate LoansMedium 62.891 187.506 85.021 335.418

Micro 4.816 6.727 33.833 45.376

Total Corporate 67.707 194.233 118.854 380.794

As of 02.04.2014, ARZ rating tools cease to be in use, and the performance of the clients is made in the new SB rating tool. By moving to a new rating tool, the CBS has remapped existing rating ARZ / VBM rating class with the new SB rating classes. New customers at the moment of the introduction of the new rating scale by the end of 2014 were the rated SB new rating model.

The portfolio of loans at the end of 2014 year contained mapped ARZ rating and the ratings created the new SB rating model.

By the decision of the Board of SBAG 13.02.2015, the rating scale is regrouped in risk levels as follows:

In order to assess the creditworthiness of the client, the rating is done at the time of the decision on the loan (or other placement). Since it is necessary to comply with requirements that all clients must be the rated on an annual basis, for individuals, the Bank performs regularly

and automatically loading of the Behavioral rating-a. This model is based on statistical data of behavior of our clients - individuals. For SME / Corporate and Micro customers are regularly rerating based on annual financial indicators.

Level of risk The current rating

classification

The new rating classification

Low risk 1 - 11 1 - 12

Moderate risk 12 - 16 13 - 18

High risk 17 - 26 19 - 26

Below, overview of gross exposure of loans to customers for 2015 that are neither past due nor impaired according to rating classes

2015 '000

Low risk (1-11)

Moderate risk (12-16)

High risk (17-25) Total 2014.

’000 BAM ’000 BAM ’000 BAM ’000 BAM Retail LoansConsumer Loans 104.728 184.075 30.244 319.047

Housing Loans 6.027 42.534 5.371 53.932

Credit card loans and overdrafts 3.324 8.639 1.412 13.375

Craftsmen 0 100 4.425 4.525

Total retail 114.079 235.348 41.452 390.879Corporate LoansMedium 5.934 332.361 22.146 360.441

Micro 0 13.688 42.691 56.379

Total Corporate 5.934 346.049 64.837 416.820

a) Loans to customers that are neither past due nor impaired

The quality of the portfolio of loans to customers that are neither past due nor impaired can be assessed through the internal standard monitoring system. Loans to customers are regularly monitored and systematically

reviewed in order to identify any irregularities or warning signals. These loans are subject to constant monitoring with the aim of taking timely action based on improvement or deterioration of clients’ risk profile.

Below, overview of gross exposure of loans to customers for 2014 that are neither past due nor impaired according to rating classes:


2015 '000

Past due up to 30

days

Past due 30 – 60

days

Past due 60 – 90

days

Past due 90 – 360

days

Past due up to 1

yearTOTAL

Retail LoansConsumer Loans 21.014 2.454 809 - - 24.277

Housing Loans 2.924 55 - - 2.979

Credit card loans and overdrafts

1.137 343 56 - - 1.536

Craftsmen 71 1 - - - 72

Total retail 25.146 2.853 865 - - 28.864Corporate LoansMedium 16.816 80 31 - - 16.927

Micro 2.331 181 28 - - 2.540

Total Corporate 19.147 261 59 - - 19.467

b) Past due but not impaired loans

Loans to and receivables from customers less than 90 days overdue are not considered as impaired, unless other information is available to indicate the contrary. The

gross amount of loans and receivables from customers that were past due but not impaired were as follows:

2014.'000

Past due up to 30

days

Past due 30 – 60

days

Past due 60 – 90

days

Past due 90 – 360

days

Past due up to 1

yearTOTAL

Retail LoansConsumer Loans 25.202 1.788 915 - - 27.905

Housing Loans 3.426 84 53 - - 3.563

Credit card loans and overdrafts 1.048 194 37 - - 1.279

Craftsmen 291 25 150 - - 466

Total retail 29.967 2.091 1.155 - - 33.213Corporate LoansMedium 3.700 3.518 - - - 7.218

Micro 1.801 284 284 - - 2.369

Total Corporate 5.501 3.802 284 - - 9.587

c) Loans for which impairment has been recorded

Impaired loans to customers, along with the information on value of related collateral:

Estimated value of real estate used as collateral is defined as the value of the initial evaluation made by certified appraiser at the time of loan approval, or at any

subsequent assessment. This value is weighted per all loans that are secured by the same collateral; also the appropriate haircut is used that is predefined for all types

2015.'000

Non-performing Loans-gross

ImpairmentNet

Estimated value of

collateral

Retail LoansConsumer Loans 22.756 (12.714) 10.042 6.513

Housing Loans 3.472 (1.197) 2.275 2.115

Credit card loans and overdrafts 532 (439) 93 -

Craftsmen 866 (571) 294 301

Total retail 27.625 (14.921) 12.704 8.930Corporate LoansMedium 21.695 (8.688) 13.007 13.013

Micro 7.938 (3.981) 3.957 4.161

Total corporate 29.633 (12.669) 16.964 17.173

2014.'000

Non-performing

Loans-gross

ImpairmentNet

Estimated value of

collateralRetail LoansConsumer Loans 21.605 (9.536) 12.069 7.190

Housing Loans 3.561 (1.152) 2.409 2.331

Credit card loans and overdrafts 492 (326) 166 -

Craftsmen 1.093 (672) 421 262

Total retail 26.751 (11.686) 15.065 9.783Corporate LoansMedium 23.018 (8.470) 14.548 13.806

Micro 8.221 (3.279) 4.942 4.255

Total corporate 31.239 (11.749) 19.490 18.061


d) Restructured loans and receivables

Restructured loans as at 31 December 2015 amounted to a total of BAM 37,418 thousand (2014: BAM 20,955 thousand):

2015. 2014.'000 BAM '000 BAM

Loan portfolio 913.288 838.586

Restructured loans 37.418 20.955

Restructured loans recorded as % of loan portfolio 4,10% 2,50%

5.1.3 Concentration of credit risk per economic sectors and geographic location

The Bank monitors concentrations of credit risk by economic sector and by geographic location. Credit portfolio risk is limited by the Bank’s credit strategy; in particular the focus is on micro and small loans and the

broader geographical and economic sector diversification of the loan portfolio. The analysis of concentrations on the reporting date is presented below:

Risk concentrations per sectors (gross amounts in balance sheet exposure) are as follows:

2015. ‚000 BAM

2014.‚000BAM

Trade 212.605 206.222

Mining 84.201 90.527

Real estate 21.715 25.242

Transport and communications 19.474 19.910

Financial institutions 12.810 13.177

Construction 19.487 11.823

Tourism 35.334 11.043

Power and gas 7.922 7.952

Agriculture, forestry and fisheries 11.319 10.953

Education and other public services 11.494 1.429

Other 29.559 23.342

Total corporate 465.920 421.620Housing loans 60.383 60.442

Other loans to individuals 386.985 356.524

Total retail 447.368 416.966Total loans (before impairment) 913.288 838.586

of collateral (and which can not be higher than the total value of loans is in use). Guarantees, co-guarantees and promissory notes are not valued in the table although

they are usually required as collateral.

Bosnia and Herzegovina

OECD countries

Non-OECD countries Total

'000 BAM '000 BAM '000 BAM '000 BAMCurrent accounts with Central Bank and other banks (note 15) 62.689 35.093 16.632 114.414

Obligatory reserves with the Central Bank 60.546 - - 60.546

Loans and receivables from banks 10.926 - - 10.926

Loans and receivables from retail customers 429.796 - - 429.796

Loans and receivables from corporate customers 449.604 - - 449.604

Accrued interest and other assets 14.461 - - 14.461

As at 31 December 2015 1.028.022 35.093 16.632 1.079.747As at 31 December 2014 912.359 76.157 758 989.274

Geographic risk concentrations mainly relate to the region of Bosnia and Herzegovina. Geographic risk concentrations (gross amounts in balance sheet exposure) are as follows:

The structure of the loan portfolio is regularly reviewed within the Department for Credit Risk and Department for risk controlling in order to identify potential events

which could have an impact on significant parts of the loan portfolio (common risk factors) and, if necessary, the exposure to certain sectors of the economy is limited.

