patria bank sa consolidated financial statements 2016 pbk ... · notes to the consolidated...

PATRIA BANK GROUP

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED ON 31 DECEMBER 2016

Prepared in accordance with International Financial Reporting Standards as

adopted by the European Union

CONTENTS

INDEPENDENT AUDITOR’S REPORT

Consolidated Statement of Profit or Loss and Other Comprehensive Income 1

Consolidated Statement of Financial Position 3

Consolidated Statement of Changes in Equity 4

Consolidated Statement of Cash Flows 6

Notes to the consolidated Financial Statements 8

1 REPORTING ENTITY 11

2 BASIS OF PREPARATION 13

3 SIGNIFICANT ACCOUNTING POLICIES 17

4 FINANCIAL RISK MANAGEMENT 50

5 USE OF ESTIMATES AND JUDGMENTS 72

6. FAIR VALUE DISCLOSURES 73

7. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY 81

8. NET INTEREST INCOME 84

9. NET FEE AND COMMISSION INCOME 84

10. GAIN / (LOSS) FROM FINANCIAL ACTIVITIES 85

11. OTHER OPERATING INCOME 86

12. NET IMPAIRMENT OF FINANCIAL ASSETS 86

13. STAFF COSTS 86

14. ADMINISTRATIVE AND OTHER OPERATING EXPENSES 87

15. INCOME TAX EXPENSE 87

CONSOLIDATED FINANCIAL STATEMENTS


16. CASH AND CASH EQUIVALENTS 91

17. DUE FROM OTHER BANKS 93

18. FINANCIAL ASSETS AVAILABLE-FOR-SALE 93

19. FINANCIAL ASSETS HELD FOR TRADING 96

20. INVESTMENTS HELD TO MATURITY 96

21. INVESTMENT IN ASSOCIATES 97

22. BUSINESS COMBINATION 98

23. LOANS AND ADVANCES TO CUSTOMERS 104

24. INVESTMENT PROPERTY 116

25. PROPERTY AND EQUIPMENT 118

26. INTANGIBLE ASSETS (INCLUDING GOODWILL) 120

27. OTHER FINANCIAL ASSETS 121

28. OTHER ASSETS (NON-FINANCIAL) 124

29. DUE TO OTHER BANKS 125

30. DEPOSITS FROM CUSTOMERS 125

31. LOANS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS 126

32. OTHER FINANCIAL LIABILITIES 130

33. OTHER LIABILITIES 130

34. SUBORDINATED DEBT 131

35. SHARE CAPITAL 132

36. RESERVES 133

37. RELATED PARTY TRANSACTIONS 135

38. COMMITMENTS AND CONTINGENCIES 139

39. SUBSEQUENT EVENTS 144

CONSOLIDATED STATEMENT OF FINANCIAL POSITION


(All amounts are in thousand RON)

This version of our report is a translation from the original, which was prepared in Romanian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

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Thousands RON

31 December 2016 31 December 2015

Interest income 8 182,809 70,576

Interest expense 8 (34,185) (20,631)

Net interest income 148,624 49,945

Net impairment of financial assets 12 (64,369) (6,812)

Net interest income after provision for loan impairment 84,255 43,133

Fee and commission income 9 24,333 7,704

Fee and commission expense 9 (5,710) (3,632)

Net fee and commission income 18,623 4,072

Gains /(losses) from financial assets held for trading 10 7,486 -

Gains /(losses) from financial derivatives 10 (5,690) (2,004)

Gains /(losses) from disposals of investment securities available for sale 10 17,230 2,867 Foreign exchange translation gains /(losses) 10,651 5,730

Provisions for credit commitments and financial guarantees (1,542) (113)

Other operating income 11 7,423 3,180

Staff costs 13 (90,846) (37,159)

Depreciation and amortization (13,971) (4,474) Administrative and other operating expenses 14 (76,382) (30,643)

Loss before income tax (42,763) (15,411)

(Expense)/Income from deferred tax 15 (1,616) 5,696 (Expense) /Income with current income tax 15 (771) -

Loss for the year (45,150) (9,715)

Attributable loss

To equity holders of the parent

(36,422) -

To non-controlling interests

(8,728) -

Loss of the financial year

(45,150) -

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY




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31 December 2016

Thousands RON Note Share

capital

Revaluation reserves

AFS securities

Revaluation reserve

Premises & Land

Legal Reserves

Reserved Banking

Risks Other

reserves Accumulated

loss

Total equity attributable to the entity

that controls

Non-controlling interests

Total Equity

Balance at 31 December 2015 268,351 7,487 22,314 23,503 11,683 30,291 (141,356) 222,273 - 222,273 Net loss for the year - - - - - - (36,422) (36,422) (8,728) (45,150) Comprehensive income, net of tax:

Reserve decrease from revaluation of financial assets held for sale

36 - (10,421) - - - - - (10,421) (1,409) (11,830)

Comprehensive income statement of financial year, net of tax

- (10,421) - - - - (36,422) (46,843) (10,137)

(56,980)

Dividend income - - - - - - - - - - Transfers between equity components

- - (941) - - - 941 - - -

Share capital decrease 35 (105,709) - - - - - 105,709 - - - Share capital increase from debt conversion

35 36,576 - - - - - - 36,576 - 36,576

Other modification in share equity

500 500 215 715

Business combination 72,421 72,421

Balance at 31 December 2016 199,218 (2,934) 21,373 23,503 11,683 30,291 (70,628) 212,506 62,499 275,005

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY




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31 December 2015

Thousands RON Note Share

capital

Revaluation reserves

AFS securities

Revaluation reserve

Premises & Land

Legal Reserves

Reserved Banking Risks

Other reserves

Accumulated loss

Total Equity

Balance at 31 December 2014 268,351 6,162 21,251 23,503 11,683 30,291 (131,641)

229,600

Net loss for the year - - - - - - (9,715)

(9,715) Comprehensive income, net of tax: Reserve increase from fair value modification of financial assets held for sale 36 - 1,325 - - - - -

1,325

Reserve increase from revaluation of tangible assets 36

-

-

1,063

-

- - -

1,063

Comprehensive income statement of financial year, net of tax -

1,325 1,063

-

- - (9,715) (7,327)

Balance at 31 December 2015

268,351

7,487

22,314

23,503

11,683 30,291 (141,356)

222,273

CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS




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Thousands RON Note 31 December 2016 31 December 2015

Cash flows from operating activities Interest received 8 188,652 89,572

Interest paid 8 (39,820) (20,205)

Fees and commissions received 9 24,635 7,704

Fees and commissions paid 9 (5,737) (3,620)

(Loss)/gain from financial derivatives 10 (1,127) 1,672

Net trading and other income 10,11 33,008 1,197

Recoveries on loans previously written off 12 29,107 8,096

Cash payments to employees 13,14,27 (84,149) (38,312)

Cash payments to suppliers 13,14,27 (79,848) (27,790)

Current income tax expense 15 (753) -

Net cash-flow from operating activities before changes in operating assets and liabilities 63,969 18,314

Changes of operating assets

(Increase)/Decrease of:

- due from other banks 17 (4,767) (1,961)

- financial assets held for trading 20 (7,139) -

- loans and advances to customers 23 35,717 (5,303)

- other financial assets 27 36,683 2,495

Total changes of operating assets 60,494 (4,769)

Changes of operating liabilities

(Increase)/Decrease of:

- due to other banks 29 26,824 (40,484)

- deposits from customers 30 (358,339) 170,273

- financial liabilities to unit fund owners 32 - -

- other financial liabilities 32 6,672 3,205

Total changes of operating liabilities (324,843) 132,994

Net cash flow used in operating activities (200,381) 146,539

Cash flows from investing activities

Acquisition of investment securities available for sale 18 (2,297,048) (437,316) Sale of investment securities available for sale 18 2,567,875 562,258 Investment securities held to maturity 1,595

Acquisition of equity investment securities 18 8,000 (5,649) Dividend income received 11 724 2,623 Acquisition of real estate investments 24 7,605 - Acquisition of tangible and intangible assets 25,26 (11,941) (2,028)

CONSOLIDATED STATEMENT OF CHANGES IN CASH FLOWS




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Thousands RON Note 31 December 2016 31 December 2015 Investments in subsidiaries, net of cash and balances with the Central Bank at the acquisition date

429,794 (10,383)

Net cash used in investing activities 706,604 109,505

Cash flows from financing activities

Drawdowns from loans from other financial institutions

31 28,712 28,272

Repayments of loans from other financial institutions 31 (85,680) (159,225) Distribution of dividends and capital reduction to former shareholders

- (99,351)

Proceeds from subordinated debt 34 19,754 -

Purchase of own shares 35 14,057 -

Net cash used in financing activities (23,157) (230,304)

Effect of exchange rate changes on cash and cash equivalents

(254) 760

Net increase/(decrease) in cash and cash equivalents

482,812 26,500

Cash and cash equivalents at 1st of January 16 222,534 196,034

Cash and cash equivalents at 31st of December 705,346 222,534

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




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1 REPORTING ENTITY

At December 31th 2016 The Group Patria Bank (“The Group”) includes Patria Bank S.A. (former

Nextebank SA –”Patria Bank”, (“The Bank”/“PBK”)), Patria Credit IFN SA (“IFN”), SAI Patria Asset

Management SA (former SAI Intercapital Investment Management SA), Banca Comerciala

Carpatica SA (“BCC”) and its subsidiaries incorporated in Romania: Imobiliar Invest SRL and SAI

Carpatica Asset Management SA (together with managed investment funds: FDI Carpatica Stock,

FDI Carpatica Global si FDI Carpatica Obligatiuni). Patria Bank SA is the Parent of the Group.

At December 31 th 2015 The Group Patria Bank included only Patria Bank S.A. (former Nextebank

SA – “PBK”) and Patria Credit IFN SA (“IFN”).

The Structure of the Patria Bank Group is the following:

• Patria Bank S.A. – Parent – is a Romanian credit institution established in 1993 under

the name of Banca Romexterra and it operates in the banking industry in accordance with

the norms and regulations issued by the National Bank of Romania. In September 2006,

MKB Bank Zrt. (Hungary) (or “MKB Bank”) acquired the majority package of 55.36% of the

Bank’s share capital. From 2007 to 2014 MKB Bank Zrt. increased its shareholding in

Nextebank SA so that as of 29 April 2014 it held 98.41% of the Bank’s share capital. On the

30 April 2014, EEAF Financial Services B.V. became the new majority shareholder of Patria

Bank by acquiring the shares owned by MKB Bank Zrt.

As of 31 December 2016 and 31 December 2015 the Bank is ultimately controlled by

Emerging Europe Accession Fund Cooperatief U.A. (“EEAF”) 100% owner of EEAF

Financial Services B.V.. The main investors in EEAF are EBRD - European Bank for

Reconstruction and Development, EIF - European Investment Fund (part of the European

Investment Bank group), DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH,

Black Sea Trade and Development Bank. The main shareholders had the same structure at

31 December 2014. These four institutions held joint control over the Emerging Europe

Accession Fund Cooperatief U.A..

The Group provides banking services and other financial services to SMEs,

microenterprises and individual clients. These services include: deposit accounts, domestic

and international payments, foreign exchange transactions, working capital loans, medium

term lending, bank guarantees, letters of credit.

• Patria Credit IFN SA – Subsidiary - is registered in Romania as of February 12, 2004

and is authorized by the National Bank of Romania ("NBR") to carry out lending activities.

Starting with September 28, 2007, IFN is registered with the General Register of the NBR's

Non-banking Financial Institutions ("IFN"), and as of February 26, 2008 Patria Credit IFN

was also registered with the NBR Special Register.





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Starting February 2016, Patria Credit IFN was de-registered from the Special Register of

Non-Banking Financial Institutions in accordance with the NBR address 428/2 /

15.02.2016, as a result of the decrease of the specific indicators of the registration in the

Special Register.The Company is currently listed in the General Register.

• SAI Patria Asset Management SA – Subsidiary - (former S.A.I. Intercapital

Investment Management SA) is an investment management company licensed as a

Romanian investment management company by the Financial Supervisory Authority(FSA).

• Banca Comerciala Carpatica SA – Subsidiary - started its activity as private bank in

1999 in Sibiu.

Banca Comerciala Carpatica SA carries out its activity through the central office in

Bucharest and the operational offices in Sibiu and Targu Mures and has 79 agencies (56

branches and 57 agencies as of 31 December 2015). BCC provides the whole range of

banking services for individuals and legal entities, including deposits, cash management,

lending and foreign exchange operations. It provides traditional banking services and

products, including payment orders, documentary transactions and issuance of letters of

credit and guarantees. BCC carries out its activity in Romania.

• SAI Carpatica Asset Management SA – Subsidiary of BCC - with headquarters in

Sibiu, G-ral Vasile Milea Street, no 1, having the main activity of managing open-end

investment funds. Banca Comerciala Carpatica holds a 99.99% stake in the share capital

and voting rights of SAI Carpatica Asset Management SA.

The funds are consolidated, and the BCC’s shareholdings of these funds is as follows:

- FDI Carpatica Stock - 93.49%

- FDI Carpatica Global - 19.91%

- FDI Carpatica Obligatiuni - 2.59%

• SC Imobiliar Invest SRL (Voluntary liquidation) – Subsidiary of BCC - based in

Sibiu, Autogarii street, no 1, having the main activity of buying and selling of own real

estate. Banca Comerciala Carpatica holds 100% of the share capital and voting rights.

Banca Comerciala Carpatica SA has decided an early dissolution of the subsidiary SC

Imobiliar Invest SRL followed by voluntary liquidation of the company, in the next period.

Considering the dissolution decision the Group has booked in its consolidated financial

statements a provision for the net assets of Imobiliar Invest up to the level of the net value

of shares held presented in the separate financial statements of the Bank.





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• SSIF Carpatica Invest SA (Dissolution) – Subsidiary of BCC - SSIF Carpatica Invest

S.A. with its headoffice in Sibiu, 5 Mihai Viteazu Street. SSIF Carpatica Invest S.A is a

financial investment company, authorized, regulated and supervised by the Financial

Supervisory Authority (“ASF”); the Group owns 95.68% of the shares (2015: 95.68%). The

Financial Supervisory Authority has ruled to suspend the trading activity of SSIF Carpatica

Invest SA, considering that the company is not compliant with the legal requirements

regarding the level of own funds. Thus, the main shareholder, Banca Comerciala Carpatica

SA, has decided to disolve the company. Considering the disolving decision and the

insignificant impact of consolidating SSIF Carpatica Invest SA, the Group has decided to

modify the scope of the consolidation by excluding SSIF Carpatica Invest SA for the 2016

statements. The Group has consolidated SSIF Carpatica Invest SA as at 31 December 2015.

2 BASIS OF PREPARATION

a) Statement of compliance

In order to be compliant with the National Bank of Romania Order no 27/16.12.2010, the

financial statements of the Group have been prepared in accordance with International

Financial Reporting Standards as adopted by the European Union (“IFRS”).

The accounts of the Group are maintained in RON in accordance with Romanian

accounting law and National Bank of Romania’s banking regulations. These accounts of

the Group are defined hereafter as the statutory accounts.

b) Basis of measurement

These financial statements have been prepared under the historical cost convention, as

modified by the initial recognition of financial instruments based on fair value, and by the

revaluation of properties and equipment, available-for-sale financial assets, and financial

instruments at fair value through profit or loss. The main accounting policies applied in the

preparation of these financial statements are set out below. These policies have been

consistently applied to all the periods presented.

The Group prepared these financial statements in accordance with NBR Order No. 27/2010

and The Accounting Law No. 82/1991 republished, with subsequent modifications.

In the Group's financial statements, subsidiary undertakings (those entities in which the

Group, directly or indirectly, has an interest of more than half of the voting rights or has the

power to exercise control over their activity) will be consolidated.





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c) Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Patria Bank

SA and all its subsidiaries for the year ended 31 December 2016 and the comparative

financial statements of the Patria Bank SA and all its subsidiaries for the year ended 31

December 2015.

The subsidiary's financial statements were prepared for the same reporting period as of the

Bank, using the same accounting policies.

All balances between Group companies, transactions, income and expenses, losses and

gains arising from transactions between Group companies are eliminated in full.

Subsidiaries are fully consolidated from the date the control is transferred to the Group.

Control is achieved when the Group has exposure or has rights to variable gains resulting

from engagement as an investor and has the ability to influence gains by its power over the

investment. The results of subsidiaries acquired or sold during the year are included in the

consolidated profit or loss account from the acquisition date or until the date of sale, as the

case may be.

d) Going concern

These financial statements have been prepared under the going concern which assumes

that the Group will continue its activity in the foreseeable future. The Group's management

believes that the Group will continue the normal operations in the future and, accordingly,

the financial statements have been prepared on this basis.

Patria Bank SA – Parent - had a proper capital adequacy and liquidity position at the end of the

2016 year, as follows:

- Liquidity Coverage Ratio is 103% compared to the regulatory limit of 70% (2015: 240%);

- Regulatory Liquidity Indicator (NBR Regulation no 25/2011) is in compliance for all

maturity buckets at 31 December 2016 and 31 December 2015;

- Loans to Deposits ratio is 79.32% (2015: 65.54%);

- Capital Adequacy Ratio is at the level of 21.32% as of 31 December 2016 (2015: 32.4%)

higher than the market average and as well as limit established for TSCR by the National

Bank of Romania for Patria Bank at the individual level of 10.37%.

In 2016, PBK was focused on developing commercial activity, managing to disburse new loans in

amount of RON 400 million on the four business lines: Retail, Micro, Agro and SME. Thus, one can

see an improvement in the loans / deposits + 14%. It is a comfortable liquidity situation, even if





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compared with the previous year recorded an overall reduction of strategic investments for the

acquisition of 64.16% stake in Banca Comerciala Carpatica ("BCC").

The results of 2016 compared to the previous year shows an improvement in profitability:

- Net interest income increased by RON 7,558 thousand, + 16%;

- Net fee and commission income were improved by RON 813 thousand, + 30%;

- Total net operating income increased by RON 16,580 thousand, + 30%.

Patria Bank operating expenses recorded a growth rate of + 22%. Increased operating expenses is

incurred from the Group’s projects strategic costs and by the fact that during the year 2016 the

business lines acquired from Patria Credit IFN in 2015 had generated costs all over the year,

compared to 2015 when it has impacted the Profit or Loss statement only 8 months.

Provision for impairment of loans and advances to customers showed an increase of RON 4,870

thousand largely generated by legislative or regulatory changes.

Loss before tax was reduced by 11%, RON 1,475 thousand certifying the positive activity.

Given that Patria Bank could not recognize a potential receivable from deferred taxes on unused tax

losses of RON 73,292 thousand, corresponding to a total tax loss for the period 2010 to 2016,

amounting to RON 504,200 thousand, the result after tax is RON (13,635) thousand, reflecting an

increase in loss of RON (5,577) thousand compared to 2015. In 2015,PBK recognized a deferred tax

asset of RON 5,371 thousand to offset the deferred tax liability arising from positive valuation

reserves recognized in equity.

Compared to 2016 budget, Patria Bank largely achieved objectives and work plan.The points where

it has registered negative deviations are mainly represented by additional expenses with

impairment of loans and advances to customers and operating expenses resulting from legislative

changes (Deed in payment) occurred during the year, in these areas and additional costs above

budget on the merger with Banca Comerciala Carpatica.

The Parent of Patria Bank SA is the investment fund Emerging Europe Accession Fund Cooperatief

U.A. (EEAF), which is the third private equity fund managed by Axxess Capital Partners and

reunits as significant investors some important international financial institutions such as:

• EBRD - European Bank for Reconstruction and Development

• EIF - European Investment Fund part of European Investment Bank (EIB)

• BSTDB - Black Sea Trade and Development Bank

• DEG – Developement Bank part of the group KFW





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Banca Comerciala Carpatica: Due to the BCC's historical losses, the accumulated deficit as at

31 December 2016 is RON 153,000 thousand(2015: RON 110,000 thousand). BCC has recorded a

loss of 44.9 mio RON as at 31 December 2016. As at 31 December 2016 the solvency ratio calculated

according to the regulations of the National Bank of Romania is 14.21% (as at 31 December 2015,

before the share capital increase at the beginning of 2016, the solvency ratio was 4.9%). BCC

complies with the limit specifically imposed by the National Bank of Romania, based on regulations

applicable to credit institutions in EU.

On 18 June 2016 the Extraordinary General Shareholders’ Meeting (“EGSM”) approved the

decrease of share capital in order to cover losses of RON 204,492 thousand, followed by an increase

in share capital of RON 110,137 thousand. The Board was mandated to implement these decisions.

In the share issuance process, the existing shareholders of BCC have subscribed shares in total

amount of RON 11,471 thousand. Thus, in the absence of significant interest from existing

shareholders of BCC, BCC’s Board offered the newly issued shares, left unsubscribed, to investors

outside the existing shareholders of the Group at that moment. During this process, Patria Bank SA

(formerly known as Nextebank) subscribed 986,663,916 new BCC shares for a price of 0.1001

RON/share in a private placement, the total value of the subscribed and paid capital with the share

premium being of RON 98,765 thousand. More details regarding the process of share issue which

started at the end of 2015 and which was finalized at the beginning of 2016 can be found in Note 35.

Thus, BCC has doubled its capital basis at the beginning of 2016, increase which was done by the

new main shareholder Patria Bank SA, which now holds 64.16% of the share capital of Banca

Comerciala Carpatica.

In the second half of 2016, BCC has undergone a reorganization process of its activities as well as an

optimization of the territorial network of branches and agencies, while reducing administrative

costs at head office. Thus, BCC has achieved a reduction of operating costs by 15% in 2016 as

compared to 2015, but considering that most optimization spending measures occurred in the last

quarter of 2016, the Group considers it has made a reduction of operating expenses of 24% in the

4th trimester of 2016 as compared to the average quarterly operating expenses in 2015.

On 1st of May 2017 Patria Bank SA and Banca Comerciala Carpatica SA merged, the Bank resulted

from the merger is named Patria Bank SA and the shares of the merged bank are listed on

Bucharest Stock Exchange premium category.

Patria Credit IFN: after the business transfer of the business lines (Micro and Agro) performed

in 2015 year, IFN succeeded to generate a new loan portfolio of RON 43,486 thousands and the net

result of Patria Credit IFN for 2016 year is RON 2,700 thousands profit.





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SAI Patria Assets Management SA – form the total assets reported at the end of 2016 year in

amount of RON 1,123 thousands, 86% represent cash.

e) Use of estimates and judgments

The preparation of financial statements according to IFRS requires management to make

judgements, estimates and assumptions that affect the application of policies and reported

amounts of assets and liabilities, income and expenses. Actual results may differ from

these estimates.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to

accounting estimates are recognized in the period in which the estimate is revised if the

revision affects only that period or in the period of the revision and future periods if the

revision affects both current and future periods.

3 SIGNIFICANT ACCOUNTING POLICIES

In particular, information about significant areas of estimation uncertainty and critical judgements

in applying accounting policies that have the most significant effect on the amount recognized in

the financial statements are described in the Notes 5.

Subsidiaries

Subsidiaries are those investees that the Group controls because the Group (i) has power to direct

relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights,

to variable returns from its involvement with the investees, and (iii) has the ability to use its power

over the investees to affect the amount of investor’s returns. The existence and effect of substantive

rights, including substantive potential voting rights, are considered when assessing whether the

Group has power over another entity. For a right to be substantive, the holder must have practical

ability to exercise that right when decisions about the direction of the relevant activities of the

investee need to be made.

Investments in subsidiaries are measured at cost less any impairment loss. The investments are

tested for impairment whenever there are indicators that the carrying amount of an investment

may not be recoverable. If the recoverable amount of an investment (the higher of its fair value less

cost to sell and its value in use) is less than its carrying amount, the carrying amount is reduced to

its recoverable amount.

The carrying amount of an investment is derecognized on disposal. The difference between the fair

value of the sale proceeds and the disposed share of the carrying amount of the investment is





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recognized in profit or loss as gain or loss on disposal. The same applies if the disposal result in a

step down from subsidiary to joint venture or an associate measured at cost.

In 2015, Patria Bank acquired Patria Credit IFN, acquisition performed in 2 steps: Business

Transfer (“BTA”) in May 2015 and June 2015 and Shares Purchase (“SPA”) in October 2015, thus

becoming its subsidiary and subject to consolidation for accounting and prudential purposes.

Details of this transaction are presented in Note 22 Business Combination.

In 2016, Patria Bank acquired 64.16% stake in Banca Comerciala Carpatica ("BCC"), a local bank in

Romania listed on Bucharest Stock Exchange under the symbol "BCC".

In April 2016, Patria Bank acquired 1,154,999 shares, representing 99, 99991342% of capital and

voting rights at SAI Intercapital Investment Management SA, a corporation licensed as a Romanian

investment management company by the National Financial Surveillance Authority (FSA).

Associates

Associates are entities over which the Group has significant influence (directly or indirectly), but

not control, generally accompanying a shareholding of between 20 and 50 percent of the voting

rights. Investments in associates are accounted and recognized at cost.

Investment Funds management The Group manages and administers assets invested in unit funds on behalf of investors. The

financial statements of these entities are included in the consolidated financial statements, as the

Group has control over the investment funds.

Classification of financial assets and liabilities

The Group classifies its financial assets and liabilities in the following categories:

Financial assets or financial liabilities at fair value through profit or loss.

The financial assets or liabilities held for trading are recorded in the consolidated statement of

financial position at fair value. Changes in the fair value are included in „Net trading income”. The

interest and dividend income or costs are recorded in „Net trading income” according to the

contractual terms or when the right to payment is established. This classification may include the

government bonds, other bonds, shares and short positions in bonds and shares, including fund

units, that were purchased for the purpose of sale or repurchase in the near future.





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The financial assets or liabilities are included in the assets held for trading if those assets or

liabilities are purchased in order to be traded in the short term (a period of maximum 6 months)

and have the following characteristics:

- the Group intends to obtain short-term benefits from the price movements;

- they are free of encumbrances (are not subject to any guarantee, contract, etc.);

- are assessed at fair value;

- are actively managed/ administered;

- there is an active market for them.

Subsequent to the initial recognition, the financial assets and liabilities held for trading are

measured at fair value. The favourable or unfavourable differences in the monthly measurement of

the financial assets and liabilities held for trading, are recorded in designated accounts of gains or

losses from revaluation and related transfer, as the case may be.

The fixed and variable income financial instruments held for trading are derecognised upon sale

using the weighted average cost method.

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

are not quoted in an active market, other than:

a. those that the Group intends to sell immediately or in the near term, those that the Group,

upon initial recognition, designates as at fair value through profit and loss,

b. those that the Group, upon initial recognition, designates as available for sale or

c. those for which the holder may not recover substantially all of its initial investment, other

than because of credit deterioration. Loans and receivables comprise due from other banks

and customers, net investments in finance lease, trade receivables and other receivables.

The financial assets held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group intends and is able to hold to maturity.

