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CREDIT AGRICOLE BANKA SRBIJA AD NOVI SAD CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

CREDIT AGRICOLE BANK SRBIJA AD NOVI SAD

This version of the consolidated financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and

opinions, the original language version of the documents takes precedence over this translation

CONTENT

Page

INDEPENDENT AUDITORS' REPORT 1

CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2014 2

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2014 3

CONSOLIDATED BALANCE SHEET as at 31 December 2014 4

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2014 5

CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2014 6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2014 7 - 97

Ernst & Young d.o.o. BeogradŠpanskih boraca 3 11070 Beograd

Tel: +381 11 2095 800 Fax: +381 11 2095 890 ey.com/rs

This is an English translation of the Report originally issued in Serbian language

(For management purposes only) INDEPENDENT AUDITORS’ REPORT TO THE OWNERS OF CREDIT AGRICOLE BANKA SRBIJA A.D. NOVI SAD Report on Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Credit Agricole Banka Srbija a.d. Novi Sad and its subsidiary (hereinafter: the Group), which comprise the consolidated balance sheet as at 31 December 2014, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2014, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

A member firm of Ernst & Young Global Limited

Report on other legal and regulatory requirements We have reviewed the annual business report of the Group. Management is responsible for the preparation of the annual business report in accordance with the legal requirements of the Republic of Serbia. Our responsibility is to assess whether the annual business report is consistent with the annual consolidated financial statements for the same financial year. Our work regarding the annual business report has been restricted to assessing whether the accounting information presented in the annual business report is consistent with the annual consolidated financial statements and did not include reviewing other information contained in the annual business report originating from non-audited financial or other records. In our opinion, the accounting information presented in the annual business report is consistent, in all material respects, with the consolidated financial statements of the Group for the year ended 31 December 2014. Belgrade, 16 April 2015 Stephen Fish Draško Popović Ernst & Young d.o.o. Beograd Authorised Auditor

CREDIT AGRICOLE BANKA SRBIJA AD NOVI SAD

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2014

7 This version of the consolidated financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care

has been taken to ensure that the translation is accurate representation of the original. However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation

1. GENERAL INFORMATION The Financial Reports present consolidated financial Reports of Credit Agricole Banka Serbia AD Novi Sad and her related party CA Leasing DOO Beograd (hereinafter referred to as The Group).

Credit Agricole Banka AD Novi Sad (hereinafter referred to as The Bank) was established on 15 August 1991 under the name of Yuco - Bank AD Novi Sad, in accordance with the Founding Act and the National Bank of Serbia Decision dated 19 February 1992. The Bank was registered with the Commercial Court in Novi Sad on 3 March 1992. As of 20 September 2001 the Bank has been operating under the name of Meridian Bank A.D. Novi Sad in accordance with the Commercial Court of Novi Sad Decision No. Fi. 2766/07. As of 13 March 2006, by the Republic of Serbia Business Registers Agency's Decision No. 110567-2006, the Bank changed its name into Meridian Bank - Credit Agricole Group Akcionarsko drustvo Novi Sad and its short form into MEBA- CA GROUP AD, NOVI SAD.

Based on Decision No. BD 137033/2009 made by the BRA on 04.09.2009, the Bank changed its name from MERIDIAN BANK - CREDIT AGRICOLE GROUP into CREDIT AGRICOLE BANKA SRBIJA. The Bank's full business name reads: CREDIT AGRICOLE BANKA SRBIJA AKCIONARSKO DRUSTVO NOVI SAD, BRACE RIBNIKARA 4-6.

Through the sale of the eighteenth issue of shares that took place in June 2005 the Bank became part of Credit Agricole S.A. Paris, one of the largest bank groups in Europe. As of 31 December 2014 Credit Agricole S.A. Paris owns 100% shares.

CA Leasing doo Belgrade

Company CA Leasing Serbia doo (hereinafter “the Company”) was incorporated as Meridian Leasing doo Belgrade, by the Decision on the establishment of the Company by the Meridian bank – Credit Agricole group a.d Novi Sad on the Shareholders Assembly of Meridian Bank – Credit Agricole group on 10th April 2007.

Company obtained a license from the National Bank of Serbia, No. 8725 of 12.07.2007. Granting the approval for the decision of the Shareholders Assembly of Credit Agricole Bank Serbia ad Novi Sad on the establishment of Company.

Establishment of the Company is registered at Agency for Business Registers under the number BD 78002/2007 form 20th of July 2007. Registered, subscribed and paid capital is 1.000.000, 00 EUR In dinar equivalent.

During the year 2009 Meridian Bank – Credit Agricole Group a.d Novi Sad changed its name to Credit Agricole Banka a.d Novi Sad.

By the decision of the Shareholders Assembly the Company changed its name to CA Leasing Serbia d.o.o on the 23rd Marc 2011. The change of the name is registered at the Agency for Business Registers.

In accordance with the Law on Banks, the Bank's Founding Act and its Articles of Association, the Bank is registered to perform the following activities:

1. Deposit activities (accepting and placing deposits);

2. Credit activities (lending and borrowing arrangements);

3. Foreign exchange, foreign exchange-currency transactions and exchange operations;

4. Activities relating to payment operations;

5. Issuing payment cards;

6. Activities relating to securities (issuing securities, custody bank activities etc.);

7. Brokerage-dealership activities;

8. Issuing guaranties, sureties and other types of warranties (guarantee operations);

9. Purchase, sale and collection of receivables (factoring, forfeiting, etc.);

10. Insurance agency activities, previously approved by the National Bank of Serbia;

11. Activities for which it is authorized by law; 12. Other activities that are by nature similar or connected to the activities specified in items 1 to 11 of this

paragraph and are in compliance with the Funding Act and the Articles of Association of the Bank.





1. GENERAL INFORMATION (continue)

The bodies of the Bank are: The Bank's Assembly, the Board of Directors, the Executive Board and other committees of the Bank.

The Bank establishes a Committee for monitoring business activities of the Bank (Audit Committee), the Benefits and Compensation Committee, the Credit Committee, the Committee for Managing Assets and Liabilities, as well as a special unit called Risk Management.

The Chairman and the members of the Board of Directors are appointed for a term of four years, having previously obtained approval of the National Bank of Serbia. The Board of Directors appoints and dismisses from duty the President and the members of the Executive Board of the Bank.

The Bank operates through its Head Office located in Novi Sad, at 4-6 Brace Ribnikara street and a network of 82 branches located in major cities throughout Serbia (31 December 2013 - 81 branches), and for leasing operates through Head Office located in Belgrade, Milentija Popovica 5A street and two branches, Branch CA Leasing Novi Sad and Branch CA Leasing Cacak.

As of 31 December 2014 the Group had 937 employees (31 December 2013 - 935 employees). The Bank's tax payer identification number is 101697525. The Bank's unique identification number is 08277931.

The consolidated financial statement of the Group for the year ended 31 December 2014 was adopted by the Managing Board at the meeting held on 16 April 2015.





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Preparation and Presentation of the Financial

The consolidated financial statements of the Group for 2014 have been prepared in accordance with International Financial Reporting Standards (IFRS) and the regulations of the National Bank of Serbia governing the financial reporting of banks. The consolidated financial statements have been prepared in accordance with the requirements of the Decision on Contents and Format of the Financial Statements Forms for Banks (Official Gazette of the Republic of Serbia 71/2014 and 135/2014).

These financial statements are present consolidated financial statements of the Group.

Bank as the parent entity of the Group is prepared and presented separate financial statements.

The accompanying consolidated financial statements have been prepared on a historical cost basis, except for the following items that are measured at fair value: securities available for sale, derivatives, other financial assets and liabilities held for trading, financial assets and liabilities at fair value through profit or loss and share payments based on cash.

The amounts in the accompanying consolidated financial statements of the Group are presented in thousands of Serbian dinars, except when otherwise indicated. Serbian dinar (RSD) represents the Group’s functional and reporting currency. All the transactions in other currencies are treated as foreign currency transactions. The consolidated financial statements have been prepared on the going concern basis, which assumes that the Group will continue to operate for an indefinite period in the foreseeable future.

Basis for consolidation

Consolidated financial statements include financial statements of the Group and its subsidiary on which Group has control. Control exists if the Group has the power to manage subsidiary’s financial and business policies and on those bases to obtain benefit from its activities. Consolidation with subsidiary begins when the Group obtains control over the subsidiary and ends when the Group loses the control. Assets, liabilities, income and expenses from the subsidiary that are acquired or estranged over the year are involved in consolidated financial statements from the moment when the Group obtained control over the subsidiary. Subsidiary’s financial reports, if necessary, are adjusted to harmonize their accounting policies with those used by the Bank as a parent company within the Group. All transactions, balances, income and expenses within the Group are eliminated on consolidation.

2.2. First-time adoption of IFRS

The consolidated financial statements for the year ended 31 December 2014 are the first the Group has prepared in accordance with International Financial Reporting Standards.

In order to prepare the consolidated financial statements in accordance with IFRS and to comply with the newly issued regulations of the National Bank of Serbia, the Group has:

Prepared and presented an opening balance sheet in accordance with IFRS as at 1 January 2013.

Assessed that no restatement to previously reported amounts of equity as at 1 January 2013 and 31 December 2013 and net income/loss for the year ended 31 December 2013 are required to comply with the requirements of IFRS. The estimates on 1 January 2013 and 31 December 2013 are consistent with those made for the same dates in accordance with previously applied regulations.

Changed the presentation of its Balance Sheet and Income Statement to those previously required and presented a Statement of Comprehensive Income. The difference between the total assets in these financial statements and the previously reported total assets as at 1 January 2013 and 31 December 2013 were RSD 299.523 thousand and RSD 287.838 thousand respectively and relate to unamortized deferred loan origination fees. Such fees are presented within the underlying instrument and were previously reported under liabilities.





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.2. First-time adoption of IFRS

Group has changed the presentation of the Statement of Cash Flows. Cash and cash equivalents included in the Statement of Cash Flows are disclosed in Note 36.

2.3. New and amended standards and interpretations

The following new and amended IFRSs are effective from 1 January 2014:

IAS 32 Financial Instruments: Presentation (Amended) - Offsetting Financial Assets and Financial Liabilities

IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements

IAS 27 Separate Financial Statements (amended)

IFRS 12 Disclosures of Interests in Other Entities

IAS 39 Financial Instruments (Amended): Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Accounting

IAS 36 Impairment of Assets (Amended) – Recoverable Amount Disclosures for Non-Financial Assets

IFRIC Interpretation 21: Levies

The impact of adoption of standards or interpretations on financial statements is presented below.

IAS 32 Financial Instruments: Presentation (Amended) - Offsetting Financial Assets and Financial Liabilities

These amendments clarify the meaning of “currently has a legally enforceable right to set-off”. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The effect of applying the amendments did not have an impact on the financial position and performance of the Group.

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements and must be applied retrospectively, subject to certain transition relief. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact on the Group.

IAS 39 Financial Instruments (Amended): Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Accounting

Under the amendment there would be no need to discontinue hedge accounting if a hedging derivative was notated, provided certain criteria are met. The IASB made a narrow-scope amendment to IAS 39 to permit the continuation of hedge accounting in certain circumstances in which the counterparty to a hedging instrument changes in order to achieve clearing for that instrument. The effect of this amendment does not have impact on financial position and performance of the Group.

IAS 36 Impairment of Assets (Amended) – Recoverable Amount Disclosures for Non-Financial Assets

These amendments remove the unintended consequences of IFRS 13 on the disclosures required under IAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or CGUs for which impairment loss has been recognized or reversed during the period. The effect of this amendment does not have impact on financial position and performance of the Group.





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3. New and amended standards and interpretations (continued)

IFRIC Interpretation 21: Levies The Interpretations Committee was asked to consider how an entity should account for liabilities to pay levies imposed by governments, other than income taxes, in its financial statements. This Interpretation is an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating event). The Interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. This interpretation does not have effect on financial performance of the Group.

2.4. Standards issued, not yet effective

IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception (Amendments) The amendments address issues arising in practice in the application of the investment entities consolidation exception. The amendments are effective for annual periods beginning on or after 1 January 2016. The amendments clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Finally, the amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries.

IAS 16 Property, Plant & Equipment and IAS 38 Intangible assets (Amendment): Clarification of Acceptable Methods of Depreciation and Amortization The amendment is effective for annual periods beginning on or after 1 January 2016. This amendment clarifies the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, the ratio of revenue generated to total revenue expected to be generated cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. It is not expected that the amendments will have impact on financial statements of the Group.

IAS 19 Employee benefits (Amended): Employee Contributions The amendment is effective for annual periods beginning on or after 1 July 2014. The amendment applies to contributions from employees or third parties to defined benefit plans. The objective of the amendment is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. It is not expected that the amendments will have impact on financial statements of the Group.

IFRS 9 Financial Instruments – Classification and measurement The standard is applied for annual periods beginning on or after 1 January 2018 with early adoption permitted. The final phase of IFRS 9 reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. The Group currently assesses the impact of this standard on financial statements.





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.4. Standards issued, not yet effective (continued)

IFRS 11 Joint arrangements (Amendment): Accounting for Acquisitions of Interests in Joint Operations

The amendment is effective for annual periods beginning on or after 1 January 2016. IFRS 11 addresses the accounting for interests in joint ventures and joint operations. The amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business in accordance with IFRS and specifies the appropriate accounting treatment for such acquisitions. It is not expected that the amendments will have impact on financial statements of the Group.

IFRS 14 Regulatory Deferral Accounts

The standard is effective for annual periods beginning on or after 1 January 2016. The IASB has a project to consider the broad issues of rate regulation and plans to publish a Discussion Paper on this subject in 2014. Pending the outcome of this comprehensive Rate-regulated Activities project, the IASB decided to develop IFRS 14 as an interim measure. IFRS 14 permits first-time adopters to continue to recognize 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 recognize 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. The Group currently assesses the impact of this standard on financial statements.

IFRS 15 Revenue from Contracts with Customers

The standard is effective for annual periods beginning on or after 1 January 2017. IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard’s requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity’s ordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset and liability account balances between periods and key judgments and estimates. The Group currently assesses the impact of this standard on financial statements.

IAS 27 Separate Financial Statements (amended)

The amendment is effective from 1 January 2016. This amendment will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements and will help some jurisdictions move to IFRS for separate financial statements, reducing compliance costs without reducing the information available to investors. The Group currently assesses the impact of this standard on financial statements.

Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be effective from annual periods commencing on or after 1 January 2016. It is not expected that the amendments will have impact on financial statements of the Group.





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.4. Standards issued, not yet effective (continued)

IAS 1: Disclosure Initiative (Amendment)

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

Annual Improvements to IFRSs 2010 – 2012 Cycle The IASB has issued Annual Improvements to IFRSs 2010 – 2012 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 July 2014.

IFRS 2 Share-based Payment: This improvement amends the definitions of 'vesting condition' and 'market condition' and adds definitions for 'performance condition' and 'service condition' (which were previously part of the definition of 'vesting condition').

IFRS 3 Business combinations: This improvement clarifies that contingent consideration in a business acquisition that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of IFRS 9 Financial Instruments.

IFRS 8 Operating Segments: This improvement requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments and clarifies that an entity shall only provide reconciliations of the total of the reportable segments' assets to the entity's assets if the segment assets are reported regularly.

IFRS 13 Fair Value Measurement: This improvement in the Basis of Conclusion of IFRS 13 clarifies that issuing IFRS 13 and amending IFRS 9 and IAS 39 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting if the effect of not discounting is immaterial.

IAS 16 Property Plant & Equipment: The amendment clarifies that when an item of property, plant and equipment is revalued, the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount.

IAS 24 Related Party Disclosures: The amendment clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity.

IAS 38 Intangible Assets: The amendment clarifies that when an intangible asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount.

Annual Improvements to IFRSs 2011 – 2013 Cycle

The IASB has issued Annual Improvements to IFRSs 2011 – 2013 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 July 2014.

IFRS 1 First-time adoption of IFRS: This improvement clarifies that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but that permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first IFRS financial statements.





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.4. Standards issued, not yet effective (continued)

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

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

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

Annual Improvements to IFRSs 2012 – 2014 Cycle

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

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

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

IAS 19 Employee Benefits: The amendment clarifies that market depth of high quality corporate bonds is

assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used.

IAS 34 Interim Financial Reporting: The amendment clarifies that the required interim disclosures must

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

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Functional and reporting currency The amounts in the accompanying consolidated financial statements of the Group are presented in thousands of Serbian dinars, except when otherwise indicated. Serbian dinar (RSD) represents the Group’s functional and reporting currency. All the transactions in other currencies are treated as foreign currency transactions. 3.2. Foreign currency translation Items included in the consolidated financial statements of the Group are measured using the currency of the primary economic environment in which the Group operates (the 'functional currency'). The consolidated financial statements are presented in Serbian dinars (RSD) which is the functional and reporting currency of the Group. Foreign currency transactions are translated into RSD using the interbank middle exchange rate prevailing at the date of transaction. Foreign exchange gains and losses arising from foreign currency transactions and translations of foreign currency items included in the balance sheet are credited or charged to the Income statement within the position “net foreign exchange gains/losses and foreign currency clause effects“. Foreign exchange rate determined in the interbank market applied on the balance sheet items translation as at 31 December 2014, 31 December 2013 and 1 January 2013 is given below:

31.12.2014 31.12.2013 01.01.2013

EUR 120,9583 114,6421 113,7183 USD 99,4641 83,1282 86,1763 CHF 100,5472 93,5472 94,1922 3.3. Interest income and expense Interest income and expense, including penalty interest and other income and expenses related to interest-bearing financial instruments, are recognized in accordance with the accrual accounting and terms and conditions contracted between the Group and the client. For all financial instruments measured at amortized cost and interest bearing financial instruments classified as available–for–sale, interest income or expense is recorded using the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The 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. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.4. Fee and commission income and expense Fee and commission income and expense from rendering and using bank services are recognized on accrual basis at the time when the service is provided. Fee and commission mainly comprise fees for payment operations services, issued guarantees and other banking services. 3.5. Dividend income Dividend income is recognized when the Group’s right on dividend income is acknowledged. 3.6. Financial Instruments Initial recognition of financial instruments Financial instruments are initially recognized at fair value plus transaction costs (other than financial assets and liabilities, which are measured at fair value through profit and loss), which are directly attributable to the acquisition or issuance of a financial asset or liability. Financial assets and financial liabilities are recognized in the Group's Balance Sheet when the Group contractually commits to purchase or sell the instrument. Regular purchases and sales of financial assets are recognized at the settlement - the date when the asset is delivered to the other contracting party. Subsequent measurement of financial instruments Subsequent measurement of financial instruments depends on their classification (Note 3.7). De-recognition of financial assets and financial liabilities Financial assets A financial asset (or part of a financial asset or group of financial assets) shall be derecognized if: • the contractual rights to the cash flows from the financial asset expire; or • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to

pay the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and

• Either the Group has transferred substantially all the risks and rewards of the asset, or the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass–through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.6. Financial Instruments (continued) Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de recognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss. 3.7 Classification of financial instruments The Group’s management determines the classification of its investments at initial recognition. Classification of financial instruments upon initial recognition depends on the purposes for which financial instruments have been obtained and their characteristics. The Group classifies its financial assets into the following categories: loans and receivables, securities available for sale, securities held to maturity and financial assets at fair value through profit and loss. The subsequent measurement of financial assets depends on their classification as follows: a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and advances to banks and customers approved by the Group are recognized in the Group's balance sheet as of the moment the funds have been transferred to the loan beneficiary. All loans and borrowings are initially recognized at fair value. After initial recognition, loans and borrowings are subsequently measured at amortized cost using the agreed interest rate, less allowance for impairment. At the balance sheet day, loans are valued at amortized cost using the effective interest rate, less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition, as well as fees that are integral part of the contractual interest rate. Amortization is included in interest income in the profit and loss statement. Impairment losses are recognized within „Impairment losses on financial assets (net) in the profit and loss statement. Group and the customer sign a contract that protects the Group from foreign currency changes. Loans in RSD, which are hedged by binding to the exchange rate in relation to the EUR or USD, are revalued in accordance with the contract signed for each loan. The difference between the carrying amount and the amount calculated by applying the currency clause is within loans and deposits. Currency clause is an embedded derivative that is not accounted for separately from the host contract, with respect to the economic characteristics and risks of the embedded derivative are closely related to the host contract. Gains and losses arising from such revaluation are recognized in the income statement as gains and losses from changes in assets and liabilities.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial Instruments (continued) b) Securities available for sale Securities which are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices, are classified as "securities available for sale". After initial recognition, available-for-sale securities are carried at fair value. The fair value of the securities to be listed is based on current bid prices. Unrealized gains and losses on securities available for sale are recognized in the revaluation reserve, until the security is sold, collected or otherwise realized, or until the security is impaired. When securities available-for-sale are disposed of or when they are impaired, the accumulated fair value adjustments recognized in equity are recorded in the income statement. Income on debt securities is recognized in the profit and loss statement within the interest income using the effective interest rate method. Equity investments that are not quoted in an active market and whose value cannot be reliably measured are exempted from recognition at market value and are stated at cost, less any allowance for impairment. Dividend income from securities available for sale is included in other operating income and shares in equity when the right on their payment is acknowledged. In the case of shares in equity and other available-for-sale securities, the Group assesses on an individual basis whether there is objective evidence of impairment. In the case of equity instruments available-for-sale, objective evidence shall be considered as „significant" or "prolonged" decline in the fair value of an equity instrument below its cost. If there is evidence of impairment, the cumulative loss measured as the difference between the purchase value and the current fair value, less any impairment losses previously recognized in the income statement, is transferred from equity to the income statement. The allowances for impairments of shares in equity are not recognized in income statement, but the increase in fair value, after previously recognized impairment, is directly recognized in equity. Allowances for impairments of shares in equity that are not quoted in an active market and whose value cannot be reliably measured are estimated as the difference between the investments' carrying amount and the present value of expected future cash flows, and recognized in the income statement and not abated until the asset is derecognized.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial Instruments (continued) c) Held to maturity securities Held–to–maturity securities are non–derivative financial assets with fixed or determinable payments and fixed maturities, which the Group has the intention and ability to hold to maturity. After initial measurement, held–to–maturity financial investments are subsequently measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition. The related interest income is recognized using the EIR method in the income statement as Interest income. The Group performs individual assessment in order to determine whether there is objective evidence on impairment of the investment into securities held-to-maturity. If there are objective evidence that such securities have been impaired, the amount of impairment loss for investments held to maturity is calculated as the difference between the investments' carrying amount and the present value of expected future cash flows discounted at the investment's original effective interest rate and stated in the income statement as impairment losses on financial assets. If, in a subsequent year, the amount of the estimated impairment loss decreases as a consequence of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced and effects are credited to the income statement. d) Financial assets at fair value through profit and loss

This category comprises financial assets held–for–trading and those designated at fair value through profit or loss. Financial assets are classified in this category if they are acquired for the purpose of selling or repurchasing in the near term, to realize gain on short-term changes in prices. Trading securities are stated in the balance sheet at fair value. All realized gains and unrealized losses arising upon measurement and sale of financial assets at fair value are stated in the Income statement. In the ordinary course of business the Group concludes the contracts on financial derivatives in order to manage the currency risk, liquidity risk and interest risk, so these instruments are primary held for trading. Currency forwards (forward buying and selling of foreign currency) are classified as financial instruments held-for-trading. This is financial derivative recorded in the statement of financial position at fair value, Changes in fair value are recorded in income statement as revenue or expense.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial Instruments (continued) d) Financial assets at fair value through profit and loss (continued) Initially currency forwards are recognized at their cost, due to the fact that in Serbia there is no active market for derivatives, but their value adjusts to market value at the end of each month, and the effect of changes in fair value recorded in the income statement as positive (increase in the fair value) or negative (decrease in the fair value) unrealized foreign exchange differences. Also, the positive fair value of derivatives is presented as means and negative fair value of derivatives as a liability in the balance sheet. The methodology applied by the Group to determine the fair value of derivatives is consistent with the generally accepted methodologies in the market and to the greatest extent possible incorporate market factors (the official middle exchange rate, interest rates). Performance of contractual rights and obligations under derivative, i.e. the exchange of contractual cash flows cease its recognition in the balance sheet and income statement. The net effect of exchange rate differences in the time recorded against exchange rate differentials, and all previously recognized fair value and its changes in unrealized foreign exchange differences are reversed. As at 31 December 2014 the Group did not have the financial derivatives in its portfolio. Impairment of financial investments In accordance with its internal policy, the Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a borrower or group of borrowers are experiencing significant financial difficulty, default or delinquency in interest or principal payments, probability that the borrower will enter bankruptcy or other financial reorganization, observable data indicating that there is a measurable decrease in the estimated cash flows, including movements in unsettled liabilities or economic conditions that correlate with defaults on the terms contracted. When assessing impairment of loans and advances to banks and customers measured at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial Instruments (continued) d) Financial assets at fair value through profit and loss (continued) Impairment of financial investments If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is recognized are not included in the collective assessment of impairment. Following are considered as objective evidence of impairment by the Group:

• Significant financial difficulties experienced by the borrower • Breach of contract/loan covenants or conditions, default or delinquency in contractual payments of principal or interest • Granting, for economic or legal reasons relating to the borrower's financial difficulty, an otherwise unlikely concession to the borrower • A growing likelihood that the borrower will enter bankruptcy or reorganization • The elimination of an active market for the asset because of financial difficulties • Observable data regarding a measurable decrease in the estimated future cash flow from a group of financial assets since their initial recognition, even if the decrease cannot yet be identified with the individual financial assets in the group, including adverse changes in the payment status of the borrowers in the group or national or local economic indicators that correlate with defaults on the assets in the group.

If objective evidence of impairment exists, the amount of loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at original effective interest rate for that financial asset. If there is variable interest rate, the current effective interest rate is used. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. Methodology and assumptions used for future cash flows estimation are monitored and corrected yearly in order to reflect the real assessment of credit risk and lower the difference between the estimated and actual loss amounts. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the impairment loss on loans and receivables, as well as other financial assets valued at amortized cost and credit risk off-balance sheet items are recognized as impairment loss of financial assets in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in subsequent years, the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.7 Classification of financial Instruments (continued) d) Financial assets at fair value through profit and loss (continued) Impairment of financial investments Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the Group. 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 currently (as at the balance sheet date) exist. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of the Group’s internal classification of credit risk that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors. Restructured loans Where possible, the Group prefers to restructure loans rather than to realize collateral. This may involve extending the payment arrangements and the loan conditions, with the following changes to some of the conditions on the loan is no longer considered past due. The Group continuously monitors and reviews renegotiated loans to ensure future payments, but it is still an individual or collective impairment assessment, calculated using the loan's original effective interest rate. 3.8. Financial liabilities Financial liabilities of the Group comprise liabilities for deposits and other liabilities to banks, other financial organizations and clients, as well as other liabilities from business operations. a) Deposits of banks and clients Deposits of banks and clients, as well as other interest-bearing financial liabilities are initially recognized at fair value less incurred transaction costs, except for financial liabilities which are valued at fair value in the income statement. After initial recognition, interest-bearing deposits and loans are recognized at amortized cost. a) Borrowings

Borrowings are recognized initially at the fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.8. Financial liabilities (continued) b) Account payable Accounts payable and other current liabilities are recognized at their nominal value. 3.9. Offsetting of financial instruments Financial assets and financial liabilities are offset and the difference between the amounts is recognized in the balance sheet if, and only if, there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to sell the asset and settle the liability at the same time. 3.10. Sale and repurchase agreements ("reverse repos") Securities purchased under agreements to resell ("reverse repos") on exact future date are not recognized in the balance sheet. The corresponding cash given, including matured interest is recognized in the balance sheet. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of the agreement. 3.11. Leases a) Financial lease - the Group as Lessee

A lease is classified as finance lease when it is contractually stipulated that: the power to hold and use the subject matter of the lease is transferred to the Group, as lease beneficiary, during the lease period; the right to asset ownership is transferred to the lease beneficiary under contractually defined terms and conditions; the lease term approximates the asset's useful life; and the value of the lease agreement is a close approximation to the cost of asset. The Group as lessee recognizes financial lease as property, plant and equipment and as liability to lessor within other liabilities. Leased assets are depreciated over the lease term. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the income statement. b) Operating lease - the Bank as Lessee Leased out assets where the risks and rewards of ownership remain with the lessor are recorded as operating lease. The leases entered into by the Bank are primarily operating leases. The total payments made under operating leases are charged to expenses in the Income Statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment to be made to the lessor by way of penalty is recognized as an expense in the period in which the termination takes place. c) Finance lease receivables

The Group recognizes assets under finance lease and record them in the amount equal to the net investment in the finance lease. The Group transfers the risks inherent in the ownership, so that the claims rate for the lease payments considered the principal and the corresponding part of financial income.

The recognition of financial income is based on a form that reflects a constant periodic rate of return on outstanding net investment in finance lease. Lease payments relating to the accounting period, exclusive of service costs are charged to total investment in the lease as a principal reduction and unearned finance income.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) On each reporting date Group assesses weather there is an objective evidence of impairment of financial asset or on a group of financial assets. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant difficulties of the debtor, the probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Such claims are written off once all the necessary have been completed and the amount of loss has been determined. d) Repossessed leased assets in exchange for outstanding receivables In case of early termination of the leasing contract, the subject matter of the lease is repossessed and the value of financial investments is transferred to inventories. Furthermore, repossessed leased recorded under inventory are valued at the estimated net realizable value. Valuation of the repossessed leased item is performed regularly by a certified appraiser, on any change in value due to significant changes in market prices or changes in the physical condition of the item, at least once a year. During valuation, market factors, depreciation and a technical condition of the item are taken into account. For the difference between the financial investment under leasing contract (unamortized value) and the estimated value of the leased item – a receivable for compensation claims is created within other current receivables for which an equal amount of provision is made. 3.12. Cash and cash equivalents Cash and cash equivalents comprise cash (drawing account and cash in hand), the mandatory RSD reserve held on the drawing account with the National Bank of Serbia, funds on accounts held with other local and foreign banks. 3.13. Intangible assets

Intangible assets are carried at cost less amortization and any impairment losses. Intangible assets of the Group mostly relate to licenses for computer software with definite useful life. Computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized on the basis of the expected useful lives and the periods for which licenses are granted. Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to identifiable and unique software products controlled by the Group and that will probably generate economic benefits which exceeds costs for more than one year, are recognized as intangible assets. Amortization is calculated at cost of intangible assets using the straight-line method, by applying the amortization rates defined in a manner that allows for their full amortization over their useful lives. Intangible assets' amortization charge begins in the month following their being brought to use. The annual amortization rates applicable in 2014 were as follows: Software 6.25-20% Licenses and other intangible assets 20-100% The remaining useful life and method of amortization of intangible assets with definite useful life are assessed at least annually.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.14. Property, plant and equipment and investment property a) Property, plant and equipment Property, plant and equipment comprise buildings, equipment, other fixed assets, construction in progress, leasehold, as well as leasehold improvements for operating purposes. Property, plant and equipment are stated at historical cost less depreciation and potential impairments. Subsequent expenditures are included in the asset's carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to income statement during the financial period in which they are incurred. Depreciation is calculated at cost of asset using the straight-line method by applying the amortization rates defined in a manner that allows for their full amortization over their useful lives. The assets amortization charge begins in the month following the one in which these assets have being brought into use. The annual depreciation rates applicable in 2014 were as follows: Item description %

Buildings 2,20%-2,58% Computer equipment 10%-33,33% Furniture and other equipment 10%-20% Vehicles 10%-20% Software and licenses 20%-100% Fixed assets are derecognized after disposal or when future economic benefits from the use or disposal of the assets are not expected. Gains and losses on disposals or write-off of a fixed asset (determined as a difference between the net realizable value and the net carrying amount) are recognized in the income statement for the period.

b) Investment property

Investment property is a property, or part of property, that is held by the Group for rental yields or for capital appreciation or both. Investment property is measured initially, during the acquisition, at cost. At the initial measurement, the related acquisition costs are included in the cost. Following the initial recognition, investment property is subsequently measured using the cost method less the total accumulated depreciation and impairment. Depreciation is calculated at the rates that ensure the compensation of the investment properties' value during their useful lives. The difference between the carrying amount and the realizable value of the investment properties that are being sold is recognized in the income statement as incurred. Receivables arising from the disposal or exchange of investment properties are initially recognized in the amount of its fair value.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.14. Property, plant and equipment and investment property (continued) b) Investment property (continued) If any indication exists of investment properties being impaired, the Company estimates the recoverable amount as the higher of value in use and fair value less costs to sell. The carrying amount of an investment property is written down to its recoverable amount through profit or loss.

An impairment loss recognized in prior years is reversed if there has been a subsequent change in the estimates used to determine the asset's recoverable amount.

Subsequent expenditure is capitalized only when it is probable that future economic benefits associated with it will flow to the Company and the cost can be measured reliably. All other repairs and maintenance costs are expensed when incurred.

If an investment property becomes owner-occupied, it is reclassified to property, plant and equipment, and its carrying amount at the date of reclassification becomes its deemed cost to be subsequently depreciated. 3.15. Impairment of non-financial assets In accordance with its internal policy, the Group analyses at each reporting date carrying values of intangible assets and property, plant and equipment. If any indication of impairment exists the Group estimates the asset’s recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount which is higher of its net realizable value and economic value. Impairment loss is recognized as expense in income statement. An assessment of impairment of non-financial assets is reviewed at each reporting date as to whether previously recognized impairment losses may no longer exist or may have decreased. 3.16. Provisions, contingent liabilities and contingent assets Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The Group made long-term provisions for potential losses arising from commitments and contingent liabilities, potential outflow with respect to legal claims, payment of employee benefits i.e. retirement benefits and other contingent liabilities, provided they meet the recognition requirements. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed and recognized as income. Provisions are recorder by type and can be used only for expenditure for which it was initially recognized. Provisions are not recognized for future operating losses. Contingent liabilities are not recognized in the financial statements. Contingent liabilities are disclosed in the notes to the financial statements (Note 34), unless the probability of outflow of resources is remote.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.16. Provisions, contingent liabilities and contingent assets (continued) The Group does not recognize contingent assets in the financial statements. Contingent assets are disclosed in the notes to the financial statements when an inflow of economic benefits is probable. The Group makes provisions charged to expenses for contingent liabilities to the extent of required provisions, using the same methodology as for loans and investments. 3.17. Employee benefits a) Income tax and contributions for mandatory social insurance In accordance with the regulations enforced in Republic of Serbia, the Group calculates and pays contributions for pension and medical insurance and unemployment insurance at the rates prescribed by law and based on employee gross salaries. The Group is also legally obligated to withhold contributions from gross salaries to employees, and on their behalf to transfer the withheld portions directly to the appropriate government funds. The Group has no legal obligation to pay further benefits which represent the obligation by the Pension Fund of the Republic of Serbia. Contribution costs are recognized in the income statement in the same period as related salary expenses. The Group has no further liabilities for contributions in this respect. b) Retirement benefits The Group does not operate its own pension funds nor did share option schemes, therefore the Group have no identified costs as at 31 December 2014. In accordance with the Labor Act and the Group’s internal policy, the Group is obliged to pay retirement benefits or termination benefits to employees in the event of loss of working ability amounting to two average salaries in the Republic of Serbia, according to the latest information published by a competent statistical body. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age or completing a minimum service period. The expected costs of these benefits are accrued over the period of employment. The Group does not have a commitment jubilee awards. Provisions for retirement benefits are recognized based on independent actuary’s report at the present value of expected future payments (Note 27). Actuarial gains which arise from the effects of change in demographic, financial and experience assumptions used for calculation of provision for future liabilities for retirement benefits, are recognized as other income. c) Distribution of free shares The Managing Board of Credit Agricole S.A. (the Parent) decided, at the meeting held on 9 November 2011, to adopt a Share Incentive Plan for all Credit Agricole S.A. Group employees. The right to Free Shares was given to all employees who on 9 November 2011, held an Employment Contract, either temporary or permanent, with Credit Agricole Serbia. The free shares eligibility criterion requires that the employee remains in service up to 1 October 2015, whilst as of 12 November 2015, employees who meet this criterion shall have the right to manage/dispose of these shares. The employee must meet one criterion only, i.e. to remain in service uninterruptedly during the next four years or, in other words, to remain in service by the expiry of the transfer of ownership period from Credit Agricole S.A. to the employees. The Parent will make a recharge to the Group in respect of share options granted to the Group's employees based on the market value of the shares when they vest. The Group calculates provisions for recharges over the vesting period.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.18. Current and deferred income tax a) Current tax The income tax is amount calculated and paid in accordance with the Corporate Income Tax Law in the Republic of Serbia. During the year, the Group pays income tax in monthly installments, estimated on the basis of Tax declaration for advanced - final determination of tax on corporate profit for the previous year. Final tax base, to which the prescribed tax rate on corporate income of 15% is applied, is determined by Tax balance of taxpayers of income tax of legal entities. Accounting profit is, in order to determine the amount of taxable income, adjusted for certain permanent differences and reduced for certain investments during the year, as shown in the annual tax income statement, which is submitted within 180 days from the date of expiry of the period for which the tax liability is being determined. In accordance with the Corporate Income Tax Law, 20 % of investment in fixed assets is recognized as tax credit. Tax credit cannot exceed 33% of tax calculated in the year of investment. Unused tax credits can be carried forward and used against future income tax up to do limit of 33% for no longer than ten years. Tax regulation in the Republic of Serbia does not allow for current tax losses to be used for reimbursement of income tax paid in prior period. However, current tax losses can be used for deduction of tax base in the future periods for up to five years (tax losses realized until 2009 can be carried forward up to ten years i.e. until 2019). b) Deferred tax Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently valid tax rate on the balance sheet date is used for determining deferred taxes. Deferred tax liabilities are recognized for all taxable temporary differences except where the deferred tax liability arises from the initial recognition of the Goodwill or the assets and liabilities in a transaction that is not a business combination and at the time of execution it has no impact on the accounting profit nor taxable profit or loss, and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss and where in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.18. Current and deferred income tax (continued) b) Deferred tax (continued) The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date. Current and deferred taxes are recognized as income or expense and included in net income for the period. Deferred tax relating to items recognized directly in equity is also recognized in equity. c) Taxes and contributions that do not depend on the operating result

Taxes and contributions that do not depend on operating result include property taxes, value added tax, contributions on salaries paid by the employer, as well as other taxes and contributions paid in accordance with national and local regulations. These taxes and contributions are included within other operating expenses. 3.19. Transactions in the name and for the account of third parties Assets and income arising from transactions in the name and for the account of third parties, where the Group acts as an agent, are not included in the balance sheet items of Group. 4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS 4.1. Going concern concept The accompanying consolidated financial statements have been prepared on the going concern basis, which presumes that the Group will continue to operate for an indefinite period of time into the foreseeable future. The Group's management is not aware of any material uncertainties that may cause concern about the continuity of its business. Given the above, the financial statements are prepared under the going concern basis. The preparation and presentation of the consolidated financial statements requires the Group's management to make best estimates and reasonable assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses for the reporting period. These estimates and assumptions are based on information available as of the date of the consolidated financial statements. Actual results could differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis, and changes in estimates are recognized in the income statement in the periods in which they become known.