64 SBERBANK BH | ANNUAL REPORT 2015

5.2 Market risk

The Bank is exposed to market risk which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of the changes in market prices. Market risks arise from open positions in interest rate, foreign currency and equity investments, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices.

The Management Board and Sberbank Europe AG set limits and guidelines for monitoring and mitigating the market risks which is regularly monitored by Risk Committees of the Bank.

5.2.1 Foreign exchange risk

Exposure to currency risk arises from credit, deposit-taking and trading activities and is controlled on a daily basis in accordance with legal and internal limits for each currency as well as in total amounts for assets and

liabilities denominated in or linked to foreign currencies.

The ALM department is responsible for the daily management of the Bank’s currency position in accordance with legal and internal regulations. Control of exposure limits on a daily basis is the responsibility of the Market risk group.

In order to manage foreign exchange rate risk more efficiently, the Bank monitors economic and other business changes in the environment in order to predict possible changes in foreign currency activities, exchange rates, and foreign currency risk.

The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at 31 December 2015. Included in the table are the Bank’s assets and liabilities at carrying amounts categorized by currency. The Bank has a number of agreements with foreign currency clauses. The BAM value of principal in such agreements is determined by the movement of foreign exchange. The principal balance of the related foreign currency is included in the table below in column “EURO linked”.

As at 31 December 2015 EURO EURO Related EURO Total USD Other FX BAM Total

Assets ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAMCash and cash equivalents 54.906 - 54.906 3.660 4.609 51.239 114.414

Obligatory reserves with the Central Bank - - - - - 60.546 60.546

Loans and receivables from banks - - - - 10.852 74 10.926

Financial assets available for sale - - - - - 988 988

Loans and receivables from customers 9.344 572.644 581.988 - - 297.412 879.400

Accrued interest and other assets 929 - 929 1 2 13.529 14.461

Investments in associates - - - - - 580 580

Investment property - - - - - 1.832 1.832

Property and equipment and intangible assets - - - - - 17.574 17.574

Total assets 65.179 572.644 637.823 3.661 15.463 443.774 1.100.721 Liabilities and equityCurrent accounts and deposits from banks 145.407 - 145.407 - - 17.083 162.490

Current accounts and deposits from customers 296.713 105.787 402.500 14.413 4.894 253.077 674.884

Borrowings and subordinated debt 66.202 - 66.202 - - 11.871 78.073

Accrued interest and other liabilities 7.175 - 7.175 14 8 15.758 22.955

Provision for liabilities and charges - - - - - 1.385 1.385

Deferred tax liability - - - - - 753 753

Liabilities for income taxes - - - - - 187 187

Share capital and reserves - - - - - 159.994 159.994

Total liabilities and equity 515.497 105.787 621.284 14.427 4.902 460.108 1.100.721Net foreign exchange position (450.318) 466.857 16.539 (10.766) 10.561 (16.334) -

Concentration of currency risk of on- and off-balance sheet assets and liabilities The domestic currency (BAM) is linked to EUR. The Bank had the following currency positions:

As at 31 December 2014 EUR EURO Povezane EURO Total USD Other FX BAM Total

Assets ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAMCash and cash equivalents 40.808 - 40.808 4.590 4.568 22.359 72.325

Obligatory reserves with the Central Bank - - - - - 49.731 49.731

Loans and receivables from banks 30.412 - 30.412 6.434 - - 36.846

Financial assets available for sale - - - - - 3.988 3.988

Loans and receivables from customers 10.182 551.188 561.370 - - 247.440 808.810

Income tax prepayment - - - - - 472 472

Accrued interest and other assets 321 - 321 21 - 10.902 11.244

Investments in associates - - - - - 580 580

Investment property - - - - - 1.873 1.873

Property and equipment and intangible assets - - - - - 20.134 20.134

Total assets 81.723 551.188 632.911 11.045 4.568 357.479 1.006.003Liabilities and equityCurrent accounts and deposits from banks 233.124 - 233.124 - - 6.013 239.137

Current accounts and deposits from customers 258.546 94.429 352.975 11.013 4.365 151.316 519.669

Borrowings and subordinated debt 73.471 - 73.471 - - 213 73.684

Accrued interest and other liabilities 4.984 4.984 35 7 12.448 17.474

Provision for liabilities and charges - - - - - 1.507 1.507

Deferred tax liability - - - - - 745 745

Share capital and reserves - - - - - 153.787 153.787

Total liabilities and equity 570.395 94.429 664.554 11.048 4.372 326.029 1.006.003Net foreign exchange position (488.672) 456.759 (31.643) (3) 196 31.450 -

A result of a 10% decrease in currencies other than EUR against BAM (with other variables held constant) would not be significant and would result in a increase in profit before tax for the year of BAM 36 thousand (2014: an decrease of BAM 14 thousand).

A result of a 10% increase in these currencies would not be significant and it would result decrease in profit before tax for the year of BAM 36 thousand (2014: a increase of BAM 27 thousand).

As at 31 December 2015 Non interest bearing

Up to 1 month

1 to 3 months

3 months to 1 year 1 to 5 year Over 5

years TotalAmounts

subject to fixed rates

’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAMAssetsCash and cash equivalents 26.425 87.989 - - - - 114.414 -

Obligatory reserves with the Central Bank - 60.546 - - - - 60.546 -

Loans and receivables from banks - 10.926 - - - - 10.926 -

Financial assets available for sale - 988 - - - - 988 -

Loans and receivables from customers - 145.532 66.853 575.778 81.875 9.362 879.400 -

Accrued interest and other assets 14.461 - - - - - 14.461 -

Investments in associates 580 - - - - - 580 -

Investment property 1.832 - - - - - 1.832 -

Property and equipment and intangible assets 17.574 - - - - - 17.574 -

Total assets 60.872 305.981 66.853 575.778 81.875 9.362 1.100.721 -Current accounts and deposits from banks 759 12.279 143.952 5.500 - - 162.490 34.602

Current accounts and deposits from customers - 89.901 127.699 144.390 302.875 10.019 674.884 632.755

Borrowings and subordinated debt - 45.547 19.183 13.170 173 - 78.073 -

Accrued interest and other liabilities 22.955 - - - - - 22.955 -

Provision for liabilities and charges 1.385 - - - - - 1.385 -

Deferred tax liability 753 - - - - - 753 -

Liabilities for income taxes 187 - - - - - 187 -

Share capital and reserves 159.994 - - - - - 159.994 -

Total liabilities and equity 186.034 147.727 290.834 163.060 303.048 10.019 1.100.721 667.357Interest rate gap (125.163) 158.252 (223.980) 412.719 (221.173) (657) - -

5.2.2 Interest rate risk The Bank’s activities are influenced by changes in interest rates, in the way that interest bearing assets and liabilities mature or their interest rates are changed at different times or in different amounts.

The majority of loans and receivables to companies and individuals are contracted at variable interest. A variable interest rate in which these loans were agreed has to

be adjusted twice a year, following the movements of the four indicators which can influence changes in interest rates.

Interest rate sensitivity of assets and liabilities The tables below summarize the Bank’s exposure to interest rate risk at year end. The Bank’s assets and liabilities are presented at carrying amounts categorized by the earlier of contractual maturity dates or contracted changes in interest rates.


The following table demonstrates the sensitivity to a reasonably possible change in interest rates (all other variables held constant) of the Bank’s income statement and equity.

The sensitivity of the statement of comprehensive income is the effect of the assumed changes in interest rates (+/- 100 and +/- 200 b.p.) on the profit or loss for the year, based on the floating rate non–trading financial assets and financial liabilities held at 31 December.

The sensitivity of equity is calculated by revaluing all interest sensitive positions at 31 December for the effects of the assumed changes in interest rates. The total sensitivity of equity is based on the assumption that there are parallel shifts in the yield curve - the floating interest positions are assigned to the next floater-fixing date, fixed rate positions are assigned as the instruments are maturing, and the until-further-notice interest sensitive positions are assigned based on inidividual assumptions for these positions which are based on historical experience.