The Group will not classify a financial asset as held-to-maturity if during the current financial year

or the two previous financial years it sold or reclassified a significant number of the held-to-

maturity financial assets before maturity. This prohibition is not applicable if that sale or

reclassification is in one of the following situations:

- it is so close to the maturity of the financial assets (for example less than three months

before maturity) that the changes in the interest rate on the market could not have had a

significant effect on the fair value of the financial asset;

- it occurs after the value of the principal financial asset is substantially recovered by

scheduled payments or prepayments;





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- is attributed to a separate event, that is not repetitive, outside the control of the Group and

which could not have been reasonably foreseen.

On initial recognition, the assets held-to-maturity are measured at fair value comprising the

purchase price and the transaction costs.

Subsequent to initial recognition, the assets held-to-maturity are measured at amortised cost using

the effective rate method less the impairment allowance. The amortised cost is calculated

considering any discount or premium upon purchase and fees and costs that should be part of the

effective interest rate. The amortization is included in "Interest income” in the consolidated

statement of profit or loss and other comprehensive income. Impairment allowances are recorded if

impairment losses occur.

The financial instruments held-to-maturity are derecognised by using the specific identification

method (asset-by-asset).

The gains or losses from derecognition of held-to-maturity financial assets are recorded in the

consolidated statement of profit or loss and other comprehensive income under "Gains/ losses from

held-to-maturity assets".

Available-for-sale financial assets are those financial assets that the Group intends to keep for an

indefinite period of time and which can be sold according to liquidity needs, interest rate changes,

foreign exchange or share price which form the equity. These assets are designated as available for

sale or are not classified as loans and advances, held-to-maturity investments or financial assets at

fair value through profit or loss. Available-for-sale instruments include treasury bills and other

Bonds eligible for discounting with central banks, investments in unit funds and other investment

securities that are not at fair value through profit and loss or held-to-maturity.

Available for sale financial assets sale are measured at fair value.

Financial instruments - key measurement terms

Depending on their classification financial instruments are carried at fair value or amortized cost as

described below.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. The best evidence of

fair value is price in an active market. An active market is one in which transactions for the asset or

liability take place with sufficient frequency and volume to provide pricing information on an

ongoing basis.





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Fair value of financial instruments traded in an active market is measured as the product of the

quoted price for the individual asset or liability and the quantity held by the entity. This is the case

even if a market’s normal daily trading volume is not sufficient to absorb the quantity held and

placing orders to sell the position in a single transaction might affect the quoted price.

Valuation techniques such as discounted cash flow models or models based on recent arm’s length

transactions or consideration of financial data of the investees, are used to measure fair value of

certain financial instruments for which external market pricing information is not available.

Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one

are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities,

(ii) level two measurements are valuations techniques with all material inputs observable for the

asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and

(iii) level three measurements are valuations not based on solely observable market data (that is,

the measurement requires significant unobservable inputs).

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given

to acquire an asset at the time of its acquisition and includes transaction costs. Measurement at

cost is only applicable to investments in equity instruments that do not have a quoted market price

and whose fair value cannot be reliably measured and derivatives that are linked to, and must be

settled by, delivery of such unquoted equity instruments.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or

disposal of a financial instrument. An incremental cost is one that would not have been incurred if

the transaction had not taken place. Transaction costs include fees and commissions paid to agents

(including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory

agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include

debt premiums or discounts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the financial instrument was recognised at initial

recognition less any principal repayments, plus accrued interest, and for financial assets less any

write-down for incurred impairment losses.

Accrued interest includes amortisation of transaction costs deferred at initial recognition and of

any premium or discount to maturity amount using the effective interest method. Accrued interest

income and accrued interest expense, including both accrued coupon and amortised discount or

premium (including fees deferred at origination, if any), are not presented separately and are

included in the carrying values of related items in the statement of financial position.





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The effective interest method is a method of allocating interest income or interest expense over the

relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the

carrying amount.

The effective interest rate is the rate that exactly discounts estimated future cash payments or

receipts (excluding future credit losses) through the expected life of the financial instrument or a

shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective

interest rate discounts cash flows of variable interest instruments to the next interest repricing

date, except for the premium or discount which reflects the credit spread over the floating rate

specified in the instrument, or other variables that are not reset to market rates.

Such premiums or discounts are amortised over the whole expected life of the instrument. The

present value calculation includes all fees paid or received between parties to the contract that are

an integral part of the effective interest rate.

Initial recognition of financial instruments

Derivatives and other financial instruments at fair value through profit or loss are initially recorded

at fair value. All other financial instruments are initially recorded at fair value plus transaction

costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on

initial recognition is only recorded if there is a difference between fair value and transaction price

which can be evidenced by other observable current market transactions in the same instrument or

by a valuation technique whose inputs include only data from observable markets.

All purchases and sales of financial assets that require delivery within the time frame established by

regulation or market convention (“regular way” purchases and sales) are recorded at trade date,

which is the date on which the Group commits to deliver a financial asset. All other purchases are

recognised when the entity becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets

The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash

flows from the assets otherwise expired or (b) the Group has transferred the rights to the cash flows

from the financial assets or entered into a qualifying pass-through arrangement while (i) also

transferring substantially all risks and rewards of ownership of the assets or (ii) neither transferring

nor retaining substantially all risks and rewards of ownership, but not retaining control. Control is

retained if the counterparty does not have the practical ability to sell the asset in its entirety to an

unrelated third party without needing to impose restrictions on the sale.

Functional and presentation currency





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Items included in the financial statements are measured using the currency of the primary

economic environment in which the entity operates (‘the functional currency’). The financial

statements are prepared and presented in Romanian RON (“RON”), which is the Group’s

functional and presentation currency, rounded to the nearest thousands.

Monetary assets and liabilities are translated into RON currency at the official exchange rate of the

National Bank of Romania (“NBR”) at the end of the respective reporting period.

Foreign exchange gains and losses resulting from the settlement of transactions and from the

translation of monetary assets and liabilities into RON at the official exchange rates of year-end, are

recognized in profit or loss (as foreign exchange translation gains less losses). Translation at the

official exchange rate does not apply to non-monetary items that are measured at historical cost.

Non-monetary items measured at fair value in a foreign currency, including equity investments, are

translated using the exchange rates at the date when the fair value was determined.

Effects of exchange rate changes on non-monetary items measured at fair value in a foreign

currency are recorded as part of the fair value gain or loss.

The exchange rates of major foreign currencies were:

Currencies 31 December 2016 31 December 2015 % Increase/(Decrease)

Euro (EUR) 1: RON 4.5411 1: RON 4.5245 0.37%

US Dollar (USD) 1: RON 4.3033 1: RON 4.1477 3.75%

31 December 2016 31 December 2015 %Increase/(Decrease)

EUR USD EUR USD EUR USD At 31 December 1: RON 4.5411 1: RON 4.3033 1: RON 4.5245 1: RON 4.1477 0.37% 3.75% Average for the period 1: RON 4.4908 1: RON 4.0592 1: RON 4.4449 1: RON 4.0058 1.03% 1.33% Maximum for the period 1: RON 4.5411 1: RON 4.3033 1: RON 4.5245 1: RON 4.1975 0.37% 2.52% Minimum for the period 1: RON 4.4523 1: RON 3.9348 1: RON 4.4070 1: RON 3.9157 1.03% 0.49%

Income tax expense

Income taxes have been provided for in the financial statements in accordance with legislation

enacted or substantively enacted by the end of the reporting period. The income tax charge

comprises current tax and deferred tax and is recognised in profit or loss for the year, except if it is

recognised in other comprehensive income or directly in equity because it relates to transactions





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that are also recognised, in the same or a different period, in other comprehensive income or

directly in equity.

Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in

respect of taxable profits or losses for the current and prior periods. Taxes other than on income

are recorded within administrative and other operating expenses.

Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards

and temporary differences arising between the tax bases of assets and liabilities and their carrying

amounts for financial reporting purposes.

In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary

differences on initial recognition of an asset or a liability in a transaction other than a business

combination if the transaction, when initially recorded, affects neither accounting nor taxable

profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of

goodwill, and subsequently for goodwill which is not deductible for tax purposes. Deferred tax

balances are measured at tax rates enacted or substantively enacted at the end of the reporting

period, which are expected to apply to the period when the temporary differences will reverse or the

tax loss carry forwards will be utilised.

Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded

only to the extent that it is probable that future taxable profit will be available against which the

deductions can be utilised.

The tax rate used to calculate the current and deferred tax position at 31 December 2016 and 31

December 2015 is 16%.





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Investment property

On recognition in the balance sheet, an investment property is accounted at cost or fair value in the

case of those acquired free of charge. The investment property cost includes the trading costs and

any expenses directly attributable to the investment property. Subsequent to initial recognition,

investment property is measured using the revaluation model (fair value based model). The gains

or losses from the change in the fair value of the investment property are included in the

consolidated statement of profit or loss and other comprehensive income for that year.

If a property held by the owner becomes an investment property, the Group will treat that property

in accordance with the policy established for tangible assets, until the date when the use is changed.

In the case of assets that were originally earmarked for lease and that subsequently change their

destination, and are to be used for a long period or they are intended to be realized by sale, a

transfer from investment property to tangible assets or inventory, as the case may be, will be

accounted for accordingly. The transfer is made at the date when the destination is changed, at the

asset value booked in the accounting records.

The investment property is derecognized when they were either sold or permanently withdrawn

from use and no economic benefit is expected from their sale. The difference between the cash

obtained from the sale and the carrying amount of the asset is recognized in the consolidated

statement of profit or loss and other comprehensive income for the period of derecognition.

For the investment property resulting from repossessed assets, the Group adopted a new business

model that involves identifying among the repossessed assets those assets considered by the Group

to be investment property and that ensure the value recovery in time from future lease income, as

an alternative more profitable than the sale.

Control over investment funds

The Group manages the assets invested in the investment funds on behalf of investors. The analysis

regarding the control over the investment funds consisted of the following: the Group’s power to

coordinate the relevant activities of the investment funds, exposure to variable returns according to

the investment decisions and the Group's ability to coordinate relevant activities of funds in order

to obtain benefits - in making decisions the Group acts as a principal or as an agent of the owners of

fund units. Given the fact that holders of fund units can’t revoke the appointment of the Group as

manager of the investment funds and also the fact that the liquidation of the funds’ administrator

(SAI Carpatica Asset Management) can only be carried out by the Group in its capacity as

shareholder, the Group concluded that it acts as principal in the management activity of the

investment funds and decided it has control over the funds, thereby the funds are consolidated.





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Provisions for liabilities and charges

Provisions for liabilities and charges are non-financial liabilities of uncertain timing or amount.

They are accrued when the Group has a present legal or constructive obligation as a result of past

events, 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.

Income and expense recognition

Interest income and expense are recorded for all debt instruments on an accrual basis using the effective

interest method. The effective interest method is a method of calculating the amortized cost of a

financial asset or a financial liability and of allocating the interest income or interest expense over

the relevant period. The effective interest rate is the rate that exactly discounts estimated future

cash payments or receipts through the expected life of the financial instrument or, when

appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

When calculating the effective interest rate, the Group estimates cash flows considering all

contractual terms of the financial instrument but does not consider future credit losses.

This method defers, as part of interest income or expense, all fees paid or received between the parties to

the contract that are an integral part of the effective interest rate, transaction costs and all other

premiums or discounts.

Fees integral to the effective interest rate include origination fees received or paid by the Group

relating to the creation or acquisition of a financial asset or issuance of a financial liability, for

example fees for evaluating creditworthiness, evaluating and recording guarantees or collateral,

negotiating the terms of the instrument and for processing transaction documents.

Commitment fees received by the Group to originate loans at market interest rates are integral to

the effective interest rate if it is probable that will enter into a specific lending arrangement and

does not expect to sell the resulting loan shortly after origination. The Group does not designate

loan commitments as financial liabilities at fair value through profit or loss.

Interest income and expense presented in the statement of comprehensive income include:

• interest on financial assets and financial liabilities measured at amortized cost calculated on

an effective interest basis;

• interest on available-for-sale investment securities calculated on an effective interest basis.

• interest income on impaired loans is recognized using the interest rate used in the

discounted cash flows in order to determine impairment.





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Interest income and expense on all trading assets and liabilities are considered to be adjacent to the

Group’s trading operations and are presented together with all other changes in the fair value of

trading assets and liabilities in net trading income.

Accounting treatment of interest income on impaired loans and advances to customers

When loans and other debt instruments become doubtful of collection, they are written down to the

present value of expected cash inflows and interest income is thereafter recorded for the unwinding of

the present value discount based on the asset’s effective interest rate which was used to measure the

impairment loss.

All other fees, commissions and other income and expense items are generally recorded on an

accrual basis by reference to completion of the specific transaction assessed on the basis of the

actual service provided as a proportion of the total services to be provided.

Dividends

Dividend income is recognized in profit or loss when the right to receive dividends payment is

established. Dividends are reflected as a component of other operating income.

Cash and cash equivalents

Cash and cash equivalents are items which are readily convertible to known amounts of cash and

which are subject to an insignificant risk of changes in value.

Cash and cash equivalents include mandatory reserve deposits with the National Bank of Romania,

all interbank placements.

Funds restricted for a period of more than three months on origination are excluded from cash and

cash equivalents. Cash and cash equivalents are carried at amortized cost.

Due from other banks

Amounts due from other banks are recorded when the Group advances money to counterparty

banks with no intention of trading the resulting unquoted non-derivative receivable due on fixed or

determinable dates. Due from other banks are carried at amortized cost.





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Loans and advances to customers

Loans and advances to customers are recorded when the Group advances money to purchase or

originate an unquoted non-derivative receivable from a customer due on fixed or determinable

dates, and has no intention of trading the receivable. Loans and advances to customers are carried

at amortised cost.

Identification and measurement of impairment

At each balance sheet date the Group assesses whether there is objective evidence that financial

assets not carried at fair value through profit or loss are impaired. Financial assets are impaired

when objective evidence demonstrates that a loss event has occurred after the initial recognition of

the asset, and that the loss event has an impact on the future cash flows on the asset that can be

estimated reliably.

If there is objective evidence that an impairment loss on loans and receivables carried at amortized

cost has been incurred, the amount of the loss is measured as the difference between the asset's

carrying amount and the present value of estimated future cash flows discounted at the financial

asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition).

If a loan, receivable or held-to-maturity investment has a variable interest rate, the discount rate

for measuring any impairment loss is the variable interest rate at reporting date.

When a subsequent event causes the amount of impairment to decrease, the impairment loss is

reversed through profit and loss.

The Group considers the identification and measurement of impairment for loans and advances to

customers at individual and collective level.

The Group, based on its internal impairment assessment methodology, has included observable

data on the following loss events that comes to its attention as objective evidence that loans to

customers or groups of loans to customers are impaired:

(a) significant financial difficulty of the borrower such as breach of contract, default or

delinquency in interest or principal payments of the borrowers (individually and in the

same group of borrowers);

(b) the lender, for economic or legal reasons relating to the borrower's financial difficulty,

granted the borrower a concession that the lender would not otherwise consider such as the

rescheduling of the interest or principal payments;

(c) is becoming probable that the borrower will enter bankruptcy or other financial

reorganization;





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(d) observable data indicating that there are economic or social conditions that can influence

adversely the industry in which the borrower operates and that affect these borrowers.

The Group first assesses whether objective evidence of impairment exists as described above,

individually for loans to customers that are individually significant, and individually or collectively

for loans that are not individually significant. If the Group determines that no objective evidence of

impairment exists for an individually assessed financial asset, whether significant or not, it includes

the loans to customers in a group of loans with similar credit risk characteristics and collectively

assesses them for impairment.

Loans to customers that are individually assessed for impairment and for which an impairment loss

is or continues to be recognized are not included in a collective assessment of impairment. The

calculation of the present value of the estimated future cash flows of a collateralized loan reflects

the cash flows that may result from foreclosure less costs for obtaining and selling the collateral,

whether or not foreclosure is probable.

For the purpose of a collective evaluation of impairment, loans to customers are grouped on the

basis of similar credit risk characteristics that are indicative of the debtors' ability to pay all

amounts due according to the contractual terms (e.g. on the basis of customer type or collateral

held).

Management considers that these characteristics chosen are the best estimate of similar credit risk

characteristics relevant to the estimation of future cash flows for groups of such loans by being

indicative of the debtors' ability to pay all amounts due according to the contractual terms of the

assets being evaluated.

Future cash flows in a group of loans to customers that are collectively assessed for impairment are

estimated on the basis of historical loss experience for loans with credit risk characteristics similar

to those in the group. Historical loss experience is adjusted on the basis of current observable data

to reflect the effects of current conditions that did not affect the period on which the historical loss

experience is based and to remove the effects of conditions in the historical period that do not exist

currently.

The loan impairment assessment considers the observable effects on current market conditions on

the individual / collective assessment of loans and advances to customers’ impairment.





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Write-off of loans

According to IAS 39, if there is objective evidence that an impairment loss on loans has been

incurred, the amount of the loss is measured as the difference between the loans’ carrying amount

and the present value of estimated future cash flows (excluding future credit losses that have not

been incurred) discounted at the financial asset's original effective interest rate (i.e. the effective

interest rate computed at initial recognition). The carrying amount of the loans can be reduced

either directly or through use of an allowance account. The carrying amount of impaired loans is

reduced through an allowance account for loans that are not 100% provisioned.

The Group writes off a loan (and any related allowances for impairment losses) when Bank’s Risk

Committee/ Board of Directors determines that the loans / securities are uncollectible. This

decision is made after considering information such as the occurrence of significant changes in the

borrower / issuer’s financial position such that the borrower / issuer can no longer pay the

obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure.

For smaller balance standard loans, charge off decisions generally are based on a product specific

past due status.

For the loans that are provided 100%, the Group offsets the provision (the allowance account)

directly against the carrying amount of the loans. Subsequently, the Group records any amounts

recovered from such previously written-off loans directly in the profit or loss as a revenue,

presented net against “Provision for impairment of loans and advances”.

Restructured loans

Restructured loans are considered impaired for at least 6 months from the restructuring date.

Loans with renegotiated terms are loans that have been restructured due to deterioration in the

borrower’s financial position and where the Group has made concessions that it would not

otherwise consider. Once the loan is restructured it remains in this category independent of

satisfactory performance after restructuring for a period of minimum 2 years called probation

period.

Investment securities available for sale

This classification includes investment securities which the Group intends to hold for an indefinite

period of time and which may be sold in response to needs for liquidity or changes in interest rates,

exchange rates or equity prices. Investment securities available for sale are carried at fair value.

Treasury bills issued by the Ministry of Public Finance of Romania are classified as available-for-

sale assets and measured at fair value using bid market quotations from active markets. Securities





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such as investments in mutual funds are classified as available-for-sale assets and are carried at

their market prices.

Interest income on available-for-sale debt securities is calculated using the effective interest

method, and recognized in profit or loss for the year.

Dividends on available-for-sale equity instruments are recognized in profit or loss for the year when

the Group’s right to receive payment is established and it is probable that the dividends will be

collected.

All other elements of changes in the fair value are recognized in other comprehensive income until

the investment is derecognized or impaired, at which time the cumulative gain or loss is reclassified

from other comprehensive income to profit or loss for the year.

Impairment losses are recognized in profit or loss for the year when incurred as a result of one or

more events (“loss events”) that occurred after the initial recognition of investment securities

available for sale.

A significant or prolonged decline in the fair value of an equity security below its cost is an indicator

that it is impaired. The cumulative impairment loss – measured as the difference between the

acquisition cost and the current fair value, less any impairment loss on that asset previously

recognized in profit or loss – is reclassified from other comprehensive income to profit or loss for

the year. Impairment losses on equity instruments are not reversed and any subsequent gains are

recognized in other comprehensive income. If, in a subsequent period, the fair value of a debt

instrument classified as available for sale increases and the increase can be objectively related to an

event occurring after the impairment loss was recognized in profit or loss, the impairment loss is

reversed through profit or loss for the year.

Repossessed collateral

Repossessed collateral represents financial and non-financial assets acquired by the Group in

settlement of overdue loans. The assets are initially recognized at fair value when acquired and

included in premises and equipment, other financial assets, investment properties or inventories

within other assets depending on their nature and the Group's intention in respect of recovery of

these assets, and are subsequently re-measured and accounted for in accordance with the

accounting policies for these categories of assets.

The Group applies its accounting policy for non-current assets held for sale to repossessed

collateral where the relevant conditions for such classification are met at the end of the reporting

period.





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Credit related commitments

The Group issues financial guarantees and commitments to provide loans. Financial guarantees

represent irrevocable commitment to make payments in the event that a customer cannot meet its

obligations to third parties, and carry the same credit risk as loans. Financial guarantees and

commitments to provide a loan are initially recognised at their fair value, which is normally

evidenced by the amount of fees received. This amount is amortised on a straight line basis over

the life of the commitment, except for commitments to originate loans if it is probable that the

Group will enter into a specific lending arrangement and does not expect to sell the resulting loan

shortly after origination; such loan commitment fees are deferred and included in the carrying

value of the loan on initial recognition. At the end of each reporting period, the commitments are

measured at the higher of (i) the remaining unamortised balance of the amount at initial

recognition and (ii) the best estimate of expenditure required to settle the commitment at the end

of each reporting period.

Goodwill

Goodwill is carried at cost less accumulated impairment losses, if necessary. The Group tests

goodwill for impairment at least annually and whenever there are indications that goodwill may be

impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating units,

that are expected to benefit from the synergies of the business combination. Such units or group of

units represent the lowest level at which the Group monitors goodwill, and are not larger than an

operating segment. Gains or losses on disposal of an operation within a cash generating unit to

which goodwill has been allocated include the carrying amount of goodwill associated with the

disposed operation, generally measured on the basis of the relative values of the disposed operation

and the portion of the cash-generating unit which is retained.

Property and equipment

Premises are carried at revalued amounts, as described below, less accumulated depreciation and

provision for impairment, where required. The equipment is stated and revalued at cost less

accumulated depreciation and provision for impairment, where required.

Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not

differ materially from that which would be determined using fair value at the end of the reporting

period. If an item of property and equipment is revalued, the entire class of property and

equipment to which that asset belongs shall be revalued.

If an asset's carrying amount is increased as a result of a revaluation, the increase shall be

recognized in other comprehensive income and accumulated in equity. However, the increase shall





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be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset

previously recognized in profit or loss. If an asset's carrying amount is decreased as a result of a

revaluation, the decrease shall be recognized in profit or loss.

However, the decrease shall be recognized in other comprehensive income to the extent of any

credit balance existing in the revaluation surplus in respect of that asset. The decrease recognized

in other comprehensive income reduces the amount accumulated in equity under the heading of

revaluation surplus.

The Group recognizes in the carrying value of a tangible cost of replacing it when that cost is

incurred or is likely that future economic benefits embodied in the asset will be transferred to the

Group and the cost of this asset can be measured reliably. All other costs are recognized as an

expense in the profit or loss account as incurred.

Costs of minor repairs and day-to-day maintenance are expensed when incurred. Costs of

replacing major parts or components of premises and equipment items are capitalized, and the

replaced part is retired.

At the end of each reporting period, management assesses whether there is any indication of

impairment of premises and equipment. If any such indication exists, management estimates the

recoverable amount, which is determined as the higher of an asset’s fair value less costs to sell and

its value in use. The carrying amount is reduced to the recoverable amount and the impairment

loss is recognized in profit or loss for the year to the extent it exceeds the previous revaluation

surplus in equity. An impairment loss recognized for an asset in prior years is reversed if there has

been a change in the estimates used to determine the asset’s value in use or fair value less costs to

sell. Gains and losses on disposals determined by comparing proceeds with carrying amount are

recognized in profit or loss for the year (within other operating income or expenses).

Depreciation

The lands and constructions in progress are not depreciated. Depreciation on other items of

premises and equipment is calculated using the straight-line method and charged to profit and loss

of the year to allocate their cost or revalued amounts over their estimated useful lives:

Useful lives in years

Buildings 48 - 60 years

Equipment’s 4 years

Motor vehicles 5- 6 years

Other tangible fixed assets 3 – 30 years





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Leased assets are depreciated over the shorter of the lease term and their useful lives.

When premises and land are revalued, any accumulated depreciation at the date of the revaluation

is restated proportionately with the change in the gross carrying amount of the asset so that the

carrying amount of the asset after revaluation equals its revalued amount.

Depreciation methods, useful lives and residual values are reassessed at each financial year and

adjusted if appropriate.

Intangible assets

The Group’s intangible assets other than goodwill have definite useful life and primarily include

capitalised computer software. Acquired computer software licenses are capitalized on the basis of

the costs incurred to acquire and bring to use the specific software. Development costs that are

directly associated with identifiable and unique software controlled by the Group are recorded as

intangible assets if the inflow of incremental economic benefits exceeding costs is probable.

Capitalized costs include staff costs of the software development team and an appropriate portion

of relevant overheads. All other costs associated with computer software, e.g. its maintenance, are

expensed when incurred. Capitalized computer software is amortized on a straight line basis over

expected useful lives of three to five years.

Impairment of non-financial assets

The carrying amounts of non-financial assets, other than investment property and deferred tax

assets are reviewed at each reporting date to determine whether there is any indication of

impairment. If any such indication exists then the asset’s recoverable amount is estimated. For

Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use,

the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its

fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted

to their present value using a pre-tax discount rate that reflects current market assessments of the

time value of money and the risks specific to the asset.

For the purpose of impairment test, assets that cannot be tested individually are grouped together

into the smallest group of assets that generates cash inflows from continuing use that are largely

independent of the cash inflows of other assets or groups of assets (the “cash generating unit” or

“CGU”).





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Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs

to which goodwill has been allocated are aggregated so that the level at which impairment is tested

reflects the lowest level at which goodwill is monitored for internal reporting purposes.

Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to

benefit from the synergies of the combination.

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a

corporate asset may be impaired, then the recoverable amount is determined for the CGU to which

the corporate asset belongs.

An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its

recoverable amount. Impairment losses are recognized in profit or loss.

Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount

of any goodwill allocated to the CGUs and then to reduce the carrying amount of the other assets in

the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment

losses recognized in prior periods are assessed at each reporting date for any indications that the

loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in

the estimates 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 amortization, if no impairment loss had been recognized.

Deposits from customers and from banks, loans from banks and other financial

institutions, subordinated liabilities

Deposits from customers, loans from banks and subordinated liabilities are initially measured at

fair value plus incremental directly attributable transaction costs, and subsequently measured at

amortized cost using the effective interest method.

Employee benefits

i) Short term service benefits

Short-term employee benefits include wages, salaries, bonuses and social security contributions.

Short-term employee benefits are measured on an un-discounted basis and recognized as expense

when services are rendered.





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A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-

sharing plans if the Bank has a present legal or constructive obligation to pay this amount as a

result of past service provided by the employee and the obligation can be estimated reliably.

ii) Provisions for employees' benefits

The Group assesses the cost of employees' benefits (performance bonuses, prizes in cash or kind,

retirement benefits, severance package) based on algorithms that take into consideration historic

data for such benefits. For the estimated amount, the Group sets a provision for the employees'

benefits.

The Group assess the cost of the employees' untaken holiday related to the previous periods as the

amount payable according to the standard pay scheme. For the estimated amount, the Group sets a

provision for the untaken holiday.

iii) Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed

contributions into a separate entity and will have no legal or constructive obligation to pay further

amounts.