4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (continued) 4.1. Going concern (continued) In the following text, estimates and assumptions that could have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are mentioned. 4.2. Determining the fair value of financial instruments The fair value of financial instruments traded in active markets at the balance sheet date is based on quoted market prices of supply and demand, without any deduction for transaction costs. The fair value of financial instruments that are not quoted in an active market is determined using appropriate valuation techniques, which include net present value techniques, comparison to similar instruments for which there are market prices and other relevant valuation models. When market inputs are not available, they are determined by estimates that include a certain degree of judgment in evaluating the "fair" value. Valuation models reflect current market conditions at the measurement date and do not necessarily represent market conditions before or after the date of measurement. Therefore, valuation techniques are revised periodically, in order to appropriately reflect current market conditions. 4.3. Impairment of Financial Assets that are carried at amortized cost The Group assesses, at the end of each reporting period, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired, and impairment losses are incurred, if and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event“) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. This evidence may include available data indicating that the resulting adverse changes in the status of the borrower of the Group in respect of payment obligations to the Bank or national / local economic conditions that correlate with default. The Group considers evidence of impairment on an individual and group basis. For all individually significant financial assets impairment assessment is carried out on an individual basis. For all significant assets for which impairment on an individual basis is not determined, are then estimated on a group basis to determine impairment that occurred, but has not yet been identified. Assets that are not individually significant, but which are carried at amortized cost are grouped based on similar risk characteristics. When it comes to the assessment of losses from the impairment of loans, the Group reviews its loan portfolio, in the case of the provision on a group basis (regardless of whether they are in the status of default or not) at least once a month to assess the impairment of their value. Individual assessment of impairment losses is made in accordance with changes in the assumptions for the calculation of future cash flows, and Group should review them at least quarterly. When assessing impairment on an aggregate basis, the Group uses statistical models of historical trends of the probability of loss, recovery and collection of incurred losses. The Bank's management uses estimates based on experience on actual loan losses from prior years for assets with credit risk characteristics and objective evidence of impairment similar to the loan portfolio that existed at the time of planning future cash flows. The methodology and assumptions used for estimating the amount and the schedule of future cash flows are reviewed regularly to reduce any differences between estimated and actual losses.





4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (continued) 4.3. Impairment of Financial Assets that are carried at amortized cost (continued) Impairment of assets carried at amortized cost is calculated as the difference between the carrying value of the financial asset and the present value of expected cash flows discounted at the original effective interest rate. Losses are recognized in the profit and loss account and reflect the changes in the allowance for impairment of loans. When a subsequent event could lead to a reduction in the amount of impairment losses previously recognized impairment loss is reversed through the income statement. 4.4. Provisions for Litigation The Group is subject to a number of claims arising from the normal conduct of its business, relating to and including commercial, contractual and employment matters, which are handled and defended in the ordinary course of business. The Group routinely assesses the likelihood of any adverse judgments or outcomes to these matters as well as ranges of probable and reasonable estimated losses. Reasonable estimates include judgment made by management after considering information including notifications, settlements, estimates performed by legal department, available facts, identification of other potentially responsible parties and their ability to contribute as well as prior experience. A provision is recognized when it is probable that there is an obligation whose amount can be reliably estimated with careful analysis (Note 27). The required provision may change in the future due to new developments or additional information. Contingent liabilities as well as items that do not meet the criteria for a provision are disclosed, unless the possibility of an outflow of resources embodying economic benefits is insignificant. 4.5. Deferred tax assets Deferred tax assets are recognized for all unused tax losses and / or tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and / or tax credits can be utilized. Significant estimate of the management is necessary to determine the amount of deferred tax assets that can be recognized, based on the period of occurrence and amount of future taxable income and tax policy planning strategy (Note 14). 4.6. Retirement and Other Post-Employment Benefits to Employees The costs of defined employee benefits payable upon the termination of employment, i.e. retirement in accordance with the legal requirements are determined based on the actuarial valuation. The actuarial valuation includes an assessment of the discount rate, future movements in salaries, mortality rates and fluctuation of employees. As these plans are long-term, significant uncertainties influence the outcome of the assessment. Additional information is disclosed in Note 27 to the financial statements. 4.7. Impairment of intangible assets and PP&E The determination of the useful lives of intangible assets, property and equipment is based on historical experience with similar assets as well as on any anticipated technological development and changes in broad economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions. The impact of any change in these assumptions could be material to the Group’s financial position and the results of its operations.





4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (continued) 4.7. Impairment of intangible assets and PP&E (continued) At each balance sheet date, the Group’s management reviews the carrying amounts of the Bank’s intangible assets and property and equipment presented in the financial statements. If there is any indication that such assets have been impaired, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its recoverable amount. An impairment review requires from management to make subjective judgment concerning the cash flows, growth rates and discount rates of the cash generating units under review and which are subject to consideration. 5. INTEREST INCOME AND EXPENSE

2014 2013

Interest income – Banks and other financial institutions 206,788 357,381 – Public companies 73,401 4,769 – Other companies 1,370,221 1,412,195 – Entrepreneurs 112,916 127,620 – Public sector 120,990 6,041 – Retail customers 2,151,043 2,364,269 – Foreign customers 255 79 – Other customers 74,927 300

Total: 4,110,541 4,272,654

Interest expense – Banks and other financial institutions 356,462 363,736 – Public companies 14,034 5,586 – Other companies 353,707 584,020 – Entrepreneurs 11,812 4,730 – Public sector 17,242 58,670 – Retail customers 483,586 540,475 – Foreign customers 41,308 48,969 – Other customers 19,826 9,487

Total: 1,297,977 1,615,673

Net interest income 2,812,564 2,656,981





5. INTEREST INCOME AND EXPENSE (continued)

Interest income and expense by classes of financial instruments: 2014 2013

Interest income On the basis of placements to customers 3,555,921 3,695,724 On the basis of placements with banks and other financial institutions 9,600 10,863 On the basis of reverse repos 105,644 217,846 On the basis of securities 107,494 7,589 On the basis of obligatory reserve 83,597 86,763 On the basis of the deposit surplus liquidity with the NBS 7,738 41,954 Interest on other placements 20,113 10,421 Other 336 247 Interest income from financial leasing 220,098 201,323

Total: 4,110,541 4,272,654

Interest expenses On deposits with banks and other financial institutions 75,500 104,327 On the basis of customer deposits 932,593 1,250,547 On the basis of loans from banks and other financial institutions 289,884 260,799

Total: 1,297,977 1,615,673

Net interest income 2,812,564 2,656,981

6. FEE AND COMMISSION INCOME AND EXPENSE

2014 2013

Fee and commission income Domestic payment transactions services 595,780 565,671 International payment transaction services 111,515 92,658

Foreign exchange transactions 312,211 346,347 Credit related fees and commissions 89,121 108,595 Cards operations 237,977 230,085 Fees for issued guarantees and other warranty 103,087 102,294 Fees from insurance representation 60,071 33,661 Other fee and commission income 21,394 21,355

Total: 1,531,156 1,500,665

Fee and commission expense

Foreign exchange transactions 161,334 208,028 Domestic payment transaction services 26,665 23,498 International payment transaction services 36,852 31,778 Credit related fees and commissions 8,175 9,433 Association of Banks fees 18,954 17,729

Commissions for received foreign currency guarantees and warranties 52,017 7,798 Fees expenses from cards operations 71,746 51,770 Fees from insurance representation 19,208 18,435 Other fees and commissions 18,623 13,071 Fees from financial leasing operations 14,444 14,149

Total: 428,018 395,689

Net fees and commission income 1,103,138 1,104,977





7. NET INCOME ON FINANCIAL ASSETS AVAILABLE FOR SALE 2014 2013

Income on sale of shares of VISA Inc. 69,243 - Income on sale of shares of MasterCard 24,077 -

Net income on sale of financial assets available for sale 93,320 -

In accordance with the decision of the Executive Board as of July 22, 2014 the sale of VISA Inc. and Master Card shares was made, where the Group has transferred gains from other result on the basis of the fair value of these assets, which had gross value of RSD 93,913 thousand at December 31, 2013. 8. NET INCOME FROM FOREIGN CURRENCY EXCHANGE DIFFERENCE AND THE EFFECTS OF

CONTRACTUAL FOREIGN CURRENCY CLAUSE 2014 2013

Foreign exchange gains: - On the basis of foreign currency receivables and payables 2,622,167 3,775,639 - On the basis of foreign currency clause 3,140,330 2,695,309 - On the basis on finance lease 239,282 258,343

On the basis of foreign currency clause: 6,001,779 6,729,291

Foreign exchange losses: - On the basis of foreign currency receivables and payables 4,451,998 4,066,842 - On the basis of foreign currency clause 1,292,191 2,388,117 - On the basis on finance lease 236,377 257,205

Total foreign exchange losses: 5,980,566 6,652,164

Net income from foreign currency exchange difference and the effects of contractual foreign currency clause 21,213 17,127

9. OTHER OPERATING INCOME

2014 2013

Income from reversal of liabilities 110,323 14,136 Income from dividends and shares 216 396 Income from re-invoicing of costs 14,077 14,306 Rental income 6,894 7,284 Collected court and lawyer costs 7,403 4,803 Gains on the sale of fixed assets 7,342 313 Surpluses 1,222 16,850 Income from operating activities 1,186 2,622 Reversal of unused provisions (Note 27) 1,093 1,612 Gains from the sale of real estate acquired in debt collection 1,038 - Other operating income 7,235 18,936 Gains on sell of lease assets 207 2,968

Total other operating income 158,236 84,226





10. NET EXPENSES FROM IMPAIRMENT OF FINANCIAL ASSETS AND CREDIT-RISKY OFF-BALANCE SHEET ITEMS

2014 2013

Reversal of impairment of financial assets:: - Financial assets available for sale (Note 16) 83 3 - Loans and receivables from banks and other financial institutions (Note 18) 152 316 - Loans and receivables to customers (Note 19) 750,050 766,845 - Other assets (Note 23) 70,056 176,944

Total income from reversal impairment of financial assets: 820,341 944,108

Expenses from impairment of financial assets: - Financial assets available for sale (Note 16) (8) (27) - Loans and receivables to banks and other financial institutions (Note 18) (2,495) (2,566) - Loans and receivables to customers (Note 19) (902,538) (1,037,808) - Other assets (Note 23) (118,170) (196,049)

Total expenses from impairment of financial assets: (1,023,211) (1,236,450)

Net losses on impairment of financial assets: (202,870) (292,342)

Reversal of provisions for credit-risky off-balance sheet items (Note 27) 47,720 20,026

Provisions for credit-risky off-balance sheet items (Note 27) (172,253) (15,871)

Total expense/income from the reversal of provisions for credit-risky off-balance sheet items: (124,533) 4,155

Income from recoveries 1,421 187 Write-off of uncollectible receivables (176) (1,367)

Net loss on impairment of financial investments and credit-risky off-balance sheet items: (326,158) (289,367)

11. COST OF SALARIES, CONTRIBUTIONS AND OTHER PERSONNEL EXPENSE

2014 2013

Cost of net salaries 1,199,107 1,135,123 The costs of taxes and contributions paid by employee 579,693 598,113 Other personal expenses and compensation for temporary jobs 29,719 39,372 (Income)/expense from the change in the provision for employee benefits (Note 27) (2,701) 7,550

Total cost of salaries, contributions and other personnel expense 1,805,818 1,780,158

12. DEPRECIATION AND AMORTISATION

2014 2013

Amortization of intangible assets (Note 20) 89,760 88,927 Depreciation of property and equipment (Note 21) 109,337 149,229 Depreciation of investment properties (Note 22) 3,031 2,713

Total depreciation and amortisation 202,128 240,869





13. OTHER EXPENSES

2014 2013

Lease 407,177 393,455 Insurance premiums 180,205 100,189 Cost of materials 170,062 151,605 The cost penalties on the basis of contract termination 129,654 - Technical assistance from parent bank 111,067 85,129 Maintenance of fixed assets 103,291 75,885 Software and licenses maintenance 92,449 108,796 Postal and telecommunications services 81,073 83,408 Advertising and marketing 82,313 87,551 Legal services 73,503 52,099 Transportation and allowances 39,366 40,737 Utility fees 33,961 27,402 Court costs 25,376 32,132 Transport and money escort 28,011 30,627 Cleaning costs 24,303 25,820 Professional services 27,795 32,255 Building security 17,414 18,858 Contributions and taxes on wages paid by the employer 14,725 15,759 Costs of project development and project documentation 14,228 10,062 Staff training 13,610 12,851 Losses on impairment of fixed assets 13,123 - Costs of representation 11,982 13,659 ATMs maintenance 9,555 10,354 Insurance from general and technical responsibilities 7,989 8,817 Salaries of disabled persons and solidarity assistance 7,530 5,952 Material costs of employees 6,345 1,738 Telecommunication costs – Reuters 6,163 5,751 Property taxes and fees for use of building land 6,043 29,532 Other tax expenses 4,863 580 Official newspapers and magazines 3,945 3,774 Hotel accommodation and food on business trip 3,166 2,917 Utilities and electricians service 3,012 3,186 Membership fees for associations 2,757 2,137 Donations and sponsorships 2,592 5,459 Losses arising from sale and write-down of fixed assets 2,336 14 Losses on provisions for liabilities (Note 27) 1,910 3,967 Reinstall of SW ATM software 1,603 1,188 Transportation Services 1,337 840 Losses from changes in value of financial liabilities 1,176 488 Shortages and damages 1,128 16,565 Other expenses 13,574 19,573

Total of other expenses 1,781,712 1,521,111





14. INCOME TAX (a) Income tax components

Total tax expense consists of the following taxes:

31.12.2014. 31.12.2013

Current income tax (21,761) (9,688) (Loss) / Profit from deferred taxes (8,567) 19,908

Total (30,328) 10,220

(b) Reconciliation of total income tax presented in the balance sheet and the profit before taxation on which is applied prescribed tax rate

31.12.2014. 31.12.2013.

Profit before tax 72,899 32,051

Income tax at the rate of 15% (10,935) (4,808)

Tax effect of income not recognized for tax purposes 39,441 150 Tax effect of expenses not deductible for tax purposes (32,722) (15,052) Tax relief for losses carried forward from previous years - 10,022 Tax effects of losses from the current period on the basis of which deferred tax assets are not recognized (22,516) - Loss / Profit from deferred tax (8,567) 19,908 Tax relief on the basis of investments in fixed assets 4,971 -

Income tax presented in the income statement (30,328) 10,220

Above mentioned disclosures are based on the current expectations of the Group in connection with the income tax return in 2014. These expectations can be adjusted until the submission of the final tax balance as of June 30, 2015, in accordance with the Corporate Tax Law. According to income tax return the Group generated a tax loss in 2014, but also the capital gain in the amount of RSD 100,514 thousand, based on which the Group has a current tax liabilities. Deferred tax assets related to deductible temporary differences between the carrying value of fixed assets and intangible assets and their tax base in 2014, while in the previous period, the Group has deferred tax assets on tax loss and tax credits.

31.12.2014. 31.12.2013 01.01.2013.

Deferred tax assets 187,558 196,127 176,218 Deferred tax liabilities - (14,087) (6,386)

Net deferred tax assets 187,558 182,040 169,832





14. INCOME TAX (continued) (b) Reconciliation of total income tax presented in the balance sheet and the profit before taxation on which is

applied prescribed tax rate (continued) Movements in deferred tax assets and liabilities are presented in the following table:

Transferable tax

losses/credits

Temporary differences in

fixed assets

Other deferred

tax assets

Total deferred tax assets

Deferred tax liabilities

As at 1 January 1 2013 146,242 28,688 1,287 176,217 (6,386)

Charged to income statement - 21,067

(1,159)

19,908 -

Charged to other results - - - - (7,701)

As at 31 December 2013 146,242 49,755

128

196,125 (14,087)

Charged to income statement (4,970) (3,562)

(35)

(8,567) -

Charged to other results - - - - 14,087

As at 31 December 2014 141,272 46,193

93

187,558 -

DEFERRED TAX ASSETS 31.12.2014. 31.12.2013. 01.01.2013.

Transferable tax losses and credits 141,565 146,536 146,617 Temporary differences in fixed assets and intangible assets 45,993 49,591 29,601

Total deferred tax assets 187,558 196,127 176,218

The Group also has transferable tax losses and credits incurred in previous years, which can be used in future years as it is presented in the following analysis: 31.12.2014. 31.12.2013.

Transferable tax losses - up to one year 243,492 - - from one to five years 4,243,155 3,085,015 - over five years - 1,251,526

Total transferable tax losses: 4,486,647 4,336,541

31.12.2014. 31.12.2013.

Tax credits - up to one year 147,085 27,785 - from one to five years 184,014 279,982 - over five years 17,099 53,299

Total transferable tax credits: 348,198 361,066





14. INCOME TAX (continued)

DEFERRED TAX ASSETS (continued)

As of 31 December 2014 the Group has recognized the deferred tax assets based on the aforementioned tax losses and credits in the amount of RSD 141,272 thousand (31 December 2013: RSD 146,242 thousand).

The Group did not recognize deferred tax assets on the remaining amount, due to uncertainty as to the existence of a sufficient amount of future taxable profits, against which the transferable tax losses and credits can be utilized.

DEFERRED TAX LIABILITIES 31.12.2014. 31.12.2013 01.01.2013.

Temporary differences based on securities available for sale - 14,087 6,386

Total deferred tax liabilities -

14,087 6,386

15. CASH AND BALANCES WITH CENTRAL BANK

Cash and balances with central bank consist of:

31.12.2014. 31.12.2013 01.01.2013.

In RSD Current account 5,842,854 4,437,214 5,076,138 Cash in hand 750,325 865,681 908,494

6,593,179 5,302,895 5,984,632

In foreign currency Obligatory reserves with the National Bank of Serbia 6,391,290 5,589,513 6,966,132 Cash on hand 866,048 777,534 779,896

7,257,338 6,367,047 7,746,028

Total cash and balances with central bank 13,850,517 11,669,942 13,730,660

Obligatory reserve represents minimal reserve in RSD made in accordance with the Decision of National Bank of Serbia on mandatory reserves with the National Bank of Serbia ("RS Official Gazette" no. 3/2011, 31/12, 57/12, 78/12, 87 / 12, 107/12, 62/13 and 125/14), which prescribe that banks calculate obligatory reserve in RSD at the rate of:

- 5% on the portion of RSD basis of liabilities with agreed maturity up to two years, or up to 730 days, - 0% on the portion of RSD basis of liabilities with agreed maturity of over two years, or more than 730 days.