Currency Increase -decrease in basis points 2015

Sensitivity of profit and loss 2015

Sensitivity of equity 2015

thsd BAM thsd BAMEUR 100/(100) (1.914) / 1.914 (4.567) / 4.567

BAM 100/(100) 4.203 / (4.203) 1.521/ (1.521)

EUR 200/(200) (3.831) / 3.831 (9.134) / 9.134

BAM 200/(200) 8.406/ (8.406) 3.041 / (3.041)

USD 100/(100) - (225) / 225

USD 200/(200) - (450) / 450

Currency Increase -decrease in basis points 2014

Sensitivity of profit and loss 2014

Sensitivity of equity 2014.

thsd BAM thsd BAMEUR 100/(100) (1.901)/1.901 (3.685)/3.685

BAM 100/(100) 3.537/(3.537) (532)/532

EUR 200/(200) (3.802)/3.802 (7.371)/7.371

BAM 200/(200) 7.074/(7.074) (1.064)/1.064

USD 100/(100) - (157)/157

USD 200/(200) - (315)/315

As at 31 December 2014Non

interest bearing

Up to 1 month

1 to 3 months

3 months to 1 year 1 to 5 year Over 5

years TotalAmounts

subject to fixed rates

’000 KM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAM ’000 BAMAssetsCash and cash equivalents 72.325 - - - - - 72.325 -

Obligatory reserves with the Central Bank 49.731 - - - - - 49.731 -

Loans and receivables from banks - 36.846 - - - - 36.846 -

Financial assets available for sale - - 3.988 - - - 3.988 -

Loans and receivables from customers 1.351 59 592.277 158.740 56.265 118 808.810 34.317

Income tax prepayments 472 - - - - - 472 -

Accrued interest and other assets 11.244 - - - - - 11.244 -

Investments in associates 580 - - - - - 580 -

Investment property 1.873 - - - - - 1.873 -

Property and equipment and intangible assets 20.134 - - - - - 20.134 -

Total assets 157.710 36.905 596.265 158.740 56.265 118 1.006.003 34,317Liabilities and equityCurrent accounts and deposits from banks 144 - - 238.993 - - 239.137 111.864

Current accounts and deposits from customers 144.826 55.323 33.944 106.472 170.881 8.223 519.669 -

Borrowings and subordinated debt - - - 73.684 - - 73.684 173

Accrued interest and other liabilities 17.474 - - - - - 17.474 -

Provision for liabilities and charges 1.507 - - - - - 1.507 -

Deferred tax liability 745 - - - - - 745 -

Share capital and reserves 153.787 - - - - - 153.787 -

Total liabilities and equity 318.483 55.323 33.944 419.149 170.881 8.223 1.006.003 112.037Interest rate gap (160.773) (18.418) 562.321 (260.409) (114.616) (8.105) - -


5.3. Liquidity risk

Liquidity risk arises in the funding of the Bank’s activities and in the management of its positions. The Bank consolidates its operations in respect of liquidity risk in accordance with applicable decrees and internal policies aimed at maintenance of liquidity reserves, harmonisation of assets and liabilities with targeted liquidity indicators and liquidity limits.

The Bank has access to various funding sources, including different types of deposits from citizens and legal entities, borrowings and share capital. This increases the flexibility of funding sources, decreases dependence on one source and generally ensures better management of financing costs.

The following tables show the remaining contractual maturities of the Bank’s assets and liabilities as at 31 December 2015 and 31 December 2014. Investments in

associates and other items of assets and liabilities that have no contractual maturities determined are classified into their remaining maturity over 5 years.

Up to 1 month

Up to 3 months

3 months

to 1 year

1 to 5 years

Over 5 years Total

31 December 2015 ’000 BAM

’000 BAM

’000 BAM

’000 BAM

’000 BAM

’000 BAM

AssetsCash and cash equivalents 114.414 - - - - 114.414

Obligatory reserve with the Central Bank 60.546 - - - - 60.546

Loans and receivables from banks 10.926 - - - - 10.926

Financial assets available for sale 988 - - - - 988

Loans and receivables from customers 60.226 51.446 199.803 360.899 207.026 879.400

Accrued interest and other assets 14.461 - - - - 14.461

Investment in associates - - - - 580 580

Investment property - - - - 1.832 1.832

Property equipment and intangible assets - - - - 17.574 17.574

Total assets 261.561 51.446 199.803 360.899 227.012 1.100.721Liabilities and equityCurrent accounts and deposits from banks 13.038 16.823 5.500 127.129 - 162.490

Current accounts and deposits from customers 249.463 31.633 91.609 297.817 4.362 674.884

Borrowings and subordinated debt 3.692 1.118 10.213 60.324 2.726 78.073

Accrued interest and other liabilities 16.030 1.470 2.608 2.845 2 22.955

Provision for liabilities and charges 1.385 - - - - 1.385

Deferred tax liability - - - 753 - 753

Liabilities for income taxes 187 - - - - 187

Share capital and reserves - - - - 159.994 159.994

Total liabilities and equity 283.795 51.044 109.930 488.868 167.084 1.100.721Maturity gap (22.234) 402 89.873 (127.969) 59.928 -


Future cash flows for interest bearing liabilitiesThe table below shows the total expected outflow of financial obligations, projected by

the Bank and includes financial liabilities at 31 December 2015 and 31 December 2014, and the expected futre interest.

Total expected outflow Carrying valueAs at 31 December 2015

Less than 1 month 1 to 3 months 3 m. to 1 year 1 to 5 years Over 5 years Total

’000BAM ’000BAM ’000BAM ’000BAM ’000BAM ’000BAM ’000BAMFinancial liabilities

Current accounts and bank deposits

13.192 17.163 6.950 129.393 - 166.698 162.490

Current accounts and customer's deposits

254.907 31.787 93.375 322.162 5.574 707.805 674.884

Borrowings and subordinated debt

3.746 1.370 12.926 65.783 2.786 86.611 78.073

Total expected outflow

271.845 50.320 113.251 517.338 8.360 961.114 915.447

Total expected outflow Carrying valueAs at 31 December 2014

Less than 1 month 1 to 3 months 3 m. to 1 year 1 to 5 years Over 5 years Total

’000BAM ’000BAM ’000BAM ’000BAM ’000BAM ’000BAM ’000BAMFinancial liabilities

Current accounts and bank deposits

36.120 53.018 21.303 3.935 128.414 242.790 239.137

Current accounts and customer's deposits

201.919 61.389 87.580 123.655 74.430 548.973 519.669

Borrowings and subordinated debt

801 3060 5.932 31.150 44.575 85.518 73.684

Total expected outflow

238.840 117.467 114.815 158.740 247.419 877.281 832.490

Up to 1 month

1 to 3 months

3 months

to 1 year

1 to 5 years

Over 5 years Total

31 December 2014 ’000 BAM

’000 BAM

’000 BAM

’000 BAM

’000 BAM

’000 BAM

AssetsCash and cash equivalents 72.325 - - - - 72.325

Obligatory reserve with the Central Bank 49.731 - - - - 49.731

Loans and receivables from banks 36.846 - - - - 36.846

Financial assets available for sale 3.988 - - - - 3.988

Loans and receivables from customers 51.022 53.989 174.103 366.239 163.457 808.810

Accrued interest and other assets 11.244 - - - - 11.244

Income tax receivables 472 472

Investment in associates - - - - 580 580

Investment property - - - - 1.873 1.873

Property equipment and intangible assets - - - - 20.134 20.134

Total assets 225.628 53.989 174.103 366.239 186.044 1.006.003Liabilities and equityCurrent accounts and deposits from banks 34.566 32.426 45.016 127.129 - 239.137

Current accounts and deposits from customers 200.149 33.944 106.472 170.881 8.223 519.669

Borrowings and subordinated debt 2 1.507 5.780 55.358 11.037 73.684

Accrued interest and other liabilities 10.971 1.977 2.954 1.562 10 17.474

Provision for liabilities and charges 1.507 - - - - 1.507

Deferred tax liability - - - 745 - 745

Share capital and reserves - - - - 153.787 153.787

Total liabilities and equity 247.940 69.854 160.222 354.930 173.057 1.006.003Maturity gap (22.312) (15.865) 13.881 11.309 12.987 -


5.4 Maturity of off-balance-sheet items

(a) Loan commitments

The maturity of the contractual amounts of the Bank’s off-balance-sheet positions are summarized in the table below.