The Group, in the normal course of business makes payments to the Romanian State funds on

behalf of its Romanian employees for pension, health care and unemployment benefit. All

employees of the Group are members and are also legally obliged to make defined contributions

(included in the social security contributions) to the Romanian State pension plan (State defined

contribution plan). All relevant contributions to the Romanian State pension plan are recognized

as an expense as incurred in the profit or loss account of the year. The Group does not have any

further obligations.

The Group has no legal or constructive obligation to make pension, post retirement or similar

benefit payments beyond the payments to the statutory defined contribution scheme.

iv) Other long-term employee benefits

The Group’s net defined benefit obligation in respect of long-term service benefits is the amount of

future benefit that employees have earned in return for their service in the current and prior

periods.

According to the Collective Labour Agreement in force at the reporting date, the Group has no

contractual obligation to pay to retiring employees any benefit.





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Operating leases

The decision to consider an agreement to be or not leasing depends on the substance of the contract

and requires to establish that the agreement performance depends on the use of a specific asset or

group of assets and that agreement establishes the right of use of the good.

The Group as a lessor

The financial leases that substantially transfer to the Group all risks and rewards of a leased item

are capitalised at the beginning of the lease at the fair value of the leased item or, if that value is

lower, at the present value of the future minimum lease payments and included in intangble assets,

tangible assets or other assets, the lessee's debt being included under „Loans”. The lease payments

are divided between financial expenses and the reduction of the lease debt. The interests payable

under the lease agreements, calculated according to the contractual terms, that have not reached

maturity are amortized using the effective interest rate method.

The financial expenses are directly recognized in the consolidated statement of profit or loss and

other comprehensive income in „Interest expenses”.

The capitalized leased assets are amortized on a basis consistent with the amortization policy for

similar assets.

The operating lease payments are not recognized in the consolidated statement of financial

position. Any debt related to rents is recognized on a straight-line basis during the lease agreement

and is included under „Administrative and other operating expenses”.

Where the Group is a lessee in a lease which does not transfer substantially all the risks and

rewards incidental to ownership from the lessor to the Group, the total lease payments are charged

to profit or loss for the year (rental expense) on a straight-line basis over the period of the lease.

The Group as a lessee

The leases under which the Group does not transfer substantially all risks and rewards of the

ownership of the asset are classified as operating lease. Contingent rents are recognized as income

in the period when they are obtained, under „Other operating income”.

Finance lease liabilities

Where the Bank is a lessee in a lease which transferred substantially all the risks and rewards

incidental to ownership to the Group, the assets leased are capitalised in premises and equipment





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at the commencement of the lease at the lower of the fair value of the leased asset, and the present

value of the minimum lease payments. Minimum lease payments under finance leases are divided

proportionally between lease expense and lease reduction. Each lease payment is allocated between

the liability and finance charges so as to achieve a constant rate on the finance balance outstanding.

The corresponding rental obligations, net of future finance charges, are included in other borrowed

funds. The interest cost is charged to profit or loss for the year over the lease period using the

effective interest method.

The assets acquired under finance leases are depreciated over their useful life, or the shorter lease

term if the Group is not reasonably certain that it will obtain ownership by the end of the lease

term.

Non-current assets classified as held for sale

Non-current assets which may include both non-current and current assets, are classified in the

statement of financial position as “non-current assets held for sale” if their carrying amount will be

recovered principally through a sale transaction within twelve months after the end of the reporting

period. Assets are reclassified when all of the following conditions are met: (a) the assets are available

for immediate sale in their present condition; (b) the Group’s management approved and initiated

an active programme to locate a buyer; (c) the assets are actively marketed for sale at a reasonable

price; (d) the sale is expected within one year and (e) it is unlikely that significant changes to the plan

to sell will be made or that the plan will be withdrawn. Non-current assets classified as held for sale

in the current period’s statement of financial position are not reclassified or re-presented in the

comparative statement of financial position to reflect the classification at the end of the current

period.

Non-current assets are assets that include amounts expected to be recovered or collected more than

twelve months after the end of the reporting period.

Non-current assets classified as held for sale are measured at the lower of their carrying amount and

fair value less costs to sell. Held for sale premises and equipment are not depreciated or amortised.

Reclassified non-current financial instruments and deferred taxes are not subject to write down to

the lower of their carrying amount and fair value less costs to sell.

The Group’s treatment for an asset previously classified as held for sale and for which the criteria are

no longer met (IFRS 5) is to reclassify the respective asset in other assets category until the

management reassess the available options: selling the asset, keeping the asset until the real estate

market appreciation, etc.





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Derivative financial instruments

Derivative financial instruments, including foreign exchange contracts, interest rate futures,

forward rate agreements, currency and interest rate swaps, and currency and interest rate options

are carried at their fair value.

All derivative instruments are carried as assets when fair value is positive, and as liabilities when

fair value is negative. Changes in the fair value of derivative instruments are included in profit or

loss for the year (gains less losses on derivatives). The Group does not apply hedge accounting.

Certain derivative instruments embedded in other financial instruments are treated as separate

derivative instruments when their risks and characteristics are not closely related to those of the

host contract.

Other financial and non-financial liabilities

Other liabilities are accrued when the counterparty has performed its obligations under the

contract and are carried at amortised cost.

Share capital

Ordinary shares are classified as equity. Share capital represents the total shares subscribed and

paid by the shareholders. The share capital is recorded separately in accounting, based on the

constitution and supporting documents relating to the payments of capital.

The capital increase is done through subscription and issue of new shares, incorporation of reserves

and other operations, according to the law. The capital decrease is achieved mainly by reducing the

number of shares or reducing their nominal value following the withdrawal of shareholders,

accounting losses from previous years or other operations, according to the law. In all cases of

change in capital, this is done based on the decision of the General Assembly of Shareholders. Gains

or losses related to the issuance or cancellation of shares are not recognized in the income

statement. Consideration paid or received after such operations are recognized directly in equity.

Presentation of statement of financial position in order of liquidity

The Group does not have a clearly identifiable operating cycle and therefore does not present

current and non-current assets and liabilities separately in the statement of financial position.

Instead, assets and liabilities are presented in order of their liquidity. The following table provides

information on amounts expected to be recovered or settled before and after twelve months after

the reporting period.





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Thousands RON 31 December 2016 31 December 2015

Amounts expected to be recovered or settled Amounts expected to be recovered or settled Within 12 months after

the reporting period After 12 months after the reporting period Total

Within 12 months after the reporting period

After 12 months after the reporting period Total

Assets Cash and cash equivalents 705,346 - 705,346 222,534 - 222,534 Due from other banks 6,939 - 6,939 1,960 - 1,960 Financial assets, available-for-sale 300,942 870,785 1,171,727 370,867 - 370,867 - Debt securities 300,942 868,217 1,169,159 361,313 - 361,313 - Equity investments - 2,568 2,568 - 9,554 9,554 Financial assets held for trading 8,385 106,792 115,177 - - - Investments held to maturity - 109,966 109,966 - - - Loans and advances to customers 672,368 563,822 1,236,190 238,937 335,580 574,517 Deferred tax assets - 18,744 18,744 - - - Investment property - 78,271 78,271 - - - Tangible assets - 175,551 175,551 - 44,840 44,840 Intangible assets - 44,239 44,239 - 7,760 7,760 Other financial assets 1,979 - 1,979 220 - 220 Other assets 59,142 - 59,142 8,545 - 8,545 Total assets 1,755,101 1,968,170 3,723,271 833,509 397,734 1,231,243 Liabilities Due to other banks 42,023 - 42,023 4,327 - 4,327 Customer deposits 3,155,324 52,207 3,207,531 852,225 68,052 920,277 Loans from banks and other financial institutions

15,885 31,338 47,223 39,225 27,780 67,005

Current income tax liabilities 259 - 259 Deferred tax liability

- - 18 - 18

Other financial liabilities 96,176 - 96,176 1,389 - 1,389 Other liabilities 35,300 - 35,300 15,954 - 15,954 Subordinated debt - 19,754 19,754 - - - Total Liabilities 3,344,967 103,299 3,448,266 913,138 95,832 1,008,970





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Accounting for the effects of hyperinflation

Prior to 31 December 2003, the Romania met the definition of a hyperinflationary economy as defined

by International Accounting Standard (“IAS”) 29, “Financial Reporting in Hyperinflationary

Economies”. IAS 29 suggests that economies should be regarded as hyperinflationary if, among other

factors, the cumulative inflation rate over a period of three years exceeds 100%. IAS 29 requires that

financial statements prepared on a historical cost basis be adjusted to take into account the effects of

inflation, for entities reporting in hyperinflationary economies.

The Group has utilized the general price index reported by the Statistics National Institute of Romania

in the application of IAS 29 restating non-monetary items from the date of acquisition or contribution.

Effective 1 January 2004, the economy of Romania ceased to meet the criteria of hyperinflationary

economy. Accordingly, beginning 1 January 2004, the Group ceased to apply IAS 29 on a prospective

basis. As a result of this change, the carrying amounts of non-monetary assets expressed in the RON

current at 31 December 2003 formed the basis for the respective assets from 1 January 2004 onwards.

The Group has restated its share capital in accordance with the requirements of IAS 29.

New or Revised Standards and Interpretations as adopted by the European Union

Standards or interpretations effective for the first time for year ended

31 December 2016:

Defined Benefit Plans: Employee Contributions - Amendments to IAS 19 (issued in

November 2013 and effective for annual periods beginning 1 July 2014

The amendment allows entities to recognize employee contributions as a reduction in the service cost

in the period in which the related employee service is rendered, instead of attributing the contributions

to the periods of service, if the amount of the employee contributions is independent of the number of

years of service. The Group is currently evaluating the impact of the new standard on its financial

situation.





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Annual Improvements to IFRSs 2012 (issued on 12 December 2013 and effective for

annual periods beginning on or after 1 July 2014, unless otherwise stated below,). The

improvements consist of changes to seven standards.

IFRS 2 was amended to clarify the definition of a ‘vesting condition’ and to define separately

‘performance condition’ and ‘service condition’; The amendment is effective for share-based payment

transactions for which the grant date is on or after 1 July 2014.

IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the

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

definitions in IAS 32, and (2) all non-equity contingent consideration, both financial and non-financial,

is measured at fair value at each reporting date, with changes in fair value recognised in profit and loss.

Amendments to IFRS 3 are effective for business combinations where the acquisition date is on or after

1 July 2014.

IFRS 8 was amended to require (1) disclosure of the judgements made by management in aggregating

operating segments, including a description of the segments which have been aggregated and the

economic indicators which have been assessed in determining that the aggregated segments share

similar economic characteristics, and (2) a reconciliation of segment assets to the entity’s assets when

segment assets are reported.

The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs

in IAS 39 upon publishing of IFRS 13 was not made with an intention to remove the ability to measure

short-term receivables and payables at invoice amount where the impact of discounting is immaterial.

IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated

depreciation are treated where an entity uses the revaluation model.

IAS 24 was amended to include, as a related party, an entity that provides key management personnel

services to the reporting entity or to the parent of the reporting entity (‘the management entity’), and to

require to disclose the amounts charged to the reporting entity by the management entity for services

provided. The Bank is currently evaluating the impact of the new standard on its financial situation.

Clarification of Acceptable Methods of Depreciation and Amortization - Amendments to

IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or

after 1 January 2016). In this amendment, the IASB has clarified that the use of revenue-based

methods to calculate the depreciation of an asset is not appropriate because revenue generated by an

activity that includes the use of an asset generally reflects factors





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Equity Method in Separate Financial Statements - Amendments to IAS 27 (issued on 12

August 2014 and effective for annual periods beginning 1 January 2016). The amendments

will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and

associates in their separate financial statements. The Group is currently evaluating the impact of the

new standard on its financial situation.

Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for

annual periods beginning on or after 1 January 2016). The amendments impact 4 standards.

IFRS 5 was amended to clarify that change in the manner of disposal (reclassification from "held for

sale" to "held for distribution" or vice versa) does not constitute a change to a plan of sale ore

distribution, and does not have to be accounted for as such. The amendment to IFRS 7 adds guidance

to help management determine whether the terms of an arrangement to service a financial asset which

has been transferred constitute continuing involvement, for the purposes of disclosures required by

IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 are not specifically

required for all interim periods, unless required by IAS 34.

The amendment to IAS 19 clarifies that for post-employment benefit obligations, the decisions

regarding discount rate, existence of deep market in high-quality corporate bonds, or which

government bonds to use as a basis, should be based on the currency that the liabilities are

denominated in, and not the country where they arise. IAS 34 will require a cross reference from the

interim financial statements to the location of "information disclosed elsewhere in the interim

financial report". The Group is currently evaluating the impact of the new standard on its financial

situation.

Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10,

IFRS 12 and IAS 28 (issued on 18 December 2014 and effective for annual periods on or

after 1 January 2016). The Standard was amended to clarify that an investment entity should

measure at fair value through profit or loss all of its subsidiaries that are themselves investment

entities. In addition, the exemption from preparing consolidated financial statements if the entity’s

ultimate or any intermediate parent produces consolidated financial statements available for public

use was amended to clarify that the exemption applies regardless whether the subsidiaries are

consolidated or are measured at fair value through profit or loss in accordance with IFRS 10 in such

ultimate or any intermediate parent’s financial statements. The Group is currently evaluating the

impact of the new standard on its financial situation.

Transfers of Investment Property - Amendments to IAS 40 (issued on 8 December 2016

and effective for annual periods beginning on or after 1 January 2018). The amendments

clarify the requirements on transfers to, or from, investment property in respect of properties under

construction. Prior to the amendments, there was no specific guidance on transfers into, or out of,

investment properties under construction in IAS 40. The amendment clarifies that there was no





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intention to prohibit transfers of a property under construction or development, previously classified

as inventory, to investment property when there is an evident change in use. IAS 40 was amended to

reinforce the principle of transfers into, or out of, investment property in IAS 40 to specify that a

transfer into, or out of investment property should only be made when there has been a change in use

of the property; and such a change in use would involve an assessment of whether the property

qualifies as an investment property. Such a change in use should be supported by evidence. The Bank

is currently evaluating the impact of the new standard on its financial situation.

Standards or interpretations effective for the first time for year ended

31 December 2017:

Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12

(issued on 19 January 2016 and effective for annual periods beginning on or after 1

January 2017).

The amendment has clarified the requirements on recognition of deferred tax assets for unrealised

losses on debt instruments. The entity will have to recognise deferred tax asset for unrealised losses

that arise as a result of discounting cash flows of debt instruments at market interest rates, even if it

expects to hold the instrument to maturity and no tax will be payable upon collecting the principal

amount. The economic benefit embodied in the deferred tax asset arises from the ability of the holder

of the debt instrument to achieve future gains (unwinding of the effects of discounting) without paying

taxes on those gains. The Group is currently assessing the impact of the amendments on its financial

statements.

Disclosure Initiative - Amendments to IAS 7 (issued on 29 January 2016 and effective

for annual periods beginning on or after 1 January 2017).The amended IAS 7 will require

disclosure of a reconciliation of movements in liabilities arising from financing activities. The Group is

currently assessing the impact of the amendment on its financial statements.

Annual Improvements to IFRSs 2014-2016 cycle - amendments to IFRS 12 (issued on 8

December 2016 and effective for annual periods beginning on or after 1 January 2017).

The amendments clarify the scope of the disclosure requirements in IFRS 12 by specifying that the

disclosure requirements in IFRS 12, other than those relating to summarised financial information for

subsidiaries, joint ventures and associates, apply to an entity's interests in other entities that are

classified as held for sale or discontinued operations in accordance with IFRS 5. The Group is

currently assessing the impact of the amendments on its financial statements.





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Standards or interpretations effective from 1 January 2018 or later

IFRS 9 “Financial Instruments” (issued on 24 July 2014 and effective for annual

periods beginning on or after 1 January 2018). Key features of the new standard are:

• Financial assets are required to be classified into three measurement categories: those to be

measured subsequently at amortised cost, those to be measured subsequently at fair value

through other comprehensive income (FVOCI) and those to be measured subsequently at fair

value through profit or loss (FVPL).

• Classification for debt instruments is driven by the entity’s business model for managing the

financial assets and whether the contractual cash flows represent solely payments of principal

and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if

it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are

held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may

be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be

measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated

from financial assets but will be included in assessing the SPPI condition.

• Investments in equity instruments are always measured at fair value. However, management

can make an irrevocable election to present changes in fair value in other comprehensive

income, provided the instrument is not held for trading. If the equity instrument is held for

trading, changes in fair value are presented in profit or loss.·

• Most of the requirements in IAS 39 for classification and measurement of financial liabilities

were carried forward unchanged to IFRS 9. The key change is that an entity will be required to

present the effects of changes in own credit risk of financial liabilities designated at fair value

through profit or loss in other comprehensive income.

• IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit

losses (ECL) model. There is a ‘three stage’ approach which is based on the change in credit

quality of financial assets since initial recognition. In practice, the new rules mean that entities

will have to record an immediate loss equal to the 12-month ECL on initial recognition of

financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where

there has been a significant increase in credit risk, impairment is measured using lifetime ECL

rather than 12-month ECL. The model includes operational simplifications for lease and trade

receivables.

• Hedge accounting requirements were amended to align accounting more closely with risk

management. The standard provides entities with an accounting policy choice between

applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all

hedges because the standard currently does not address accounting for macro hedging.

The Group is currently assessing the impact of the new standard on its financial statements.





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IFRS 14, Regulatory Deferral Accounts (issued on 30 January 2014 and effective for

annual periods beginning on or after 1 January 2016). IFRS 14 permits first-time adopters to

continue to recognise amounts related to rate regulation in accordance with their previous GAAP

requirements when they adopt IFRS. However, to enhance comparability with entities that already

apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation

must be presented separately from other items. An entity that already presents IFRS financial

statements is not eligible to apply the standard.

IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective

for the periods beginning on or after 1 January 2018). The new standard introduces the core

principle that revenue must be recognised when the goods or services are transferred to the customer,

at the transaction price. Any bundled goods or services that are distinct must be separately recognised,

and any discounts or rebates on the contract price must generally be allocated to the separate

elements. When the consideration varies for any reason, minimum amounts must be recognised if they

are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be

capitalised and amortised over the period when the benefits of the contract are consumed. The Group

is currently assessing the impact of the new standard on its financial statements.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture -

Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for

annual periods beginning on or after a date to be determined by the IASB). These

amendments address an 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 recognised when a transaction

involves a business. A partial gain or loss is recognised when a transaction involves assets that do not

constitute a business, even if these assets are held by a subsidiary. The Group is currently assessing the

impact of the amendments on its financial statements.

IFRS 16 "Leases" (issued on 13 January 2016 and effective for annual periods

beginning on or after 1 January 2019). The new standard sets out the principles for the

recognition, measurement, presentation and disclosure of leases. All leases result in the lessee

obtaining the right to use an asset at the start of the lease and, if lease payments are made over time,

also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating

leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting

model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more

than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets

separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries

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

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

Group is currently assessing the impact of the amendments on its financial statements.





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Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April

2016 and effective for annual periods beginning on or after 1 January 2018). The

amendments do not change the underlying principles of the Standard but clarify how those principles

should be applied. The amendments clarify how to identify a performance obligation (the promise to

transfer a good or a service to a customer) in a contract; how to determine whether a company is a

principal (the provider of a good or service) or an agent (responsible for arranging for the good or

service to be provided); and how to determine whether the revenue from granting a licence should be

recognised at a point in time or over time. In addition to the clarifications, the amendments include

two additional reliefs to reduce cost and complexity for a company when it first applies the new

Standard. The Group is currently assessing the impact of the amendment on its financial statements.

Amendments to IFRS 2, Share-based Payment (issued on 20 June 2016 and effective for

annual periods beginning on or after 1 January 2018). The amendments mean that non-

market performance vesting conditions will impact measurement of cash-settled share-based payment

transactions in the same manner as equity-settled awards. The amendments also clarify classification

of a transaction with a net settlement feature in which the entity withholds a specified portion of the

equity instruments, that would otherwise be issued to the counterparty upon exercise (or vesting), in

return for settling the counterparty's tax obligation that is associated with the share-based payment.

Such arrangements will be classified as equity-settled in their entirety.

Finally, the amendments also clarify accounting for cash-settled share based payments that are

modified to become equity-settled, as follows (a) the share-based payment is measured by reference to

the modification-date fair value of the equity instruments granted as a result of the modification; (b)

the liability is derecognised upon the modification, (c) the equity-settled share-based payment is

recognized to the extent that the services have been rendered up to the modification date, and (d) the

difference between the carrying amount of the liability as at the modification date and the amount

recognized in equity at the same date is recorded in profit or loss immediately. The Group is currently

assessing the impact of the amendment on its financial statements.

Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts -

Amendments to IFRS 4 (issued on 12 September 2016 and effective, depending on the

approach, for annual periods beginning on or after 1 January 2018 for entities that

choose to apply temporary exemption option, or when the entity first applies IFRS 9

for entities that choose to apply the overlay approach). The amendments address concerns

arising from implementing the new financial instruments Standard, IFRS 9, before implementing the

replacement Standard that the IASB is developing for IFRS 4. These concerns include temporary

volatility in reported results. The amendments introduce two approaches: an overlay approach and a

deferral approach. The amended Standard will give all companies that issue insurance contracts the

option to recognise in other comprehensive income, rather than profit or loss, the volatility that could





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arise when IFRS 9 is applied before the new insurance contracts Standard is issued. In addition, the

amended Standard will give companies whose activities are predominantly connected with insurance

an optional temporary exemption from applying IFRS 9 until 2021. The entities that defer the

application of IFRS 9 will continue to apply the existing financial instruments Standard—IAS 39. The

amendments to IFRS 4 supplement existing options in the Standard that can already be used to

address the temporary volatility. The Group is currently assessing the impact of the amendments on

its financial statements.

Annual Improvements to IFRSs 2014-2016 cycle - Amendments to IFRS 1 an IAS 28

(issued on 8 December 2016 and effective for annual periods beginning on or after 1

January 2018). IFRS 1 was amended and some of the short-term exemptions from IFRSs in respect

of disclosures about financial instruments, employee benefits and investment entities were removed,

after those short-term exemptions have served their intended purpose. The amendments to IAS 28

clarify that an entity has an investment-by-investment choice for measuring investees at fair value in

accordance with IAS 28 by a venture capital organization, or a mutual fund, unit trust or similar

entities including investment linked insurance funds. Additionally, an entity that is not an investment

entity may have an associate or joint venture that is an investment entity. IAS 28 permits such an

entity to retain the fair value measurements used by that investment entity associate or joint venture

when applying the equity method. The amendments clarify that this choice is also available on an

investment-by-investment basis. The Group is currently assessing the impact of the amendments on

its financial statements.

IFRIC 22 - Foreign Currency Transactions and Advance Consideration (issued on 8

December 2016 and effective for annual periods beginning on or after 1 January 2018).

The interpretation addresses how to determine the date of the transaction for the purpose of

determining the exchange rate to use on initial recognition of the related asset, expense or income (or

part thereof) on the derecognition of a non-monetary asset or non-monetary liability arising from an

advance consideration in a foreign currency. Under IAS 21, the date of the transaction for the purpose

of determining the exchange rate to use on initial recognition of the related asset, expense or income

(or part thereof) is the date on which an entity initially recognizes the non-monetary asset or non-

monetary liability arising from the advance consideration. If there are multiple payments or receipts in

advance, then the entity must determine the date of the transaction for each payment or receipt of

advance consideration. IFRIC 22 only applies in circumstances in which an entity recognizes a non-

monetary asset or non-monetary liability arising from an advance consideration. IFRIC 22 does not

provide application guidance on the definition of monetary and non-monetary items. An advance

payment or receipt of consideration generally gives rise to the recognition of a non-monetary asset or

non-monetary liability, however, it may also give rise to a monetary asset or liability. An entity may

need to apply judgment in determining whether an item is monetary or non-monetary. The Group is

currently assessing the impact of the amendments on its financial statements.





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Transfers of Investment Property - Amendments to IAS 40 (issued on 8 December 2016

and effective for annual periods beginning on or after 1 January 2018). The amendments

clarify the requirements on transfers to, or from, investment property in respect of properties under

construction. Prior to the amendments, there was no specific guidance on transfers into, or out of,

investment properties under construction in IAS 40. The amendment clarifies that there was no

intention to prohibit transfers of a property under construction or development, previously classified

as inventory, to investment property when there is an evident change in use. IAS 40 was amended to

reinforce the principle of transfers into, or out of, investment property in IAS 40 to specify that a

transfer into, or out of investment property should only be made when there has been a change in use

of the property; and such a change in use would involve an assessment of whether the property

qualifies as an investment property. Such a change in use should be supported by evidence. The Group

is currently assessing the impact of the amendments on its financial statements.

IFRS 17 "Insurance Contracts"(issued on 18 May 2017 and effective for annual periods

beginning on or after 1 January 2021).IFRS 17 replaces IFRS 4, which has given companies

dispensation to carry on accounting for insurance contracts using existing practices. As a consequence,

it was difficult for investors to compare and contrast the financial performance of otherwise similar

insurance companies. IFRS 17 is a single principle-based standard to account for all types of insurance

contracts, including reinsurance contracts that an insurer holds. The standard requires recognition

and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the future

cash flows (the fulfilment cash flows) that incorporates all of the available information about the

fulfilment cash flows in a way that is consistent with observable market information; plus (if this value

is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the

group of contracts (the contractual service margin). Insurers will be recognising the profit from a

group of insurance contracts over the period they provide insurance coverage, and as they are released

from risk. If a group of contracts is or becomes loss-making, an entity will be recognising the loss

immediately. The Group is currently assessing the impact of the new standard on its financial

statements.

IFRIC 23 "Uncertainty over Income Tax Treatments" (issued on 7 June 2017 and

effective for annual periods beginning on or after 1 January 2019).IAS 12 specifies how to

account for current and deferred tax, but not how to reflect the effects of uncertainty. The

interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when

there is uncertainty over income tax treatments. An entity should determine whether to consider each

uncertain tax treatment separately or together with one or more other uncertain tax treatments based

on which approach better predicts the resolution of the uncertainty. An entity should assume that a

taxation authority will examine amounts it has a right to examine and have full knowledge of all

related information when making those examinations. If an entity concludes it is not probable that the

taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in

determining the related taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax





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rates, by using either the most likely amount or the expected value, depending on which method the

entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a

circumstances or new information that can result in the reassessment of a judgment or estimate

include, but are not limited to, examinations or actions by a taxation authority, changes in rules

established by a taxation authority or the expiry of a taxation authority's right to examine or re-

examine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax

treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new

information that affects the judgments and estimates required by the Interpretation. The Group is

currently assessing the impact of the interpretation on its financial statements.

4 FINANCIAL RISK MANAGEMENT

a) Introduction and overview

According to the Risk Strategy for the year 2016, the Group has exposure to the following risks from its

use of financial instruments:

• credit risk

• credit concentration risk

• residual risk

• FX lending risk

• liquidity risk

• market risk - foreign currency risk

• interest rate risk from banking book

• operational risks

• risks arising from applying less sophisticated approach

• country risk

• external risks

• compliance risk

• strategic risk

• excessive leverage risk

b) Significant accounting policies

Starting from the risks presented above, the Group will consider as significant those risks whose

profile at quarter end are above “medium” or above the assumed appetite (the lowest of these two). In

this sense, the Group has established a general risk appetite, an individual appetite (for each

significant risk) and an appetite to the level of each and every risk indicator that is used to assess the

Group’s risk exposure.