The Group is obligated to maintain the average daily balance of required reserves on its bank account, during the accounting period. Calculated obligatory reserve is allocated in RSD to the Group account.

Calculated obligatory reserve, according to the calculation as of 17 December 2014 (based on the average balance of deposits from the month of November 2014), amounted to RSD 4,087,950 thousand (2013: RSD 3,335,265 thousand).

The National Bank of Serbia pays interest to the Group allocated funds, which during 2014 was 2.50% per annum.





15. CASH AND BALANCES WITH CENTRAL BANK (continued) At 31 December 2014, the Group was in compliance with the regulations of the National Bank of Serbia in terms of calculation and allocation of required reserves in RSD. Required foreign currency reserves represent the minimum reserve in foreign currency made in accordance with the Decision of National Bank of Serbia on required reserves ("Official Gazette of the Republic of Serbia" no. 3/2011, 31 / 12:57 / 12, 78/12, 87 / 12, 107/12, 62/13 and 125/14), which prescribes that banks calculate obligatory reserve in foreign currency at the rate of:

- 27% on the portion of foreign currency basis of liabilities with agreed maturity up to two years, or 730 days, - 20% on the portion of foreign currency basis of liabilities with agreed maturity of over two years, or over

730 days, - 50% on RSD liabilities indexed to the currency clause for all maturities.

At 31 December 2014, the Group was in compliance with the regulations of the National Bank of Serbia in terms of calculation and allocation of foreign currency required reserves. The National Bank of Serbia does not pay interest on the funds allocated to regular foreign exchange reserve requirement account. Calculated foreign currency reserve requirements, according to the calculation as of 17 December 2014 (based on the average balance of deposits from the month of November 2014), amounted to RSD 6,751,001 thousand (2013: RSD 6,753,050 thousand). 16. FINANCIAL ASSETS AVAILABLE FOR SALE Financial assets available for sale consist of: 31.12.2014. 31.12.2013. 01.01.2013.

Securities - shares of Visa Inc. - 68,842 48,580 Securities - shares MasterCard - 25,072 15,283

- 93,914 63,863

Allowance as at - (71) (48)

Total financial assets available for sale

-

93,843

63,815

Changes in allowances were as it is presented: 31.12.2014. 31.12.2013.

Balance at beginning of year 71 48 Additional impairment losses (Note 10) 8 27 Reversal of impairment losses (Note 10) (83) (3) Net exchange differences 4 (1)

Allowance as at

-

71





17. FINANCIAL ASSETS HELT TO MATURTY Financial assets held to maturity consist of: 31.12.2014. 31.12.2013. 01.01.2013.

Long-term coupon bonds of the Ministry of Finance 1,074,584 - - Treasury bills of Ministry of Finance - - 194,169

Total financial assets held to maturity 1,074,584 - 194,169

As at 31 December 2014 the Group had a long-term coupon bonds of the Ministry of Finance of the Republic of Serbia with a variable interest rate (reference interest rate of the National Bank of Serbia + 1.49%). 18. LOANS AND RECEIVABLES TO BANKS AND OTHER FINANCIAL INSTITUTIONS 31.12.2014. 31.12.2013. 01.01.2013.

Reversing repo placements with the National Bank of Serbia - 3,900,817 801,346 Foreign currency accounts with other banks 825,329 585,413 704,827 Loans and receivables from other financial institutions 4,788 3,390 194 Dedicated deposit for the purchase and sale of securities 4,838 4,586 4,549

834,955

4,494,206

1,510,916

Less: Allowance for impairment (4,649) (2,306) (56)

Total loans and receivables to banks and other financial institutions

830,306

4,491,900

1,510,860

Changes in allowances were as follows: 31.12.2014. 31.12.2013.

Balance at beginning of year 2,306 56 Additional impairment losses (Note 10) 2,495 2,566 Reversal of impairment losses (Note 10) (152) (316)

Allowance as at

4,649

2,306



42 This version of the consolidated financial statements and the accompanying notes is translation of the original which were published in Serbian. All possible care has been taken to ensure that the translation is accurate representation of the original.

However, in all the matters of interpretation of information, views and opinions, the original language version of the documents takes precedence over this translation

19. LOANS AND RECEIVABLES TO CUSTOMERS a) Summary by type of customer loans:

31.12.2014

31.12.2013

01.01.2013

Short term Long term Total



Public enterprises 193,846 1,161,847 1,355,693

170,321 1,588,378 1,758,699

24,908 19,701 44,609

Other companies 5,087,008 15,760,819 20,847,827

7,939,196 12,328,166 20,267,362

9,786,086 15,898,850 25,684,936 Entrepreneurs 415,874 647,162 1,063,036

639,241 535,316 1,174,557

674,917 593,098 1,268,015

Public sector 645 449,070 449,715

865 22,733 23,598

31,013 51,424 82,437 Retail customers 2,124,202 26,110,448 28,234,650

2,624,744 20,975,652 23,600,396

2,346,224 17,080,311 19,426,535

Foreign entities 132,489 - 132,489 110,753 - 110,753 194 114,438 114,632 Other customers 706,501 2,623,840 3,330,341

4,011,025 23,437 4,034,462

3,129,219 9,955 3,139,174

Total 8,660,565 46,753,186 55,413,751

15,496,145 35,473,682 50,969,827

15,992,562 33,767,776 49,760,338

Less: Allowance for impairment - - (4,205,016)

- - (4,464,305)

- - (4,215,380)

Balance as at - - 51,208,735

- - 46,505,522

- - 45,544,985





19. LOANS AND ADVANCES TO CUSTOMERS (continued) b) Changes in allowances were as follows:

31.12.2014. 31.12.2013.

Balance at beginning of year 4,464,305 4,215,380 Additional impairment losses (Note 10) 902,538 1,037,808 Reversal of allowance for impairment (Note 10) (750,050) (766,845) Write-offs (516,064) (39,880) Net exchange differences 104,287 17,842

Allowance as at 4,205,016 4,464,305

20. INTANGIBLE ASSETS

The changes in intangible assets:

Software and

licenses

Intangible assets under construction

Total intangible assets

Cost Balance at the beginning of 2014 642,659 7,543 652,202 Additions during the year - 69,410 69,410 Transfer from assets under construction 76,546 (76,546) - Disposals (216,430) - (216,430)

As at 31 December 2014 502,775 407 503,182

Accumulated depreciation and impairment Balance at beginning of year 478,185 - 478,185 Depreciation (Note 12) 89,760 - 89,760 Disposals (216,430) - (216,430)

As at 31 December 2014. 351,515 - 351,515

The net present value as at 31 December 2014 151,260 407 151,667

As at 31 December 2013 164,474 7,543 172,017

As at 01 January 2013 151,204 567 151,771

Net present value of intangible assets at December 31, 2014 mostly consisted of licenses and software.





21. PROPERTY, PLANT AND EQUIPMENT Changes in property, plant and equipment:

Buildings

Equipment and other

assets

Fixed assets taken under

financial leasing

Investment in rented

office space Assets under construction

Total property, plant and

equipment

Cost Balance at beginning of the year 1,577,011 1,190,946 3,846 141,014 9,712 2,922,529 Additions during the year 12,384 2,776 - - 90,356 105,516 Transfer from assets under construction - 100,051 - 17 (100,068) - Transfer from leasing - 3,846 (3,846) - - - Disposals (16,621) (84,487) - (2,131) - (103,239)

As at 31 December 2014 1,572,774 1,213,132 - 138,900 - 2,924,806

Accumulated depreciation and impairment Balance at beginning of the year 284,710 1,025,087 3,461 123,925 - 1,437,183 Depreciation and amortization (Note 12) 39,088 59,530 385 10,334 - 109,337 Transfer from leasing - 3,846 (3,846) - - - Impairment of fixed assets 12,650 - - - - 12,650 Disposals (168) (81,678) - (2,131) - (83,997)

As at 31 December 2014 336,280 1,006,785 - 132,128 - 1,475,193

Net book value at 31 December 2014 1,236,494 206,347 - 6,772 - 1,449,613

As at 31 December 2013 1,292,301 165,858 385 17,089 9,712 1,485,345

Balance at 01 January 2013 1,313,908 173,122 1,154 31,167 51 1,519,402

As of 31 December 2014, the Group does not possess appropriate title deeds for buildings whose current value amount is RSD 306,325 thousand (2013: RSD 397,939 thousand). The Group's management, take all necessary measures for the registration of such real estate. As of 31 December 2014, the Group has no mortgages on fixed assets. Net present value of equipment as at 31 December 2014 mostly relates to computer and telecommunication equipment, office furniture and vehicles. The Group as at 31 December 2014 conducted assessment of the value of certain categories of buildings in order to identify and recognize impairment, and has recognized the impairment loss in the amount of RSD 12.375 thousand. The effects of impairment, the Group recorded as expense and to the benefit of allowance for impairment of buildings.





22. INVESTMENTS PROPERTIES Changes in investment property:

Investments

properties

Cost Balance at beginning of year 122,987

As at 31 December 2014 122,987

Accumulated depreciation and impairment Balance at beginning of year 16,660 Depreciation and amortization (Note 12) 3,031 Impairment of investment property 472


Net book value at 31 December 2014 102,824


As at 01 January 2013 85,838

Group as at 31 December 2014 conducted impairment assessment of the values of certain categories of investment properties and recognize the effects as at that date in the amount of RSD 747 thousand. The effects of impairment, the Group recorded as expense and to the benefit of allowance for impairment of investment property. 23. OTHER ASSETS 31.12.2014. 31.12.2013. 01.01.2013.

Receivables for fees and commissions 31,569 33,290 26,661 Receivables from employees 78 97 847 Receivables based on overpaid taxes 5 1,916 - Advances paid 9,702 38,370 13,113 Other receivables from operations 47,361 53,556 53,209 Receivables in settlement 6,640 4,440 16,103 Accrued other expenses 33,788 30,733 18,769 Deferred interest expenses 278 717 3,288 Other accruals 27,409 9,153 9,786 Assets acquired through collection of receivables 136,755 18,539 22,317 Receivables after selling of leasing assets - 17,220 15,534 Transitional accounts 47,328 24,036 10,290 Other equity investments 570 570 570

Total other assets 341,483 232,637 190,487

Accumulated depreciation (50,501) (71,068) (61,723)

Balance at 290,982 161,569 128,764





23. OTHER ASSETS (continued) Changes in allowances were as follows: 31.12.2014. 31.12.2013.

Balance at beginning of year 71,068 54,022 Additional impairment losses (Note 10) 118,170 196,049 Reversal of impairment losses (Note 10) (70,056) (176,944) Write-off (74,011) (1,949) Net exchange differences 5,330 (110)

Allowance as at

50,501

71,068

24. DEPOSITS AND OTHER LIABILITIES TO BANKS, OTHER FINANCIAL INSTITUTIONS AND CENTRAL

BANK The structure of deposits and other liabilities at 31 December 2014 is shown in the table below: 31.12.2014.

Deposits and other financial liabilities: A vista

Short term

Long term

Total

Domestic banks 350,377

-

-

350,377 Other financial institutions 330,466

604,642

726

935,834

The parent bank 78,565

1,822,794

305,492

2,206,851

TOTAL 759,408

2,427,436

306,218

3,493,062

Received loans Domestic banks 400,000

-

-

400,000

European Investment Bank - - 4,540,590 4,540,590 The parent bank - - 8,829,956 8,829,956 Development Fond of RS -

-

19,056

19,056

TOTAL 400,000

-

13,389,602

13,789,602

Total deposits and other liabilities to banks and other financial institutions

1,159,408

2,427,436

13,695,820

17,282,663

Within the liabilities to domestic banks (in RSD) the most significant share has deposits of banks deposited with maturity up to 14 days and the interest rate of 8.00% per annum. The liabilities to other financial institutions mostly consist of a vista deposits with interest at the rate of 9.82% per annum. Short-term deposits of financial institutions in RSD are deposited for periods of one month, two months, three months and one year, with interest rates ranging from 6.6% to 9.2% depending on maturity. Within liabilities in foreign currency to the parent bank Credit Agricole SA Paris the largest share has liabilities for deposits in foreign currency taken for a period of 91 to 180 days in the amount of EUR 15,000 thousand at interest rates ranging in the range from 0.13% up to 0.19%.

Also, on 31 December 2014, the Group used nine loans received from the parent bank Credit Agricole SA Paris at interest rate in the range between 3M Euribor + 1,22% to 3M Euribor + 1,61% per annum whit maturity date from 2015 to 2017 year. On 31 December 2014, the Group has received overnight loan in RSD from local banks at an interest rate of 8.00% per annum.





24. DEPOSITS AND OTHER LIABILITIES TO BANKS, OTHER FINANCIAL INSTITUTIONS AND CENTRAL BANK (continued) In 2013, the Group has started cooperation with the European Investment Bank. On 31 December 2014, the amount of borrowings is EUR 37,576 thousand (RSD 4.540.590 thousand) with an interest rate of 0.340% to 1.226% and maturity date from 2018 until 2021. As at 31 December 2014, the Group has liability for received loans from the parent bank Credit Agricole SA in the amount of EUR 73,000 thousand (RSD 8,829,956 thousand). Group loans were received in 2010, 2011, 2013 and 2014 at interest rates in the range of 1.197% to 1.932% with a maturity from 2014 to 2023. Structure of deposits and other deposits from customers as at 31 December and as at 01 January 2013 is shown in the following table: 31.12.2013. 01.01.2013.


Short term

Long term

Total

A vista

Short term

Long term Total

Domestic banks 164

-

-

164

1,790

-

-

1,790

Other financial institutions 262,392

760,509

232,265

1,255,166

241,246

857,481

228,119 1,326,846 The parent bank 60,023

3,217,892

289,540

3,567,455

8,756

10,588,380

351,749 10,948,885

TOTAL 322,579

3,978,401

521,805

4,822,785

251,792

11,445,861

579,868

12,277,521

Received loans Overnight

Short term

Long term

Total

Overnight

Short term

Long term Total

Domestic banks 561,746 - - 561,746

284,296 - -

284,296

European Investment Bank -

-

1,963,575

1,963,575

-

-

- - The parent bank 57,321 - 9,297,475 9,354,796 - - Development Fond of RS 32,167 32,167 8,438,298 8,438,298

TOTAL 619,067

-

11,293,217

11,912,284

-

-

32,380 32,380

Total deposits and other liabilities to bank 941,646

3,978,401

11,815,022

16,735,069

284,296

-

8,470,678

8,754,974





26. DEPOSITS AND OTHER LIABILITIES TO OTHER CUSTOMERS The structure of deposits and other deposits from customers as at 31 December 2014 is shown in the following table

31.12.2014.


Short term

Long term

Total

Public entities 406,563

35,246

-

441,809

Other companies 10,342,495

5,798,802

395,208

16,536,505 Entrepreneurs 810,444

57,635

13,325

881,404

Public sector 250,339

106,000

-

356,339 Retail customers 5,960,106

5,592,451

7,841,571

19,394,128

Foreign entities 801,307

138,823

898,304

1,838,434 Other customers 447,878

162,462

2,027

612,367

Total 19,019,132

11,891,419

9,150,435

40,060,986

A vista deposits from retail customers in RSD are deposited at annual interest rate of 0.50% to 1.00%. Foreign currency deposits of retail customers were deposited at annual interest rates ranging from 0.10% to 0.30% for funds deposited in EUR. Term deposits of enterprises in RSD to one year are deposited at interest rates ranging from 4.5% to 8% per annum, and in foreign currency from 0.25 to 2.25% annually, depending on the depositing period and currency. Short-term and long-term deposits of retail customers in dinars and foreign currency are deposited with interest rates ranging from 4% to 8% per annum and from 0.40% to 3% per annum, depending on the currency and deposit period.





26. DEPOSITS AND OTHER LIABILITIES TO OTHER CUSTOMERS (nastavak) Structure of deposits and other liabilities to customers on December 31 and at 01 January 2013 is shown in the following table:

31.12.2013.

01.01.2013

Deposits and other financial liabilities in RSD: A vista

Short term

Long term

Total

A vista

Short term

Long term

Total

Public entities 171,474

768,191

-

939,665

12,962

48,076

-

61,038

Other companies 8,379,806

5,292,623

452,440

14,124,869

10,424,811

4,810,888

436,070

15,671,769 Entrepreneurs 612,038

51,703

10,079

673,820

-

53,976

7,491

61,467

Public sector 32,139

8,000

582

40,721

43

120,000

2,056

122,099 Retail customers 5,342,382

5,344,950

7,534,208

18,221,540

3,445,093

4,504,357

5,977,378

13,926,828

Foreign entities 141,703

818,952

275,800

1,236,455

33,650

604,959

231,498

870,107 Other customers 638,296

629,225

5,889

1,273,410

20,430

21,185

4,083

45,698

Total: 15,317,838

12,913,644

8,278,998

36,510,480

13,936,989

10,163,441

6,658,576

30,759,006





27. SUBORDINATED LIABILITIES 31.12.2014. 31.12.2013. 01.01.2013.

Subordinated liabilities 2,434,608 2,316,433 2,274,367

Total 2,434,608 2,316,433 2,274,367

The Group has received a subordinated loan from the parent bank Credit Agricole SA in 2009, with initial conditions: EUR 40.000 with an interest rate of EURIBOR 3M plus 3.805% and maturity date as of 31 March 2017. Conditions related to the subordinated loan in 2014 were: interest rate in the amount of 3M EURIBOR plus 3.679% and maturity date as of 28 April 2023. The subordinated loan is not secured by collateral, all obligations arising under the contract are considered subordinate, in the case of liquidation or bankruptcy of the Group, are repaid only after settlement of obligations to other creditors. 28. PROVISIONS 31.12.2014. 31.12.2013. 01.01.2013.

Provision for credit-risky off-balance sheet items 132,792 5,583 9,727 Provisions for legal proceedings 30,284 30,689 31,321 Provision for operational risk 9,237 12,524 17,700 Provision for long-term employee benefits 47,120 64,320 57,192

Total provisions

219,433

113,116

115,940

Changes in provisions were as follows: Provision for credit-risky off-balance sheet items

31.12.2014.

31.12.2013. 01.01.2013.

At 1 January 5,583 9,727 21,101 Additional provision during the year (Note 10) 172,253 15,871 153,284 Reversal of provisions (Note 10) (47,720) (20,026) (166,376) Net exchange differences 2,676 11 1,717

Balance as at 132,792

5,583 9,727

Provisions for legal proceedings 31.12.2014.

31.12.2013.

31.12.2013.