(b) Financial guarantees and letters of credits

Financial guarantees and letters of credits are also included in the table below based on the earliest contractual maturity date.

(c) Operating lease commitments

Where the Bank is the lessee, the future minimum lease payments under operating leases are summarized in the table below.

Not later than 1 year 1-5 year Over 5 years Total

'000 BAM '000 BAM '000 BAM '000 BAMAs at 31 December 2015Loan commitments 55.370 5.867 - 61.236

Financial guarantees and letter of credits 49.042 19.788 - 68.830

Operating lease commitments 3.383 6.702 912 10.997

Total 107.795 32.357 912 141.064As at 31 December 2014

Loan commitments 57.833 4.360 - 62.193

Financial guarantees and letter of credits 36.434 15.348 1 51.783

Operating lease commitments 3.475 8.978 1.271 13.724

Total 97.742 28.686 1.272 127.700

5.5 Operational risk

Operational risk represents the possibility of losses for the Bank and negative effects on the Bank’s capital as a result of inadequate internal systems, procedures, controls, and weaknesses in the execution in business activities, as well as illegal activities which could expose the Bank to losses.

Considering that the Bank is through its activities inherently exposed to risk, the Bank has set up a system for management of operational risk. The management of operational risk is performed in accordance with the requirements of the Agency and the standards of Sberbank Group. These policies and procedures of risk control have been adopted by the Supervisory Board and they represent the governing document with regards to the management of operational risk.

Risk management and risk control include raising awareness with regards to risk, the preparation of risk maps, implementation of risk assessments, planning systems of early warnings, as well as data collection. Some of the tools used are raising awareness with regards to risk, implementation of self assessment of risk and controls (RCSA), planned early warning system (KRI), as well as collection of data with regards to events.

The collection and documentation of data regarding specific events which are considered to represent operational risk are done through a special database.

Supervisory Board, Management Board and the Bank`s risk management committee regularly take into consideration reports on operating risks to which the Bank is exposed.

With regards to the continuity of operations in case of a

disaster, the Bank has adopted a Disaster Recovery Plan as well as a Business Continuity Plan, whose main goal is to ensure continuing operations of the Bank in case of serious and unplanned events which are outside of the Bank’s control.

5.6 Fair values of financial assets and liabilities

The fair value of a financial instrument is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arm’s-length transaction. When available, fair value is based on quoted market prices. However, no readily available market prices exist for a significant portion of the Bank’s financial instruments. In circumstances where the quoted market prices are not readily available, the fair value is estimated using discounted cash flow models or other pricing techniques as appropriate. Changes in underlying assumptions, including discount rates and estimated future cash flows, significantly affect the estimates. Therefore, the calculated fair market estimates may not be realisable in a current sale of the financial instrument, in particular considering in view of the impact of the global financial crisis and lack of liquid market in Bosnia and Herzegovina.

Cash and cash equivalents and loans and receivables from Banks

The carrying values of cash and balances with banks are generally deemed to approximate their fair value due to short term maturity of these positions.

Loans and receivables from customers

The fair value of loans and receivables with fixed interest rates is determined by discounting of cash flows with current market interest rates on loans with similar characteristics. As the Bank has limited portfolio of loans with fixed interest rates and longer-term maturity, the Management considers that the fair value of loans and receivables is not significantly different from their book carrying value. Fair values of loans and receivables with variable interest rates where rates are regularily aligned to market changes and where there are no significant changes in credit risk are generally very close to their

carrying values. Fair values for these loans and receivables are calculated by discounting of future cahs flows by application of base interest rates which are increased for credit risk margin (to recognise the impact of specific counterparty credit risk).

Customer deposits

For demand deposits and deposits with undefined maturities, the fair value is considered to be the amount payable on demand at the reporting date. The estimated fair value of deposits with fixed maturity is based on discounted cash flows using the rates currently offered for deposits of similar remaining maturities – this fair value is close to carrying value. The value of long-term relationships with depositors is not taken into account in estimating fair value. Considering the average market interest rates of 2.47 on corporate and 2.68 on retail deposits (2014: corporate of 3.27% and retail of 2.9% and taking into account latest market developments, expected future cash flows from long-term corporate and retail deposits with fixed interest rates are discounted to their present value.

The table below summarises carrying amounts and fair values of customer deposits:


Fair value of financial assets and financial liabilities of the Bank which are not measured at fair value on recurring basis:

Carrying value Fair value31 Dec 2015

‘000 BAM31. Dec 2015

‘000 BAM31 Dec 2014

‘000 BAM31 Dec 2014

‘000 BAMCurrent acounts and deposits from customers 674.884 519.669 702.128 529.475

Borrowings and bank deposits

The fair value of borrowings with variable interest rates which regularly change and with no significant change in credit risk generally approximates their carrying value. The fair value of borrowings at fixed interest rates is estimated using discounted cash flow analyses, using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The fair value of borrowings is not significantly different from their carrying value.

Carriying values of deposits from banks are close to their fair values due to short term maturity of these sources.

Subordinated debt is concluded with variable interest rate, principal is due entirety at maturity and fair valued of the debt is calculated by discounting future cash flows with EURIBOR reference rate. On the reporting date there are no significant differences between fair values and carrying values.

31 December 2015 31 December 2014

Fair value level Carrying value Fair value Carrying value Fair value

Financial assets Loans and receivables from banks Level 3 10.926 10.926 36.846 36.846

Loans and receivables from customers Level 3 879.400 879.400 808.810 808.810

Other financial assets (accrued interest and other assets)

Level 3 14.461 14.461 11.244 11.244

Total 904.787 904.787 856.900 856.900Current accounts and deposits from banks Level 3 162.490 162.490 239.137 239.137

Current accounts and deposits from customers

Level 3 674.884 702.128 519.669 529.475

Borrowings and subordinated debt Level 3 78.073 78.073 73.684 73.684

Accrued interest and other liabilities Level 3 22.959 22.959 17.474 17.474

Total 938.406 965.650 849.964 859.770

5.7. Capital management

The Bank’s objectives for capital management (capital for this purpose is a broader concept than the shareholder’s equity presented in the statement of financial position), are as follows:

• to comply with the capital requirements set bythe regulators of the banking market in the local

environment;

• to safeguard the Bank’s ability to continue itsoperations as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

• to maintain a strong capital position which couldsupport the development of its business activities.


Capital adequacy and the balance of capital are monitored regularly by the Bank’s management, based on the relevant internal acts and regulations prescribed by the Federal Banking Agency.

As of 31 December 2015 the Bank has been in compliance with all regulatory capital requirements and according to the local regulations had a capital adequacy ratio of 13.8% (31 December 2014: 15.4%).

The Bank’s net capital for monitoring adequacy by Agency methodology consists of:

•TheBank’stier1capital:ordinaryshares,sharepremium,retained profit and reserves arising from distribution of retained profit reduced by intangible assets

• The Bank’s tier 2 capital: general loan loss provisionfor performing assets, profit for the year audited and certified by external auditor and subordinated debt.

•deductible items incalculation(theamountofexcessof provision for credit losses formed per regulatory rules over provision for credit losses formed based on IFRS rules).

The bank was obliged to fully implement “Decision on minimum standards for bank capital and capital protection” as of 31.12.2015., according to which the bank made the following alignment of supplementa capital

•Generalreservesofthebankforcoverageofloanlosses

of the bank’s assets evaluated as A category – Performing Assets in accordance with Article 22 of the Decision on Minimum Standards for Credit Risk Management and Asset Classification of Banks (hereinafter: Decision on Asset Classification) up to 1.625% of total risk of assets starting from 31.12.2015

• amount of subordinated debt which is included inthe Tier 2 of the Bank, is reduced by 20% per year cumulatively for last five years before the expiry of the agreed maturity. In the last year prior to the expiration date of subordinated debt not included in Tier 2.