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c) Risk management policies

The latter will be considered also an early warning level in order to contribute to the process of

identifying those areas where the risk exposure is increasing compared to the assumed level through

the risk strategy. These risks are managed and controlled through dedicated policies and procedures

together with specific processes, tools and indicators. Part of them are assigned a dedicated risk profile

and a risk appetite is set while for the others the Group has decided towards a qualitative assessment,

dedicated monitoring and set up a specific capital requirement under the Pillar II (ICAAP) in order to

properly cover the respective risk exposure.

Therefore, for 2016, the Group has established a medium-high level risk appetite and the following

individual risk appetites for each significant risk:

No. Risk Risk appetite level

1 Credit risk Medium-High

2 Market risk Low

3 Interest rate risk from banking book Medium

4 Operational risk Medium-High

5 Liquidity risk Medium

6 Strategic risk Medium

7 Compliance risk (including reputational risk) Medium

This note presents information about the Group’s exposure to each of the above risks, the Group’s

objectives, policies and processes for measuring and managing financial risks, and the Group’s capital

management principles and processes. Risk management framework

The main principle behind the risk management framework of the Group is that it is not allowed to

take more risk than is capable of bearing. Therefore, the Board of Administration established an

overall risk profile and individual profiles for each and every of the significant risks identified by the

Group and detailed in its Risk Strategy (as presented above). The main purpose of the risk profile is to

define the risk appetite and tolerance within which the Group’s activity should be performed in order

to achieve the projected business objectives.

The Board of Directors has overall responsibility for the establishment and oversight of the risk

management framework. The Board of Directors establishes different committees for each entities

(the Executive Committee, the Risk Management Committee and the Asset and Liability Committee





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(ALCO) which are responsible for developing and monitoring risk management policies in their

specified areas). All committees report regularly to the management structure.

The Group’s risk management policies are established to identify and measure the risks faced by the

Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk

management policies and systems are reviewed regularly to reflect changes in market conditions,

products and services offered.

The Group, through its training and management standards and procedures, aims to develop a

disciplined and constructive control environment, in which all employees understand their roles and

obligations.

The Audit Committee is responsible for monitoring compliance with the Group’s risk management

policies and procedures, and for reviewing the adequacy of the risk management framework in relation

to the risks faced by the Group. The Audit Committee is assisted in these functions by Internal Audit

function. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and

procedures, the results of which are reported to the Audit Committee.

d) Credit risks

Credit risk is the current or future risk which negatively affects profit and capital as a consequence of

the debtors' default or failure in fulfilling their contractual conditions.

The Group takes on exposure to credit risk, which is the risk that one party to a financial instrument

will cause a financial loss for the other party by failing to discharge an obligation. Exposure to credit

risk arises as a result of the Group’s lending and other transactions with counterparties giving rise to

financial assets.

For the presentation of credit risks we will refer both to classic credit risk and also the credit

concentration risk, residual risk and FX lending.

The Group’s maximum exposure to credit risk is reflected in the carrying amounts of financial assets

on the statement of financial position. For guarantees and commitments to extend credit, the

maximum exposure to credit risk is the amount of the commitment. The credit risk is mitigated by

collateral and other credit enhancements.

Management of credit risks

The Board of Directors delegate the responsibility for the management of credit risk to its Executive

Committee, Risk Management Committee and Credit Committee. The Credit Analysis and Risk

Management Divisions are responsible for monitoring of the credit risk including:





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• Formulating credit policies in consultation with business units, covering collateral

requirements, credit assessment, risk grading and reporting, documentary and legal

procedures, and compliance with regulatory and statutory requirements.

• Establishing the authorization structure for the approval and renewal of credit facilities.

Authorization limits are allocated on different levels to Credit Committee, Executive

Committee and Board of Directors, as appropriate.

• Reviewing and assessing credit risk. Credit Committee assesses all credit exposures in excess

of designated limits, prior to facilities being committed to customers by the business unit

concerned. Renewals and reviews of facilities are subject to the same review process.

• Limiting concentrations of exposure to counterparties, geographies and industries (for loans

and advances), and by issuer, and collateralization.

• Developing the Group’s risk provisioning policy on the main product categories according to

the degree of homogeneity. The provisioning policy is subject to regular reviews function also

of the statutory regulations.

• Reviewing compliance of business units with agreed exposure limits, including those for

selected geographies areas, industries and maturities.

• Regular reports are provided to Risk Management Committee, Executive Committee and to

the Board of Administration on the credit risk exposure development and risk profile level

• Providing advice, guidance and specialist skills to business units to promote best practice

throughout the Group in the management of credit risk.

The Group is exposed to credit risk through its lending and investments activities and in cases where it

acts as an intermediary on behalf of customers or other third parties or it issues guarantees. The

Group’s primary exposure to credit risk arises through its lending activity. The amount of credit

exposure in this regard is represented by the carrying amounts of the assets on the balance sheet.

The Group is exposed to credit risk on various other financial assets, including debt securities

investments (i.e. Treasury Bills issued by the Romanian Government) or money market placements,

financial assets held for trading, investments held to maturity, the current credit exposure in respect of

these instruments is equal to the carrying amount of these assets in the balance sheet. In addition, the

Group is exposed to off balance sheet credit risk through commitments to extend credit and

guarantees issued.

Concentrations of credit risk that arise from financial instruments exist for groups of counterparties

when they have similar economic characteristics that would cause their ability to meet contractual

obligations to be similarly affected by changes in economic or other conditions. The major

concentrations of credit risk arise by individual counterparty and by type of customer in relation to the

Group’s loans and advances to customers.





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e) Market risk

Market risk is the risk that the fair value or the future cash flow related to the financial instruments

will fluctuate due to changes in the variables of the market (currency risk, price of shares).

The Group takes on exposure to market risks. Market risks arise from open positions in (a) currency,

(b) interest rates and (c) equity products (still the main exposure being towards the foreign currency

risk), all of which are exposed to general and specific market movements. Management sets limits on

the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this

approach does not prevent losses outside of these limits in the event of more significant market

movements.

f) Currency risk

The Group's main goal within the Group is to close its currency positions and ensure that open foreign

exchange positions remain within conservative limits all the time. On the other hand, since the Group's

subsidiaries' capital is held in the RON, we will not have a currency risk to be generated by this group-

level.

The foreign currency risk is the risk to record losses or not to achieve the estimated profits due to the

fluctuations on the market of the foreign exchange rate. The object of the identification, assessment,

monitoring and management of the foreign currency risk is represented, according to the Group’s

policies and procedures, by the elements denominated in foreign currency from the banking book

portfolio of the Group.

The Group is exposed to currency risk through transactions in foreign currencies against RON. The

Group manages its exposure to movements in exchanges rates by modifying its assets and liabilities

mix. On the Romanian market, exchange rates have a moderate volatility; therefore open foreign

exchange positions represent a source of currency risk. In order to limit losses arising from adverse

movements in exchange rates, the Group is currently pursuing the policy of maintaining an overall

balanced foreign exchange position.

Capital requirements for currency risk is calculated using regulated model, named Standard Approach.

To determine the possible underestimation of currency risk used in Pillar 1 of the Standardized

Approach, the Group proceeded to compare requirement currency risk covered up in Pillar I of the

assessment VaR's for currency dominance with a confidence level of 95% and a time period of one

year, calculated internally using a daily database for a 5 years period exchange rate differences

compared with the same date of the previous year (currency position is considered in absolute value).





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As VaR is an integral part of the market risk management, VaR limits have been set at individual level,

and exposures are compared daily with the limits by the management.

From the perspective of capital, the annual exchange rate differences are considered to be relevant for

the coverage of capital losses that may arise from underestimating requirement for this risk.

Positive difference between them will be considered understatement in Pillar I and will be a

requirement of additional capital to cover this risk.

To predict how capital adequacy may be affected during crisis, the Group uses a number of stress tests

which are assessed on two levels of severity: moderate severity (Grade 1) and severity high (Grade 2),

in line with the regulatory provisions.

Underestimating the currency risk, VaR represents the positive difference between the annual degree

of confidence of 99% (scenario Grade 1) or 99.9% (scenario Grade 2), the dominant currency and

regulated requirement, given that the currency position taken in calculation is market risk stress test.

The following table shows the foreign currency VaR model as at 31 December 2016:

Confidence Level 95,0% 99,0% 99,9%

The estimated impact for confidence level 282,184 339,885 404,463

Fx VAR for EUR/own funds 0.21% 0.25% 0.29%

Low Risk

<=1.5%

Low Risk

<=1.5%

Low Risk

<=1.5%

For 2016, the Group established a low risk appetite:

Indicator Low level

(Scor 1)

Medium level

(Scor 2)

Medium-high level

(Scor 3)

High level

(Scor 4)

Target

2016

Fx VAR (95%) /Own

funds <= 1.5% (1.5%-2.0%] (2%-2.5%] > 2.5% <= 1.5%





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Foreign currency positions

The table below summarises the Group's assets and liabilities expressed in RON and foreign currency at

the end of the 31 December 2016:

Thousands RON RON EUR Other Total

Financial assets

Cash and cash equivalents 423,345 246,588 35,413 705,346

Due from other banks 5,619 454 866 6,939

Financial assets, available-for-sale 758,713 409,894 3,120 1,171,727

- Debt securities 756,145 409,894 3,120 1,169,159

- Equity investments 2,568 - - 2,568

Financial assets held for trading 101,304 11,398 2,475 115,177

Investments held to maturity 109,966 - - 109,966

Loans and advances to customers 856,334 333,654 46,202 1,236,190

Deferred tax assets 18,744 - - 18,744

Other financial assets 1,629 226 124 1,979

Total financial assets 2,275,654 1,002,214 88,200 3,366,068

Financial liabilities

Due to other banks 37,269 1,999 2,755 42,023

Customer Deposits 2,098,183 972,569 136,779 3,207,531

Loans from banks and other financial

institutions

31,359 6,814 9,050 47,223

Current income tax liabilities 259 - - 259

Other financial liabilities - - - -

Subordinated debt 95,849 325 2 96,176

Total financial liabilities - 19,754 - 19,754

Net financial assets/(liabilities) 12,735 753 (60,386) (46,898)

Off Balance sheet items

Loans commitments to customers 204,597 18,529 58 223,184

Guarantees issued 10,796 2,649 - 13,445

Amounts disclosed in respect of derivatives represent the fair value, at the end of the reporting period,

of the respective currency that the Group agreed to buy (positive amount) or sell (negative amount)

before netting of positions and payments with the counterparty. The above analysis includes only





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monetary assets and liabilities. Investments in equities and non-monetary assets are not considered to

give rise to any material currency risk.

The table below summarises the Group's exposure to currency risks at the end of the 31 December

2015:

Thousands RON RON EUR Other Total

Financial assets

Cash and cash equivalents 129,583 83,813 9,138 222,534

Due from other banks 678 453 829 1,960

Financial assets, available-for-sale 370,867 - - 370,867

- Debt securities 361,313 - - 361,313

- Equity investments 9,554 - - 9,554

Loans and advances to customers 303,378 256,483 14,656 574,517

Other financial assets 220 - - 220

Total financial assets 804,726 340,749 24,623 1,170,098


Due to other banks 3,342 985 - 4,327

Customer deposits 603,487 296,917 19,873 920,277

Loans from banks and other financial

institutions 19,422 46,385 1,198 67,005

Other financial liabilities 1,179 206 4 1,389

Total financial liabilities 627,430 344,493 21,075 992,998

Net financial assets/(liabilities) 177,296 (3,744) 3,548 177,100

Off Balance sheet items

Loans commitments to customers 36,648 3,247 - 39,895

Guarantees issued 3,580 - - 3,580

The following table presents the sensitivity of profit or loss and equity to reasonably possible changes in

exchange rates applied at the end of the reporting period, with all other variables held constant:

31 December

2016

31 December

2015

31 December

2016

31 December

2015

Impact on

profit or loss

Impact on

profit or loss

Impact on

equity

Impact on

equity

Euro strengthening by 5% 551 311 551 311





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Euro weakening by 5% (551) (311) (551) (311)

Other strengthening by 5% 212 (81) 212 (81)

Other weakening by 5% (212) 81 (212) 81

On sensitivity calculation, the Group reviewed all transactions made during the year 2016 in the profit

or loss recorded in counterpart with the currency account balance position. Those incomes and

expenses were applied to an increase/decrease percentage, considering this exercise in a context

relevant to changes in currency exchange rates.

g) Interest rate risk

The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest

rates on its financial position and cash flows. Interest margins may increase as a result of such

changes, but may reduce or create losses in the event that unexpected movements arise.

The main sources of interest rate risk are imperfect correlation between the maturity (for fixed interest

rates) or re-pricing date (for floating interest rates) of the interest-bearing assets and liabilities,

adverse evolution of the slope and shape of the yield curve (the nonparallel shift of the interest rate

yields of the interest-earning assets and interest-earning liabilities), correlation in the adjustments of

the rates earned and paid on different instruments with otherwise similar re-pricing characteristics.

Asset-liability risk management activities are conducted in the context of the Group’s sensitivity to

interest rate changes.

The Group generally grants loans with floating interest rates, according to the Group’s policy, with re-

pricing based on reference interest rates like ROBOR, EURIBOR and LIBOR. On the deposits side, the

Group offers fixed interest rates only on short periods with maturity lower than 1 year. For longer

maturities, deposits have variable interest rates (according to Group’s policy or indexed interest rates

reference.)

The interest rates related to the local currency and the major foreign currencies as at 31 December

2016 and 2015 were as follows:

Currency Interest rate 31 December 2016 31 December 2015

Leu (RON) Robor 3 months 0.900% 1.020%

Euro (EUR) Euribor 3 months (0.319%) (0.131%)

Euro (EUR) Euribor 6 months (0.221%) (0.040%)

American Dollar (USD) Libor 6 months 1.318% 0.846%





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The following table shows the average interest rates obtained or offered by the Group as at 31 December

2016 and 31 December 2015 for its interest-bearing assets and liabilities:

31 December 2016

31 December 2015

RON EUR USD RON EUR USD Assets Cash and cash equivalents 0.12% 0.00% 0.06% 0.19% 0.05% n/a Due from other banks 0.29% 0.48% 0.05% 0.00% 0.00% 0.00% Loans and advances to customers 8.89% 6.44% 14.78% 16.50% 8.90% 16.22% Financial assets, available-for-sale 1.74% 1.38% 0.69% 2.13% n/a n/a

Liabilities Due to other banks 0.36% 0.00% 0.00% n/a 0.00% n/a Current accounts from customers 1.56% 0.76% 0.90% 0.11% 0.10% 0.10% Term deposits from customers 0.05% 0.00% 0.01% 1.99% 2.05% 1.02%

Loans from banks and other financial institutions 0.43% 1.75% 0.35% 7.03% 4.17% 0.84% Subordinated Debt n/a 3.70% n/a n/a n/a n/a

The table below summarises the Group’s exposure to interest rate risks. The table presents Group's

financial assets and liabilities at 31 December 2016 at carrying amounts, categorised by the earlier of

contractual interest repricing or maturity dates:

Thousands RON Carrying

value Less 3

months 3-12

month 1-5

months

More than 5 years

Non-interest bearing

Financial assets Cash and cash equivalents 705,346 545,004 5,658 - - 154,684 Due from other banks 6,939 5,619 - - - 1,320 Financial assets, available-for-sale 1,169,159 82,397 279,955 799,555 - 7,252 Financial assets held for trading 109,860 14,860 - 45,000 50,000 - Loans and advances to customers 1,236,190 962,521 100,340 151,346 2,155 19,828 Other financial assets 1,979 830 - - - 1,149

Total financial assets 3,229,473 1,611,231 385,953 995,901 52,155 184,233

Financial liabilities Due to other banks 42,023 33,107 - - - 8,916 Customer deposits 3,207,531 2,105,696 1,053,148 43,226 634 4,827 Loans from banks and other financial institutions 47,223 47,087 - 79 - 57 Other financial liabilities 96,176 - - - - 96,176 Subordinated debt 19,754 - 19,754 - - -

Total financial liabilities 3,412,707 2,185,890 1,072,902 43,305 634 109,976

Net Interest rate risk position (183,234) (574,659) (686,949) 952,596 51,521 74,257





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The Group closely assesses the net interest rate risk position in order to reduce the risk and optimize

the net interest margin. As of 31st of December 2016, the Group records a negative interest rate risk

position on the first two buckets, higher financial liabilities compared to the financial assets, mainly

due to the deposits from customers with fixed interest rate. Consequently, the customers deposits at

the maturing date are roll-overed at the standard/negotiated interest rate communicated by the Group

and the interest rate is not automatically updated at a market benchmark.

The table below summarises the Group’s exposure to interest rate risks. The table presents Group's

financial assets and liabilities at 31 December 2015 at carrying amounts, categorised by the earlier of

contractual interest repricing or maturity dates:

Thousands RON Carrying

value Less 3

months 3-12 month 1-5 years

More than 5 years

Non-interest bearing

Financial assets Cash and cash equivalents 222,534 192,513 - - - 30,021 Financial assets, available-for-sale 1,960 678 1,282 - - - Due from other banks 361,313 50,191 120,180 163,611 17,224 10,107 Loans and advances to customers 574,517 297,910 98,008 155,926 566 22,107 Other financial assets 220 220 - - - - Total financial assets 1,160,544 541,512 219,470 319,537 17,790 62,235

Financial liabilities Due to other banks 4,327 452 - - - 3,875 Loans from banks and other financial institutions 920,277 651,544 245,782

8,379 9,849

4,723

Customers Deposits 67,005 20,292 23,608 22,623 - 482 Other financial liabilities 1,389 - - - - 1,389 Total financial liabilities 992,998 672,288 269,390 31,002 9,849 10,469

Net Interest rate risk position 167,546 (130,776) (49,920) 288,535 7,941 51,766

The Group presented as non-interest bearing assets the following: customer loans that no longer accrue

interest, accrued interest on loans and T-bills, unit funds administrated by Globinvest SAI and equity

investments.

The management of interest rate risk through limits is enhanced by monitoring the sensitivity of the

Group’s financial assets and liabilities to various interest rate scenarios.

The impact on the Group’s financial results at December 31, 2016 by applying a possible change in

interest rate of +/- 0.75 percentage points (as a percentage of the Group's own funds) could lead to a

positive impact of the economic value of RON 10,548 thousand, respectively 4.92% impact on equity





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(below 7.5%) and falling to a low risk profile in accordance with internal rules regarding interest rate risk

(31 December 2015: RON 1,942 thousand positive impact, i.e. 1.006% impact on own funds).

h) Liquidity risk

i) Management of liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations

associated with its financial liabilities that are settled by delivering cash or another

financial asset.

Liquidity risk arises in the general funding of the Group’s activities and in the

management of the asset positions. It includes both the risk of being unable to fund

assets at appropriate maturities and rates and the risk of being unable to liquidate an

asset at a reasonable price and in an appropriate time frame.

The Group has access to a diverse funding base. Funds are raised using a broad range

of instruments including deposits, borrowings and share capital. This enhances

funding flexibility, limits dependence on any one source of funds and generally lowers

the cost of funds. The Group strives to maintain a balance between continuity of

funding and flexibility through the use of liabilities with a range of maturities. The

Group continually assesses liquidity risk by identifying and monitoring changes in

funding, diversifying the funding base, limiting the concentrations.

The daily liquidity position is monitored and regular liquidity stress testing is

conducted under a variety of scenarios covering both normal and more severe market

conditions. All liquidity policies and procedures are subject to review and approval by

ALCO and by the Risk Management Committee.

The Group elaborated a contingency planning policy that covers the management of

special conditions caused by the “unusual” changes in markets conditions and in the

general economic, political and regulatory environment, as well as the management of

situations originating from the loss of trust in the Group.

ii) Exposure to liquidity risk

One of the key measures used by the Group for managing liquidity risk is Loan to

Deposits ratio. Details of the reported ratio of loans to deposits at the reporting date

and during the reporting period were as follows:





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At 31 December 40.72% 69.02% Average for the period 49.82% 65.56% Maximum for the period 68.48% 79.04% Minimum for the period 45.16% 49.37%

The maximum recorded level of 68.48% of gross loans to deposits ratio was as of the end of January

2016, while the minimum recorded level of 45.16% was as of the end of July 2016.

According to NBR Regulation 25/2011 the liquidity ratio shall be calculated as a ratio between the

effective liquidity and necessary liquidity, on each maturity band.

The effective liquidity is determined by summing, on each maturity band, the assets, the commitments

received recorded off-balance sheet, including those relative to the spot exchange operations, and the

receivables in respect of derivatives.

The necessary liquidity is determined by summing, on each maturity band, the liabilities, the

commitments given recorded off-balance sheet, including those relative to the spot exchange

operations, and the liabilities in respect of derivatives. In the event of recording an excess of liquidity

on any of the maturity bands, with the exception of the last band, this shall be added to the level of

effective liquidity of the next maturity band.

The table below shows liabilities at 31 December 2016 by their remaining contractual maturity. The

amounts of liabilities disclosed in the maturity table are the contractual undiscounted cash flows,

including gross finance lease obligations (before deducting future finance charges), gross loan

commitments and financial guarantees. Such undiscounted cash flows differ from the amount

included in the statement of financial position because the amount in the statement of financial

position is based on discounted cash flows. Financial derivatives are included at the contractual

amounts to be paid or received, unless the Group expects to close the derivative position before its

maturity date in which case the derivatives are included based on the expected cash flows.

The table below shows the maturity analysis of non-derivative financial assets at their carrying

amounts and based on their contractual maturities, except for assets that are readily saleable if it

should be necessary to meet cash outflows on financial liabilities. Such financial assets are included in

the maturity analysis based on their expected date of disposal. Impaired loans are included at their

carrying amounts net of impairment provisions, and based on the expected timing of cash inflows.





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The residual maturity analysis of the monetary assets and liabilities of the Group at 31 December 2016 is presented below:

Thousands RON

Due on

demand

Up to 3

Months

3 Months

to 1 Year

1 Year to

5 Years

Over 5

Years

No fixed

maturity Total

31 December 2016 Financial assets Cash and cash equivalents 676,476 28,870 - - - - 705,346

Due from other banks - - - - 6,939 - 6,939

Financial assets, available-for-sale, including future interest - 4,305 303,309 990,568 109,533 10,593 1,418,309

Loans and advances to customers, including future interest - 191,864 369,148 488,299 387,159 - 1,436,470

Other financial assets - 1,979 - - - - 1,979

Total financial assets 676,476 227,018 672,457 1,478,867 503,631 10,593 3,569,043

Financial liabilities Due to other banks 3,889 38,134 - - - - 42,023

Customer deposits, including future interest 506,732 1,529,336 1,130,803 58,940 2,340 - 3,228,151

Loans from banks and financial institutions, including future

interest 100 4,923 22,488 20,374 - - 47,885

Other financial liabilities 743 1,354 - - - 91,346 93,443

Subordinated debt - - - 23,425 - - 23,425

Total financial liabilities 511,464 1,573,747 1,153,291 102,739 2,340 91,346 3,434,927

Liquidity excess/deficit

165,012

(1,346,729)

(480,834)

1,376,128

501,291

(80,753) 134,116





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Derivatives are presented based on their contractual maturities.

When the amount payable is not fixed, the amount disclosed is determined by reference to the

conditions existing at the end of the reporting period. Foreign currency payments are translated using

the spot exchange rate at the end of the reporting period.

Off-Balance items

Due on

demand

Up to 3

Months

3 Months

to 1 Year

1 Year to

5 Years

Over 5

Years Total

Loans Commitments given to

customers 259,763 - - - - 259,763

Guarantees issued to customers 17,549 - - - - 17,549

Loan commitments received

form customers - - - - (45,411) (45,411)

Based on the historical evolution, at the maturity date, a significant part of the customer deposits

are rollover resulting that the remaining contractual maturity of the deposits (in average 3-6

months) is much lower compared to the actual maturity of the deposits.

The Group presents a very strong liquidity position confirmed by the level of the Liquidity Coverage

Ratio 725% reported as consolidated level at 31st of December 2016 versus regulatory limit of 70%.

The Liquidity Coverage Ratio represent a liquidity stress test on the next 30 days that shows that

the entity has enough liquid assets to cover the net outflows.





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The maturity analysis of the monetary assets and liabilities of the Group at 31 December 2015 is presented below:

Thousands RON Due on

demand Up to 3

Months 3 Months to 1

Year 1 Year to 5

Years Over 5 Years Total

31 December 2015

Financial assets

Cash and cash equivalents 202,533 20,001 - - - 222,534

Due from other banks - 678 1,282 - - 1,960

Financial assets, available-for-sale, including

future interest - 56,868 131,946 186,079 26,557 401,450

Loans and advances to customers, including

future interest - 77,332 205,370 291,509 173,051 747,262

Other financial assets - 220 - - - 220

Total financial assets 202,533 155,099 338,598 477,588 199,608 1,373,426


Due to other banks - 4,327 - - - 4,327

Customer deposits, including future interest 144,949 416,336 298,443 63,282 13,974 936,984

Loans from banks and financial institutions,

including future interest - 15,744 25,113 9,519 22,623 72,999

Other financial liabilities 1,389 - - - - 1,389

Total financial liabilities 146,338 436,407 323,556 72,801 36,597 1,015,699

Liquidity excess/deficit 56,195 (281,308) 15,042 404,787 163,011 357,727





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Off-Balance items

Due on

demand

Up to 3

Months

3 Months

to 1 Year

1 Year to

5 Years

Over 5

Years Total

Loans Commitments given to

customers 39,914 - - - - 39,914

Guarantees issued to customers 3,580 - - - - 3,580

The Group presents a shortage of liquidity on “up to three months” and “3 months to 1 year” group,

as result of a large amounts of commercial deposits in this category. Management expects this

deficit to be covered through renewal of deposits.

As has already been mentioned, the liquidity is eliminated by the renewal for liabilities for private

individuals or companies in a significant proportion (around 90%). Generally, the renewal takes

place through the extension of the existing structure of deposits, for amount and due date, too.

To manage liquidity risk, the Group holds liquid assets comprising cash and cash equivalents and

investment securities (treasury bills issued by the Minister of Public Finance of Romania) for which

there is an active liquid market. These assets can be readily sold to meet liquidity requirements.

i) Taxation risk

On 1 January 2007 Romania became a member of the European Union and therefore has to apply

detailed and complex rules on the basis of the EU Treaties, Regulations and Directives. The Group

has to conform to EU legislation from 1 January 2007 and, therefore, it has prepared to apply the

changes arising from the EU legislation. These changes have been implemented, however the tax

authorities have up to 5 years to audit the way these changes were implemented.

Interpretation of the text and practical implementation procedures of the newly enforced EU tax

regulations could vary, and there is a risk that certain transactions, for example, could be viewed

differently by the tax authorities as compared to the Group's treatment.

Furthermore, the Romanian Government has a number of agencies that are authorized to conduct

audits (controls) of companies operating in Romania.