At 1 January 30,689 31,321 31,713 Additional provision during the year (Note 13) 1,910 3,967 9,933 Reversal of provisions (Note 9) (1,093) (1,612) (3,277) Payments (1,222) (2,983) (7,065) Net exchange differences - (4) 17

Balance as at

30,284

30,689

31,321





28. PROVISIONS (continued) Provision for operational risk 31.12.2014. 31.12.2013. 01.01.2013.

At 1 January 12,524 17,700 17,998 Arising during the year - 40 - Payments (3,287) (5,216) (298)

Balance as at 9,237 12,524 17,700

Provision for long-term employee benefits

Provision for long-term employee benefits include provisions for severance payments of RSD 30,384 thousand and the provision for employee benefits based on the distribution of free shares of the parent bank in the amount of RSD 15,042 thousand. The assumptions used by the actuary for the calculation of provision for future liabilities in respect of severance pay for retirement are:

- data about employees, - the total length of service on the date 31 December 2014, - year of birth and gender, - number of years to full retirement age, - mortality tables of the Republic of Serbia for 2001-2003 - interest rate 10.3% - average gross salary in Serbia in the period January-December 2014, with the gross earnings for the

months of November and December calculated based on gross earnings for October and increase of gross earnings from September to October 2014 and

- assumed earnings growth of 7% per annum.

Changes in the provision for retirement benefits are shown in the table below:

The present value of liabilities for employee benefits as at 31 December 2013 53,991

Cost of services a. Current service cost 2,567

b. Past service cost (16,039) c. Interest expense 5,569 d. Payments (398) Actuarial gains arising from:

a. changes in demographic assumptions (10,082) b. changes in financial assumptions 1,819 c. changes in experiential assumptions (5,348)

The present value of liabilities for employee benefits as at 31 December 2014 32,079

31.12.2014. 31.12.2013. 01.01.2013.

At 1 January 64,320 57,192 84,675 Arising during the year (Note 11) 4,712 7,520 4,792 Reversal of provisions (Note 11) (7,812) (29) (32,122) Payments (554) (363) - Net exchange differences - - (153) Actuarial gains (13,546) - -

Balance as at 47,120 64,320 57,192





28. OTHER LIABILITIES 31.12.2014. 31.12.2013. 01.01.2013.

Accounts payables 139,513 101,442 46,517 Net salaries and wages 133,864 190,687 231,909 Tax liabilities 8,242 16,882 10,469 Liabilities in calculation 6,771 4,396 21,977 Advances received 6,562 102,920 6,510 Other liabilities 28,523 63,281 99,060 Transitional accounts 31,624 17,259 10,524 Accruals: Other accrued expenses 65,235 53,418 46,483 Other deferred income 31,855 28,998 19,196 Other accruals 247,785 153,485 23,617

Total other liabilities 699,974 732,768 516,262

29. EQUITY 31.12.2014. 31.12.2013. 01.01.2013.

Share capital – ordinary shares 13,122,105 13,122,105 13,122,105 Share premium 1,523,079 1,523,079 1,523,079

Capital 14,645,184

14,645,184 14,645,184

Reserves 110,004 176,284 153,935 Profit for the year 71.610 62,928 36,725 The loss of the previous years (6,385,601) (6,417,717) (6,433,785)

Balance as at

8,441,261

8,466,679

8,402,059

a) Share capital

Group's share capital was formed by initial shares of shareholders and subsequent issues of new shares. The subscribed and paid-up capital as at 31 December 2014 amounted to 10,093,927 ordinary shares with a nominal value of RSD 1,300 per share, or RSD 13,122,105 thousand (2013: 10,093,927 ordinary shares with a nominal value of RSD 1,300 per share, or RSD 13.122.105 thousand). The structure of the share capital based on statement of the Central Registry and clearing house on 31 December 2014 is as follows:

Number of ordinary shares Participation

Credit Agricole S.A. 10,093,927 100,00% The Group has no repurchased its own shares.





29. EQUITY (continued) b) Share premium

Share premium in the amount of RSD 1,523,079 thousand as of 31 December 2014 (2013: RSD 1,523,079 thousand) was created as a positive difference between the market value of the shares and their nominal value. c) Reserves Reserves in the amount of RSD 110,004 thousand as at 31 December 2014 (2013: RSD 176,284 thousand) and consist of reserves formed in accordance with the regulation of National Bank of Serbia and the Statute of the Bank in the amount of RSD 96,458 thousand and actuarial gain in the amount of RSD 13,610 thousand as at 31 December 2014 on the basis of the effects of changes in the demographic, financial and empirical assumptions used by the actuary for the calculation of provision for future liabilities in respect of severance pay for retirement. In accordance with Article 22 of the Law on Banks ("Official Gazette of RS". No. 107/2005, 91/2010), capital of the Group amounts RSD 8.051.538 thousand as of 31 December 2014 and it is above the prescribed minimum (EUR 10,000,000) per the official exchange rate. Reconciliation of indicators for the Group with National Bank of Serbia is presented in Note 33. 30. OFF-BALANCE SHEET ITEMS

31.12.2014. 31.12.2013.

a) Transactions in the name and for the account of third parties 667,865 718,829 Guarantees and other future commitments 20,603,892 21,124,811

Balance as at 21,271,757

21,843,640

a) Transactions in the name and for the account of third parties

31.12.2014. 31.12.2013.

Short term receivables 7,012 7,653 Long term receivables 660,853 711,176

Balance as at 667,865 718,829

Transactions on behalf of third parties mainly consist of short-term and long-term loans granted from the funds received from the Agricultural Development Fund in the amount of RSD 151,210 thousand (2013: RSD 241,731 thousand), while the amount of RSD 515,409 thousand relates the funds received from the National Corporation for providing housing loans (2013: RSD 475,800 thousand) as well as the amount of RSD 1,246 thousand (2013: RSD 1,298 thousand) relating to the receipt of promissory notes.





30. OFF-BALANCE SHEET ITEMS (continued) b) Guarantees and other future commitments

31.12.2014. 31.12.2013.

Guarantees Issued payable guarantees for loan repayment 4,256,021 4,778,583 Performance guarantees 3,987,408 3,515,043

Total payable and performance guarantees 8,243,429 8,293,626

Uncovered letters of credit and give sureties 919,363 773,668 Unused commitments 11,441,100 12,057,517

Balance as at 20,603,892 21,124,811

Unused commitments relate to undrawn credit facilities that cannot be canceled unilaterally, such as: overdrafts, revolving loans to companies, multi-purpose revolving loans and other irrevocable commitments. Irrevocable commitments usually have fixed expiry dates or other termination clauses. Since irrevocable commitments may expire without being drawn by the customer, the total contractual amount does not necessarily represent future cash outflows. The Group monitors the maturity of irrevocable commitments arising from unused granted loans as long-term commitments have a greater credit risk than short-term commitments. 31. RECONCILIATION OF RECEIVABLES In accordance with Article 18 of the Accounting Low, the Group has performed reconciliation of receivables by sending statements of outstanding items all its debtors and creditors on 30 November 2014. The total amount of certified open items which confirmed the Group’s receivables was RSD 13,674,815 thousand. Based on the statements of outstanding items exchanged with customers, remained unreconciled following assets and liabilities the total amount of pending statements of outstanding items is RSD 209,882 thousand. The main reason for the pending statements of outstanding items is incorrect addresses (RSD 142,144 thousand), partly due to a sent statements of outstanding items which were denied without specifying the reasons for his disputing, unsigned statements of outstanding items. The Group believes that the amount of unresolved statements of outstanding items is not material.





32. RELATED PARTY DISCLOSURES Business relationships with members of the Executive Board and other key personnel The Group enters into business relationships and arrangements with the members of the Executive Board and other key personnel and their related parties in the ordinary course of business, which are based on usual market conditions. The balances are shown in the following table:

As at 31

December 2014

As at 31

December 2013

Overdrafts, credit cards, cash and consumer loans 3,935

1,524 Mortgage loans 12,640 16,987 Other investments and receivables 2,811 2,378 Deposits 137,121 117,466





32. RELATED PARTY DISCLOSURES (continued) The effects of transactions with related parties - legal entities The Group enters into transactions with the parent bank Credit Agricole SA Paris and the other members of the Credit Agricole Group. Following tables show the balance of assets and liabilities and the corresponding income and expenses based on business relationships with related parties as of the balance sheet date:

2014 Credit Agricole

S.A. Paris

CA CIB

Cariparma CA Assurance CA Cards &

Payments Silca Progica Lesica

Loans and receivables 385,853

-

- - - - - - Investments in subsidiaries -

-

- - - - - -

Other assets 2,996

668

- - - - - -

Total assets 388,849

668

- - - - - -

Deposits and other liabilities 11,030,533

1,130

- - - - - - Subordinated liabilities 2,434,608

- - - - - -

Other liabilities 57,274

73

- - - 613 - 427

Total liabilities 13,522,415

1,203

- - - 613 - 427

Interest income 175

-

- - - - - - Fee Income 2,702

39,601

51 - - - - -

Net foreign exchange gains - 12,093 - - - - - - Other income 1,332

-

- 3,347 - - - -

Total income 4,209

51,694

51 3,347 - - - -

Interest expense 256,522

43,357

- - - - - - Fee expense 83,482

-

- - - - - -

Net foreign exchange losses 899,483 - - - - - - - Other expenses 116,365

156

- - 4,784 2,286 3,096 2,189

Total expenses 1,355,852

43,513

- - 4,784 2,286 3,096 2,189





32. RELATED PARTY DISCLOSURES (continued) The effects of transactions with related parties - legal entities (continued)

2013 Credit Agricole

S.A. Paris

CA CIB

Cariparma

CA

Assurance CA Cards & Payments Silca Progica Lesica

Loans and receivables 290,743

-

-

- - - - -

Investments in subsidiaries -

-

- - - - - - Other assets 1,928

156,981

- - - - - -

Total assets 292,671

156,981

-

- - - - -

Deposits and other liabilities 12,935,630

1,504

- - - - - - Subordinated liabilities 2,316,433

-

- - - - - -

Other liabilities 40,816

156,604

51 3,173 - 405 693 -

Total liabilities 15,292,879

158,108

51

3,173 - 405 693 -

Interest income 79

-

- - - - - - Fee Income 3,132

56,019

- - - - - -

Net foreign exchange gains - - - - - - - - Other income 4,822

-

- - - - - -

Total income 8,033

56,019

-

- - - - -

Interest expense 273,492

-

- - - - - - Fee expense 33,033

32,561

- - - - - -

Net foreign exchange losses 79,335 4,398 - - 9 - - - Other expenses 89,047

607

- 8,817 3,793 3,202 2,027 1,936

Total expenses 474,907

37,566

-

8,817 3,802 3,202 2,027 1,936





32. RELATED PARTY DISCLOSURES (continued)

The remuneration of the Board of Directors and Executive Committee, presented in gross amount, in the course of 2014 and 2013 are shown in the following table:

Balance as at 31 December

2014

Balance as at 31 December

2013

Salaries of the Executive Committee 102,973 85,258 The remuneration of the Board of Directors 4,600 3,341 Accrued other income 24,340 22,569

Total 131,913 111,168

33. FINANCIAL RISK MANAGEMENT

33.1. Introduction

Risk is inherent in the Group's activities but it is managed through a process of ongoing identification, measurement and monitoring, setting risk limits and other controls. This process of risk management is critical to the Group’s continuing profitability and each individual within the Group is accountable for the risk exposure relating to his or her responsibilities. The Group is exposed to credit risk, liquidity risk and market risk. The Group is also exposed to operational risk. The independent risk management process does not include business risks such as changes in the environment, technology and industry. They are monitored through the Group’s strategic planning process.

The Group is exposed to the following risks: credit risk, liquidity risk, interest rate risk, currency risk, operational risk, risk of exposure to a single entity or group of related persons (concentration risk), risk of investments and country risk.

Risk management structure

The Board of Directors and the Executive Board are ultimately responsible for identifying and controlling risks. However, the Group established separate independent bodies responsible for managing and monitoring risks.

Board of Directors and Executive Board

The Board of Directors and the Executive Board are responsible for the overall risk management approach and for approving the risk management strategies and principles.

Audit Committee

The Audit Committee is responsible for monitoring the overall risk management process within the Bank.

Risk Management Committee

The Risk Management Committee has overall responsibility for the development of risk management strategy and the implementation of principles, frameworks, policies and limits. The Committee is also responsible for fundamental findings relating to risk as well as for managing and monitoring relevant risk related decisions.

Risk Management Department

The Risk Management Department is responsible for the implementation and maintenance of risk related procedures which ensure independent process control.





33. FINANCIAL RISK MANAGEMENT (continued) 33.1. Introduction (continued) Risk Control Department The Risk Control Department is responsible for monitoring compliance with principles, policies and limits set by the Group. Within each business group there is a decentralized unit which is responsible for independent risk control, including risk monitoring in accordance with the set limits, as well as for monitoring risks arising from the introduction of new products and complex transactions. This unit also ensures that risk is incorporated in the risk measurement and reporting system. Assets and Liabilities Committee (ALCO) The committee for liquidity management is responsible for managing the Group's assets and liabilities and the overall financial structure. Also, the committee is primarily responsible for sources of funding and the Group's liquidity. Internal Audit The process of risk management in the Group is controlled at least once a year by the internal audit function which examines procedure adequacy as well as the Group's compliance with the adopted procedures. The internal auditors discuss the results of their work with the Group's management and reports on their findings and recommendations to the Audit Committee. a) Risk management and reporting systems The Group's risks are measured using a method that reflects both the expected losses likely to arise in normal circumstances and unexpected losses, which are an estimate of the ultimate actual losses based on statistical models. The models use probability derived from historical data, adjusted to reflect the current economic environment. The Group also runs the worst case scenarios that would arise in the event that extreme events which are unlikely to occur, in fact, occur. Monitoring and controlling risks is primarily based on limits setting. The limits reflect the Group’s business strategy and market environment, as well as the level of risk the Group is willing to accept. The Group also monitors and measures the overall risk bearing capacity taking into account the aggregate risk exposure across all risks types and activities. Information compiled from all business activities are examined and processed in order to identify, analyze and control early risks. This information is presented and explained to the Board of Directors, the Executive Board, the Risk Management Committee and managers of all business units. The reports include: aggregate credit exposure, credit metric forecasts, hold limit exceptions, market risk measuring, liquidity ratios and risk profile changes. The Group’s senior management quarterly assess the adequacy of loan impairment. An extensive report on risks that includes all relevant information needed to assess and make conclusions on the Group's risk exposure is presented to the Audit Committee at least quarterly. For each new level in the Group separate risk management reports are prepared so that all business units may have access to detailed, necessary and updated information. Daily reports on the utilization of market limits, liquidity and foreign exchange risk as well as other important information are submitted to all Executive Directors and relevant members of the Group’s Executive Board.





33. FINANCIAL RISK MANAGEMENT 33.1. Introduction (continued) b) Excessive risk concentration Risk concentration arises when a significant number of counterparties are engaged in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political and other conditions. Risk concentration indicates the relative sensitivity of the Group's performance to changes affecting a particular industry of geographical location. In order to avoid excessive risk concentration, the Group's policies and procedures include specific guidelines for development and maintenance of a diverse portfolio. Identified concentrations of credit risks are controlled and managed accordingly. 33.2. Credit risk Credit risk is the risk that certain receivables of the Group will not be fully collected in view of the conditions under which they were initially approved, i.e. the risk that the debtors will be unable or unwilling to fulfil their contractual obligations. Debtor means any natural or legal person who has an on- and/or off-balance sheet obligation towards the Group. The only debtors the Group has are related parties according to the terms of Article 2 of the Law on Banks. The process of credit risk management is based on general principles:

1) The application of a consistent approach and unique standards in the process of making decisions on the Group 's loans and advances;;

2) The Group sets the limit of total exposure to one debtor, where debtor means a group of related parties in accordance with provisions of the Law on Banks;

3) The Group monitors and manages the level of the debtor's total exposure in accordance with the Group adopted credit policy;

4) All individual decisions on loans and advances and all material amendments to contracts concluded are approved by relevant authorities only;

5) The competency of individuals in the process of making decisions on the Group's loans and advances is determined in accordance with their qualifications, expertise and experience which are subject to periodic assessment.

The key element of the credit risk minimization is the loan classification criteria developed internally by the Group. These criteria are in accordance with the National Bank of Serbia regulations and they are harmonized with the standards and criteria of the Credit Agricole Group. Debtor evaluation methods are based on the analysis of: (1) client's prior period financial statements (not less than three years); (2) present and future plans and expectations with respect to client's operations; (3) client's credit history; (4) quality of collaterals; (5) non-financial parameters (client's organization structure, quality of management. competitive advantage and image); quality and number of guarantors-payers who ensure repayment of loans, etc. first when reviewing and analyzing the loan application and then while monitoring repayment of the loan. All guarantor-payers with respect to each of the Group's receivables are subject to the same process of evaluation of creditworthiness as the principal debtor. In accordance with the NBS Decision on Risk Management by Banks, the Group set up organizational units that are responsible for risk protection and the Client Support Department responsible for informing clients of: their obligations towards the Group, current portions, possible delays in payment and open issues. This department carries out forced collection where clients fail to fulfil their contractual obligations within agreed deadlines and submits data to the law office that initiates debt collection proceedings.





33. FINANCIAL RISK MANAGEMENT (continued) 33.2. Credit risk Contingent liability risks related to credit risk The Group issues guarantees and letters of credit to its customers which may require that the Group make payments in favor of third parties. In this way the Group is exposed to risks relating to credit risk which can be mitigated by the same control processes and procedures. Concentration of risks with maximum credit risk exposure The Group's maximum exposure to credit risk is reflected in the gross carrying amounts of financial assets on the Balance sheet. For guarantees and commitments to extend credit, the maximum exposure to credit risk is the amount of the commitment. The concentration risk is the risk of loss resulting from the Group's large exposure to a particular group of debtors or individual debtor. Concentration of credit risk arises when a significant number of customers belong to the same industry or the same geographic region, or have similar economic characteristics and they are exposed to the same factors affecting revenues and expenditures of customers which can have an impact on the settlement of their contractual obligations in the event of changes in economic, political or other circumstances that affect them equally. In order to achieve and maintain and secure credit portfolio and to minimize concentration risk, establish the security measures the maximum levels of exposure and credit limits as well as regular monitoring of compliance with the established limits. In accordance with the Decision on Risk Management by Banks ("RS Official Gazette" no. 112/08, 45/11, 94/11, 119/12, 123/12, 23/13, 43/13 and 92/13) large exposure Group to one person or a group of related persons constituting the exposure of at least 10% of the capital.





33. RISK MANAGEMENT (continued)

33.2. Credit risk (continued)

Maximum exposure to credit risk

The maximum exposure to credit risk is expressed in the gross value of financial assets in the balance sheet. For guarantees and commitments to extend credit, the maximum amount of exposure is the true amount of the obligation. In year 2014 the amount of RSD 11,441,100 thousand consists of RSD 871 thousand irrevocable and the RSD 11,440,229 thousand revocable commitments (2013: RSD 951,679 thousand revocable and RSD 11,105,838 thousand irrevocable liabilities).

31.12.2014.

31.12.2013.