The amount of subordinated debt, which is included in the Tier 2 of the Bank during the last five years to maturity is calculated by dividing the nominal amount of the instruments or subordinated loan on the first day of entering into the last five-year period of their contractual maturity with the number of calendar days in that period, and then multiplied by number of calendar days from the date of reporting to the agreed upon maturity.

The table below presents the structure of net capital and capital ratios (information on the risk assets were not yet audited on the date of this report):

2015. 2014.

'000 BAM '000 BAMTier 1 capitalShare capital 76.337 76.337

Share premium 27.773 27.773

Reserves 24.862 20.240

Intangible assets (9.382) (9.203)

Total tier 1 capital 119.590 115.147Tier 2 capitalGeneral provision-FBA regulations 16.014 17.202

Audited profit for the year (not included in calculation) - -

Subordinated debt 19.719 24.448

Total tier 2 capital 35.733 41.650Regulatory reserve for credit losses for the year (Note 6 (a)) (19.358) (17.321)Net capital 135.965 139.476Risk Weighted Assets (2015 unaudited) 933.510 856.214

Weighted Operational Risk (2015 unaudited) 51.963 48.256

Total weighted risk 985.473 904.470Capital adequacy (%) 13,8% 15,42%

Minimum capital adequacy ratio according to the regulations of the Agency is 12%.


6. Significant accounting estimates and judgments

The Management uses estimates and assumptions about uncertain events, including estimates and assumptions about the future. Such accounting assumptions and estimates are regularly evaluated and are based on historical experience and other factors such as the expected flow of future events that can be rationally assumed in existing circumstances, but nevertheless necessarily represent sources of estimation uncertainty. The estimation of impairment losses in the Bank’s credit risk portfolio represents the major source of estimation uncertainty. This and other key sources of estimation uncertainty, which have a significant risk of causing a possible material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

(a) Impairment losses on loans and receivables

The Bank continuously monitors the creditworthiness of its customers on an ongoing basis. The need for impairment of the Bank’s on and off-balance sheet exposure to credit risk is assessed on a monthly basis.

Impairment losses are made primarily against the carrying value of loans to corporate and retail customers

and as provisions for liabilities and charges arising from off-balance exposure to customers, mainly in the form of guarantees and letters of credit and accrued interest and other assets.

Impairment losses are also considered for credit risk exposures to banks and for other assets not carried at fair value, where the primary risk of impairment is not credit risk.

The Bank assesses impairment on an individual basis for all exposures where there is objective evidence of impairment. Assets which are not significant are assessed on a group (portfolio) basis for impairment.

The Bank estimates impairment losses in cases where it estimates that the observable data indicates the likelihood of a measurable decrease in the estimated future cash flows of the asset or portfolio of assets. Evidence includes irregular repayment or other indications of financial difficulties of borrowers, unfavourable changes in economic conditions in which the borrowers operate, changes in the value or collectability of collateral instruments when these changes can be linked to the above-mentioned breach of terms.

Impairment allowances 2015‘000 BAM

2014‘000 BAM


Accrued interest and other assets 867 730

Provisions for off-balance-sheet 943 969

35.698 31.475

In addition to the impairment calculated and recognized in accordance with IFRS, the Bank also calculates impairment losses in accordance with the regulations of the Agency. The excess of provisions which are calculated in accordance with regulations of Agency compared to

the allowance calculated in accordance with IFRS is used in the calculation of capital adequacy.

The table below shows the impairment calculated in accordance with the requirements of the Agency:

Summary of impairment allowances 2015‘000 BAM

2014‘000 BAM


Provisions for off-balance sheet 2.975 2.414

77.809 71.810

2015 ‘000 BAM

2014 ‘000 BAM

2013 ‘000 BAM

Impairment allowances under the Agency regulation 77.809 71.810 61.766

Impairment allowances under IFRS 35.829 31.604 29.802

Excess at period end 44.172 42.135 34.628

Excess at previous period 24.814 24.814 24.814

Change 19.358 17.321 9.814

2015.’000 BAM

2014.’000 BAM

Corporate Retail Total Corporate Retail TotalGros exposure 29.633 27.625 57.258 31.239 26.751 57.990

Impairment allowance (12.669) (14.921) (27.590) (11.749) (11.686) (23.435)Impairment rate 42,75% 54,01% 48,19% 37,61% 43,68% 40,41%

Regulatory reserve for credit risk requirement as of 31 December:

At 31 December 2015 required cumulative excess of provisions calculated in accordance with regulations of the Banking Agency over provisions required under IFRS amounted to BAM 44,172 thousand (2014: BAM 42,135 thousand). The difference between the opening and closing balance for 2015 amounted to BAM 19,358 thousand (2014: BAM 17,321 thousand). In accordance with the regulations of the Agency, for the amount of the difference for 2011 (BAM 2,530 thousand) the Bank increased the reserve for credit losses (this transfer from retained earnings was realised in 2012). The Bank is not obliged to carry out the further transfers from retained

earnings to reserves for loan losses for the excess in 2015, 2014, 2013 and 2012.

The Bank takes into consideration the combined effect of several events when assessing impairment and uses its experience in making judgments in cases where the observable data is required to estimate impairment is limited.

At year end, the gross value of specifically impaired loans and receivables (non-performing loans - NPL) and the rate of impairment loss recognised were as follows:

(b) TaxationThe Bank recognises tax liabilities in accordance with the tax laws of Federation of Bosnia and Herzegovina. Tax returns are subject to the approval of the tax authorities which can carry out subsequent inspections of taxpayers’ records.

(c) Regulatory requirements

The Agency is entitled to carry out regulatory inspections of the Bank’s operations and to request changes to the carrying values of assets and liabilities, in accordance with the underlying regulations.


a) Analysis by source Total interest income is generated from the following sources:

“Interest income from banks and other financial institutions” includes interest income from the obligatory reserve with the Central Bank.

b) Analysis by product

Interest income according to the bank’s business activities is as follows:

7. Interest income

2015. 2014.

’000 BAM ’000 BAMCorporate clients 31.783 31.031

Retail clients 26.932 23.526

Banks and other financial institutions 24 104

58.739 54.661

2015. 2014.

’000 BAM ’000 BAMLoans and receivables from customers 58.715 54.557

Obligatory reserves with the Central Bank 18 65

Placements with banks 6 39

58.739 54.661

a) Analysis by recipient

Total interest expense presented per depositors is as follows:

b) Analysis by product

The total interest expense is analyzed as follows:

8. Interest expense

2015. 2014.

’000 BAM ’000 BAMRetail clients 7.691 6.103

Corporate clients 6.107 5.874

Banks and other financial institutions 5.936 6.863

Other 6 13

19.740 18.853

2015. 2014.

’000 BAM ’000 BAMCurrent accounts and deposits from retail clients 7.691 6.103

Current accounts and deposits from corporate clients 6.107 5.874

Current accounts and deposits from banks 3.124 3.869

Borrowings 2.812 2.994

Other 6 13

19.740 18.853


9. Fee and commission income

2015. 2014.

’000 BAM ’000 BAMProcessing of international payment transactions 2.669 2.181

Other fee income 2.831 2.970

Processing of domestic payment transactions 1.886 1.395

Guarantees and letters of credit 1.519 1.194

Maintenance of customers’ current accounts 2.168 1.646

Foreign exchange transactions 955 922

Customers’credit cards 525 341

12.553 10.649

10. Other income

2015. 2014.

’000 BAM ’000 BAMDividends from available for sale equity securities 57 -

57 -

2015. 2014.

’000 BAM ’000 BAMNet gains from foreign exchange differences (sale/purchase of foregin exchange) 1.861 1.356

1.861 1.356

2015. 2014.