These controls are similar in nature to tax audits performed by tax authorities in many countries,

but may extend not only to tax matters but to other legal and regulatory matters in which the

applicable agency may be interested. It is likely that the Group will continue to be subject to

regular controls as new laws and regulations are issued.





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The Group’s management considers that the tax liabilities included in these financial statements

are fairly stated, and they are not aware of any circumstances which may give rise to a potential

material liability in this respect.

j) Business environment

Presently, there are several legislative initiatives that could have a significant impact over the local

banking system, in the next period, and they refer to the following:

Law on Debt Discharge

In Romanian Official Gazette, 1st Part, no. 330 as of April 28, 2016 was published Law no 77/2016

on discharge of mortgage backed debts through transfer of title over immovable property (Law on

Debt Discharge).

The law applies to the relations between consumers and credit institutions, non-banking financial

institutions or the assignees of the receivables against consumers. It establishes, that by exception

to the provisions of Civil Code, the consumer has the right to be discharged of the debts resulting

from the loan contract, accessories included, without extra costs, by giving back the mortgaged

immovable property, if the parties do not agree otherwise, within the legal term.

In order to terminate the loan, the consumer has to send a notification to the creditor, by court

bailiff, lawyer or public notary, informing him that has decided to transfer the property right over

the immovable property in order to be discharged by the debt resulting from the mortgage credit

contract, indicating also the conditions for admitting such request.

Any debt of the debtor to the creditor shall be ceased on the date of execution of the contract

transferring the property right, respectively from the date of the court decision ruling on this

matter. The creditor cannot request other supplementary payments.

This law applies both on credit contracts which are outstanding on the date of entering into force of

such law as well as to the credit contracts concluded after this date.

On October 25, 2016, Constitutional Court admitted the non-constitutionally exceptions of the law.

The Court gave the grounds on which such exceptions were admitted, referring to the cancelling of

certain wordings used by law, aspects that partially limit the access of the debtors to the protection

offered by the law.

According to the same law, the clients can assign in favour of the Group the immovable properties

mortgaged by the credit contract and thus their contractual obligations shall cease. The loans





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subject to this law are those with mortgage on an immovable assets which has residential purpose

with an initial value equal or under of EUR 250,000 and that are not under the Governmental

program Prima Casa (First House).

The Group considers that the entrance into force of Law on Debt Discharge is an objective

depreciation event, as defined by IAS 39 par. 59, consequently was declared the necessity of the

evaluation of the establishment of supplementary provisions for depreciation.

PBK had identified the eligible credits in accordance with such law, in gross amount of RON 51,810

thousands, out of which for the credits that presented already depreciation indicators were

established previously in amount of RON 12.18 thousands on December 31, 2016. Taking into

account the above mentioned and based on the available information as of December 31, 2016, PBK

established a collective additional provision of RON 1.420 thousands.

For BCC the portfolio affected by this Law is immaterial.

Law project drafted by National Authority for Consumers Protection (ANPC) provides that the

credit contract shall no longer be enforceable title, consequently the credit institutions and non-

banking financial institutions shall be deemed to obtain a court decision in order to initiate the

execution procedures. This law project refers only to clients that are natural person.

Such law project sets forth the conditions of Directive 2008/48 / CE of European Parliament and of

the Council as of April 23, 2008 and refers to credits for consumers in foreign currency, for which

the exchange rate varies more than 20% at a certain date during the credit period, comparing to the

granting date. The credit institutions and non-banking financial institutions have to offer to the

consumers certain options to support and reduce the loan costs.

Personal Insolvency Law no. 151/2015 published in the Romanian Official Gazette in June 2015 and

that shall enter into force on August 1, 2017 provides support for the individuals that need to pay

debts and have financial problems.

k) Capital management

The Group is active in the Romanian banking sector, which is regulated by The National Bank of

Romania (“NBR”), acting as local regulator under the EU regulation for the sector, which requires

banks to maintain a prescribed ratio of total capital to total risk-weighted assets.





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The capital allocation is detailed below.

• Regulatory Capital Allocation

a) Credit Risk: Starting with 2008, Basel II/III stipulations regarding capital

allocation are compulsory for Romanian Banking system, the Group choosing the

Standardized Approach for credit risk.

b) Market Risk: Capital allocation for the foreign currency risk is calculated according

to the Standardized Approach, in the context of Basel II/III implementation.

c) Operational Risk: Starting with 2008 the Group calculates the capital requirement

for operational risk according to Basic Indicator Approach, in the context of Basel

II/III implementation.

• Internal Capital Adequacy Assessment Process (ICAAP)

Within an institution’s internal governance framework, the ICAAP is a process whose main purpose

is to ensure that the institution holds adequate internal capital in relation to the institution’s risk

profile, in line with Basel III and the Capital Requirements Regulation and Directive (CRD IV) as

implemented nationally.

The main risks covered by the Group’s ICAAP are the following:

a) Credit Risk: The Group supplements the capital requirement for credit risk under the

Standardized Approach in Pillar 1 with additional capital requirements for the possible

underestimation of Group’s credit risk using the Standardized Approach (through the

negative evolution of loan portfolio quality, insufficient collateral coverage or restructured

loans, Giving in payment) and for other credit risk-related risks, such as residual risk, the

underestimation of risk for loss given default during crisis, credit risk concentration (in

terms of single-name concentration, sectorial concentration and collateral concentration),

country risk, external risks (macroeconomic) and the risk of lending in foreign currency to

unhedged debtors.

b) Market risk: the Group is only exposed to foreign currency risk and supplements the Pillar 1

capital requirement with an additional capital requirement meant to protect against

underestimation of risk from using Standardized Approach by comparing it with the result

of a Value-at-Risk internal model (1-day holding period at 99% confidence level).

c) Interest Rate Risk in the Banking Book: The capital requirement for interest rate risk in

the Banking Book is assessed in terms of the 12-month earnings perspective considering

the NBR reporting of the interest rate risk exposure;

d) Operational Risk: The Group bases its internal capital requirement for operational risk on

the Pillar 1 selected approach of the Basic Indicator. Additionally, the Group protects





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against a possible underestimation of its risk exposure by setting a supplementary internal

capital requirement in case of accelerated growth of the relevant indicator.

e) Liquidity risk: Additional to the integrated system implemented in the Group to evaluate

current and potential liquidity risk, the Group evaluates its capital requirement for liquidity

risk from the perspective of the profitability impact of liquidity deficits.

f) Other risks: According to its policies, the Group sets aside additional internal capital for

other risks, such as reputational risk, strategic risk and the risk of excessive leverage.

g) The requirement for stress testing (Capital Buffer): In order to include the effect of stress

tests, the Group will use an scorecard analysis that will contain the parameters and

percentage differences between capital requirements under conditions for moderate crisis

(grade 1) compared to normal conditions (Total Capital Requirement for Grade 1

Simulation crisis - total capital requirement under normal conditions) / Total Capital

Requirement under normal.

Depending on the level of these differences the Group will determined an internal capital

requirement to cover the impact of stress testing as a percentage of total absolute difference

between capital requirement determined in Grade 1 crisis conditions and the capital requirement in

normal conditions

The Group’s regulatory capital is analysed into two tiers:

• Tier 1 capital, which includes ordinary share capital, retained earnings, reserve after

deductions intangible assets, and other regulatory adjustments relating to items that are

included in equity but are treated differently for capital adequacy purposes.

• Tier 2 capital, which includes qualifying subordinated liabilities.





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At 31 December 2016 and 31 December 2015 the own fund calculated as per statutory regulations

and capital requirement for 31 December 2016 and 31 December 2015, are presented below:

Thousands RON 31 December 2016 31 December 2015 Tier 1 capital 209,492 193,008 Ordinary share capital 199,218 268,351 Reserves 82,863 88,174 Retained earnings (34,210) (131,639) Current year loss (36,417) (9,715) Less: Intangible assets & Goodwill (44,239) (7,760) Less: Prudential Filter (*) (12,228) (14,403) Non-controlling interests 55,727 - Other prudential deductions (1,222) - Tier 2 capital 7,209 -

Subordinated debt included in Tier 2 capital 19,437 - Less: Prudential Filter (*) (12,228) - Total regulatory capital 216,701 193,008 Exposure value to credit risk 1,258,985 440,234

Exposure value to market risk, currency risk and goods risks 9,663 8,232 Exposure value to operational risk 364,318 134,411 Exposure value to credit valuation adjustment (CVA)

6 25

Total Risk Exposure 1,632,972 582,902 Total capital requirement 130,638 46,632 Capital adequacy ratio 13.27% 33.11%

(*) Capital considered in the calculation of own funds at December 2016 represents the share capital subscribed and paid.

(**) As per NBR Regulation 11/2011 and NBR Regulation 16/2012, a “Prudential filter” deduction

was applied starting 1 January 2012. According NBR Regulation 5/2013, starting 1 January 2014

transitional provisions apply to this deduction from regulatory capital, from 80% in 2014 to 0% in

2018. As of December 2016 a 40% deduction is applicable for prudential filters (60% as of 2015).

During the reporting period and also in the previous period, the Group complied with all of the

externally imposed capital requirements to which the Group is subject.





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5 USE OF ESTIMATES AND JUDGMENTS

The Group makes estimates and assumptions that affect the reported amounts of assets and

liabilities within the next financial year. Estimates and judgements are continually evaluated and

are based on historical experience and other factors, including expectations of future events that

are believed to be reasonable under the circumstances.

Impairment losses on loans and advances to customers

In accordance with the internal impairment assessment methodology (refer to Note 4), the Group

reviews its loan portfolios to assess impairment and determines whether an impairment loss should

be recorded in the profit or loss. The Group makes judgments as to whether there is any observable

data indicating that there is objective evidence of impairment that has an impact on the estimated

future cash flows from an individual loan or from portfolio of loans. Management uses estimates

based on historical loss experience for loans with similar credit risk characteristics. The individual

assessment is based on management’s best estimate on the present value of the cash flows that are

expected to be received. In estimating these cash-flows, management makes judgments about

counterparty’s financial situation and the net realizable value of any underlying collateral. The

methodology and assumptions used for estimating both the amount and timing of future cash flows

are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

To the extent that the recovery indicator for collective assessment differs by +/- 10 percent, the

provision for impairment losses on loans as of 31 December 2016 would be an estimate of

RON 2,312 thousand lower (31 December 2015: RON 385 thousand lower) or RON 2,308 thousand

higher (31 December 2015: RON 597 thousand higher).

The recovery indicator represents the portion of transactions in default that went out of default in a

natural way (without collateral foreclosure) in a 12 months’ time horizon. Therefore (1-Recovery

Indicator) represents the portion of loans in default that will not be repaid naturally in a given time

horizon.





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Deferred income tax asset recognition

Deferred income tax asset represents tax recoveries from future deductions of taxable profit and are

recognized in the statement of financial position.

The deferred tax asset is recognized if future taxable profits are available so that the deferred tax

assets are realized. Deferred tax assets are reduced accordingly if it is not probable that such future

taxable profits will exist.

The future taxable profits and the amount of tax benefits that are probable in the future are based

on a medium term business plan prepared by management and extrapolated results thereafter.

The business plan is based on management expectations that are believed to be reasonable under

the circumstances. Key assumptions in the business plan are: business development by increasing

the number of customers and assets base, acting on Retail, SMEs and MICRO financing with a

controlled cost of risk linked with collection and recovery activity, diversification of sales channels

and adaptability to customers needs. The funding strategy is to align the funding cost at the market

level and to gradually optimize the funding structure. Improvement of the cost control at the

operating expenses level is also considered.

6. FAIR VALUE DISCLOSURES

Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one

are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities,

(ii) level two measurements are valuations techniques with all material inputs observable for the

asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and

(iii) level three measurements are valuations not based on observable market data (that is,

unobservable inputs).

The management applies judgement in categorising financial instruments using the fair value

hierarchy. If a fair value measurement uses observable inputs that require significant adjustment,

that measurement is a level three measurement. The significance of a valuation input is assessed

against the fair value measurement in its entirety.

(a) Recurring fair value measurements

Recurring fair value measurements are those that the accounting standards require or

permit in the statement of financial position at the end of each reporting period. The level

in the fair value hierarchy into which the recurring fair value measurements are categorized

as follows:





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Thousands RON Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets at fair value

Financial assets Financial assets, available-for-sale 1,169,159 - 2,568 1,171,727 361,313 - 9,554 370,867

- Treasury bills issued by the Ministry of Public Finance of Romania 1,165,518 - - 1,165,518 360,803 - - 360,803

- Investments in unit funds 3,641 - - 3,641 510 - - 510 - Equity investments - - 2,568 2,568 - - 9,554 9,554

Financial assets held for trading 115,177 - - 115,177 - - - - Other financial assets - Foreign exchange forward contracts - - 169 169 - - 220 220 Nonfinancial assets - Tangible assets - - 119,343 119,343 - - 37,193 37,193 - Investment Property - - 78,271 78,271 Total assets at fair value 1,284,336 - 200,351 1,484,687 361,313 - 46,967 408,280





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Financial assets available for sale

Treasury bills denominated in RON, EUR, USD issued by the Ministry of Public Finance of

Romania.

The carrying amount of financial assets available for sale would be an estimated

RON 18,942 thousand lower (31 December 2015: RON 5,032 thousand lower) and RON 18,053

thousand higher (31 December 2015: RON 5,193 thousand higher) in the case of a +/- 100 basis

points change in interest rates.

Investments in unit funds

For the unit funds administrated by Globinvest S.A. (Napoca Investments Fund and

TehnoGlobinvest Investment Fund) is using public available quotations (e.g. VUAN-Unitary Value

of Net Assets-quotations).

These mutual funds are collective investment in transferable securities, whose units are subject to

continue issuing and repurchasing. The return obtained from operations with fund units is given by

the difference between the redemption price (VUAN) and subscription price (VUAN).

VUAN is determined as the ratio between net assets of the fund and the number of bonds in

circulation at any given time.

Equity investments

Equity securities available for sale include securities that are not traded in on an active market. Due

to the nature of local capital markets, it is not possible to obtain the market value for these securities.

Shares are not listed and recent values regarding their trading prices are not publicly available.

Management does not intend to sell these shares in the near future. The Group determined the fair

value using the fair value of the net assets based on published financial statements.

Financial assets held for trading

The financial assets held for trading are recorded in the consolidated statement of financial position

at fair value. This classification may include the treasury bills issued by Ministry of Public Finance of

Romania, bonds, shares and short positions in bonds and shares, including fund units, that were

purchased for the purpose of sale or repurchase in the near future.

The financial assets are included in the assets held for trading if those assets are purchased in order

to be traded in the short term (a period of maximum 6 months) and have the following

characteristics:





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- the Group intends to obtain short-term benefits from the price movements; - they are free of encumbrances (are not subject to any guarantee, contract, etc.); - are assessed at fair value; - are actively managed/ administered; - there is an active market for them.

Other financial assets

Foreign exchange forward contracts

The table below shows the sensitivity of the derivative financial instruments in possible changes in

exchange rates applied at the end of the reporting period,while all other variables are held constant:

31 december 2016

Thousands RON

Fair

value

Method of

evaluation

Used

variables

Posibile

changes

The sensitivity

of fair value


- Foreign exchange forward contracts 169 mark to market Exchange ± 5 % ± 671

31 december 2015

Thousands RON

Fair

value

Method of

evaluation

Used

variables

Posibile

changes

The sensitivity

of fair value


- Foreign exchange forward contracts 195 mark to market Exchange ± 5 % ± 1,178

As of 31 December 2016 and 31 December 2015, the value of securities available for sale is assessed

using interest rates ROBID/ROBOR/EURIBOR as well as official exchange rates published by NBR

in order to compute forward rates for remaining period of outstanding contracts.





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Nonfinancial assets

Property and Equipment

Tangible assets include land and buildings held by the Group that it uses to carry out current

activities. These are reviewed regularly to reflect their fair value accounting.

Based on the analysis of the changes in the real estate market as at 31 December 2016 and based on

the revaluation of the buildings and land owned by the Group, performed by a certified evaluator in

December 2015 the Group’s management considers that the value of land and buildings as at 31

December 2015 represents a correct estimation of their fair value at reporting date.

There were no changes in valuation technique for level three recurring fair value measurements

during the year ended 31 December 2016 (2015: none).

Investment property

The Group accounts for the investment property at fair value, the changes in fair value being

recognized in the comprehensive income. The land and buildings are subject to revaluation, and the

changes in fair value are recognized in other comprehensive income. The assets taken over during

foreclosure proceedings are recognised in other assets and are subject to fair value revaluation; the

impairment, if any, is recognized in the comprehensive statement of profit or loss. The Group

appointed expert appraisers to determine the fair value on 31 December 2016. The appraisers used

the direct capitalization method and the sales comparison method, in compliance with the valuation

principles and techniques provided by the International Valuation Standards.

In view of the current market conditions, including the low liquidity of the actual asset transactions,

the prices of the recent market transactions and the lack of actual offers for these types of assets, the

future cash flows estimated to be recovered could be different from those considered by external

appraisers when determining the market value of these types of assets.

(b) Assets and liabilities not measured at fair value but for which fair value is

disclosed

Fair values analysed by level in the fair value hierarchy and carrying value of liabilities not measured

at fair value are as follows:





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Thousands RON Level 1 Level 2 Level 3 Carrying

value Level 1 Level 2 Level 3 Carrying

value

Financial assets Cash and cash equivalents 564,001 141,345 - 705,346 222,534 - - 222,534

Placements with banks - 6,939 - 6,939 - 1,960 - 1,960

- Short-term placements with other banks with

original maturities of more than three months - - - - - 678 - 678

- Short-term placements with other banks with

original maturities of more than three months - 6,939 - 6,939 - 1,282 - 1,282

Investments held to maturity 110,085 - - 109,966

Loans and advances to customers - - 1,247,972 1,236,190 - - 574,517 574,517

- Corporate loans - - 769,520 761,686 - - 258,101 258,101

- loans to individuals – consumer loans - - 139,921 135,826 - - 35,095 35,095

- loans to individuals – entrepreneurs - - 123,434 121,556 - - 136,946 136,946

- Mortgage loans - - 140,835 142,860 - - 118,887 118,887

- State and municipal organizations - - 74,262 74,262 - - 25,488 25,488

Tangible assets - - - 56,208 - - - 7,647

Other financial assets - - 1,267 1,267 - - - -

Total 674,086 148,284 1,249,239 2,115,916 222,534 1,960 574,517 806,658





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Thousands RON Level 1 Level 2 Level 3 Carrying

value Level 1 Level 2 Level 3 Carrying

value Financial liabilities Loans and advance from banks - 42,023 - 42,023 - 4,327 - 4,327 - Correspondent accounts and overnight placements of other banks - 35,037 - 35,037 - 3,875 - 3,875 - Term deposits from bank - 2,648 - 2,648 - - - - - Collateral Deposits from banks - 4,338 - 4,338 - 452 - 452 Customer deposits - - 3,207,531 3,207,531 - - 920,277 920,277 - Current accounts and transitory amounts of state and municipal organizations - - 327 327 - - 11 11 - Term deposits of state and municipal organizations - - 1 1 - - - - - Current accounts and transitory amounts of companies - - 273,401 273,401 - - 111,940 111,940 - Term deposits of companies - - 446,282 446,282 - - 407,968 407,968 - Current accounts and transitory amounts of individuals - - 229,400 229,400 - - 45,174 45,174 - Term deposits of individuals - - 2,258,121 2,258,121 - - 355,184 355,184 Loans from banks and other financial institutions - - 47,223 47,223 - - 67,005 67,005 - Loans from banks - - 15,716 15,716 - - 965 965 - Loans from other financial institutions - - 31,507 31,507 - - 66,040 66,040 Subordinated debt - - 19,754 19,754 - - - - Other financial liabilities - - 95,433 95,433 - - 1,389 1,389 - Financial liabilities to owners of fund units - - 91,346 91,346 - - - - - Provisions from financial guarantees - - 2,733 2,733 - - 91 91 - Other financial liabilities - - 1,354 1,354 - - 1,298 1,298 Total - 42,023 3,369,941 3,411,964 - 4,327 988,671 992,998



(All amounts are in Thousands RON)


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Placements with banks

The Group’s short-term placements with Banks include current accounts and deposits. The fair value

of floating rate placements and overnight deposits is their carrying amount. Fixed interest bearing

deposits mature in less than three months and it is assumed that their fair values are not significantly

different from its carrying value and are convertible into cash or are settled without significant

transaction costs.

Investments held-to-maturity

The financial assets held-to-maturity are are non-derivative financial assets with fixed or

determinable payments and fixed maturity that the Group intends and is able to hold to maturity.

On initial recognition, the investments held-to-maturity are measured at fair value comprising the

purchase price and the transaction costs.

Subsequent to initial recognition, the investments held-to-maturity are measured at amortised cost

using the effective rate method less the impairment allowance. The amortised cost is calculated

considering any discount or premium upon purchase and fees and costs that should be part of the

effective interest rate. The amortization is included in "Interest income” in the consolidated

statement of profit or loss and other comprehensive income. Impairment allowances are recorded if

impairment losses occur.


Loans and advances are net of provisions for impairment. The estimated fair value of loans and

advances represents the discounted amount of estimated future cash flows expected to be received.

Expected cash flows are discounted at current market rates to determine fair value.

Evolution for the principal balance (and thus staggering cash flow) was estimated considering

reductions mainly generated by the following elements: principal repayments, early repayment and

impairment of loans outstanding (PD - probability of default). For each category of credit was

considered a discount rate specified, starting from the interest rate practiced that was later adjusted

to eliminate adjustments for impairment at a level estimated by management for the new loans

production and the cost of origination for loan portfolio. The fair value of the portfolio was calculated

by aggregating the discounted cash flow for the forecast period.





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Due to other banks, deposits from customers and loans from banks and other financial

institutions.

Deposits from banks and customers

For demand deposits and deposits with no defined maturities, fair value is considered to be the

amount payable on demand at the balance sheet date. For deposits maturing within one-year, it is

assumed that their fair value is not significantly different from carrying value. The estimated fair

value of fixed-maturity deposits, including certificates of deposit, is based on discounted cash flows

using rates currently offered for deposits of similar remaining maturities.

Financial assets and liabilities

The management considered that the fair value is not significantly different from accounting value

considering that these financial assets and liabilities are expected to be settled within one month or

with no fixed maturity and the carrying amount is not materially different from fair value.

7. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY

For the purposes of measurement, IAS 39 “Financial Instruments: Recognition and Measurement”,

classifies financial assets into the following categories: (a) loans and receivables; (b) financial assets

at fair value through profit or loss (“FVTPL”), (c) available-for-sale financial assets; (d) financial

assets held to maturity and. Financial assets at fair value through profit or loss have two sub-

categories: (i) assets designated as such upon initial recognition, and (ii) those classified as held for

trading. In addition, finance lease receivables form a separate category.

The following table provides a reconciliation of financial assets with these measurement categories

as of 31 December 2016:





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Presentation of Group's Financial Instruments by Measurement Category:

31 December 2016

Thousands RON

Loans and

receivables

Available-for-

sale assets

Trading

assets

Financial instruments

designated at fair value

through profit or loss

Held to

maturity Total

Financial assets

Cash and cash equivalents 705,346 - - - - 705,346

Placements with banks having short term maturity 6,939 - - - - 6,939

Loans and advances to customers: 1,236,190 - - - - 1,236,190

- Corporate loans 761,687 - - - - 761,687

- loans to individuals – consumer loans 135,825 - - - - 135,825

- loans to individuals – entrepreneurs 121,556 - - - - 121,556

- Mortgage loans 142,860 - - - - 142,860

- State and municipal organizations 74,262 - - - - 74,262

Financial assets, available-for-sale - 1,171,727 - - - 1,171,727

- Treasury bills - 1,165,518 - - - 1,165,518

- Investments in unit funds - 3,641 - - - 3,641

- Equity investments - 2,568 - - - 2,568

Financial assets held for trading - - 115,177 - - 115,177

Investments held to maturity - - - - 109,966 109,966

Other Financial assets 241 - - 169 - 410

Other debtors 1,026 - - - - 1,026

Amounts to be recovered from banks and customers 543 - - - - 543

Total financial assets 1,950,285 1,171,727 115,177 169 109,966 3,347,324





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The following table provides a reconciliation of financial assets with these measurement categories

as of 31 December 2015:

31 December 2015

Thousands RON Loans and receivables

Available-for-sale assets



through profit or loss Total

Financial assets

Cash and cash equivalents 222,534 - - 222,534

Placements with banks 1,960 - - 1,960

Loans and advances to customers 574,517 - - 574,517

- Corporate loans 258,101 - - 258,101

- loans to individuals – consumer loans 35,096 - - 35,096

- loans to individuals – entrepreneurs 136,946 - - 136,946

- Mortgage loans 118,886 - - 118,886

- State and municipal organizations 25,488 - - 25,488

Financial assets, available-for-sale - 361,313 - 361,313

Equity investments - 9,554 - 9,554

Other financial assets - - 220 220

Total financial assets 799,011 370,867 220 1,170,098


Items measured

at amortised

cost




Items measured at

amortised cost




Financial Liabilities Due to other banks 42,023 - 4,327 - Customer deposits 3,207,529 - 920,277 - - Current accounts and transitory amount of municipalities

327 - 11 -

- Current accounts and transitory amount of companies 273,399 - 111,940 - - Deposits of companies 446,282 - 407,968 - - Current accounts and transitory amount of private individuals 229,402 - 45,174 - - Deposits of private individuals 2,258,121 - 355,184 - Loans from banks and other institutions 47,223 - 67,005 - Other financial liabilities 95,433 743 1,389 - Subordinated debt 19,754 - - - Total financial liabilities 3,411,964 743 992,998 -





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8. NET INTEREST INCOME

(*)Interest income includes RON 29,384 thousand (2015: RON 13,659 thousand) interest income

recognized on impaired loans to customers and an expense representing unwinding of interest

adjustment for the impaired loans to customers amounting to RON 16,359 thousand (2015: RON

11,547 thousand).

9. NET FEE AND COMMISSION INCOME

Thousands RON 31 December 2016 31 December 2015 Interest and similar income Loans and advances to customers (*) 161,297 59,707 Financial assets available-for-sale 17,854 10,441 Investments held to maturity 2,332 - Due from other banks 1,326 428

Total interest and similar income 182,809 70,576

Interest and similar expense Customer deposits 31,095 17,700 Loans from banks and other financial institutions 3,090 2,931

Total interest and similar expense 34,185 20,631

Net interest income 148,624 49,945


Fee and commission income Cards activity (VISA & MC) 5,603 2,364

Non-cash transactions 7,327 1,505

Non-deferrable commissions related to loans (136) 2,205

Cash transactions 7,017 800

Income from other financial services 2,867 546

Issuing financial guarantees 50 147

Interbank settlements 1,605 137

Total fee and commission income 24,333 7,704

Fee and commission expense

Cards activity (VISA & MC) 3,912 1,967

Interbank settlements 874 864

Financial guarantees (221) 232

Other 1,145 569

Total fee and commission expense 5,710 3,632

Net fee and commission income 18,623 4,072





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Non-deferrable commissions related to loans represent fees and commissions that are not subject

of amortization according to the Effective Interest Rate methodology and consist mainly on fees

charged for services provided (administration fees) that are recognized in the period when they

were incurred, fees for credit commitments when the probability of disbursement is not certain,

fees charged for early repayments, etc. The Group has internal procedures that classifies all

commission types and specifies the accounting treatment to be applied for each class.