Classes of financial assets

Maximum exposure to credit

risk

Allowance for impairment

by group assessment

Net balance sheet

exposure to credit risk

Maximum balance

sheet exposure to

credit risk

Allowance for

impairment

by group assessment

Net balance sheet exposure

to credit risk

Balance on the account at the Central Bank 12.234.143 - - 12.234.143 10.026.727 - - 10.026.727

Financial assets held to maturity 1.074.584 - - 1.074.584 - - - -

Financial assets available for sale - - - - 93.914 71 71 93.843

Loans and receivables from banks and other financial institutions 834.955 4.649 4.649 830.306 4.494.206 2.306 104 4.491.900

Loans and receivables from customers 55.413.751 4.205.016 1.501.151 51.208.735 50.969.827 4.464.305 1.345.527 46.505.522

Other assets 113.121 50.501 35.473 62.620 116.280 53.024 33.986 63.256

As at December 31 69.670.554 4.260.166 1.541.273 65.410.388 65.700.954 4.519.706 1.379.688 61.181.248

Payment and performance guarantees 8.243.429 130.380 41 8.113.049 8.293.624 2.935 52 8.290.689

Uncovered letters of credit and given sureties 919.363 3 3 919.360 773.669 2 2 773.667

Unused contingent liabilities 11.441.100 2.409 2.409 11.438.691 12.057.517 2.646 2.646 12.054.871

As at December 31 20.603.892 132.792 2.453 20.471.100 21.124.810 5.583 2.700 21.119.227

TOTAL 90.274.446 4.392.958 1.543.726 85.881.488 86.825.764 4.525.289 1.382.388 82.300.475

The maximum exposure of the Group to credit risk as at 31 December 2014 and 31 December 2013, before taking into account collaterals can be analyzed by the following geographical areas, by

class of financial assets.






33.2. Credit risk (continued) Maximum exposure to credit risk


Total 2014

Serbia Other

Beograd

Vojvodina Other areas

Serbia European

union Other

countries

Balance on the account at the Central Bank 12.234.143 - - - - 12.234.143

Financial assets held to maturity

1.074.584

-

-

-

-

1.074.584 Loans and placements to banks and other financial institutions

5.464

44

4.118

809.223

16.106

834.955

Loans and placements to clients: 23.160.931 19.710.854 12.409.478 - 132.488 55.413.751 - Which of: Industry 9.416.379 7.846.964 3.724.745 - - 20.988.088 - Which of: Retail Customers 11.382.176 9.995.616 7.906.445 - - 29.284.237 - Which of: Public Sector 1.296.647 444.713 202.599 - - 1.943.959 - Which of :Other Customers 1.065.729 1.423.561 575.689 - - 3.064.979 - Which of: Foreign Customers - - - - 132.488 132.488 Other assets 46.199 40.388 26.405 101 28 113.121

Balance sheet assets 36.521.321 19.751.286 12.440.001 809.324 148.622 69.670.554

Commitments and contingent liabilities 12.135.638 5.568.434 2.084.597 815.223 - 20.603.892

Which of: Payable and performance guarantees

4.891.674

2.386.878

754.446

210.431

-

8.243.429

Which of: Uncovered letters of credit 187.790 106.267 20.514 604.792 - 919.363 Which of: Unused contingent liabilities

7.056.174

3.075.289

1.309.637

-

-

11.441.100

Maximum exposure to credit risk as at December 31

48.656.959

25.319.720

14.524.598

1.624.547

148.622

90.274.446

Categories of balance sheet assets and off-balance sheet items where the Group is exposed to credit risk as at December 31, 2013 are shown in the following table. In 2013, the amount of RSD 12,057,517 thousand consists of RSD 951,679 thousand irrevocable and RSD 11,105,838 thousand revocable commitments.






33.2. Credit risk (continued) Maximum exposure to credit risk (continued)


Total 2013

Serbia Other

Beograd

Vojvodina Other areas

Serbia European

union Other

countries

Balance on the account at the Central Bank 10.026.727

-

-

-

-

10.026.727


-

-

-

68.842

25.072

93.914 Loans and placements to banks and other financial institutions

3.905.584

3.163

47

536.657

48.755

4.494.206

Loans and placements to clients: 22.077.679 17.678.615 11.102.975 - 110.558 50.969.827 - Which of: Industry 9.589.670 7.920.326 2.962.138 - - 20.472.134 - Which of: Retail Customers 9.640.212 7.745.739 7.284.061 - - 24.670.012 - Which of: Public Sector 1.431.983 479.175 211.714 - - 2.122.872 - Which of :Other Customers 1.415.814 1.533.213 645.062 - - 3.594.251 - Which of: Foreign Customers - - - - 110.558 110.558 Other assets 63.302 24.569 28.303 95 11 116.280

Balance sheet assets 36.073.292

17.706.347

11.131.325

605.594

184.396

65.700.954

Commitments and contingent liabilities 11.161.081

6.628.056

2.602.607

733.066

-

21.124.810


5.050.595

2.169.122

914.052

159.855

-

8.293.624 Which of: Uncovered letters of credit 132.488 46.475 21.495 573.211 - 773.669

Which of: Unused contingent liabilities

5.977.998

4.412.459

1.667.060

-

-

12.057.517

Maximum exposure to credit risk as at December 31

47.234.373

24.334.403

13.733.932

1.338.660

184.396

86.825.764







Analysis by classes of financial assets for balance sheet assets and off-balance sheet items as at 31 December 2014, which are classified by industrial sectors, before taking into account collateral is shown in the following table:

Classes of financial assets Financial activities

Retail customers

Processing industry Commerce Mining Agriculture Construction Transportation Service Other Total

Balance on the account at the Central Bank

12.234.143

-

-

-

-

-

-

-

-

-

12.234.143


1.074.584

-

-

-

-

-

-

-

-

-

1.074.584

Loans and placements to banks

834.955

-

-

-

-

-

-

-

-

-

834.955

Loans and placements to clients:

271.037

27.706.516

8.171.797

8.634.481

555.650

3.239.566

932.660

3.411.457

126.232

2.364.355

55.413.751

- Which of: Industry - - 6.971.369 7.275.975 496.461 2.791.218 498.695 1.373.548 61.058 1.519.764 20.988.088

- Which of: Retail Customers

-

27.706.516

244.313

703.414

53.077

365.020

25.271

26.213

49.374

111.039

29.284.237

- Which of: Public Sector

138.549

-

164.915

49

475

68.266

10.759

1.118.875

230

448.841

1.943.959

- Which of :Other Customers

-

-

791.200

655.043

5.637

15.062

397.935

899.821

15.570

284.711

3.064.979

- Which of: Foreign Customers

132.488

-

-

-

-

-

-

-

-

-

132.488

Other assets 19.658 27.548 10.876 11.931 2.687 1.174 1.892 4.553 3.991 28.811 113.121

Balance sheet assets 14.434.377 27.734.064 8.182.673 8.646.412 558.337 3.240.740 934.552 3.416.010 130.223 2.393.166 69.670.554

Commitments and contingent liabilities 336.755 1.436.353 6.211.420 8.185.348 143 1.098.500 1.380.044 1.181.051 42.366 731.912 20.603.892


224.554

17.344

1.990.000

3.800.713

-

218.326

862.101

648.390

1.850

480.151

8.243.429

Which of: Uncovered letters of credit

-

-

676.441

40.355

-

-

-

184.424

18.143

-

919.363


112.201

1.419.009

3.544.979

4.344.280

143

880.174

517.943

348.237

22.373

251.761

11.441.100

As at December 31,2014 14.771.132 29.170.417 14.394.093 16.831.760 558.480 4.339.240 2.314.596 4.597.061 172.589 3.125.078 90.274.446






33.2. Credit risk (continued) Analysis by classes of financial assets for balance sheet assets and off-balance sheet items as at 31 December 2013, which are classified by industrial sectors, before taking into account collateral is shown in the following table:

Classes of financial assets Financial activities

Retail customers

Processing industry Commerce Mining Agriculture Construction Transportation Service Other Total

Balance on the account at the Central Bank

10.026.727

-

-

-

-

-

-

-

-

-

10.026.727

Financial assets held to maturity 93.914 -

-

-

-

-

-

-

-

-

93.914

Loans and placements to banks

4.494.206

-

-

-

-

-

-

-

-

-

4.494.206 Loans and placements to clients:

438.474

23.435.134

8.942.340

7.251.400

528.820

3.087.877

1.013.728

4.136.422

124.343

2.011.289

50.969.827 - Which of: Industry - 76.799 7.453.660 5.677.948 501.593 2.678.474 632.750 2.065.716 47.033 1.338.161 20.472.134 - Which of: Retail Customers

-

23.357.865

278.343

725.908

18.521

18.809

51.470

44.987

58.627

115.482

24.670.012 - Which of: Public Sector

327.916

470

156.248

3.731

3.092

82.438

13.689

1.055.582

291

479.415

2.122.872 - Which of :Other Customers

-

-

1.054.089

843.813

5.614

308.156

315.819

970.137

18.392

78.231

3.594.251 - Which of: Foreign Customers

110.558

-

-

-

-

-

-

-

-

-

110.558

Other assets 1.328 27.439 12.504 11.959 3.486 3.685 1.893 5.003 3.087 45.896 116.280

Balance sheet assets 15.054.649 23.462.573 8.954.844 7.263.359 532.306 3.091.562 1.015.621 4.141.425 127.430 2.057.185 65.700.954

Commitments and contingent liabilities 392.153 1.612.092 6.457.602 8.297.348 42.682 783.051 1.155.275 1.206.859 673.932 503.816 21.124.810


199.956

12.704

2.058.855

3.947.730

1.116

182.834

768.820

818.217

1.300

302.092

8.293.624

Which of: Uncovered letters of credit

-

-

591.758

39.417

-

-

-

125.297

17.197

-

773.669


192.197

1.599.388

3.806.989

4.310.201

41.566

600.217

386.455

263.345

655.435

201.724

12.057.517

As at December 31,2013 15.446.802 25.074.665 15.412.446 15.560.707 574.988 3.874.613 2.170.896 5.348.284 801.362 2.561.001 86.825.764






33.2. Credit risk (continued) Collateral and other credit risk protection assets Amount and type of demanded collateral depends of estimated credit risk of every client. The main types of collateral obtained are, as follows:

For commercial loans: cash deposits, guarantees, mortgages, pledges on movable property and pledge on receivables, deposits, guarantees of private individuals,

For retail loans: cash deposits, mortgages, pledges on movable property, and for home loans, insurance at National Mortgage Insurance Corporation.

The Group regularly monitors market value of collaterals, and demands additional collateral, if necessary in accordance with contracts. Also, market value of collateral is considered during evaluation of adequacy of impairment of on-balance sheet assets and provisions for losses for off-balance sheet items. Restructured loans Restructuring of loans to customers includes all activities undertaken by the Group, and that are changing all the relevant conditions under which the loan was originally approved. This includes changes in: maturity, interest rates, due date of the annuities, the amount of annuities, and similar. In case of deterioration of debtors financial situation restructuring of such credit can be carried out only under the terms and conditions described in the Group credit standards. Restructuring of receivables in this case is only possible if the new - restructured receivables are enabling the client to regularly service its obligations to the Bank and provided that the client, regardless of the deterioration of its financial position, has the ability to generate revenue that will allow the normal servicing of the debt. Regardless of whether the client is a private individual, entrepreneur, farmer or a legal entity, it is necessary to arrange a visit to arrange preparation of a report on financial monitoring of its operations or revenues before making a decision on the restructuring. Every restructuring of a loan is subject to prior approval of the Department of credit risk in the Group's Head Office.






33.2. Credit risk (continued) Total rescheduled and restructured loans as at 31 December 2014 and 31 December 2013, are presented in tables below, as well as the estimated amount of adequate security instruments which serve as collateral for these loans: Restructured loans to customers 31.12.2014. 31.12.2013.

Total restructured loans

The amount of adequate collaterals

for restructured loans


Net credit risk

exposure

Total restructured

loans

The amount of adequate

collaterals for restructured

loans

Allowance for

impairment

Net credit risk exposure

Loans and receivables from customers 1.383.602

2.485.741

648.231

735.371

1.830.514

3.205.065

889.468

941.046

Rescheduled loans to customers 31.12.2014. 31.12.2013.

Total rescheduled loans

The amount of adequate collaterals

for rescheduled loans


Net credit risk

exposure

Total rescheduled

loans

The amount of adequate

collaterals for rescheduled

loans

Allowance for

impairment

Net credit risk exposure

Loans and receivables from customers 303.849

914.801

2.561

301.288

474.813

277.532

6.179

468.634

Collection of debts overdue and impaired receivables by the sale of the security instrument In accordance with the Group’s policies taken collaterals are sold in the normal course of business. In this way, uncollected amounts due from customers are reduced or settled. Typically, the Group doesn’t use property acquired this way for business purposes.





33. RISK MANAGEMENT (continued) 33.2. Credit risk (continued) Quality of financial assets is managed by the Group using internal credit ratings. The following table shows loan placements quality by class of financial assets that are exposed to credit risk as at 31 December 2014. In 2014 the amount of RSD 11,441,100 thousand consists of RSD 871 thousand irrevocable and RSD 11,440,229 thousand revocable commitments (2013: RSD 951,679 thousand RSD revocable and 11,105,838 thousand irrevocable liabilities). Amounts are presented gross without deduction for impairment, but less deferred fees:

Neither past due nor impaired

Classes of financial assets High grade

of quality Standard

grade Standard

grade

Past due but not

impaired Impaired Total 2014

Cash and balances with central bank 12.234.143 - - - - 12.234.143 Financial assets held to maturity 1.074.584 - - - - 1.074.584 Loans and placements to banks and other financial institutions 826.555 13 - 3.743 4.644

834.955

Loans and placements to clients: 8.995.961 35.426.836 778.847 3.355.118 6.856.989 55.413.751 - Which of: Industry 3.676.516 13.035.171 618.762 1.133.403 2.524.236 20.988.088 - Which of: Retail Customers 5.089.316 20.541.445 143.847 1.922.194 1.587.435 29.284.237 - Which of: Public Sector 142.260 1.557.349 16.203 15.202 212.945 1.943.959 - Which of :Other Customers 87.869 160.383 35 284.319 2.532.373 3.064.979 - Which of: Foreign Customers - 132.488 - - - 132.488 Other assets 24.256 29.757 10 6.625 52.473 113.121

Balance sheet assets 23.155.499 35.456.606 778.857

3.365.486 6.914.106

69.670.554

Commitments and contingent liabilities 12.149.592 7.142.116 422.870 45.080

844.234

20.603.892

Which of: Payable and performance guarantees 2.522.867 4.537.324 308.959 31.427

842.852

8.243.429 Which of: Uncovered letters of credit 604.791 314.572 - -

-

919.363

Which of: Unused contingent liabilities 9.021.934 2.290.220 113.911 13.653

1.382

11.441.100

As at December 31 35.305.091 42.598.722 1.201.727 3.410.566 7.758.340 90.274.446





33. RISK MANAGEMENT (continued) 33.2. Credit risk (continued) The following table presents a review of placements that are individually and collectively impaired:

Classes of financial assets Impaired

Individually

Collectively

Total impaired

Cash and balances with central bank -

-

-

Financial assets held to maturity - - -

Loans and placements to banks and other financial institutions - 4.644 4.644

Loans and placements to clients: 5.134.196 1.722.793 6.856.989

- Which of: Industry 2.158.129 366.107 2.524.236

- Which of: Retail Customers 330.802 1.256.633 1.587.435

- Which of: Public Sector 212.507 438 212.945

- Which of :Other Customers 2.432.758 99.615 2.532.373

Other assets 15.212 37.261 52.473

Balance sheet assets 5.149.408

1.764.698

6.914.106

Commitments and contingent liabilities 842.852

1.382

844.234

Which of: Payable and performance guarantees 842.852

-

842.852

Which of: Uncovered letters of credit - - -

Which of: Unused contingent liabilities - 1.382 1.382

Total 5.992.260

1.766.080

7.758.340





33. RISK MANAGEMENT (continued) 33.2. Credit risk (continued) In 2013 the amount of RSD 12.057.517 thousand consists of RSD 951,679 thousand RSD revocable and 11,105,838 thousand irrevocable liabilities The following table presents the credit quality by class of financial assets that are exposed to credit risk as at 31 December 2013:

Neither past due nor impaired

Classes of financial assets High grade of

quality Standard

grade Standard

grade

Past due but not

impaired

Impaired Total 2013

Cash and balances with central bank 10.026.727 - - - - 10.026.727 Financial assets held to maturity - 93.914 - - - 93.914 Loans and placements to banks and other financial institutions 4.491.842 58 - - 2.306

4.494.206

Loans and placements to clients: 7.697.074 32.587.686 1.280.304 2.097.175 7.307.588 50.969.827 - Which of: Industry 2.865.097 13.071.190 947.597 1.154.425 2.239.875 20.278.184 - Which of: Retail Customers 4.461.283 17.830.503 327.757 645.527 1.596.695 24.861.765 - Which of: Public Sector 365.516 1.532.618 4.950 22.943 196.719 2.122.746 - Which of :Other Customers 5.178 42.817 - 274.280 3.274.299 3.596.574 - Which of: Foreign Customers - 110.558 - - - 110.558 Other assets 27.170 26.843 7 6.218 56.042 116.280

Balance sheet assets 22.242.813 32.708.501 1.280.311

2.103.393 7.365.936 65.700.954

Commitments and contingent liabilities 10,478,399 7,663,768 2,952,117 17,223

13,303

21,124,810

Which of: Payable and performance guarantees 2,026,249 5,235,613 1,010,466 10,523

10,773

8,293,624

Which of: Uncovered letters of credit 583,942 171,179 18,548 -

-

773,669

Which of: Unused contingent liabilities 7,868,208 2,256,976 1,923,103 6,700

2,530

12,057,517

As at December 31 32.721.212 40.372.269 4.232.428 2.120.616 7.379.239 86.825.764






33.2. Credit risk (continued) The following table presents a review of placements that are individually and collectively impaired:

Classes of financial assets Impaired

Individually Collectively Total

Cash and balances with central bank - - -

Financial assets held to maturity - - - Loans and placements to banks and other financial institutions 2.202 104 2.306

Loans and placements to clients: 5.736.146 1.571.442 7.307.588

- Which of: Industry 2.023.775 216.100 2.239.875

- Which of: Retail Customers 341.728 1.254.967 1.596.695

- Which of: Public Sector 196.434 285 196.719

- Which of :Other Customers 3.174.209 100.090 3.274.299

Other assets 19.691 36.351 56.042

Balance sheet assets 5.758.039 1.607.897 7.365.936

Commitments and contingent liabilities 10.108 3.195 13.303

Which of: Payable and performance guarantees 10.108 665 10.773

Which of: Uncovered letters of credit - - -

Which of: Unused contingent liabilities - 2.530 2.530

Total 5.768.147 1.611.092 7.379.239

Category of unmatured and uncovered financial assets that are presented in the table above shows performing of placements without delay with the following qualities:

high level of quality (this category contains receivables classified as unmatured, not doubtful, and without impairment);

standard level of quality (this category contains receivables classified as unmatured, not doubtful, and with collective impairment);

substandard level of quality (this category contains receivables classified as unmatured, not doubtful but in status underwatch or watch , and with collective impairment);

Overdue but not impaired financial assets include receivables, which are overdue from one to 90 days, including 90 days overdue, under collective impairment but which are not cllasified as doubtful, as well as doubtful individual receivables which are under individual assessment but without impairment. Impaired placements are doubtful receivables which are 90 or more days overdue, with impairment that can be calculated individually or collectively.