’000 BAM ’000 BAMOther operating income 617 1.187

617 1.187

a) Dividend income

b) Net gains and losses on financial instruments at fair value through profit and loss and result from foreign exchange trading and translation of monetary assets and liabilities

c) Other income


11. Net impairment losses and provisions

2015. 2014.

’000 BAM ’000 BAMNet impairment losses and provisions

- for loans to customers (Note 19) 8.365 7.351

- for provisions for liabilities and charges (Note 29) (26) 421

- for accrued interest and other assets (Note 20) 137 154

8.476 7.926

The charge to profit or loss in respect of impairment losses and provisions was as follows:

12. Personnel expenses

2015. 2014.

’000 BAM ’000 BAMNet salaries 7.789 7.675

Taxes and contributions 5.782 5.715

Other long term employee benefits 1.609 1.553

Meal and transport allowances 504 501

Other 24 24

15.708 15.468

Personnel costs include BAM 2,804 thousand (2014: BAM 2,760 thousand) of defined pension contributions paid into the State pension plan. Contributions are calculated as percentage of the gross salary paid. The Bank had 424 employees as at 31 December 2015 (31 December 2014: 435 employees).

Personnel costs include BAM 1,052 thousand (2014: BAM 818 thousand) of remuneration of the Management Board members. These costs also include BAM 219 thousand contributions for pension insurance paid to State pension plan (2014: BAM 165 thousand).


13. Other expenses

2015. 2014.

’000 BAM ’000 BAMAdministration and marketing costs 7.153 7.302

Rent 3.531 3.520

Administrative and consultancy fees 2.725 2.233

Savings deposit insurance 1.290 1.094

Court and administrative fees 186 367

Compensations for temporary jobs 130 202

Donations 2 37

Other expenses 2.943 1.753

17.960 16.508

14. Income tax expense

2015. 2014.

’000 BAM ’000 BAMCurrent tax 704 243

Deferred tax (Note 30) 8 289

Income tax charge for the year 712 532

2014. 2013.

’000 BAM ’000 BAMProfit before tax 6.919 5.154

Tax calculated at rate of 10% 692 515

Non-deductible expenses 12 11

Non-deductible provisions and write offs 14 6

Non-taxable income (6) -

Income tax expense 712 532Average effective income tax rate 10% 10%

Income tax recognized in the income statement includes current and deferred tax. The current rate of income tax amounts 10% (2014: 10%).

a) Income tax expense recognised in the income statement

b) Profit before tax


15. Cash and cash equivalents

2015. 2014.

’000 BAM ’000 BAMCurrent accounts with other banks 53.721 40.499

Current account with Central Bank 34.267 12.367

Cash in hand 26.424 19.457

Items in the course of collection 2 2

114.414 72.325

The amount of cash reserves also represents cash and cash equivalents for the purpose of the preparation of the statement of cash flows.

16. Obligatory reserve with the Central Bank The obligatory reserve represents amounts required to be deposited with the Central Bank BH -“Central Bank”). Obligatory reserve is calculated on the basis of deposits

and borrowings taken regardless of the currency the funds are denominated in.

Obligatory reserve requirement in 2014 and 2015:

•10%ondepositsandborrowingswithmaturityofuptoone year (short-term deposits and borrowings)

•7%ondepositsandborrowingswithmaturityoveroneyear (long-term deposits and borrowings)

Central Bank calculates fees for funds on reserve accounts as follows:

• on the amount of the obligatory reserve at a rate

determined on the average interest rate realised by the Central Bank over the same period on overnight deposits market;

•ontheamountofexcessfundsonobligatoryreserveata rate determined on the average interest rate realised by the Central Bank over the same period on deposits invested up to a month.

Period the obligatory reserve requirement: 21.12.-31.12.2016.

Number of working days in period: 9

1 Deposit base for the obligatory reserve requirement to 1 year 263.924

2 The rate of the obligatory reserves in % 10

3 The average obligatory reserve up to 1 year 26.392

4 Deposit base for the obligatory reserve requirement over 1 year 487.912

5 The rate of the obligatory reserves in% 7

6 The average obligatory reserve over 1 year 34.154

7 Total obligatory reserve 60.546

8 average deposited with the Central Bank 103.059

9 The amount more than the obligatory reserves 42.512

10 The amount is less than the obligatory reserve 0.00


17. Loans and receivables from banks

2015. 2014.

’000 BAM ’000 BAMPlacements with maturity up to 1 month 10.926 36.846

10.926 36.846

18. Financial asset available-for-sale

2015. 2014.

’000 BAM ’000 BAMEquity securities 988 988

Treasury bills of Federation BiH - 3.000

988 3.988

Financial assets available for sale include the Bank’s equity investments into Sberbank a.d. Banja Luka (0.36% share) and Registry of securities (0.69% share). These equity investments are not quoted on an active market and are valued at cost as at 31 December 2015 in the total amount of BAM 988 thousand (as at 31 December 2014 the total amount was BAM 988 thousand). For these investements there is no active market.

The Bank uses the following fair value hierarchy for financial instruments:

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

Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.


19. Loans and receivables from customers

2015 2014

’000 BAM ’000 BAMCorporate

- in BAM and BAM linked to foreign currencies 456.099 411.056

- in foreign currency 9.821 10.563

Total corporate loans 465.920 421.619Retail


Total retail loans 447.368 416.967Total gross loans 913.288 838.586Less impairment allowance (33.888) (29.776)

Total net loans 879.400 808.810Impairment allowance as a percentage of gross lending to customers 3,71% 3,56%

2015 2014

’000 BAM ’000 BAMAs at 1 January 29.776 28.549Unwinding of discount (2.500) (3.049)

Net charge to profit or loss (Note 11) 8.365 7.351

Increase in provisions 14.640 13.055

Decrease in provisions (6.275) (5.704)

Sale of fully written-off receivables (456) (2.937)

Decrease in provision for loans per which the Bank took over the collateral (1.297) (138)

As at 31 December 33.888 29.776

a) Analysis by product

b) Movement in impairment allowance of loans and receivables

The movement in impairment allowance on loans to customers, recognised in the income statement, is as follows:

20. Accrued interest and other assets

31.12.2015. 31.12.2014.

’000 BAM ’000 BAMRepossesed assets 5.713 5.353

Accrued due interest 2.214 2.227

Accrued interest not due 2.228 1.959

Accrued fee 477 580

Prepaid expenses 327 264

Inventory 147 190

Other assets 4.222 1.401

15.328 11.974Impairment (867) (730)

Total 14.461 11.244

31.12.2015. 31.12.2014.

’000 BAM ’000 BAMAs at 1 January 730 576

Net charge/(release) in income statement (Note 11) 137 154

As at 31 December 867 730

The Bank’s intention is to sell repossessed assets in the apporpiate commercial moment (these assets were taken over with respect to non performing loans).

Changes in allowances for impairment losses on interest calculated and other assets, recognized in the income statement are as follows:


21. Investment in associate

Ownership % Business

Investment (at cost less impairment)

‚000 BAM

31.12.2015. 20,03%Other related

computer businesses

580

31.12.2014. 20,03%Other related

computer businesses

580

The Bank’s investment in associate relates to investment in Bamcard d.d. Sarajevo.

22. Investment property

2015 2014

’000 BAM ’000 BAMCostAt 1 January 2.094 2.094

At 31 December 2.094 2.094Accumulated depreciation and impairment allowance

At 1 January 221 179

Charge for the year 41 42

At 31 December 262 221Net book valueAt 1 January 1.873 1.915At 31 December 1.832 1.873

Management believes that the fair value of investment properties is not significantly different from the carrying value based on current prices for similar properties in the similar locations.