10. GAIN / (LOSS) FROM FINANCIAL ACTIVITIES

The Group recorded a net loss on financial derivatives during 2016 of RON 5,690 thousand (2015:

net loss RON 2,004 thousand), as presented below:

a) Gain /(loss) from financial assets held for trading:


Gains/(losses) from financial assets held for trading 7,486 -

Net trading income 7,486 -

b) Gain/ (losses) on financial derivatives:


Gains from financial derivatives 9,700 12,502

Losses from financial derivatives (15,390) (14,506)

Gain/ (losses) on financial derivatives (5,690) (2,004)

c) Gains/(losses) from disposals of investment securities available for sale:

Thousands RON 31 December 2016 31 December 2015 Gains from disposals of investment securities available-for-sale 21,670 5,723 Losses from disposals of investment securities of available-for-sale financial assets (4,440) (2,856)

Gains/(losses) from disposals of investment securities available for sale 17,230 2,867





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11. OTHER OPERATING INCOME


Dividend income 1,311 2,569

Other operating income 2,790 1,120 Gain / (Losses) from disposal of tangible assets sales 3,322 (509)

Total 7,423 3,180

Dividend income of RON 1,311 thousand (2015: RON 2,569 thousand) represents share of profits

paid proportionally to the participation of the Group, as follows:

- 1,057 Thousands RON, received from TRANSFOND SA

- 223 Thousands RON, received from GLOBINVEST SA

- 16 Thousands RON, received from BIROUL DE CREDIT SA

- 9 Thousands RON, received from VISA INCORPORATED

- 6 Thousands RON, received from BANCA TRANSILVANIA

12. NET IMPAIRMENT OF FINANCIAL ASSETS

Thousands RON 31 December 2016 31 December 2015 Net impairment of financial assets (77,345) (12,377) -Companies loans (62,990) (6,342) -Consumer loans (4,324) 491 -Individuals – entrepreneurs loans (4,548) (3,774) -Mortgage loans (5,248) (2,752) -State and municipal organizations (235) - Loans written off (1,931) (2,532) Recoveries from loans previously written off 14,907 8,097

Net impairment of financial assets (64,369) (6,812)

13. STAFF COSTS


Wages and salaries 68,164 29,105

Social security taxes 15,614 6,602 Net charge staff costs provision 6,672 1,153

Other staff expenses 396 299

Total 90,846 37,159





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Included in staff costs are the statutory pension contributions of RON 12,913 thousand (2015: RON

4,790 thousand). The value of RON 2,116 thousand recorded in 2016 year represent provision for

restructuring process and RON 1,997 thousand represent provision for employees’ retention.

The Group average number of employees at 31 December 2016 was 1,456 employees

(31 December 2015: 535 employees). The increase in number of staff is due to the new subsidiaries

included in Patria Group in 2016 year.

14. ADMINISTRATIVE AND OTHER OPERATING EXPENSES

Thousands RON 31 December 2016 31 December 2015 Third parties services 45,064 17,976 Rent 12,482 5,634 Materials and small inventories 3,614 2,233 Annual contribution to Guarantee Fund 1,079 2,005 Other taxes 6,221 1,271 Advertising and publicity 1,473 406 Net gain/(loss) on other assets 728 41 Net charge/(gain) on disposal of fixed assets 385 - Net charge/(recovery) on provisions for litigations (645) 278 Net charge/(recovery) on provisions with disposal of fixed and similar assets 293 - Other operating expense 5,688 799

Total 76,382 30,643

15. INCOME TAX EXPENSE

(a) Components of income tax expense / (benefit)

Income tax expense / (benefit) recorded in profit or loss for the year comprises the following:


Current tax expense /(credit) 711 -

Deferred tax 1,616 (5,696)

Net deferred tax 2,387 (5,696)





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(b) Reconciliation between the tax expense and profit or loss multiplied by

applicable tax rate

A reconciliation between the expected and the actual taxation charge is provided below.

(c) Tax loss carry forwards

A deferred tax debt has been recognized for carry-over of unused tax losses and unused tax credits to

the extent that it is probable that future taxable profit to be carried forward and available tax losses

and tax credits can be used in conjunction with this.

The Group has recognised a debt from deferred tax up to the level, of RON 15,616 thousand RON

(2015: RON 5,371 thousand). The Group has unrecognised potential deferred tax assets in respect of

unused tax loss carry forwards of RON 85,734 thousand (2015: RON 77,437 thousand).

Fiscal year loss:

- 2010 fiscal year loss of RON 233,169 thousands will expire in 2017








Loss before income tax (42,763) (15,411)

Theoretical tax charge (6,842) (2,466)

Tax effect of items which are not deductible

- Income which is exempt from taxation (17,180) (728)

- Non-deductible expenses 26,143 1,147

Recognised tax loss carry forwards 638 (4,142)

Other adjustments (372) 492

Income tax expense/(credit) for the year

2,387 (5,696)





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At the end of 2016, the Group has a total fiscal loss for 2010 – 2016 period of RON 716,118 thousands (at the end of 2015 year had RON 519,582 thousands). A deferred tax asset was recognized for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized (IAS 12.34).

(d) Deferred taxes analysed by type of temporary difference

Differences between IFRS and statutory taxation regulations in Romania give rise to temporary

differences between the carrying amount of assets and liabilities for financial reporting purposes and

their tax bases. The tax effect of the movements in these temporary differences is detailed below:

Thousands RON

1 January

2015

Charged

to profit

or loss

Charged to

comprehensive

income

31

December

2015

Tax effect of

deductible/(taxable)

temporary differences

Premises and equipment

(3,613) - (128)

(3,741)

Fair valuation of investment securities available for sale

- - (1,426)

(1,426)

Investments in associates (204) - -

(204)

Unused Fiscal Loss -

5,696 -

5,696

Deferred Tax

Assets/(liability) (3,817) 5,696 (1,554) 325





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Thousands RON 1 January 2016 Business

combinations

Charged to profit

or loss

Charged to comprehensive

income

Charged directly to

equity 31 December 2016

Tax effect of deductible/(taxable) temporary differences

Premises and equipment (3,741) (12,146) - 481 - (15,406)

Loan impairment provision 325 - (278) - - 47

Investments in associates (204) - - - - (204)

Fair valuation of investment securities available for sale

(1,426) (834) - 2,252 - (8)

Tax loss carry forwards 5,371 28,199 (1,681) - - 31,889

Purchase Price allocation adjustment - - - - 1,808 1,808

Other - 617 - - - 617

Net deferred tax asset/(liability) 325 15,836 (1,959) 2,733 1,808 18,743





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16. CASH AND CASH EQUIVALENTS

Thousands RON 31 December 2016 31 December 2015 Cash on hand 120,251 5,734 Cash in ATMs 21,094 12,046 Mandatory minimum reserve (i) 486,972 91,244 Correspondent accounts and sight deposits with other banks 48,159 93,509

Placements with other banks with original maturities of less than three months 28,870 20,001

Total 705,346 222,534

(i) The mandatory minimum reserve is maintained in accordance with Regulation no. 6/2002 issued by

the National Bank of Romania and the subsequent changes and amendments. According to this regulation,

the Group is required to maintain a minimum average balance of mandatory reserve throughout the

reporting period (monthly basis). The amounts from the mandatory reserve accounts are readily available

for the use of the group according to the liquidity needs and strategy, subject to achieving the minimum

reserve as an average for the reporting period.

As of 31 December 2016 the mandatory minimum reserve requirement was 8% (2015: 8%) for RON funds

attracted from customers and 10 % (2015: 14%) for foreign currency denominated funds attracted.

The interest rate granted by the National Bank of Romania for the current accounts in RON during 2016

ranged between 0.12% and 0.10% p.a. (2015 between 0.14% and 0.25% p.a.). For the current account in

EUR, the National Bank of Romania granted during 2016 an interest between 0.08% and 0.05 % p.a. (2015

between 0.09% and 0.25% p.a.). For the current account in USD, the National Bank of Romania granted

during 2016 an interest between 0.06 % and 0.07 % p.a. (2015 between 0.07% and 0.10% p.a.).

As of 31 December 2016 the amounts presented in the statement of financial position of cash and

equivalents and cash at Central Banks are neither past due no impaired.

In higher credit quality grade category of the Group's investments are included the credit institution with

the following ratings: AAA, AA+, AA, AA-, A+, A-, A, BBB+, BBB, BBB-. In lower credit quality grade

category of the Group's investments are included in the credit institution with the following ratings: BB+,

BB, BB-, B+, B, B-, CCC.

The credit quality analysis is performed by external institutions eligible for credit assessment (Fitch,

Moody's and Standard and Poor's) and is presented below:





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31 December 2016:

Thousands RON

Cash in hand and

ATM

Mandatory minimum

reserve

Correspondent accounts and

deposits at credit

institutions

Banks investment with initial

maturity up to 3 months Total

Current and unimpaired - Higher credit quality grade - 486,972 35,799 - 522,771 - Lower credit quality grade - - 2,354 - 2,354 - Unrated 141,345 - 10,006 28,870 180,221 Total 141,345 486,972 48,159 28,870 705,346

31 December 2015:

Thousands RON

Cash in hand

and ATM

Mandatory minimum

reserve

Correspondent accounts and

deposits at credit

institutions

Banks investment with initial

maturity up to 3 months Total

Current and unimpaired

- Higher credit quality grade - 91,244 65,192 - 156,436

- Lower credit quality grade - - 476 - 476

-Unrated 17,780 - 27,841 20,001 65,622

Total 17,780 91,244 93,509 20,001 222,534

Cash and cash equivalent aren’t guaranteed.





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17. DUE FROM OTHER BANKS

The deposits to banks presented above consist in collateral deposits for settlement amounts from

Visa and MasterCard related to cards’ activity

Analysis by credit quality of amounts outstanding at 31 December 2016 and 31 December 2015, is

as follows:

Interest rate analysis of Due from other banks is disclosed in Note 4.

18. FINANCIAL ASSETS AVAILABLE-FOR-SALE

Thousands RON

31 December 2016 31 December 2015 Debt securities available-for-sale Treasury bills issued by the Ministry of Public Finance of Romania (i)

1,165,518 360,803

Capital instruments available for sale Investments in unit funds (ii) 521 510 Visa (ii) 3,120 - Total 1,169,159 361,313 Equity investments, available-for-sale Equity investments (iii) 2,568 9,554 Total 2,568 9,554 Total financial assets available for sale 1,171,727 370,867


Placements with other banks with original maturities of more than three months: - Mastercard Collateral Deposits 6,030 830

- Visa Collateral Deposits 454 452

- Banca Transilvania SA Collateral Deposits 430 678

- Unicredit Tiriac Bank S.A. Collateral Deposits 25 -

Total 6,939 1,960

Thousands RON 31 December 2016 31 December 2015 Neither past due nor impaired - Higher credit quality grade 6,055 830 - Lower credit quality grade 430 678 - Unrated 454 452

Total neither past due nor impaired 6,939 1,960





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During 2016 or 2015, the Group has not made portfolio transfers between trading portfolio and the portfolio of financial assets available for sale.

i) Treasury bills are issued by the Ministry of Public Finance of Romania and includes listed

discounted treasury bills and bonds denominated in RON, EUR and USD.

ii) The Group held at 31 December 2016 investments in unit funds at Napoca Investments

Fund amounting to RON 238 thousand (31 December 2015: RON 221 thousand) and

TehnoGlobinvest Investments Fund amounting to RON 283 thousand (31 December 2015:

RON 289 thousand).

iii) The Group held the following equity investments available-for-sale at 31 December 2016

and at 31 December 2015:


Nature of business

Carrying amount

Effective holding %

Carrying amount

Effective holding %

Transfond SA Clearing house 1,404 5.69 640 2.65 Casa de Compensare Bucuresti Clearing house 21 3.13 13 0.04 Bursa Romana de Marfuri S.A.

Commodity stock exchange 42 0.29 42 0.29

Visa Payments industry - - 7,797 -

Globinvest Investments fund administrator 1,062 20.00 1,062 20.00

SWIFT 7 - - - Biroul de credit S.A. 32 0.32 - - Total equity investments 2,568 - 9,554 -

As announced Visa Europe Limited ("Visa Europe"), Visa Inc. 2 November 2015 Visa Inc. has

agreed to purchase Visa Europe, subject to receipt of approval under the regulatory framework. The

transaction finalized in the second quarter ("Q2") of 2016.

Given that Patria Bank SA is a principal member of Visa Europe, the Group was part of the deal. In

the acquisition of Visa Inc. and under the terms of the transaction agreement, the completion of the

transaction in Q2 2016 key members Visa Europe had received indemnity under current

conditions, a price in cash, preferred shares in Visa Inc., subject to suspensive conditions, and

additional payment guaranteed. On 21 December 2015 Bank Visa Europe announced indicative

share of its income from the sale of these shares. Consequently, on the basis of this communication,

on 31 December 2015, the Group reflected in the carrying value of the investment price received in

2016.

Analysis by credit quality of debt securities outstanding at 31 December 2016 are as follows:





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Thousands RON 31 December 2016

Treasury bills issued by the

Ministry of Public Finance of Romania


Participations available for

sale Total Neither past nor impaired - Higher credit quality grade 1,165,518 - - 1,165,518 - Unrated - 3,641 2,568 6,209

- Total 1,165,518 3,641 2,568 1,171,727

Analysis by credit quality of debt securities outstanding at 31 December 2015 is as follows:

Thousands RON 31 December 2015 Treasury bills

issued by the Ministry of Public

Finance of Romania


Participations available for

sale Total Neither past nor impaired - Higher credit quality grade 360,803 - - 360,803 - Unrated - 510 9,554 10,064

Total 360,803 510

9,554 370,867

The debt securities are not collateralized.

Interest rate analysis of investment securities available for sale is disclosed in Note 4.

The movements in investment securities available for sale are as follows:


Carrying amount at 1 January 1,549,621 489,854

Fair value gains less losses (2,907) 4,561

Interest income accrued 55,372 10,441

Interest income received (82,000) (25,411)

Purchases 3,042,084 418,468

Disposals of investment securities available for sale (3,390,443) (527,046)

Carrying amount at 31 December 1,171,727 370,867





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19. FINANCIAL ASSETS HELD FOR TRADING


Listed shares (i) 7,540 - Units Fund 844 - Debt instruments (ii) 106,793 -

Total 115,177 -

(i) The listed shares include shares listed at the Bucharest Stock Exchange;

(ii) Debt instruments include:

- bonds issued in RON, EUR and USD by banking and non-banking financial institutions;

- securities issued by the Romanian Government;

Analysis by credit quality of financial assets held for trading at 31 December 2016is as follows:


Listed

shares

Units Fund Debt instruments Total

Neither past nor impaired

- Higher credit quality grade - - 97,893 97,893

- Lower credit quality grade - - 8,242 8,242

- Unrated 7,540 844 658 9,042

Total 7,540 844 106,793 115,177

20. INVESTMENTS HELD TO MATURITY


Treasury bills issued by the Ministry of Public

Finance of Romania

109,860

-

Units Fund 106 -

Total 109,966 -

At 31 December 2015, the Group did not hold such financial investments.





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Analysis by credit quality of investments held to maturity at 31 December 2016 is as follows:

Thousands RON

Treasury bills issued by the Ministry of Public

Finance of Romania Unit funds Total Neither past nor impaired - Higher credit quality grade 109,860 - 109,860 - Lower credit quality grade - - - - Unrated - 106 106 Total 109,860 106 109,966

The investments held to maturity are not collateralized.

21. INVESTMENT IN ASSOCIATES

Entity name Nature of business 31 December 2016 31 December 2015

SC Delta Asigurari SA Insurance company 718 718

Total investment in associates 718 718

Impairment loss (718) (718)

Total - -

The Group holds a 35.09% investment in S.C. Delta Asigurari Generale SA, an insurance company

(2015: 35.09%). The shareholders of SC Delta Asigurari Generale S.A. decided to liquidate it

through Decision no. 7/2009, in accordance with Romanian legislation. In 2011, before the closing

of the voluntary liquidation procedure, Bucharest Court admitted the claim of Insurance

Supervisory Commission, based on article 33, paragraph 3 of Law 503/2004 and has opened

bankruptcy procedure against the debtor SC Delta Asigurari SA, procedure on going as of

December 31, 2015. As of 31 December 2016 the impairment amounts to RON 718 thousand (31

December 2015: RON 718 thousand) for the investment in its associate.





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The Group’s interests in its associates were as follows:


Name

%

ownership

interest

held

Place of

business

%

ownership

interest

held) Place of business

S.C. Delta Asigurari S.A. 35.09% Romania 35.09% Romania

No financial statements were available for Delta Asigurari S.A. at 2015 and 2016 year end, due to

the bankruptcy procedure in progress.

Investments in associates are initially recognized at cost at the time of acquisition and subsequently

are measured using the equity method to reflect the share of the Group's investment.

22. BUSINESS COMBINATION

The acquisitions was carried at fair value using the accounting acquisition in accordance with IFRS

3 and IAS 39.

A description of the process of acquisition of the three subsidiaries acquired in in 2016 and 2015 is

presented below:

1. The acquisition of the majority stake of SAI Patria Asset Management S.A.

(former Intercapital Investment Management S.A.)

In April 2016 Patria Bank purchased a total of 1,154,999 shares representing 99.99991342% of the

share capital and voting rights of SAI Intercapital Investment Management S.A., a joint stock

company licensed as a Romanian investment management company by the Financial Supervisory

Authority (FSA).

Patria Bank S.A. paid, by bank transfer, to the SAI Intercapital Investment Management S.A. RON

1,327,517.89 representing the price of 1,154,999 shares acquired by Patria Bank. The shares were

sold with all rights and interests that attach, or may in the future attach, to them.

This acquisition will enable the Bank to develop a platform for asset management to meet

customer needs for diversification of investments, essential element in the context of interest rates

decrease.





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2. The acquisition of the majority stake of Banca Comerciala Carpatica

In accordance with the decision of the Extraordinary General Meeting of Shareholders no. 6 /

25.01.2016, Patria Bank has acquired 64.16% stake in Banca Comerciala Carpatica, a local bank in

Romania listed under the symbol "BCC".

The transaction was carried out in three stages:

� On the 28 January 2016, purchase of a share package from shareholders group controlled

by Mr. Ilie Carabulea worth RON 23,128,800 representing 220,274,282 shares at a price

per share of RON 0.1050.

� In January 29, 2016 through a private placement subscription of all remaining shares not

subscribed. Patria Bank has subscribed a total of 986,663,916 new BCC shares issued at a

price of 0.1001 lei per share, conditioned by certain terms, totaling RON 98,765,058. After

the capital increase, the share capital of BCC is divided into 2,202,742,822, out of which

Patria Bank owns 1.206.938.198 (54.79%). On February 19, 2016 the Central Depository

had issued a statement proving Patria Bank’s ownership of the securities.

� In the takeover bid, that took place between 2 March and 22 March, Patria Bank had

purchased a total of 206,400,818 shares, amounting RON 21,672,086, representing 9.37%

ownership, thereby acquiring, according to Law no.297 / 2004 on capital markets, majority

voting (64.16%).

Patria Bank has obtained the necessary approvals from the National Bank of Romania, Financial

Supervisory Authority and the Competition Council regarding the economic concentration issues.

After the Initial Public offering, Patria Bank acquired control with a stake of 64.16%, representing

1,413,339,016 number of shares, with a total stake of RON 144,205,132 of which related charges

RON 639,188 acquisition process.





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Acquired Balance Sheet with Purchase Price Allocation (“PPA”) adjustments are presented below:

Thousands RON

For the net assets transferred (assets acquired less liabilities assumed) at their fair value, Patria

Bank paid the amount of RON 144,205 thousand.

Adjusted Balance Sheet 31 December 2016 PPA

Adjustments Adjusted TB

31 December 2016 Cash and cash equivalents 436,190 n/a 436,190 Due from other banks 113,142 n/a 113,142

Financial assets held for trading 56,774 n/a 56,774

Financial assets available for sale 1,111,319 n/a 1,111,319

Financial assets held to maturity 112,203 n/a 112,203

Equity investments 7,026 n/a 7,026

Loans and advances to customers 764,022 (25,493) 738,529

Tangible assets 131,817 n/a 131,817

Investment property 104,044 (24,239) 79,805

Intangibles assets 8,622 n/a 8,622

New intangible from core-deposits

13,478 13,478

Deferred tax assets 16,162 2,765 18,927

Other assets 97,278 (10,040) 87,238

Receivable form off-balance - 38,214 38,214

Total Assets 2,958,599 (5,314) 2,953,285

Due to other banks 5

5

Customer Deposits 2,651,345

2,651,345

Loans from banks and other financial institutions

61,230

61,230

Other Liabilities 40,389

40,389

Total Liabilities 2,752,970

2,752,970

Share capital 228,013

228,013

Accumulated loss 118,948

118,948

Revaluation reserve 69,376

69,376

Other reserves 27,187 5,314 21,873

Total equity 205,629 5,314 200,315

Total liabilities and equity 2,958,599 5,314 2,953,285





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Goodwill

The goodwill in amount of RON 15,683 thousand is presented below:


BCC’s Equity 200,315

Purchase Price 144,205

% ownership 64.16%

Own Equity held 129,646

Goodwill 14,559

On May 1, 2017, the merger by absorption between Banca Comerciala Carpatica SA (absorbent

entity) and Patria Bank SA (absorbed entity) was implemented, the two institutions becoming a

single Bank. From this date, the new bank changed its name from Banca Comerciala Carpatica SA

to Patria Bank SA.

3. The purchase of Patria Credit IFN SA

In 2015, Patria Bank acquired Patria Credit IFN SA, the largest non-bank microfinance company

operating in Romania. The business has been developed over the last 7 years, following the

takeover by 2 investments funds, the Romanian American Enterprise Fund – “RAEF” with 56% and

Balkan Accession Fund -“BAF” with 43%, managed by the same funds administrator. Patria Credit

IFN was lending working capital and investment micro-loans to small business, entrepreneurs and

small farmers, reaching a loan portfolio of EUR 65 million and over 12 thousand customers. The

business model developed led to a constant stream of annual profits of well over EUR 2 million in

2015, with a 3% ROA and 11% ROE.

In order to ensure arms-length basis for this transaction, each party employed external

valuators/consultants. The primary reason for this acquisition was to add 2 new business lines to

Patria Bank, the Micro and the Agro lending business lines, in order to diversify the commercial

activity enhance the productive asset base and boost Patria Bank’s revenue generation capability

much needed, after a period of 5 years since Patria Bank ceased its lending activity and registered

high losses.

In fact, 8 months after the business acquisition (May to December 2015), Patria Bank’s Net Interest

Income has increased 4 times (+291%) from RON 10,908 thousand to RON 42,691 thousand versus

the same period of the previous year. This has been the main driver for the Net Interest Income

increase of 230% in 2015 versus previous year. At the acquisition time, it was estimated that the

total capital requirement generated in Patria Bank through this transaction will be compensated in





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full in 12 months by the supplemental net income generated by the new lines of business. In 2016,

the portfolio transferred from Patria Credit IFN continued to have a positive yield regarding the

contribution to the net interest income of the Bank. The acquisition of the Patria Credit IFN was

performed in 2 phases, as follow:

Phase 1 – Business Transfer (“BTA”)

Patria Bank acquired first the business line, under a transaction called “business transfer”, implying

the transfer of: customer base, loan portfolio, fixed assets, other assets, partially funding from lenders

and other liabilities and the transfer of 19 branches and 197 employees, including the sales force.

Phase 1 BTA was closed:

� on 4 May 2015 for the amount of RON 234,226 thousand

� on 22 June 2015 for the amount of RON 13,679 thousand

Thousands RON 04-May-15 22-Jun-15 Total BTA

Assets transferred 279,240 13,679 292,919

Loans to customers 276,864 13,679 290,543

Intangible & tangible assets 1,896 - 1,896

Other assets 480 - 480

Liabilities assumed 45,014 - 45,014

Borrowings from IFIs 43,481 - 43,481

Other liabilities 1,533 - 1,533

Net Assets transferred at their fair

value 234,226 13,679 247,905

Off Balance Sheet items:

Loans commitments 962 332 1,294

Financial guarantees received 10,254 8,757 19,011

Collaterals for the loan portfolio 401,481 5,665 407,146

The business line acquisition was performed at fair value applying the accounting acquisition in

accordance with IFRS 3 and IAS 39.





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The purchase price for the business acquired (BTA) included the price for the loans portfolio, which

at the acquisition date was equal to its fair value of RON 290,543 thousand and for which:

(i) The gross contractual amount is RON 297,175 thousand at acquisition date

(ii) The best estimate at the acquisition date of the contractual cash flows not expected to be

collected is RON 23,950 thousand

For the Net Assets transferred (Assets acquired less Liabilities assumed) at their fair value, Patria

Bank paid a cash consideration of RON 252,325 thousand.

Thousands RON May+ June 2015

Purchase Price 252,325

Assets acquired 292,919

Liabilities assumed (45,014)

Net Assets Transferred at fair value 247,905

Goodwill 4,420

The goodwill in amount of RON 4,420 thousand is reflected in this financial statements due to the

fact that this business combination does not imply (in Phase 1 – BTA), the acquisition of a juridical

entity which organize the transferred activity.

The goodwill of this business combination is represented by:

- 10,561 active clients

- 197 employees

- 19 operational branches

- EUR 30 million new sales generation capability per year (of the acquired sales force).

Patria Bank tested for impairment the goodwill and no evidence of impairment was identified.

Following the Phase 1, Patria Credit IFN reduced its equity base by performing dividends

distribution to the former shareholders and share capital reduction up to the level of 1,000,008

RON, split into 29,412 registered shares with a nominal value of RON 34 per share.

Phase 2 – Shares Purchase (“SPA”)

On 1 October 2015, Patria Bank acquired Patria Credit IFN SA, purchasing 99.997% of Patria Credit

IFN SA’s shares against a consideration of 21,983 ,032 RON, representing 29,411 shares.





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Between Phase 1 (BTA on the 4 May 2015) and Phase 2 (SPA on the 1 October 2015) Patria Bank

did not exercised an effective control over Patria Credit IFN.

However, due to the fact that in accordance with the share purchase agreement between the BTA

date and the SPA date, the variable returns were flowing in the interest of Patria Bank, the control

was considered to be obtained at the moment of BTA, which was on the 4 May 2015. The

management estimates that the value of the acquired entity was significantly similar at both dates.