33.2. Credit risk (continued) The table below presents past due but not impaired financial assets which are classified according to overdue intervals, in accordance with the Group's internal methodology for calculation of impairment allowances at 31 December 2014 and at 31 December 2013. Overdue but not impaired financial assets classified according to overdue intervals as at 31 December 2014:

Up to 1 month

From 1 to 2 months

From 2 to 3 months

More than 3 months Total 2014

Loans and placements to banks and other financial institutions 3.743 - - - 3.743

Loans and placements to clients: 2.560.393 297.696 181.169 315.860 3.355.118

- Which of: Industry 1.106.174 15.834 9.934 1.461 1.133.403

- Which of: Retail Customers 1.445.265 281.862 164.583 30.484 1.922.194

- Which of: Public Sector 8.550 - 6.652 - 15.202

- Which of :Other Customers 404 - - 283.915 284.319

- Other assets 6.408 129 83 5 6.625

Balance sheet assets 2.570.544 297.825 181.252 315.865 3.365.486

Commitments and contingent liabilities 43,374 1,679 27 - 45,080

Which of: Uncovered letters of credit 31,427 - - - 31,427

Which of: Unused contingent liabilities 11,947 1,679 27 - 13,653

Total 2.613.918 299.504 181.279 315.865 3.410.566

Overdue but not impaired financial assets classified according to overdue intervals as at 31 December 2013:

Up to 1 month

From 1 to 2 months

From 2 to 3 months

More than 3 months

Total 2013

Loans and placements to clients: 1.348.127 199.767 273.950 275.331 2.097.175

- Which of: Industry 917.291 61.783 173.983 1.367 1.154.424

- Which of: Retail Customers 420.636 137.892 87.000 - 465.528

- Which of: Public Sector 9.976 - 12.967 - 22.943

- Which of: Other Customers 224 92 - 273.964 274.280

- Other assets 5.932 27 259 - 6.218

Balance sheet assets 1.354.059 199.794 274.209 275.331 2.103.393

Commitments and contingent liabilities 14,824 2,365 34 - 17,223

Which of: Uncovered letters of credit 10,417 106 - - 10,523

Which of: Unused contingent liabilities 4,407 2,259 34 - 6,700

Total 1.368.883 202.159 274.243 275.331 2.120.616






33.2. Credit risk (continued) Assessment of impairment Most significant factors taken into account during the loan impairment assessment: whether any payments of principal or interest are overdue more than 90 days, observed weaknesses in the cash flows of customers, credit rating downgrades, or breach of the contract. The Group assesses impairment on an individual and group basis, depending on whether there is objective evidence of impairment for credit losses. Group determines the amount of allowances for impairment on an individual basis for all clients / groups of related parties, for which there is objective evidence of impairment of receivables and whose total exposure exceed RSD 4 million on the day of valuation, as well as for all exposures that are recorded off-balance, on the basis of present value of estimated future cash flows. When determining the amount of allowance for impairment, Group takes into account the expected future payments from operating activities of the client or collection from collateral. If the customer is experiencing financial difficulties, Group also examines clients possibility of obtaining his business plan, the ability of the client to improve performance and real value by which the collateral can be realized and the timing of realization of collateral, as well as the availability of alternative financial support to customers, the ability for collection of overdue receivables, and timing of the expected cash flows. Allowances are evaluated at each balance sheet date, except in cases when unpredictable circumstances require more careful attention.







In 2014 the amount of RSD 11,441,100 thousand consists of RSD 871 thousand irrevocable and RSD 11,440,229 thousand revocable commitments (2013: RSD 951,679 thousand RSD revocable and 11,105,838 thousand irrevocable liabilities). The following table presents the maximum exposure to credit risk by class of financial assets with fair value of collateral at December 31, 2014:



risk

Fair value of collateral

Net amount of collateral

Net exposure 2014. Deposits Guarantees Mortgages Other

Surplus of collateral

Balance on the account at the Central Bank 12.234.143 - - - - - - 12.234.143

Financial assets held to maturity 1.074.584 - - - - - - 1.074.584

Loans and receivables from banks and

other financial institutions 834.955 - - - - - - 834.955

Loans and placements to clients: 55.413.751 1.743.244 575.560 27.219.038 64.042 8.382.868 21.219.016 34.194.735

- Which of: Industry 20.988.088 915.461 571.753 8.608.474 46.124 3.490.500 6.651.312 14.336.776

- Which of: Retail Customers 29.284.237 518.473 3.807 15.903.921 17.918 4.000.437 12.443.682 16.840.555

- Which of: Public Sector 1.943.959 11.104 - 407.275 - 178.866 239.513 1.704.446

- Which of :Other Customers 3.064.979 298.206 - 2.299.368 - 713.065 1.884.509 1.180.470

- Which of: Industry 132.488 - - - - - - 132.488

Other assets 113.121 - - 207 - 125 82 113.039

Balance sheet assets 69.670.554 1.743.244 575.560 27.219.245 64.042 8.382.993 21.219.098 48.451.456

Commitments and contingent liabilities 20,603,892 2,237,222 3,197,650 3,107,848 - 2,555,018 5,987,702 14,616,190

Which of: Payable and performance guarantees 8,243,429 586,349 2,107,813 2,481,549 - 1,818,312 3,357,399 4,886,030

Which of: Uncovered letters of credit 919,363 604,792 - 15,293 - - 620,085 299,278

Which of: Unused contingent liabilities 11,441,100 1,046,081 1,089,837 611,006 - 736,706 2,010,218 9,430,882

As at December 31, 2014 90.274.446 3.980.466 3.773.210 30.327.093 64.042 10.938.011 27.206.800 63.067.646

The Table presents the fair value of collateral after applying hair-cut, and surplus of collateral (amount of collateral above the level of claims).





33. RISK MANAGMENT (continued)


In 2013 the amount of RSD 12,057,517 thousand consists of RSD 951,679 thousand irrevocable and RSD 11,105,838 thousand revocable commitments.

The following table presents the maximum exposure to credit risk by class of financial assets with fair value of collateral at December 31, 2013:



risk

Fair value of collateral

Net amount of collateral

Net exposure 2013. Deposits Guarantees Mortgages Other

Surplus of collateral

Balance on the account at the Central Bank 10.026.727 - - - - - - 10.026.727

Financial assets held to maturity 93.914 - - - - - - 93.914

Loans and receivables from banks and

other financial institutions 4.494.206 2.293 - - - 1.403 890 4.493.316

Loans and placements to clients: 50.969.827 1.474.040 357.918 25.597.767 48.398 9.249.701 18.228.422 32.741.405

- Which of: Industry 20.472.134 775.407 346.841 7.197.873 42.929 2.869.176 5.493.874 14.978.260

- Which of: Retail Customers 24.670.012 418.874 11.077 13.669.921 5.469 3.626.995 10.478.346 14.191.666

- Which of: Public Sector 2.122.872 - - 327.967 - 131.255 196.712 1.926.160

- Which of :Other Customers 3.594.251 279.759 - 4.402.006 - 2.622.275 2.059.490 1.534.761

- Which of: Foreign Customers 110.558 - - - - - - 110.558

Other assets 116.280 - - 1.348 - 1.262 86 116.194

Balance sheet assets 65.700.954 1.476.333 357.918 25.599.115 48.398 9.252.366 18.229.398 47.471.556

Commitments and contingent liabilities 21,124,810 2,083,366 3,129,669 2,405,628 - 2,013,056 5,605,607 15,519,203

Which of: Payable and performance guarantees 8,293,624 391,054 1,835,792 2,039,348 - 1,185,722 3,080,472 5,213,152

Which of: Uncovered letters of credit 773,669 573,211 - 35,983 - 21,738 587,456 186,213

Which of: Unused contingent liabilities 12,057,517 1,119,101 1,293,877 330,297 - 805,596 1,937,679 10,119,838

As at December 31, 2013 86.825.764 3.559.699 3.487.587 28.004.743 48.398 11.265.422 23.835.005 62.990.759

The Table presents the fair value of collateral after applying hair-cut, and surplus of collateral (amount of collateral above the level of claims).






33.2. Credit risk (continued) Collectively assessed allowances The Group assesses impairment allowances collectively for loans that are not individually significant (including credit cards, residential loans and unsecured loans to customers), and for loans that are individually significant but for which there is no objective evidence of individual impairment. Impairment allowance is assessed at each balance sheet date where each credit portfolio, representing a specific group of loans and advances with similar characteristics, receives a separate review. The collective assessment includes impairments that are likely to be present in the Group's credit portfolio even though there is no objective evidence of individual impairment. Impairment losses are estimated based on the following information: historical losses incurred on the credit portfolio; current economic conditions; the approximate delay between the time a loss has been incurred and the time it will be identified as requiring an individually assessed impairment allowance; the time the impaired asset will be collected or recovered. 33.3. Liquidity risk Liquidity risk is the risk of negative effects on the financial result and capital of the bank caused by the Group’s inability to meet all its due obligations. Liquidity risk arises from the inconsistency between cash inflows and outflows (structural liquidity risk) or inability to sell / convert financial instruments / assets in cash form, within a reasonable time and at an adequate price (liquidity risk of financial instruments). Group needs to ensure availability of funds from current accounts, matured customer deposits and loan withdrawals on a daily basis, without limitation. In order to reduce or limit this risk, Group seeks to diversify its funding resources, to manage assets with liquidity in mind, and to monitor future cash flows and short term liquidity. This includes assessment of expected cash flows and availability of high grade collateral which could be used to secure additional funding if required. Group manages its assets and liabilities in a way that ensures that all due obligations are settled at all times and that its customers have access to their assets in accordance with the agreed deadlines. The liquidity position is presented through the liquidity ratio that shows the proportion of the sum of primary and secondary liquid assets (cash, deposits with other banks, deposits with the NBS, receivables undergoing the process of realization, irrevocable lines of credit granted to the Group, quoted financial instruments, and other receivables of the Group that are due within one month) and the sum of on demand liabilities with no contracted maturity and liabilities with contracted maturity within the following month. Asset-liability committee (ALCO) is responsible for monitoring and managing liquidity risk and proposing measures and activities to the Executive Board for sustaining liquidity, matching maturity gaps, planning financing reserves and other measures important for the Group’s financial stability. The Group monitors a portfolio of highly liquid securities and diverse assets that can be easily converted into cash in the event of unforeseen fluctuations in the Group's cash flows. The Group also has credit lines that are available to meet immediate liquidity needs. Additionally, the Group maintains a mandatory reserve in RSD and foreign currency, in accordance with requirements of the National Bank of Serbia. The Group monitors its liquidity risk exposure at the level of externally and internally prescribed limits.






33.3. Liquidity risk (continued) The National Bank of Serbia prescribed minimum liquidity ratio which represents the external liquidity risk exposure limit and is equal to:

- at least 1.0 – when calculated as the average liquidity ratio for all business days in a month, - no less than 0.9 for a period longer than three consecutive days

- at least 0.8- when calculated for a single business day. In accordance with the Decision on Risk Management by Banks (Official Gazette of the Republic of Serbia, No. 45/11, 94/11, 119/12, 123/12, 23/13, 43/13 and 92/13) the Group is obliged to monitor the narrow liquidity ratio which is equal to:

- at least 0.7- when calculated as the average liquidity ratio for all business days in a month, - no less than 0.6 for a period longer than three consecutive days, - at least 0.5- when calculated for a single business day.

The Group calculates the liquidity ratio on a daily and monthly basis and submits to the National Bank of Serbia, within the prescribed deadlines and in the prescribed manner: Daily Liquidity Ratio Report and Monthly Liquidity Ratio Report. In addition to liquidity risk exposure limits and measures defined by external regulations, the Bank defines its own internal limits of exposure to liquidity risk and monitors them through internal reports on the Group's dinar and foreign currency liquidity which are submitted daily to the Group's management. The Group does not place a limit on the cash resources needed to regularly meet the financial needs of its customers. The Group's management believes that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The matching or controlled mismatching of the maturities of the Bank's assets and liabilities is fundamental to the management of the Group in the process of liquidity risk management. It is unusual for banks to be completely matched, as an unmatched item may not only increase the profitability, but also may increase the risk of loss. In line with the Group’s liquidity risk management policy, the following has been prescribed: the manner and the time of liquidity risk measurement and related responsibilities, setting of limits, and reporting on liquidity risk exposure, all with the aim of minimizing the liquidity risk. One of the key priorities of the Group is to ensure that all payment obligations are settled on time and that it fully complies with the NBS regulations. In view of the said, the Group has developed an adequate system for monitoring and planning liquidity that ensures effective management of assets and liabilities in terms of financial flows, cash flows and their concentration, with the aim of matching cash inflows and outflows. Liquidity planning implies the estimate of future liquidity needs taking into account the anticipation of changes in economic, political and legal conditions. Such planning implies the development of diverse strategies of assets and liabilities management in order to ensure the liquidity needs of the Group are met. In order to manage liquidity risk successfully, liquidity ratios and liquidity gaps are continuously monitored in accordance with adopted limits, by currency (RSD and EUR), by segments, by product, by monthly interest rates, whilst the data used for the analysis of the Group’s balance sheet structure also serve as a basis for establishing risk structure indicators and risk concentration indicators which are used to assess the level of liquidity risk.






33.3. Liquidity risk (continued) Liquidity ratio in 2014 and 2013 is as follows:

2014

2013

Average for the period 1.17

1.18

Maximum for the period 1.34

1.30 Minimum for the period 1.00

1.06

On 31 December 1.09

1.22 Narrow indicator of liquidity in 2014 and 2013 is as follows:

2014

2013

Average for the period 1.05

1.07

Maximum for the period 1.23

1.19 Minimum for the period 0.88

0.96

On 31 December 0.97

1.10 Analysis of financial liabilities by maturity The following table presents Group’s financial assets and liabilities by maturity, as at 31 December 2014, and is based on the contractual repayment amounts. The Group expects that most depositors will not withdraw their deposits at the maturity date agreed in the contract, and the following table does not reflect the expected cash flows based on the historical experience of the Group 's deposit retention.

Up to 1 month

From 1 to 3 months

From 3 to 12 months

From 1 to 5 years

More than 5 years

Total 2014.

Cash and balances with central bank 6.200.460

732.766

2.945.074

2.805.896

370.843

13.055.040

Financial assets held to maturity 15.271 263.840 285.588 509.885 - 1.074.584 Nostro accounts at foreign banks 825.329 - - - - 825.329 Loans and placements to clients 12.546.686 3.315.558 12.490.610 22.767.801 13.065.728 64.186.383

Total assets 19.587.746 4.312.164 15.721.272 26.083.582 13.436.571 79.141.335

Up to 1 month From 1 to 3

months From 3 to 12

months From 1 to 5

years More than 5

years

Total

Deposits and other liabilities to banks and other financial institutions 1.604.102

1.566.734

3.521.589

8.595.652

2.549.011

17.837.088 Deposits and other liabilities to other customers 25.923.889 2.047.277 7.899.336 5.878.962 30.447 41.779.911 Subordinated liabilities 7.600 15.200 68.402 364.810 2.692.775 3.148.787

Total liabilities 27.535.591 3.629.211 11.489.327 14.839.424 5.272.233 62.765.786






33.3. Liquidity risk (continued) The following table presents Group’s financial assets and liabilities by maturity, as at 31 December 2013, and is based on the contractual repayment amounts.


months From 3 to 12

months From 1 to 5

years More than 5

years Total 2013.

Cash and balances with central bank 3.432.798

1.331.250

3.041.992

2.915.192

230.847

10.952.079

Financial assets held to maturity 3.900.000 - - - - 3.900.000 Nostro accounts at foreign banks 585.412 - - - - 585.412 Loans and placements to clients 13.868.478 2.818.551 10.349.826 20.328.687 11.722.287 59.087.829

Total assets 21.786.688 4.149.801 13.391.818 23.243.879 11.953.134 74.525.320


months From 3 to 12

months From 1 to 5

years More than 5

years Total 2013,

Deposits and other liabilities to banks and other financial institutions 2.047.565

2.549.061

2.089.681

6.456.524

2.470.402

15.613.233 Deposits and other liabilities to other customers 22.548.335 2.205.219 8.215.250 5.292.875 35.751 38.297.429 Subordinated liabilities 7.490 14.980 67.410 359.518 2.742.240 3.191.637


The table below presents the maturity analysis of guarantees, letters of credit and other irrevocable commitments as at 31 December 2014 and 31 December 2013:


months From 3 to 12

months From 1 to 5

years More than 5

years Total 2014.

Contingent liabilities 2,064,146 1,840,114 3,471,195 1,806,216 - 9,181,671 Irrevocable commitments and letters of credit 4,618,287 - - 1,694 12,287 4,632,268

As at December 31, 2014 6,682,433 1,840,114 3,471,195 1,807,910 12,287 13,813,939


months From 3 to 12

months From 1 to 5

years More than 5

years Total 2013.

Contingent liabilities 940,762 1,047,542 2,729,868 3,445,849 946,547 9,110,568 Irrevocable commitments and letters of credit

2,047,838

-

457,009

-

700,668

3,205,515

As at December 31, 2013

2,988,600

1,047,542

3,186,877

3,445,849

1,647,215

12,316,083






33.3. Liquidity risk (continued) Assets and liabilities maturity structure analysis The table below provides an analysis of the maturities of assets and liabilities based on contractual terms of payment. Contractual maturities of assets and liabilities are determined based on the remaining period at the balance sheet date to the contractual maturity date. Maturity structure of assets and liabilities at 31 December 2014 is presented as follows:

Up to 1 month

From 1 to 3 months

From 3 to 12 months

From 1 to 5 years

More than 5 years Total 2014

ASSETS Cash and balances with central bank (Note 15) 13.850.517 - - - - 13.850.517 Financial assets held to maturity (Note 17) - 538.797 35.787 500.000 - 1.074.584 Loans and placements to banks and other financial institutions (Note 18) 830.306 - - - - 830.306 Loans and placements to clients (Note 19) 4.079.680 579.127 8.142.615 21.319.212 17.088.101 51.208.735

Total assets 18.760.503 1.117.924 8.178.402 21.819.212 17.088.101 66.964.142

LIABILITIES Deposits and other liabilities to banks, other financial organizations and Central Bank (Note 25) 3.453.800 50.000 389.261 7.477.347 5.912.255 17.282.663 Deposits and other liabilities to other customers (Note 26) 24.903.347 2.092.613 7.259.208 5.774.771 31.047 40.060.986 Subordinated liabilities (Note 27) 15.441 - - - 2.419.167 2.434.608


Total equity - - - - 8.441.261 8.441.261

Total liabilities and equity - - - - - 68.219.518

Maturity mismatch as at:

-31 December 2014 (9.612.085) (1.024.689) 529.933 8.567.094 284.371

-31 December 2013 (410.462) (3.101.445) (2.224.116) 1.122.088 3.255.481





33. RISK MANAGEMENT (continued) 33.4. Market risk Market risk is the risk that the fair value or expected future cash flows of financial instruments will fluctuate because of changes in market variables such as interest rates and foreign exchange rates. The Group is not exposed to the risk of changes in equity instruments price and price of goods. Except for the concentration of foreign exchange risk, the Group has no significant concentration of market risk for other items. a) Interest rate risk Interest rate risk arises from the possibility that movements in interest rates will affect future cash flows or the fair values of financial instruments. The Board of Directors has established limits on the interest rate gaps for stipulated periods. Balance sheet items are monitored on a daily basis to ensure that they are within the established limits. Interest rate risk is determined as the level of exposure of the Group's Balance sheet items to the adverse effects of movements in market interest rates, i.e. the impact on: the Group's current financial position (mainly net financial results) and capital adequacy. Thus, the basis for the setting of interest rates is market interest rates, and on the basis of their movements interest rates of the Group are regularly adjusted. The result of changes in interest rates might be increase or decrease of interest margins. The purpose of interest rate risk management, as part of the assets and liabilities management, is to determine the optimal interest rate and, consequently, the Group's revenues considering the market conditions and competitive environment, while at the same time matching the interest rate with the Group's assets and liabilities. Regarding this goal, it is very important to assess the sensitivity of revenues to sudden movements in market interest rate. For the purpose of hedging underlying exposure to interest rate risk, the Group sets a variable interest rate, matches the structure of interest-bearing assets and interest bearing liabilities and uses other interest rate risk management tools. The Bank manages the interest rate risk by doing one of the following:

a) adequately determining the level of interest margin i.e. matching the level of interest rates on interest sensitive assets and interest sensitive liabilities, with the same maturity and the timing of interest rate reset; and/or

b) ensuring the maturity match between interest sensitive assets and interest sensitive liabilities (when fixed interest rate is set), i.e. matching the timing (i.e. the interest rate reset period where variable interest rate is applied).