23. Property and equipment

Buildings Compu-ters

Office furnitu-re and motor

vehicles

Leashold improve-

ments

Asets in the course

of cons-truction

Total

’000 BAM ’000 BAM

’000 BAM ’000 BAM ’000

BAM’000 BAM

CostAt 1 January 2015 2.163 10.533 10.332 8.993 - 32.021 Additions - - - - 738 738

Transfers - 476 167 95 (738) -

Disposal and write offs - (2.180) (111) - - (2.291)

At 31 December 2015 2.163 8.829 10.388 9.088 - 30.468At 1 January 2014 2.499 7.216 9.316 6.776 - 25.807 Additions - - - - 6.905 6.905

Transfers 150 3.522 1.016 2.217 (6.905) -

Disposal and write offs (487) (205) - - - (691)

At 31 Decembar 2014 2.163 10.533 10.332 8.993 - 32.021 Depreciation At 1 January 2015 208 5.910 6.895 3.382 - 16.395 Charge for the year 40 1.211 650 643 - 2,544

Disposal and write offs - (1.426) (111) - - (1.537)

At 31 Decembar 2015 248 5.695 7.434 4.025 - 17.402 At 1 January 2014 208 5.327 6.214 2.806 - 14.555 Charge for the year 49 787 681 576 - 2.093

Disposal and write offs (49) (204) - - - (253)

At 31 Decembar 2014 208 5.910 6.895 3.382 - 16.395Net book valueAt 1 January 2015 1.954 4.623 3.437 5.611 - 15.626

At 31 December 2015 1.914 3.135 2.954 5.063 - 13.066

The cost of fully depreciated assets still in use was BAM 20,549 thousand as at 31 December 2015. On 31 December

2014 the value of assets in use and which is depreciated untill 31 December 2014 was BAM 14,895 thousand.

24. Intangible assets

SoftwareAsets in the

course of construction

Total

’000 BAM ’000 BAM ’000 BAMCostAt January 2015 9.230 917 10.147Additions 1.891 (727) 1.164

At December 2015 11.121 190 11.311At January 2014 7.490 396 7.886Additions 1.740 521 2.261

At December 2014 9.230 917 10.147AmortizationAt 1January 2015 5.639 - 5.639Charge for the year 1.164 - 1.164

At 31December 2015 6.803 - 6.803At 1January 2014 4.801 - 4.801Charge for the year 838 - 838

At 31 December 2014 5.639 - 5.639Net book valueAt 1 January 2015 3.591 917 4.508

At 31 December 2015 4.318 190 4.508


25. Current accounts and deposits from banks

26. Current accounts and deposits from customers

31.12.2015. 31.12.2014.

’000 BAM ’000 BAM

Corporate clients

Demand deposits



Term deposits

- in BAM 118.813 103.282


Total Corporate clients 317.462 252.468Retail clients

Demand deposits



Term deposits



Total Retail clients 357.422 267.201Total 674.884 519.669

2015 2014

’000 BAM ’000 BAM Demand deposits

- in BAM 676 31

- in foreign currency 83 112

Term deposits

- in BAM 144.731 226.094


162.490 239.137


28. Accrued interest and other liabilities

31.12.2015. 31.12.2014.

’000 BAM ’000 BAM

Accrued interest – not due 8.163 6.780

Loan collected in advance 4.406 3.237

Deferred income 3.353 3.246

Accrued interest – due 1 1

Other liabilities 7.032 4.226

22.955 17.474

27. Borrowings and subordinated debt

Borrowings Interest rate Maturity 31.12.2015. 31.12.2014.

’000 BAM ’000 BAM

Federal Ministry of Finance Fixed Interest rate 2017. 173 173

European Investment Bank (“EIB“) 3M EURIBOR + margin 2018. 9.027 12.036

European Bank for Reconstruction and Development (“EBRD”) 6M EURIBOR + marža 2019. 19.558 19.558

European Fund for South East Europe (EFSE) 6M EURIBOR + margin 2021. 13.169 17.428

Federal Ministry of Finance/reflection 6M LIBOR + margin 2023. 11.698 41

Total borrowings 53.625 49.236Subordinated debt

Sberbank Europe AG 3M EURIBOR + margin 2020. 24.448 24.448

Total subordinated debt 24.448 24.448Total borrowings and subordinated debt 78.073 73.684

Before the end of 2013, a new contract on subordinated debt was signed with Sberbank Europe AG in the amount of EUR 12,5 million, for a period of six years, of which the first part in the amount of EUR 7,5 million was withdrawn in 2013, while the remaining amount was drawn in 2014. Margins for subordinated funds are higher than margins on credit lines and range from 3.8% to 5.2%.

Subordinated debt is included in additional Bank’s capital at adequacy calculation in accordance with the regulations. Repayment of subordinated debt is subordinated to all other liabilities of the Bank.


29. Provision for liabilities and charges

Vacation accruals

Provisions for severance payment

Provisions for off-balance-sheet items

Provision for passive ligitation

Total

’000 BAM ’000 BAM

As at 1 January 2015 26 383 969 129 1.507Net charge/(release) to statement of comprehensive income

(8) (90) (29) 3 (124)

Increase of provisions - 29 2.819 18 2.866

Decrease of provisions (8) (119) (2.848) (15) (2.990)

As at 31 December 2015 18 293 943 132 1.385

Vacation accruals

Provisions for severance payment

Provisions for off-balance-sheet items

Provision for passive ligitation

Total

’000 BAM ’000 BAM

As at 1 January 2014 117 358 550 127 1.152Net charge/(release) to statement of comprehensive income

(91) 25 419 2 355

Increase of provisions 8 52 2.344 3 2.407

Decrease of provisions (99) (27) (1.925) (1) (2.052)

As at 31 December 2014 26 383 969 129 1.507

30. Deferred tax liability

In accordance with the Law on corporate profit tax (“CPT”) of Federation of Bosnia and Herzegovina cost of hardware and software purchases can be deducted in full in the year of purchase for tax purposes. The Bank

recognizes deferred tax liability based on temporary differences between the tax value and carrying value of hardware and software

Kretanje odgođenih poreskih obaveza je prikazano u tabeli ispod:

31.12.2015. 31.12.2014.

’000 BAM ’000 BAM

Deferred tax liability 753 745

Deferred tax liability

’000 BAM

As at 1 January 2014 456Increase in liabilities recognised in the statement of comprehensive income (Note 14) 289


As at 1 January 2015 745

Increase in liabilities recognised in the statement of comprehensive income (Note 14) 8



The shareholder structure of the Bank as at 31 December 2015 and as at 31 December 2014 is as follows: SBERBANK EUROPE AG 100%

The decision on conversion of preference to ordinary shares was adopted on 17 January 2013 on extraordinary shareholders’ assembly of the Sberbank BH d.d. (legal successor of Volksbank BH d.d.).

During 2014, the Bank increased the share capital through issuance of 293,734 ordinary shares to Sberbank Europe AG. The total amount of the BAM 29,337 thousand has been fully paid-in in cash.

31. Share capital

Authorised and issued Class A Total

’000 BAM ’000 BAM

As at 1 January 2015 76.337 76.337

As at 31 December 2015 76.337 76.337

Nominal value (BAM) 1.000 -

Number of shares 76.337 76.337

32. Share premium

The share premium reserve represents the accumulated positive difference between the nominal value and amount received upon issue of share capital.


33. Commitments and contingent liabilities The total amount of guarantees, letters of credit and undrawn loan commitments at the end of the year were:

31.12.2015. 31.12.2014.

’000 BAM ’000 BAM

Payment guarantees

- in BAM 17.057 15.423


Performance guarantees

- in BAM 23.958 13.543


Letters of credit

- in foreign currency 2.176 993

Undrawn lending commitments

- in BAM

- approved unsued loans 61.237 62.193

- framework loan commitments 56.334 32.892

186.402 146.869

34. Related party transactions

The Bank has an immediate related party relationship with its key shareholders and their subsidiaries, affiliated legal entities, members of the Supervisory Board and Management Board members (together “key management personnel”), family members of key management personnel and entities that are controlled or significantly influenced by key management personnel and members of their immediate families.

Related party transactions are part of the Bank’s regular operations.

The overview of related party transactions at 31 December 2015 and for the year then ended is presented below:

Framework agreement with Sberbank Russia was signed on 20 Decemeber 2012 and the available limit for Sberbank Russia placements in Sberbank BH d.d. Sarajevo was EUR 140 million. At the end of 2015, of the maximum amount used is 65

million. Compensation of the Management Board is disclosed in Note 12. The Bank did not make payments to members of the Supervisory Board.