23. LOANS AND ADVANCES TO CUSTOMERS

The structure of the Group’s loan portfolio classified per main business line is as follows:


Corporate loans 801,003 288,198

Loans to individuals - consumer loans 141,812 40,016

Loans to individuals – entrepreneurs 128,861 143,417

Mortgage loans 160,206 139,910

State and municipal organizations 74,262 25,488

Less: Provision for loan impairment 69,954 62,512

Total loans and advances to customers 1,236,190 574,517





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Risk concentrations by economic sectors within the customer loan portfolio as at 31 December 2016

and 31 December 2015 were as follows: Thousands RON 31 December 2016 31 December 2015

Retail 306,773 181,128

Corporate customers: 925,128 430,413

Agriculture 255,691 180,663

Trade 205,592 80,477

Industry 214,268 40,703

Hotels and restaurants 47,057 36,526

Constructions 66,372 30,662

Transport 39,853 25,385

Professional Services 17,341 10,967

Services 30,614 9,853

Financial and real estate activities 38,051 5,915

Others 6,525 7,364

IT, research and development 3,764 1,898

Public Administration and Defence 74,243 25,488

Total loans and advances to customers before provisions 1,306,144 637,029

Less provision for impairment losses on loans

69,954 62,512

Total 1,236,190 574,517





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Movements in the Group’s provision for loan impairment during 2016 are as follows:

Thousands RON Corporate

loans Consumer

loans Individuals

entrepreneurs Mortgage

loans

State and municipal

organizations Total

Provision for customer loan impairment at 1 January 30,096 4,919 6,467 21,025 - 62,507 Provisions for loans and advances to customers Initial balance at the time of BCC acquisition 24,651 164 - 150 - 24,965 Charge of /(Recovery of) provision for impairment during the year 79,579 4,324 4,548 5,248 235 93,934

Loss on written-off loans (14,919) 13 111 717 -

(14,078) Loans written off during the year (79,761) (3,507) (4,248) (9,144) (347)

(97,007)

Foreign exchange differences 654 14 410 (1,465) 20 (367) Provision for customer loan impairment at 31 December 40,300 5,927 7,288 16,531 (92) 69,954

Movements in the Group’s provision for loan impairment during 2015 are as follows:

Thousands RON

Corporate loans

Consumer loans

Individuals entrepreneurs

Mortgage loans

State and municipal

organizations Total

Provision for customer loan impairment at 1 January 33,449 27,538 1 35,232 - 96,220 Provision for customer loan impairment opening balance Patria Credit IFN transfer 250 150 1,320 - - 1,720 Charge of /(Recovery of) provision for impairment during the year 6,342 (491) 3,774 2,752 - 12,377

Loss on written-off loans 1,877 51 4 600 - 2,532 Loans written off during the year (9,922) (22,596) (247) (18,031) -

(50,796)

Foreign exchange differences (1,899) 268 1,620 472 - 461 Provision for customer loan impairment at 31 December 30,097 4,920 6,472 21,025 - 62,514





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The provision for loans impairment during 2016 differs from the amount presented in profit or loss

for the year due to RON 10,059 thousand (2015: 8,815), representing amounts recovered from

loans previously written off as uncollectible. The recoveries from previously written-off loans were

credited directly to the provisions line in profit or loss for the year.

The Group holds collateral against loans and advances to customers in the form of mortgage

interests over land and buildings, property, inventory, insurance policies, financed assets that

represent objects of the loan agreements and other guarantees. Estimates of fair value are based on

the value of collateral assessed at the time of borrowing, and periodical updates on valuation of

collaterals.





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Information about Group collaterals at 31 December 2016 is as follows:

31 December 2016

Thousands RON

Corporate loans

Consumer loans

Individuals entrepreneurs Mortgage loans

State and municipal

organizations Total

Unsecured loans 82,914 96,665 55,109 7,098 23,455 265,241

Loans guaranteed by other parties, including credit insurance 78,733 - 3,832 10,150 5,800 98,515

Loans collateralized by: 639,356 45,147 69,920 142,958 45,007 942,388

- residential real estate 101,802 39,648 22,264 120,483 - 284,397

- other real estate 351,326 4,418 15,932 22,158 - 393,834

- cash collateral 14,893 925 9,851 241 - 25,910

- other assets 171,335 156 21,673 76 45,007 238,247 Total loans and advances to customers 801,003 141,812 128,861 160,206 74,262 1,306,144





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23. LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

Information about Group collaterals at 31 December 2015 is as follows:

31 December 2015


loans Consumer

loans Individuals


loans

State and municipal

organizations Total

Unsecured loans 24,795 39,913 66,094 7,481 25,488 163,771

Loans guaranteed by other parties, including credit insurance 16,249 - 1,595 1,252 - 19,096

Loans collateralized by: -

- residential real estate 72,926 25 25,192 105,761 - 203,904

- other real estate 103,865 - 12,101 23,188 - 139,154

- cash collateral 40,853 78 24,082 390 - 65,403

- other assets 29,510 - 14,353 1,838 - 45,701 Total loans and advances to customers 288,198 40,016 143,417 139,910 25,488 637,029





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The financial effect of collateral is presented by disclosing collateral values separately for (i) those assets where collateral and other credit

enhancements are equal to or exceed carrying value of the asset (“over-collateralised assets”) and (ii) those assets where collateral and other

credit enhancements are less than the carrying value of the asset (“under-collateralised assets”). The effect of Group collateral at 31 December 2016 and 31 December 2015:

31 December 2016 31 December 2015 Over-collateralized

assets Under-collateralized

assets Over-collateralized

assets Under-collateralized

assets Thousands RON

Carrying value

Fair value of

collateral Carrying

value Fair value of

collateral Carrying

value

Fair value of

collateral Carrying

value

Fair value of

collateral

Corporate loans 619,561 1,406,758 138,075 61,983 190,242 516,161 67,859 31,745

Individuals loans – consumer loans 44,098 117,397 91,725 77 78 489 35,017 228

Individuals loans – entrepreneurs 66,000 162,023 59,604 3,876 71,528 155,856 65,419 2,533

Mortgage loans 96,152 179,654 46,712 30,487 65,890 135,240 52,996 34,802

State and municipal organizations 50,601 503,414 23,662 206 - - 25,488 -

Total 876,412 2,369,246 359,778 96,629 327,738 807,746 246,779 69,308





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Analysis by credit quality of loans outstanding at 31 December 2016 and 31 December 2015 is as follows: 31 December 2016


loans Consumer

loans Individuals


loans

State and municipal

organizations Total Neither past due nor impaired - Without risk (Grade 1) 177,988 91,483 49,533 70,744 53,670 443,418 - Without recognizable risk (Grade 2) 219,402 23,611 20,914 14,081 - 278,008 - Acceptable risk (Grade 3) 73,159 3,117 12,690 1,776 - 90,742 - Still acceptable risk (Grade 4) 2,202 558 1,958 292 - 5,010 - Considerable risk (Grade 5) 8,619 4,513 12,877 14,164 - 40,173

Total neither past due nor impaired (gross) 481,370 123,282 97,972 101,057 53,670 857,351

Less impairment provisions 3,437 1,595 1,752 1,042 - 7,826 Total neither past due nor impaired (net) 477,933 121,687 96,220 100,015 53,670 849,525 Past due but not impaired - less than 30 days overdue 40,253 4,079 8,882 6,533 20,592 80,339 - 30 to 90 days overdue 10,267 1,709 988 5,434 - 18,398 - 91 to 180 days overdue 994 - 1,455 632 - 3,081 - 181 to 360 days overdue 289 - 65 48 - 402 - over 360 days overdue 1,861 83 542 286 - 2,772

Total past due but not impaired 53,664 5,871 11,932 12,933 20,592 104,992

Less impairment provisions 1,702 403 62 90 - 2,257

Total past due but not impaired (net) 51,962 5,468 11,870 12,843 20,592 102,735





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31 December 2016


loans Consumer

loans Individuals


loans

State and municipal

organizations Total Loans individually determined to be impaired - less than 30 days overdue 66,049 6,274 9,070 21,816 - 103,209 - 30 to 90 days overdue 20,087 2,139 3,047 9,582 - 34,855 - 91 to 180 days overdue 6,696 1,521 2,048 2,793 - 13,058 - 181 to 360 days overdue 12,516 573 831 2,306 - 16,226 - over 360 days overdue 160,621 2,152 3,961 9,719 - 176,453

Total individually impaired loans (gross) 265,969 12,659 18,957 46,216 - 343,801

Less impairment provisions 34,176 3,990 5,491 16,214 - 59,871 Total loans individually determined to be impaired (net) 231,793 8,669 13,466 30,002 - 283,930

Total gross loans and advances to customers 801,003 141,812 128,861 160,206 74,262 1,306,144 Total loan impairment provisions 39,315 5,988 7,305 17,346 - 69,954 Total net loans and advances to customers 761,688 135,824 121,556 142,860 74,262 1,236,190





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31 December 2015

Thousands RON

Corporate loans

Consumer loans


Mortgage loans

State and municipal

organizations Total

Neither past due nor impaired - Without risk (Grade 1) 19,248 24,769 76,436 43,688 21,022 185,163

- Without recognizable risk (Grade 2) 109,563 3,963 19,030 20,338 - 152,894

- Acceptable risk (Grade 3) 47,330 565 4,083 5,757 - 57,735

- Still acceptable risk (Grade 4) 301 65 1,724 117 - 2,207

- Considerable risk (Grade 5) 18,556 1,199 6,740 9,509 - 36,004

Total neither past due nor impaired (gross) 194,998 30,561 108,013 79,409 21,022 434,003

Less impairment provisions 341 147 448 445 - 1,381

Total neither past due nor impaired (net) 194,657 30,414 107,565 78,964 21,022 432,622

Past due but not impaired - less than 30 days overdue 26,327 - 9,762 5,168 4,005 45,262

- 30 to 90 days overdue 4,641 1 3,681 1,780 - 10,103

- 91 to 180 days overdue 1,429 4 558 94 - 2,085

- 181 to 360 days overdue 892 - 300 192 - 1,384

- over 360 days overdue 1,386 21 830 55 461 2,753

Total past due but not impaired 34,675 26 15,131 7,289 4,466 61,587

Less impairment provisions - - - - - -

Total past due but not impaired (net) 34,675 26 15,131 7,289 4,466 61,587





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31 December 2015

Thousands RON

Corporate loans

Consumer loans


Mortgage loans

State and municipal

organizations Total

Loans individually determined to be impaired - less than 30 days overdue 16,900 4,316 9,795 23,576 - 54,587

- 30 to 90 days overdue 4,307 1,399 4,890 9,175 - 19,771

- 91 to 180 days overdue 2,332 490 1,994 3,669 - 8,485

- 181 to 360 days overdue 1,766 606 1,133 944 - 4,449

- over 360 days overdue 33,220 2,618 2,461 15,848 - 54,147

Total individually impaired loans (gross) 58,525 9,429 20,273 53,212 - 141,439

Less impairment provisions 29,756 4,773 6,022 20,580 - 61,131

Total loans individually determined to be impaired (net)

28,769 4,656 14,251 32,632 - 80,308

Total gross loans and advances to customers 288,198 40,016 143,417 139,910 25,488 637,029

Total loan impairment provisions 30,097 4,920 6,470 21,025 - 62,512

Total net loans and advances to customers 258,101 35,096 136,947 118,885 25,488 574,517





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Individually impaired loans

Individually impaired loans and securities are loans and securities for which the Group determines that it is

probable that it will be unable to collect all principal and interest due according to the contractual terms of

the loan / securities agreement(s).

The loans are graded based on the financial performance of the client, grade 1 (”without risk”) being the

client with the best performance and grades 6 (“not permitted risk”) being the client with the worst financial

performance (i.e. in bankruptcy proceeding etc). The grades were determined considering the financial

position of the client as well as the current debt service at reporting date.

The loan portfolio includes 14 exposures towards local public administrations in amount of RON 23,455

thousand as of 31 December 2016 (11 exposures with RON 25,488 thousand as of 31 December 2015. The

Group presented this type of loans into neither past due nor individually impaired category.

Past due but not impaired loans

Past due but not impaired loans are those for which contractual interest or principal payments are past due,

but the Group believes that impairment is not appropriate on the basis of the level of security / collateral

available and / or the stage of collection of amounts owed to the Group.

In accordance with the instructions issued by the National Bank of Romania, during 2016 year, the Bank

performed write-off operations (for those companies that do not appear anymore in the Registry of

Commerce, for those that have incomplete credit documentation and for the companies for which juridical

procedures are impossible) for loans fully impaired, in amount of RON 122,300 thousands. (2015: RON

53,328 thousands).

Refer to Note 6 for the estimated fair value of each class of loans and advances to customers. Interest rate

analysis of loans and advances to customers is disclosed in Note 4. Information on related party balances is

disclosed in Note 37.

Restructured loans

The outstanding gross exposure as of 31 December 2016 for all the loans that underwent restructuring is

RON 209,645 thousand (31 December 2015: RON 84,843 thousand) and the net exposure is RON 192,602

thousand (31 December 2015: RON 60,672 thousand).





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24. INVESTMENT PROPERTY

a) Reconciliation of book value


Balance at January 1st 83,618 -

Asset sales (3,625) -

Reclassifications from other assets and tangible assets

(4,571)

-

Gain from revaluation of real estate investments 2,849

-

Balance at December 31st 78,271 -

During 2016, the rental incomes from real estate investments amounted 4,965 thousands RON. Direct

operating expenses (repair, maintenance, local taxes, etc.) from Investment property that generated rental

income during 2016 were in the amount of 2,644 thousands RON.

b) Fair value measurement

The fair value of real estate investments is based on an assessment carried out by expert assessors, members

of ANEVAR (National Association of Assessors of Romania). The fair value of the real estate investments is

presented on level 3 of the hierarchy of fair value. The following table presents a reconciliation between the

original and final balances for the fair value of the real estate investments:

The Group did not acquire Investment property using the financial leasing at December 31st, 2016 or at

December 31st, 2015.

c) The evaluation techniques for measuring the fair value of real estate investments and the dates of

entry used:

Evaluation techniques

- The evaluation of land (measuring a free land or where there is a construction, the six recognized

valuation methods - direct comparison, market extraction, allocation technique, residual

capitalization, direct rent / lease (rent), discounted cash flow analysis)





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- The income approach (by this method estimated the annual income to be generated by a property

converts to value by applying an appropriate rate of income. In this case, a capitalization rate was

used applied to gross income from estimated operations);

- The cost approach (The purpose of the cost approach is to determine the market value of the

property by estimating the cost of purchasing the land (the market value of the land) and building a

new property with the same utility or adapting an old property with the same use, without

considering related costs during the construction / adaptation. The cost of the land is added to the

total cost of construction. If necessary, usually in construction costs incentives / real estate

developer's profit are added.

Entry data

- Inventory lists with investments owned by the client;

- Documents and information taken from specialized staff from the owner regarding the history, the

repairs made, the rate of exploitation, degree of impairment, etc.

- Information taken from the location by the evaluator to inspect each objective;

- The evolution of the exchange rate published by BNR;

- Information regarding the local real estate market;

- Web Sites specialized in placing ads for selling/renting similar properties with the ones owned by the

company;

- The book "Reconstruction costs - replacement costs of industrial buildings, commercial and

agricultural, special construction" - Corneliu Schiopu, publisher IROVAL Bucharest 2010 - updated;

- Other necessary information available in the specialized literature;

- The evaluator’s data base.





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25. PROPERTY AND EQUIPMENT

31 December 2016

Thousands RON Land and buildings

Furniture and

equipment Means of transport

Assets in the course of

construction Total Cost Balance at 1 January 44,536 33,048 7,937 81 85,602 Balance at transfer date Banca Comerciala Carpatica

132,872

36,249

49

495

169,665

Balance at acquisition date Patria Asset Management SA - 11 5 - 16 Acquisitions 724 6,794 554 7,752 15,824 Revaluation (39) - - - (39) Transfer 295 55 - (350) - Outflows (1,347) (2,055) (216) (6,968) (10,586)

Balance at 31 December 177,041 74,100 8,329 1,009 260,479

Cumulative amortisation Balance at 1 January 5,768 27,699 7,295 - 40,762 Balance at acquisition date Banca Comerciala Carpatica 7,889 29,910 49 - 37,848 Balance at transfer date Patria Asset Management SA

- 9 5 - 14

Depreciation and amortization expense

5,398 3,386 369 - 9,153

Outflows (1,039) (1,727) (82) - (2,848)

Balance at 31 December 18,016 59,277 7,636 - 84,929

Net carrying amount

Balance at 1 January 38,768 5,349 642 81 44,840

Balance at 31 December 159,026 14,823 693 1,009 175,551





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31 December 2015

Thousands RON Land and buildings

Furniture and

equipment Means of transport

Assets in the course of

construction Total Cost Balance at 1 January 43,739 31,890 6,632 - 82,261 Balance at transfer date Patria Credit IFN 2,494 1,199 6,273 - 9,966 Acquisitions 2,282 958 731 691 4,662 - from activity combination 469 445 579 - 1,493 Revaluation 1,191 - - - 1,191 Transfer (1,703) (774) (4,986) - (7,463) Outflows (3,467) (225) (713) (610) (5,015)

Balance at 31 December 44,536 33,048 7,937 81 85,602

Cumulative amortisation

Balance at 1 January 6,339 25,611 6,484 - 38,434 Balance at transfer date Patria Credit IFN

1,871 831 5,386 - 8,088

Acquisitions (1,234) (503) (4,233) - (5,970) Depreciation and amortization expense

1,154 1,930 346 - 3,430

Outflows (2,362) (170) (688) - (3,220)

Balance at 31 December 5,768 27,699 7,295 - 40,762

Net carrying amount

Balance at 1 January 37,400 6,279 148 - 43,827

Balance at 31 December 38,768 5,349 642 81 44,840

Based on the analysis of the changes in the real estate market, the land and buildings have been revalued at

their fair value as of 31 December 2015, as per the IFRS 13 requirements. The valuation was carried out by an

independent valuator, City Property Management S.R.L - member of ANEVAR (National Association of

Certified Appraisers in Romania).





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The Group’s management considers that the value of land and buildings as at 31 December 2016 represents

an accurate estimation of their fair value at the reporting date.

The Group had no finance leases in 2016 and 2015.

Thousands RON 31 December 2016 31 December 2015 Premises at revalued amount in the statement of financial position

260,479 84,005

Revaluation reserve presented in equity, net of tax

(21,373) (22,314)

Deferred tax on revaluation (3,369) (3,741)

Premises at cost less accumulated depreciation

235,738 57,950

26. INTANGIBLE ASSETS (INCLUDING GOODWILL)


Goodwill 18,979 4,420

Other intangible assets 25,260 3,340

Total intangible assets 44,239 7,760

Thousands RON 31 December 2016 31 December 2015 Cost Balance at 1 January 19,194 8,224

Balance at transfer date Patria Credit IFN

- 4,752

Balance at transfer date Banca Comerciala Carpatica

22,543 -

Balance at transfer date Patria Asset Management SA

112 -

Acquisitions 4,634 992

- transfers from intangible assets in progress

730 5

Acquisition clients list from Patria Credit IFN

- 2,851

Acquisition clients list from BCC 13,478

Outflows (4) (1,164)

Transfer Patria Bank (881)

Goodwill 14,559 4,420

Balance at 31 December 74,516 19,194





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Cumulative amortisation

Balance at 1 January 11,434 7,869

Balance at transfer date

Patria Credit IFN - 4,163


Banca Comerciala Carpatica 13,913


Patria Asset Management SA 110

Depreciation and amortization expense 2,876 816

Amortisation expense - acquisition clients

list from Patria Credit IFN 343 229

Amortisation expense - acquisition clients

list from Banca Comerciala Carpatica 1,605 -

Transfer Patria Bank - (478)

Outflows (4) (1,165)


Net carrying amount

Balance at 1 January 7,760 355


27. OTHER FINANCIAL ASSETS


Amounts to be recovered from banks and

clients 7,207 2,358

Other financial assets 410 220

Other debtors 1,026 -

Provisions for impairment losses (6,664) (2,358)

Total net other financial assets 1,979 220





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Movements in the provision for other financial assets for 2016 are, as follows:

Thousands RON

Amounts to be

recovered from banks

and clients Total

Provision for impairment at 1 January 2016 2,358 2,358

Charge of provision for impairment during the year 4,289 4,289

Foreign exchange differences 17 17

Provision for impairment at 31 December

2016 6,664 6,664

Movements in the provision for other assets for 2015 are as follows:

Provision for impairment at 1 January 2015 4,280 4,280

Charge of provision for impairment during the year (135) (135)

Amounts written off (1,835) (1,835)

Foreign exchange differences 48 48

Provision for impairment at 31 December

2015

2,358 2,358





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Analysis by credit quality of Group's other financial assets outstanding at 31 December 2016 and 31 December 2015 is as follows:

31 December 2016 31 December 2015 Thousands RON Amounts to be

recovered from banks and

clients

Other financial

derivatives Sundry debtors Total

Amounts to be recovered

from banks and clients

Other financial

derivatives Sundry debtors Total

Neither past due nor impaired 241 169 1,026 1,436 - 220 - 220

Total neither past due nor impaired (net) 241 169 1,026 1,436 - 220 - 220

Impaired loans 7,207 - - 7,207 2,358 - - 2,358 Less provision for impairment 6,664 - - 6,664 2,358 - - 2,358

Total net impaired loans 543 - - 543 - - - -

Total other gross financial assets 7,448 169 1,026 8,643 2,358 220 - 2,578 Total provision for impairment 6,664 - - 6,664 2,358 - - 2,358

Total other net financial assets 784 169 1,026 1,979 - 220 - 220





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28. OTHER ASSETS (NON-FINANCIAL)

Thousands RON 31 December 2016 31 December 2015 Repossessed collateral 65,691 7,824 Sundry debtors 16,015 6,030 Other income to be received 98 2,012 Prepayments 2,442 913 Income tax expense 283 118 Other assets 20,886 376 Total other financial assets 105,415 17,273 Less provision for impairment 46,273 8,728 Total other assets 59,142 8,545

Impairment of repossessed collaterals in amount of RON 46,273 thousand related to RON 65,691

thousand repossessed collaterals (RON 1,324 thousand - repossessed assets from Law on Datio in

Solutum and RON 7,429 thousand – repossessed assets at fair value), for which the net value is

RON 3,018 thousand.

The repossessed / recovered guarantees represents the buildings purchased by the Group through

the process of implementing the outstanding receivables. The Group is expecting to sell them in the

near future. The assets don’t meet the definition of assets held for sale and are classed as stocks in

accordance with the provisions of IAS 2, Inventories. At the time of purchase they were recorded at

fair value. It is estimated that above all assets will be realized / collected in less than 12 months

from the end of the reporting year, except for pre-payments totalling RON 2,442 thousand (2015:

RON 880 thousand).

Movements in the provision for other assets are as follows:

Thousands RON

Provisions

for sundry

debtors

Repossessed

collaterals

Total

Provision for impairment at 1 January 2016 1,917 5,894 7,811

Opening balance for BCC at acquisition date 7,428 29,765 37,193

Charge/(Release) for the year 1,614 1,475 3,089

Amounts written off (1,917) 97 (1,820)

Provision for impairment at 31 December 2016 9,042 37,231 46,273

Provision for impairment at 1 January 2015 1,917 - 1,917

Opening balance for Patria Credit IFN at transfer date - 180 180

Transfer from assets available for sale - 5,463 5,463





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Charge/(Release) for the year - 251 251

Provision for impairment at 31 December 2015 1,917 5,894 7,811

29. DUE TO OTHER BANKS

Thousands RON 31 December 2016 31 December 2015 Current accounts 5 -

Sight deposits 30,001 -

Term deposits 2,648 -

Collateral deposits 454 452

Transitory amounts 8,915 3,875

Total 42,023 4,327

30. DEPOSITS FROM CUSTOMERS


Retail customers: Current accounts 229,402 45,138

Term deposits 2,251,854 355,326

Collateral deposits 6,267 552

Amounts in transit - 109

Corporate customers: Current accounts 271,005 99,145

Sight deposits 8,434 12,065

Term deposits 389,345 326,391

Collateral deposits 48,503 80,885

Amounts in transit 2,721 666

Total 3,207,531 920,277





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Economic sector concentrations within customer accounts are as follows:

Thousands RON


Amount (%) Amount (%)

Retail customers 2,487,524 77.55 401,125 43.59

Corporate customers 720,007 22.45 519,152 56.41

Financial and real estate activities

206,631 6.44 245,245 26.65

Industry 128,783 4.02 50,656 5.50

Others 68,428 2.13 93,361 10.14

Constructions 58,731 1.83 28,290 3.07

IT, research and development 19,401 0.60 25,763 2.80

Trade 75,152 2.34 20,540 2.23

Transport 38,090 1.19 7,833 0.85

Professional Services 31,992 1.00 14,915 1.62

Services 28,720 0.90 18,236 1.98

Agriculture 56,232 1.75 11,351 1.23

Hotels and restaurants 5,241 0.16 2,244 0.24

Public Administration and Defence

2,606 0.08 718 0.08

Total 3,207,531 100 920,277 100

31. LOANS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS


IBRD (International Bank for Reconstruction and Development (i) 8,902 965 FIDA (i) 147 233 IFC (ii) - 14,929 EIF (iii) - 14,620 EEAF FINANCIAL SERVICES BV (iv) - 22,627 EFSE - European Fund for Southeast Europe (v) 13,494 4,493 Responsibility Global Microfinance Fund (vi) 4,505 9,138 Oikocredit Ecumenical Development Cooperative Society UA (vii) 13,291 Fermierul (MARD)(viii) 70 European Investment Bank (ix) 6,814

Total 47,223 67,005





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(i) During 2005, the Group entered into two loan agreements with IBRD (International Bank for

Reconstruction and Development) and with IFAD (International Fund for Agricultural

Development).

In July 2008 the Group concluded a loan agreement with KfW for an amount of 4,000,000 EUR,

repayable in 2015.

(ii) International Finance Corporation

On 8 May 2015 was signed the Deed of Assumption between Patria Credit IFN SA, the Group and

International Finance Corporation, related to a Loan Agreement dated 16 October 2012 signed with

Patria Credit IFN SA. During 2016, the Bank made a repayment in amount of RON 7,320 thousand,

on the 15 March 2016. The final payment of this loan was made on 15 September 2016.

(iii) European Investment Fund

On 12 May 2015 was signed between EIF, the Bank and Patria Credit IFN an Amendment to the

Facility Agreement dated 16 May 2011 between the European Investment Fund and Patria Credit IFN

SA. Through this Amendment the Bank assumed Patria Credit IFN’s amended obligations under this

loan agreement.

During 2016, the Bank made a repayment in amount of 1,600,000 EUR, in 30 of March 2016. At the

31st May 2016, the outstanding amount was 1,600,000 RON. The final payment of this financing

agreement was made on 30 September 2016.

On 23 December 2016 was signed between European Investment Fund and the Bank a new senior

term loan facility in amount of 10,000,000 EUR with final maturity on 31 December 2026. As of 31

December 2016, the undrown facilities amount was 10,000,000 EUR. The final drawdown period of

this financing agreement is November 30, 2018.

(iv) EEAF FINANCIAL SERVICES BV

On 28 December 2015 the Bank signed a Loan Agreement with its majority shareholder, EEAF

Financial Services BV, for a senior debt of EUR 5,000,000 with final maturity on 27 November 2020.

By decision of the Extraordinary General Meeting of Shareholders No. 17 dated 05.12.2016 it was

approved the conversion of Patria Bank S.A. debt to EEAF Financial Services BV amounting to 5,000

thousand EUR, in shares Patria Bank S.A.