Receivables Liabilities Income Expense

'000 BAM '000 BAM '000 BAM '000 KM31 December 2015

1. Ultimate parent company

Sberbank – Russia 360 127.533 - 2.100

2. Parent company

Sberbank Europe AG - 35.732 15 2.709

3. Associate

Sberbank a.d. Banja Luka 4.406 9.840 151 27

4. Other members of Sberbank group 30.173 7.933 952

Total Sberbank group 34.939 181.037 166 5.788

Management Board and other key management personal 41 - - -

Total related parties 34.980 181.037 166 5.788

Receivables Liabilities Income Expense

'000 BAM '000 BAM '000 BAM '000 BAM31 December 2014

1. Ultimate parent company

Sberbank – Rusija 563 152.782 2 2.482

2. Parent company

Sberbank Europe AG 16.214 32.871 1 3.427

3. Associate

Sberbank a.d. Banja Luka 4.277 7112 159 27

4. Other members of Sberbank group 22.156 66.664 37 182

Total Sberbank group 43.210 259.429 199 6.118

Management Board and other key management personal 120 - - -

Total related parties 43.330 259.429 199 6.118


35. Events after the balance

After 31 December 2015 till the date of these financial statements, there were no subsequent events that would have a significant impact on the financial statements for 2015 or are of such significance for the Bank to requiring disclosure in the notes to the financial statements for 2015.

Managing Bodies

Management BoardEdin Karabeg, CEO

Jasmin Spahić, Executive Director

Senad Tupković, Executive Director

Denis Hasanić, Executive Director

Supervisory BoardAlexey Bogatov, Chariman Duško Kantar, Vice Chairman Halmos Kornél, Member Irene Eckart, Member

Elena Viklova, Member

Audit Board

Reinhard Kaufmann Jovo Vilendečić Petar Grujić David Krepelka Martina Vučković


Headquarters

Fra Anđela Zvizdovića 1 71000 Sarajevo 033/954-700

Branch Units

Sarajevo

Branch Marijin Dvor Fra Anđela Zvizdovića 1 71000 Sarajevo 033/954-732

Branch Stari Grad Štrosmajerova 3 71000 Sarajevo 033/250-000

Branch Centar Danijela Ozme 18 71000 Sarajevo 033/564-672

Branch Ilidža Butmirska cesta 14 71210 Ilidža 033/776-250

Branch Alipašino Polje Trg solidarnosti 2a 71000 Sarajevo 033/775-280

Branch Novo Sarajevo Kolodvorska 11 71000 Sarajevo 033/954-917

Branch Grbavica Hasana Brkića b.b. 71000 Sarajevo 033/722-730

Branch Dobrinja Dobrinjske bolnice br. 9 71000 Sarajevo 033/294-941

Mostar

Branch Mostar 1 Dr. Ante Starčevića b.b. 88000 Mostar 036/334-000

Branch Mostar 2 Fejićeva b.b. 88000 Mostar 036/501-672

Branch Mostar 3 Petra Krešimira IV b.b. 88000 Mostar 036/333-227

Široki Brijeg

Branch Široki Brijeg Trg Ante Starčevića 6 88220 Široki Brijeg 039/700-137

Business Units Network As of 31.12.2015.

Organisational Structure

Edin Karabeg CEO

Regional Centers RegionsSME / Corporate Business Network Finance Operations

Global Markets Business Intelligence ALM Technical Support

HRProduct

Management & Development

Risk IT

SecurityLegalPartnership,

bankassurance & digital channels

AML & Compliance

Board Affairs

Marketing & Communication

RWO

Jasmin Spahić Executive Director Retail

Denis Hasanić Executive Director CRO/CFO

Senad Tupković Executive Director CIO/COO


Tuzla

Branch Tuzla 1 Maršala Tita 2a-2b 75000 Tuzla 035/300-900

Branch Tuzla 2 Univerzitetska b.b. 75000 Tuzla 035/310-380

Živinice

Branch Živinice Alije Izetbegovića 4 75270 Živinice 035/740-990

Banovići

Branch Banovići Alije Izetbegovića 31 75290 Banovići 035/871-415

Gradačac

Branch Gradačac Huseina Kapetana Gradaščevića b.b. 76250 Gradačac 035/822-780

Lukavac

Branch Lukavac Mehmedalije Maka Dizdara b.b. 75300 Lukavac 035/550-680

Gračanica

Branch Gračanica Ul. Hajdarovac b.b. 75320 Gračanica 035/708-741

Orašje

Branch Orašje XIV ulica 97 76270 Orašje 031/719-442

Brčko

Branch Brčko Bulevar mira 3 76100 Brčko 049/235-853

Zenica

Branch Zenica Trg Alije Izetbegovića 69 72000 Zenica 032/448-162

Visoko

Branch Visoko Hazima Dedića 1 71300 Visoko 032/730-370

Tešanj

Branch Tešanj Maršala Tita b.b. 74260 Tešanj 032/665-170

Branch Kraševo TC VF Komerc 74260 Tešanj 032/699-671

Kakanj

Branch Kakanj Alije Izetbegovića 157 72240 Kakanj 032/552-760

Vitez

Branch Vitez PC 96 72250 Vitez 030/547-174

Bihać

Branch Bihać V korpusa 3 77000 Bihać 037/329-100

Cazin

Branch Cazin Lojićka b.b., 77220 Cazin 037/539-246

Sanski Most

Branch Sanski Most Muse Ćazima Ćatića b.b. 79260 Sanski Most 037/688-506

Sberbank Europe AG

Austria

Sberbank Europe AG Schwarzenbergplatz 3, 1010 Vienna T +43 (0) 1227320 [email protected] www.sberbank.at

Bosnia & Herzegovina

Sberbank BH d.d. Sarajevo Fra Anđela Zvizdovića 1, 71000 Sarajevo T +387 (0)33 954 700 F +387 (0)33 26 38 32 [email protected] www.sberbank.ba

Sberbank a.d. Banja Luka Jevrejska 71, 78 000 Banja Luka T +387 (0)51 241 100 F +387 (0)51 213 391 [email protected] www.sberbankbl.ba

Czech Republic

Sberbank CZ, a.s. U Trezorky 921/2 158 00 Praha 5 T +42 (0)800 133 444 F +42 (0)221 969 951 [email protected] www.sberbankcz.cz

Croatia

Sberbank d.d. Varšavska 9, 10000 Zagreb T +385 (0)1 4801 300 F +385 (0)1 4801 365 [email protected] www.sberbank.hr

Hungary

Sberbank Magyarorszag Zrt. Rákóczi út 7, 1088 Budapest T +36 (0)1 328 66 66 F +36 (0)1 328 66 60 [email protected] www.sberbank.hu

Germany

Sberbank Direct P.O. Box 620 45956 Gladbeck T: +496 966 777 45 777 F: +496 966 777 45 799 [email protected]. www.sberbankdirect.de

Slovakia

Sberbank Slovensko, a.s. Vysoká 9, P.O. Box 81, 81000 Bratislava T +421 (0)2 5965 1111 F +421 (0)2 5441 2453 [email protected] www.sberbank.sk

Slovenia

Sberbank banka d.d. Dunajska 128a, 1000 Ljubljana T +386 (0)1 53 07 400 F +386 (0)1 53 07 555 [email protected] www.sberbank.si

Serbia

Sberbank Srbija a.d. Beograd Bulevar Mihaila Pupina 165g, 11070 Beograd T +381 (0)11 225 74 98 F +381 (0)11 201 32 70 [email protected] www.sberbank.rs

Ukraine

PJSC VS Bank Hrabovskoho str. 11, 79000 Lviv T +380 (0)32 297 13 82 F +380 (0)32 297 05 83 [email protected] www.vsbank.com.ua

annual report · 2016. 7. 18. · this annual report has been prepared and the data checked with...

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