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On May 27, 2016 was signed between EEAF Financial Services BV (the majority shareholder of the

Bank), and Patria Bank SA, the addendum on the Loan Agreement. On May 30, 2016, the parties

agreeing that the loan will be repaid by converting it into shares Patria Bank SA, at the NBR exchange

rate EUR / RON valid at the subscription date, respectively 31 May 2016.

On May 30, 2016 National Bank of Romania approved the early repayment of subordinated loan and

the capital increase by conversions of the subordinated loan and the cash contribution of the

shareholders.

(v) European Fund for Southeast Europe

Starting 22nd December 2015, Patria Credit IFN SA has a total financing agreement of 9 mil RON

with the European Fund for Southeast Europe ("EFSE"), with a quarterly reimbursement and a 13

month grace period for the principal. In December 2015, Patria Credit IFN SA used 4,5 mil RON of

the EFSE facility. The difference of RON 4,500 Thousand was used in February 2016. This loan has

a variable ROBOR interest rate of 3 months plus the margin and is reimbursed in 8 equal instalments,

the final maturity being November 2018. In December 2016, Patria Credit IFN SA obtained a new

financing agreement from EFSE, amounting RON 4,5 Thousand which was fully drawn on 22

December 2016. The loan provides for quarterly repayments in 8 equal instalments, after a grace

period for the principal of 15 months, with a ROBOR variable interest rate of 3 months plus margins

and final maturity on 15th December 2019.

(vi) Responsibility Global Microfinance Fund

In 2016, Patria Credit IFN SA has obtained a new financing line from ResponsAbility Global

Microfinance amounting RON 4,450 thousand by signing two financing contracts with

MICROFINANCE LEADERS RESPONSABILITY (SICAV) for the amount of RON 2,225 thousand,

respectively RESPONSABILITY SICAV (LUX) FINANCIAL INCLUSION FUND, for the amount of

RON 2,225 thousand. Contracts include fixed interest and repayment in 2 equal annual instalments,

with final maturity in March 2018. The funding lines obtained from ResponsAbility Global

Microfinance in 2014, totalling Euro 2,000 thousand were fully reimbursed in 2016, In September

and November respectively.

(vii) Oikocredit Ecumenical Development Cooperative Society UA

In May 2016, Patria Credit IFN SA signed a loan agreement with the Oikocredit Ecumenical

Development Cooperative Society UA ("Oiko") in a total approved value of RON 13,300 thousand

over a 3-year period, with a grace period for the principal of 12 months. This loan has variable interest

rate of ROBOR 6 months plus margin. The entire amount was drawn in two tranches: first RON

4,400 thousand in May 2016 and the difference of RON 8,900 thousand was used in October 2016.





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(viii) On March 23th, 2006, the Bank signed with the Ministry of Agriculture and Rural

Development a working agreement in amount of RON 20 million for a period of 10 years. The funds

were aimed at funding the loans granted by BCC to economic operators for financing investments

in agriculture. On June 12th, 2007, the Bank concluded with MADR an addendum by which the

amount of the loan was supplemented with RON 10 million. The agreement is in force with the final

maturity date on October 22nd, 2016.

On August 27th, 2008, the Bank signed with the Ministry of Agriculture and Rural Development a

working agreement in amount of RON 124,344 million for a period of 10 years. The funds are aimed

at funding the loans granted by BCC to economic operators for financing investments in

agriculture, for co-financing of eligible investment projects through FEADR and FEP, provided in

Annex 1 of MADR Order no. 102 of 17 February 2009, as further amended and supplemented. The

funds were not drawn due to lack of legal framework which had to be developed by the Ministry of

Agriculture and Rural Development. The agreement is in force with final maturity date on August

27th, 2018.

On August 27th, 2008, the Bank signed with the Ministry of Agriculture and Rural Development a

working agreement in amount of RON 19,822 million for a period of 10 years. The funds are aimed

at funding the loans granted by BCC to economic operators for financing investments in

agriculture, for co-financing of investment projects which do not benefit from funding from

European funds or the state budget, which comply with the levels provided in Annex 2 of MADR

Order no. 102 of 17 February 2009, as further amended and supplemented. The funds were drawn

in part. The agreement is in force with final maturity date on August 27th, 2018.

On 29th June, 2009, the Group signed with the European Bank for Investments an open rate

financing agreement in amount of EUR 10 million. The funds are aimed at funding small and

medium-sized enterprises. The financing agreement is secured by a Pledge Agreement which on

February 07, 2013, was amended by the Addendum no. 1 (including EU sovereign bonds with rating

below BBB-, in order to allow the Romanian state securities to be included among the eligible

financing instruments). The agreement is in force with the final maturity on December 21st, 2017.

As at 31 December 2016 the guarantees set by the Group based on the clauses included in the

agreements mentioned above consist of:

- European Investment Bank, eligible bonds (nominal value /fair value) 22,706/ 25,730 th RON

(Romanian 2018 bonds, ISIN XS0371163600)

At 31st December 2015 the guarantees placed by the Group based on the clauses stipulated by the

above mentioned agreements consisted in:





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- The European Investment Bank, for the financing contract consisted of eligible bonds (nominal

value/fair value) 44,566/ 52,249 th RON (Romanian bonds, 2018, ISIN XS0371163600 – 22,623/

26,756 th RON, Romanian bonds, 2019, ISIN XS0852474336 – 21,944/ 25,492 th RON).

All the loans from international financial institutions and the loan from the major shareholder are

unsecured credit facilities, arranged under negative pledge, pari passu clauses. According to each

loan agreement, the Group shall all time comply with a set of financial undertakings (covenants).

Compliance with covenants

The Group is subject to certain covenants primarily relating to its borrowings, as described above.

Non-compliance with such covenants may result in negative consequences such as declaration of

default. Group was in compliance with covenants at 31 December 2016 (31 December 2015) and over

the periods.

32. OTHER FINANCIAL LIABILITIES

Other financial liabilities comprise other financial and non-financial liabilities, as follows:


Financial liabilities to owners of fund

units 91,346 - Provision for for credit commitments and financial guarantees 2,733 91

Other financial liabilities 2,097 1,298

Total other financial liabilities 96,176 1,389

The Group classified the fund units issued by FDI Carpatica Stock, Global Carpathian FDI and

Carpathian FDI Bonds as financial liabilities.

33. OTHER LIABILITIES

Other financial liabilities comprise other financial and non-financial liabilities, as follows:





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Other liabilities 19,018 5,956

Provision for staff cost 10,065 2,805

Provision for litigations 2,437 1,795

State budget debts 3,397 1,558

Other income to be received 383 28

Settlement accounts (factoring) - 3,812

Other liabilities 35,300 15,954

Provision related to credit commitments represents specific provisions created for losses incurred on

financial guarantees and commitments to extend credit to borrowers whose financial conditions

deteriorated.

The fair value of each class of other financial liabilities is disclosed in Note 6.

Staff costs provision relates to accruals for untaken holidays, restructuring, performance bonus and

the related payroll taxes.

Movements in the staff costs provision is as follows:


Balance at 1 January 2,805 952

Initial Patria IFN balance at transfer time - 991

Initial BCC balance at transfer time 1,424 -

Provision release (5,049) (2,495)

Additional charge 10,885 3,357


For 2016 year, in the management by objectives program PBK accrued the value of RON 677

thousand for performance bonuses to be awarded to eligible employees based on their individual

performance.

34. SUBORDINATED DEBT





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The Group subordinated debt to its majority shareholder EEAF Financial Services BV amounts

19,754 thousand (2015: 0 thousand) and has a maturity of 5 years and a margin of 440 bp plus

three -month EURIBOR.

35. SHARE CAPITAL

In 2016 the Group's share capital recorded the following changes:

- decrease of share capital with the amount of RON 102,669,756.41 (from RON

260,623,227.81 to RON 157,953,471.40) by reducing the nominal value of the share from 0.33 RON

to 0.20 RON, in order to reduce the accumulated losses;

- increase of share capital with the amount of RON 36,576,036 (from RON 157,953,471.40 to

RON 194,529,507.40) by converting subordinated loan in the amount of EUR 5,000,000

corresponding to RON 22,519,500 RON and by cash contribution of RON 14,056,536 from the

majority shareholder EEAF Financial Services BV.

Thousands RON 31 December 2016 31 December 2015 Total share capital as per Trade Registry 194,530 260,623 Hyperinflation effect until 31 December 2003 4,688 7,728

Share capital in accordance with IFRS 199,218 268,351

The Group’s main shareholders at 31 December 2016 and 31 December 2015 are:


Number of

shares (%) Number of

shares (%) Shareholder’s name EEAF Financial Services B.V. 960,205,470 98.72 777,329,481 98.43 Companies state owned 1,274,832 0.13 1,274,832 0.16 Companies privately owned 1,570,828 0.16 1,570,828 0.20 Individuals 9,596,407 0.99 9,592,216 1.21 Total 972,647,537 100.00 789,767,357 100.00

The Group's share capital at 31 December 2016 is:





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31 December 2016

Number of shares

Nominal value/share (RON)

Share capital (RON)

Shareholder’s name

EEAF Financial Services B.V. 960,205,470 0.20 192,041,094

Companies state owned 1,274,832 0.20 254,966

Companies privately owned 1,570,828 0.20 314,166

Individuals 9,596,407 0.20 1,919,281

Total 972,647,537 0.20 194,529,507 The Group share capital at 31 December 2015 is:

31 December 2015

Number of

shares Nominal value/share

(RON) Share capital

(RON)

Shareholder’s name EEAF Financial Services B.V. 777,329,481 0.33 256,518,729

Companies state owned 1,274,832 0.33 420,695

Companies privately owned 1,570,828 0.33 518,373

Individuals 9,592,216 0.33 3,165,431

Total 789,767,357 0.33 260,623,228

36. RESERVES

The movements in the revaluation reserve for properties were the following:


Revaluation reserve from assets available-for-sale (2,934) 7,487

Revaluation reserve for tangible assets 21,373 22,314

Statutory legal reserve 23,243 23,503

Reserves for general banking risks 11,683 11,683

Other Reserves 30,51 30,291

Total 83,916 95,278





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The movements in the revaluation reserve from assets available for sale were the following:

Thousands RON

Total gross Deferred tax Total net

Balance at 1 January 2016 8,913 (1,426) 7,487 Net (losses) from changes in fair value, reclassified to profit or loss (15,435) 2,470 (12,965)

Gain / (Loss) recognized in year 3,029 (485) 2,544

Balance at 31 December 2016 (3,493) 560 (2,934)

Balance at 1 January 2015 6,162 - 6,162

Net (losses) from changes in fair value (2,537) - (2,537) Net (losses)/gain from changes in fair value related to sales, reclassified to profit or loss (2,507) - (2,507) Net gain from changes in fair value VISA, recognized in year 7,795 (1,426) 6,369

Balance at 31 December 2015 8,913 (1,426) 7,487 This note shows the movements in the reserves of premise& land sales follows:

Thousands RON Total gross Deferred tax Total net

Balance at 1 January 2016 26,055 (3,741) 22,314

Realized revaluation reserve (34) - (34)

Net result from revaluation (40) 177 137

Transfer between components (1,239) 195 (1,044)

Balance at 31 December 2016 24,742 (3,369) 21,373

Balance at 1 January 2015 24,864 (3,613) 21,251

Realized revaluation reserve - - -

Net result from revaluation 1,191 (128) 1,063

Balance at 31 December 2015 26,055 (3,741) 22,314





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Statutory legal reserves

Statutory reserves represent accumulated transfers from retained earnings in accordance with

relevant local regulations. These reserves are not distributable. Local legislation requires 5% of the

Bank’s and its subsidiaries net statutory profit to be transferred to a non-distributable statutory

reserve until such time this reserve represents 20% of the statutory share capital.

Reserves for general banking risks include amounts set aside in accordance with the Banking

legislation and are separately disclosed as appropriations of statutory profit. These reserves are not

distributable. According to the Romanian legislation in force the reserves for general banking risks

were set aside starting with 2004 financial year until the end of the 2006 financial year.

37. RELATED PARTY TRANSACTIONS

Parties are generally considered to be related if the parties are under common control, or one party

has the ability to control the other party or can exercise significant influence over the other party in

making financial or operational decisions. In considering each possible related party relationship,

attention is directed to the substance of the relationship, not merely the legal form.

The Group entered into a number of transactions with its related parties in the normal course of

business. These transactions were carried out in the normal course of business on commercial

terms and conditions and at market rates.

The Group performed related party transactions during year ended 31 December 2016 with EEAF

Financial Services B.V. (immediate parent), the members of the Board of Directors, the members of

the Executive Management and Group’s employees that hold key-functions and during the year

ended 31 December 2016.

EEAF Financial Services B.V.(EEAFSBV) is owned and fully controlled by Emerging Europe

Accesion Fund Cooperatief UA.





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The Group's income and expense items with related parties are, for 2016, as follows:

31 December 2016

Thousands RON Immediate parent

company Key personnel

Other related

parties

Interest and similar income - 29 17

Interest and similar expense 443 41 4

Fee and commission income - 1 1

Foreign exchange rate gains less

losses (2) - -

Other operating expenses - 11 -

Dividends income - - 1,311

Dividend income of RON 1,311 thousand (2015: RON 2,569 thousand) represents share of profits

paid proportionally to the participation of the Group, as follows:

- 1,057 Thousands RON, received from TRANSFOND SA

- 223 Thousands RON, received from GLOBINVEST SA

- 16 Thousands RON, received from BIROUL DE CREDIT SA

- 9 Thousands RON, received from VISA INCORPORATED

- 6 Thousands RON, received from BANCA TRANSILVANIA

The Group's income and expense items with related parties are, for 2015, as follows:

31 December 2015 Thousands RON

Immediate parent company

Key personnel Other related

parties

Interest and similar income - 1 3 Interest and similar expense 5 14 37 Fee and commission income - 1 1 Other operating expenses 280 - - Dividends income - - 156





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Group's key management compensation is presented below:

31 December 2016 31 December 2015 Thousands RON

Expense Accrued liability Expense

Accrued liability

Short-term benefits: - Salaries 8,003 - 5,002 -

- Short-term bonuses 267 - - -

- Benefits 14 - 6 -

Total 8,284 - 5,008 -





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The outstanding balances and summary of transactions with related parties were as follows:


Thousands RON Immediate

parent

Key management

personnel

Other related parties

Immediate parent

Key management

personnel Other related

parties Asset

Financial assets available for sale

- - 1,583 - - 1,572


- 642 92 - 43 110 Liabilities

Deposits from customers

44 3,593 4,649 - 1,119 5,030 Loan and advances from bank and other financial institutions

- - - 22,627 - -

Subordinated debt 19,754 - - - - -

Commitments - 37 - - 37 -





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38. COMMITMENTS AND CONTINGENCIES

Credit related commitments

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

required. Guarantees and standby letters of credit, which represent irrevocable assurances that the

Group will make payments in the event that a customer cannot meet its obligations to third parties,

carry the same credit risk as loans. Documentary and commercial letters of credit, which are

written undertakings by the Group under specific terms and conditions, are collateralised by the

underlying shipments of goods to which they relate or cash deposits and, therefore, carry less risk

than a direct borrowing.

Commitments to extend credit represent unused portions of authorisations to extend credit in the

form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend

credit, the Group is potentially exposed to loss in an amount equal to the total unused

commitments, if the unused amounts were to be drawn down. However, the likely amount of loss is

less than the total unused commitments since most commitments to extend credit are contingent

upon customers maintaining specific credit standards. The Group monitors the term to maturity of

credit related commitments, because longer-term commitments generally have a greater degree of

credit risk than shorter-term commitments.

Outstanding loan commitments have a commitment period that does not extend beyond the

normal underwriting and settlement period.

The Group provides also letter of guarantees and letters of credit on behalf of the customers. The

contractual amounts of commitments and contingent liabilities are set out in the following table by

category. Many of the contingent liabilities and commitments expire without being funded in

whole or in part, therefore, the amounts do not represent expected future cash flows.

The amounts reflected in the table as commitments assume that amounts are fully advanced. The

amounts reflected in the table as guarantees and letters of credit represent the maximum

accounting loss that would be recognized at the balance sheet date if counterparties failed

completely to perform as contracted.

Thousands RON 31 December 2016 31 December 2015 Letter of guarantees 13,445 3,580 Loan commitments 223,184 39,914

Total commitments and contingencies 236.629 43,494





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The provisions for credit commitments and financial guarantees is RON 2,733 thousand (2015: RON

91 thousand). Operating lease commitments - Group as lessee a) The Group concluded rental agreements for commercial premises. The future value of the minimum operating leasing operations is presented in the table below:

Thousands RON 31 December 2016 31 December 2015 Not later than 1 year 9,800 5,306 Later than 1 year and not later than 5 years 28,974 11,392 More than 5 years 6,926 -

Total operating lease commitments 45,700 16,698

b) The Group has under development operating leasing contracts for car rental. The future value of the minimum operating leasing operations is presented in the table below:

Thousands RON 31 December 2016 31 December 2015 Not later than 1 year 1,752 - Later than 1 year and not later than 5 years 1,360 - Total operating lease commitments 3,112 -

Operating lease commitments - Group as lessor

The Bank concluded rental agreements for commercial premises. The future value of the minimum revenues from operating leasing is presented in the table below:

Thousands RON 31 December 2016 31 December 2015 Not later than 1 year 2,573 - Later than 1 year and not later than 5 years 2,241 - More than 5 years 137 - Total operating lease commitments 4,951 -





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Unused amounts loans related

On the 13rd of January 2009, PBK, as borrower, concluded with MKB Bank Zrt., (the parent bank at

that time), a Stand-by credit facility. The initial facility amount was EUR 60 million and MKB act as

a lender of ultimately instance used for provide liquidity in the event of a liquidity crisis. The

amount was reduced several times, depending on the PBK level of activity, until the 10th of January

2014, when the amount facility reaching EUR 7.5 million. On the 30th of April 2014 the stand-by

facility was replaced by a renewable guaranteed line, totalling EUR 7.5 million (or the same

purpose as the previous facility) with final maturity on the 31st of January 2016. In December 2014,

the facility amount was reduced to EUR 6.32 million and is required from PBK to bring guarantees,

only if the facility is used. This renewable facility has not been used by until the 31th of December

2015 and it expired on 31st of January 2016. As a result, PBK replaced this facility with a special

reserve of liquid assets (government bonds), which will be used in case of a liquidity crisis.

At the time this financial statements were prepared the stand-by credit facility was not renewed.

Transfer pricing

Romanian tax legislation includes the arm's length principle according to which transactions

between related parties should be carried out at market value. Local taxpayers engaged in related

party transactions have to prepare and make available upon the written request of the Romanian

Tax Authorities their transfer pricing documentation file.

Failure to present the transfer pricing documentation file, or presenting an incomplete file, may

lead to non-compliance penalties; additionally, notwithstanding the contents of the transfer pricing

documentation, the tax authorities may interpret the facts and transactions differently from

management and impose additional tax liabilities resulting from transfer price adjustments.

Despite the fact that the tax authorities might challenge the implementation of the transfer pricing

requirements by the Group, the Group’s management believes that the Company will not suffer

losses in case of a fiscal inspection on the subject of transfer prices.

However, the impact of any change of the tax authorities can’t be estimated reliably. It may be

significant for the financial situation and / or the overall operations of the entity.

Litigations

At 31 December 2016, the provision for litigation, in which the Group is involved as defendant is in

amount of RON 2,421 thousand (31 December 2015: RON 1,795 thousand).

The management of the Group considers that they will have no material adverse effect on the

results and the financial position.





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The provision for litigations can be further analysed as follows:


Balance at 1 January 1,795 1,502

Initial Patria IFN balance at transfer time - 14

Initial BCC balance at transfer time 1,264 -

Effect of foreign exchange differences 7 1

Charge for the year 1,286 504

Release for the year (2,008) (226)


Provisions for litigations are made mainly for disputes that concern the actions of borrower’s

private individuals, by requesting cancellation of clauses deemed unfair in credit agreements.

Of the total provision for litigations of 1,079 thousand RON from PBK, the highest amount: RON

276 thousand refers to the following case:

- as a result of one fraud case, detected in lending activity in the period from November 2006

to June 2007, a criminal record was brought to the Court, against a company’s employees

and 3 former employees of the subsidiary PBK. Initially, PBK suspended their labour

contracts, according to the national labour code. For one of the former employees, the

Court found that the defendant is not guilty, and BCC paid the compensation amount,

corresponding to the period of its contract has been suspended.

For the other two former BCC’s employees, the period for which they could be held responsible.

- The Bank maintains the provisions related to any claim which may be raised by these two

employees.

In the course of 2016 were cancelled litigation provisions amounting to RON 1,006 thousand,

which relates to the following cases resolved favourably to PBK.

Contingent debt towards minority shareholders

In the context of the merger process between Patria Bank and Banca Comerciala Carpatica, it was

published on the 4th of October 2016 „The procedure for the exit of Banca Carpatica’s shareholders

in the context of the merger with Patria Bank” according to which any shareholder who: (a) did not

vote in favour of the merger in the General Shareholders Meeting („GSM”) from the 05th of

October 2016, respectively (i) voted against the merger, (ii) has refrained from voting or (iii) was





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not present, either in person, or through representative or through mail voting, at the GSM and (b)

was a shareholder of Banca Carpatica both as of the reference date (26 September 2016), and as of

30th of December 2016, could opt to exit the shareholding of Banca Carpatica during the opting

period between 5th of October 2016 and 7th of November 2016.

According to the above mentioned Exit procedure, three of the minority shareholders of Banca

Carpatica exercised their exit right for a number of 414,699,946 shares, representing 18.83% of

Banca Carpatica’s share capital as of the balance sheet date (pre-merger). Banca Carpatica will have

an obligation to buy its own shares from the mentioned minority shareholders at a price of 0.0896

RON/share (totalling RON 37,157,115.17) which in fact represents a distribution of capital to its

minority shareholders, only if the merger takes place and only if, as per the art. 151b of NBR

Regulation 6/2008, and as per the art.78 of the EU Regulation 575/2013 and as per the art.1262 of

the Emergency Ordinance 99/2006, such a capital distribution gets prior approval from the

National Bank of Romania.

According to the above mentioned Exit procedure, two of the minority shareholders of Patria Bank

exercised their exit right for a number of 303,758 shares, representing 0.0003% of Patria Bank

share capital as of the balance sheet date (pre-merger). The merged bank will have an obligation to

buy its own shares from the mentioned minority shareholders at a price of RON 0.2702 for each

share issued by the absorbed bank (representing the withdrawal price for

each share issued by the absorbed bank, which was changed on 3.0566 shares issued by the

absorbing bank (BCC) in a total amount of RON 82,075.41 which in fact represents a distribution of

capital to its minority shareholders, only if the merger takes place and only if, as per the art. 151b of

NBR Regulation 6/2008, and as per the art.78 of the EU Regulation 575/2013 and as per the

art.1262 of the Emergency Ordinance 99/2006, such a capital distribution gets prior approval from

the National Bank of Romania.

The price of 0.0896 RON/share set for the BCC’ buying obligation was determined by an

independent valuator, appointed by a judge in the Trade Registry as per the requirements of

Companies Law (Law 31/1990) at the two bank’s request.

Patria Bank resulted from the merger, as the legal successor of both banks involved in the merger,

took over the redemption obligations mentioned above of both banks involved in the merger, under

the conditions specified in the Withdrawal Procedures applicable to the shareholders of each, the

total amount of the withdrawal rights being the sum of the two values explained above:

RON 37,157,115.17 + RON 82,075.41 = RON 37,239,190.58.

In the event that the 414,699,946 shares, representing 18.83% of the share capital of Banca

Comerciala Carpatica, for which the exit rights have been exercised, would still be available for





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Banca Comerciala Carpatica to purchase after the completion of the merger, the financial impact of

such a purchase for the Bank and the Group would amount to RON 37,157,115.16 and the own funds

of the Banca Comerciala Carpatica and the Group would be reduced with the same amount. This is

a contingent liability of the Banca Comerciala Carpatica and the Group and its recognition as a

liability in the future is contingent to the cumulative realisation of the following two conditions,

independent from the Banca Comerciala Carpatica’s or the Group’s actions:

• merger completion as described in note 44;

• National Bank of Romania’s prior approval for the own shares purchase by BCC after the

merger, according to the regulatory framework applicable to credit institutions, of which,

as mentioned under point 6 in the Merger Project approved, includes the article 151b of the

NBR Regulation 6/2008, the article 78 of the EU Regulation 575/2013 and the article 1262

of the Emergency Ordinance 99/2006 regarding credit institutions.

39. SUBSEQUENT EVENTS

� Implementation of the Merger on 1st of May 2017

Following the decision of the Bucharest Court of Appeal dated 21 April 2017, which established the

legality of the decisions of the General Shareholders' Meetings regarding the approval of the merger

it was ordered the registration of the corresponding notes on the Trade Register, on 1 May 2017, the

merger by absorption between Banca Comerciala Carpatica SA (absorbent entity) and Patria Bank

SA (absorbed entity) was implemented, the two institutions becoming a single bank. From this

date, the new bank changed its name from Banca Comerciala Carpatica SA to Patria Bank SA.

According to the decision of the General Shareholders Meeting, the decision regarding the change

of the name of the absorbing company from Banca Comerciala Carpatica to Patria Bank was

implemented as at the date of the merger.

Subsequently, on July 2017, the new Merged Bank, Patria Bank changed the stock exchange symbol

of trading shares from "BCC" to "PBK".

Also, as a legal successor of former Banca Comerciala Carpatica, the new Merged Bank will

continue to be listed to Bucharest Exchange Stock, its shares being quoted on Premium Category.

On June 21, 2017, the Board of Directors of the Bank adopted the decision to change the Bank's

registered office, based on the powers delegated by the General Shareholders Meeting. Thus, the

new operational headquarters of the Bank are located in Pipera Road no. 42, Globalworth Plaza

Building, 7th, 8th and 10th, Sector 2, Bucharest, while the Bank's registered office is located in 31,

Ion Brezoianu Street, 1st floor, 2 floor and mansard, District 1, Bucharest.





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� Reduction of the Share capital to cover the accumulated losses from BCC

During the Extraordinary General Shareholders Meeting held on 28 July 2017, it was approved the

Board of Directors proposal to reduce the new Bank's share capital by RON 149,118,190, from RON

376,239,912.30 to RON 227,121,731.30, by cancelling of 1,491,181,900 shares having a nominal

value of RON 0.1. The reduction of the share capital is made for the partial coverage of the

accumulated losses of Banca Comerciala Carpatica prior to the merger and already registered as at

31 December 2016 in the amount of RON 149,118,190.

� Changes in the members of the Board of Directors and Directors Committee

On 18 April 2017, Mr. Bogdan Neacsu was appointed by the Board of Directors of Banca Comerciala

Carpatica as Executive Director of the Risk Division; starting 01 May 2017 the position was changed

to Deputy General Manager, Risk Division, member of the Management Committee. On 6 July

2017, the Group was notified by the National Bank of Romania regarding the prior approval of Mr.

Bogdan Neacsu on this position.

On 27 April 2017 the General Shareholders Meeting of Banca Comerciala Carpatica SA, appointed

Mr. Vasile Iuga as member of the Board of Directors, subsequently Mr. Iuga being designated as

independent member of the Board of Directors, as per General Shareholders Meeting decision

dated 28 July 2017.