The summary of the Group's exposure to interest rate risk as at 31 December 2014 is prepared in accordance with the Group’s practice where despite the contractual right to change the agreed interest rates on loans and advances to customers, except for EURIBOR based loans, the Group will not use this right before the agreed maturity date, i.e. before the new contract date.






33.4. Market risk (continued)

a) Interest rate risk (continued)

The following table breaks down the Group 's exposure to interest rate risk as at 31 December 2014.and at 31 December 2013. Assets and liabilities are shown by the earlier of the interest reset date or the maturity date: Up to 1 month 1 to 3 months 3 to 6 months 6 to 12 months More than 1 year Non-interest Total 2014.

ASSETS Cash and cash equivalents with Central bank (Note 15) 5.842.852 - - - - 8.007.665 13.850.517 Financial assets held to maturity (Note 17) - 538.797 35.787 - 500.000 - 1.074.584 Loans and receivables to banks and other financial institutions (Note 18) - - - - - 830.306 830.306 Loans and receivables to customers (Note 19) 1.145.218 198.760 91.045 6.839.424 42.427.318 506.970 51.208.735

Total assets 6.988.070 737.557 126.832 6,839.424 42.927.318 9.344.941 66.964.142

LIABILITIES Deposits and other liabilities to banks, other financial organizations and Central Bank (Note 25) 565.599 478.018 1.816.374 1.095.357 12.733.506 593.809 17.282.663 Deposits and other liabilities to customers (Note 26) 11.045.729 1.425.218 962.986 6.167.489 9.148.829 11.310.735 40.060.986 Subordinated liabilities (Note 27) - - - - 2.434.608 - 2.434.608

Total liabilities 11.611.328 1.903.236 2.779.360 7.262.846 24.316.943 11.904.544 59.778.257

Net exposure to interest rate risk as at 31 December 2014

(4.623.258) (1.165.679) (2.652.528) (423.422) 18.610.375 (2.559.603) 7.185.885

Up to 1 month 1 to 3 months 3 to 6 months 6 to 12 months More than 1 year Non-interest Total 2013.

ASSETS Cash and cash equivalents with Central bank (Note 15) 5.022.626 - - - - 6.647.316 11.669.942 Financial assets available for sale (Note 16) - - - - - 93.843 93.843 Loans and receivables to banks and other financial institutions (Note 18) 3.900.000 - - - - 591.900 4.491.900 Loans and receivables to customers (Note 19) 2.479.690 152.969 241.981 9.260.845 33.804.504 565.533 46.505.522

Total assets 11.402.316 152.969 241.981 9.260.845 33.804.504 7.898.592 62.761.207

LIABILITIES Deposits and other liabilities to banks, other financial organizations and Central Bank (Note 25) 626.659 317.321 1.397.106 2.551.391 11.330.883 511.709 16.735.069 Deposits and other liabilities to customers (Note 26) 9.854.055 2.838.114 714.806 6.264.976 8.278.997 8.559.532 36.510.480 Subordinated liabilities (Note 27) - - - - 2.316.433 - 2.316.433

Total liabilities 10.480.714 3.155.435 2.111.912 8.816.367 21.926.313 9.071.241 55.561.982

Net exposure to interest rate risk as at 31 December 2013

921.602 (3.002.466) (1.869.931) (444.478) 11.878.191 (1.172.649) 7.199.225





33. RISK MANAGEMENT (continued) 33.4. Market risk (continued) a) Interest rate risk (continued) The Group is exposed to the effects of fluctuations in the levels of market interest rates on both its financial position and cash flows. Interest margin may increase or decrease as a result of such changes. Interest rates are based on market interest rates and the Group performs their matching on a regular basis. The aim of the interest rate risk management is to optimize net interest income and keep the market interest rates constant in accordance with the business strategy of the Group. ALCO coordinates the maturity matching of assets and liabilities based on: macroeconomic analyses and forecasts, forecasts of conditions for attaining liquidity, analyses and forecasts of interest rates market trends for different elements within assets and liabilities. Interest rate risk represents an adverse change in the active interest rates price compared to passive interest rates on one hand, and the possibility of reducing the optimal difference between average active and passive interest rates on the other. In managing the interest rate risk, the Group simulates expected and extreme changes in interest rates and makes projections on their effect on the income statement. Interest rate risk is also monitored by sensitivity analysis- scenario analysis, i.e. by observing the effect of interest rate fluctuations to the Group’s income and expenses. The following table presents the profit and loss statement sensitivity to the reasonably possible changes of interest rates (4% for RSD and 2% for EUR) with other variables held constant. The profit and loss statement’s sensitivity represents the effect of predicted changes in interest rates on net interest income in one year on financial assets and liabilities based on interest rates as at 31 December 2014 and 31 December 2013.

Currency

Changes in referent interest

rate

Income statement sensitivity

2014

Changes in referent interest

rate

Income statement

sensitivity 2013.

Increase of referent interest rate

RSD 4%

81.444

4%

304.845 EUR 2%

127.611

2%

92.739

Decrease of referent interest rate

RSD 4% (105.462) 4% (81.537) EUR 2% (129.461) 2% (366.923) b) Foreign exchange risk Foreign exchange risk is the risk of loss on open positions arising from fluctuations in the foreign exchange rate and, consequently, changes in the value of RSD compared to currencies in which the Group's loans and advances and payables are denominated. Risk exposure results in increased foreign exchange gains and losses that are recognized in the income statement. To reduce its exposure to foreign exchange risk, the Group has set up appropriate methods for its monitoring and measuring, internally determined the acceptable level of risk (which, certainly, must be in accordance with relevant laws and regulations) and the tools for risk management and hedge against unacceptable foreign currency positions.





33. RISK MANAGEMENT (continued) 33.4. Market risk (continued) b) Interest rate risk (continued) During 2014 the Group had a very active role in the domestic interbank foreign exchange market and used the opportunities of this market to efficiently manage its foreign exchange position. To reduce the adverse effects of foreign exchange rate fluctuations on the structure of foreign currency assets and liabilities, the Group monitored and measured the foreign exchange risk on a daily basis and performed the squaring of foreign exchange position. The following table shows the foreign currency risk as at 31 December 2014:

Position

EUR

USD

CHF

Other currencies

Total

Net spot position 34.191 715 45 12.556 47.507

Foreign currency assets 45.234.084 764.029 422.621 58.709 46.479.443

Foreign currency liabilities 45.199.893 763.314 422.576 46.153 46.431.936

Long open position 34.191 715 45 12.993 47.944

Short open position - - - 437 437

Net open position - - - - 47.944

Equity

- - - - 8.129.319

Foreign exchange risk

31 December 2014 0.59

Foreign exchange risk

31 December 2013 1.17

In managing the interest rate risk, the Group simulates expected and extreme changes in interest rates and makes projections on their effect on the income statement. The tables below show the effects of expected changes in interest rates on the Group’s profit, with all other variables remaining unchanged: Income statement sensitivity to changes of FX rates - 31 December 2014:

Currency Exchange rate

change

Income statement effect

in 000 RSD Exchange rate

change


in 000 RSD

EUR -15% 26,682 5% (8,894) USD -15% 107 5% (36) CHF 15% 7 5% (2) Income statement sensitivity to changes of FX rates - 31 December 2013:

Currency Exchange rate

change


in 000 RSD Exchange rate

change


in 000 RSD

EUR -15% 11,364 5% (3,788) USD -15% 1,215 5% (405) CHF -15% (19) 5% 6





33. FINANCIAL RISK MANAGEMENT (continued)


b) Foreign exchange risk (continued)

Following table shows Group’s exposure to foreign exchange risk on 31 of December 2014. Assets and liabilities are shown in their carrying amount.

On 31 of December 2014 EUR

USD

CHF

Other currencies

Total foreign exchange sub balance

RSD sub balance

Total

ASSETS

Cash and funds with Central bank (Note 15) 6.997.320

181.594

47.199

31.226

7.257.339

6.593.178

13.850.517

Financial assets available for sale (Note 16) -

-

-

-

-

-

-

Financial assets held to maturity (Note 17) -

-

-

-

-

1.074.584

1.074.584

Loans and advances to banks and other financial institutions

164.038

389.549

254.480

22.149

830.216

90

830.306

Loans and advances to clients (Note 19) 37.029.817

132.432

-

-

37.162.249

14.046.486

51.208.735

Intangible assets (Note 20) -

-

-

-

-

151.667

151.667

Property, plant and equipment (Note 21) -

-

-

-

-

1.449.613

1.449.613

Investment property (Note 22) -

-

-

-

-

102.824

102.824

Deferred tax asset (Note 14) -

-

-

-

-

187.558

187.558

Current tax assets -

-

-

-

-

2.230

2.230

Other assets (Note 23) 12.223

4

2

12

12.241

278.741

290.982

Total assets 44.203.398

703.579

301.681

53.387

45.262.045

23.886.971

69.149.016

LIABILITIES AND EQUITY

Deposits and other liabilities to banks and other financial organizations (Note 24)

15.704.295

2.272

528

-

15.707.095

1.575.568

17.282.663

Deposits and other liabilitiesTo clients (Note 25) 25.953.008

760.669

419.388

46.153

27.179.218

12.881.768

40.060.986

Subordinated liabilities (Note 26) 2.434.608

-

-

-

2.434.608

-

2.434.608

Provisions (Note 27) 130.200

3

-

-

130.203

89.230

219.433

Current tax liabilities (Note 14) -

-

-

-

-

10.091

10.091

Deferred tax liabilities (Note 14)

Other liabilities (Note 28) 65.477

370

-

-

65.847

634.127

699.974

Equity (Note 29) -

-

-

-

-

8.441.261

8.441.261

Total liabilities and equity 44.287.588

763.314

419.916

46.153

45.516.971

23.632.045

69.149.016

Off balance 118.381

60.450

118.28

5.322

302.433

-

-

Net foreign currency position at 31 December 2014

34.191

715

45

12.556

47.507





33. FINANCIAL RISK MANAGMENT (continued)


b) Foreign exchange risk (continued)

Foreign currency sub balance, except assets and liabilities denominated in the foreign currency, includes also assets and liabilities in dinars with foreign currency clause.

Following table shows Group’s exposure to foreign exchange risk on 31 of December 2013. Assets and liabilities are shown in their carrying amount.

On 31 of December 2013 EUR

USD

CHF

Other currencies

Total foreign exchange sub

balance

RSD sub balance

Total

ASSETS

Cash and funds with Central bank (Note 15) 6.148.857

131.564

34.177

52.448

6.367.046

5.302.896

11.669.942

Financial assets available for sale (Note 16) -

93.843

-

-

93.843

-

93.843

Financial assets held to maturity (Note 17)

Loans and advances to banks and other financial institutions

109.029

91.649

342.450

47.937

591.065

3.900.835

4.491.900

Loans and advances to clients (Note 19) 37.040.586

132.242

-

-

37.172.828

9.332.694

46.505.522

Intangible assets (Note 20) -

-

-

-

-

172.017

172.017

Property, plant and equipment (Note 21) -

-

-

-

-

1.485.345

1.485.345

Investment property (Note 22) -

-

-

-

-

106.327

106.327

Deferred tax asset (Note 14) -

-

-

-

-

196.127

196.127

Current tax assets -

-

-

-

-

6.040

6.040

Other assets (Note 23) 14.669

-

-

-

14.699

146.900

161.569

Total assets 43.313.141

449.298

376.627

100.385

44.239.451

20.649.181

64.888.632

LIABILITIES AND EQUITY

Deposits and other liabilities to banks and other financial organizations (Note 24)

16.014.145

3.559

324

-

16.018.028

717.041

16.735.069

Deposits and other liabilitiesTo clients (Note 25) 24.128.691

544.146

373.789

96.444

25.143.070

11.367.410

36.510.480

Subordinated liabilities (Note 26) 2.316.433

-

-

-

2.316.433

-

2.316.433

Provisions (Note 27) -

-

-

-

-

113.116

113.116

Deferred tax liabilities (Note 14) -

-

-

-

-

14.087

14.087

Other liabilities (Note 28) 145.196

309

-

-

145.505

587.263

732.768

Equity (Note 29) -

-

-

-

-

8.466.679

8.466.679

Total liabilities and equity 42.604.465

548.014

374.113

96.444

43.623.036

21.265.596

64.888.632

Net foreign currency position at 31 December 2014

708.676

(98.716)

2.514

3.941

616.415





33. FINANCIAL RISK MANAGEMENT (continued) 33.4. Market risk (continued) c) Operational risk Operational risk is the risk of the adverse effects on the Group’s financial result and equity due to system failures, human errors, fraud or external events. When controls cease to function, operational risks may damage reputation of the Group, can have legal consequences or lead to financial losses. The Group cannot expect to eliminate all operational risks, but through a rigorous control framework and by monitoring and responding to potential risks, the Group is able to manage these risks. Controls include effective segregation of duties, access, authorization and reconciliation of procedures, staff education and monitoring processes, including internal audit. d) Investment risk Investment risk includes the risk of equity investments in other legal entities and fixed assets. In accordance with the National Bank of Serbia, the Group monitors the amount of investment and the amount of regulatory capital. In accordance with its strategy the Group has defined the scope and dynamics of investment. The Group invests in fixed assets in accordance with their business needs. The Group’s strategy is to investment only in basic infrastructure necessary to support the Group’s operations. Also, the strategy is to limit these investments compared to the level of the Group’s capital and to comply with the requirements of the National Bank of Serbia. In addition, the Group has no strategy to invest in other entities in the financial and non-financial sector. e) Country risk The risk relating to the country of origin of entity to which the Group is exposed includes adverse effects which may influence Group’s financial result and capital due to the Group's inability to collect receivables from this counterparty, as a consequence of political, economic or social situation in the country of its origin. The Group's exposure to this risk is low because the Bank does not hold in its loan portfolio loans to individuals who are not residents. For legal entities that are not financial institutions, the Group grants funds only to those registered in the Republic of Serbia. In the case of entities with headquarters or residence outside the Republic of Serbia, the Group cannot do business with countries whose rating is below the rating of the Republic of Serbia f) Reputational risk Reputational risk is the risk of loss of current or future income and capital due to negative public opinion about the way the Group is doing business. The Group is not exposed to this risk due to the constant internal policy of managing this risk. 33.5. Capital management The Group's objectives when managing capital, which is a concept broader than the equity on the face of the income statement, are:

To comply with capital requirements set by the National Bank of Serbia

To provide the level and structure of capital that can support the expected growth of placements,

To safeguard its ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders.

To maintain a strong capital base to support the further development of its business.





33. FINANCIAL MANAGEMENT RISK (continued) 33.5. Capital management (continued) The Group’s management regularly monitors the Group's capital adequacy ratios and other performance indicators established by the National Bank of Serbia and quarterly reports to the NBS on the imposed ratios. Under the Law on Banks of the Republic of Serbia, banks are obliged to maintain a minimum capital amount of EUR 10 million in RSD equivalent calculated at the NBS official middle exchange rate and a minimum capital adequacy ratio of 12%, as well as to maintain the volume and the structure of their activities in accordance with performance indicators prescribed by the Decision on Risk Management by Banks (Official Gazette of the Republic of Serbia, No. 45/11, 94/11, 119/12 and 123/12) and the Decision on Capital Adequacy of Banks (Official Gazette of the Republic of Serbia, No. 46/11, 6/13 and 51/14). The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or make adjustments to the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders, or issue securities. No changes were made with respect to objectives, policies and processes compared to the previous year. The NBS Decision on Capital Adequacy of Banks (Official Gazette of the Republic of Serbia, No. 46/11 , 6/13 and 51/14), ) sets out the method of calculation of banks' capital and capital adequacy ratio. The stated Decision defines the basic capital of a bank (Tier 1 capital) as the amount comprising at least 50% of the bank's capital. Capital adequacy ratio of the Group equals to the ratio of the sum of the Group's capital and credit risk weighted assets, capital requirements related to foreign currency risk which is multiplied by the reciprocal value of the capital adequacy ratio (statutory 12%), capital requirements in relation to other market risks multiplied by the reciprocal value indicators of capital adequacy and capital requirements related to operational risk multiplied by the reciprocal value of the capital adequacy ratio. The Group implements internal capital adequacy assessment process (ICAAP), determines the available internal capital and performs its distribution, and develops a strategy and plan for capital management in accordance with the Decision on risk management. Provisions for estimated potential losses of financial resources in accordance with the requirements of the National Bank of Serbia In accordance with the Decision on classification of balance sheet assets and off-balance sheet items ("RS Official Gazette", no. 94/11, 57 / 12,123 / 12, 43/13, 113/13 and 135/14), the Group makes a provision for estimated balance sheet and off balance sheet losses according to criteria defined in the above Decision. According to the provisions of this Decision conditions are determined under which the Group is required to calculate provisions for estimated losses, which are calculated as the sum of: 0% of receivables classified in category A; 2% of receivables classified in category B; 15% of receivables classified in category C; 30% of receivables classified in category D; 100% of receivables classified in category E; Loans, placements and other exposures are classified into categories A, B, C, D and E in accordance with the evaluation of collectability of loans and other placements, depending upon: the debtor's delay in settlement of obligations, financial situation of debtor and the quality of acquired collateral instruments.





33. FINANCIAL MANAGEMENT RISK (continued)

33.5. Capital management (continued)

Provisions for estimated potential losses of financial resources in accordance with the requirements of the National Bank of Serbia (continued)

Calculated reserve for estimated losses are reduced for impairment of balance sheet assets and provisions for losses on off-balance sheet items, determined by the internal methodology, which includes the application of IAS 39. Required reserves for estimated losses on balance sheet assets and off-balance sheet items, is deducted from the capital of the Group in accordance with the decision on capital adequacy of banks ("Official Gazette", Nos. 46/11, 6/13 and 51/14). Group is obliged to permanently maintain capital at a level needed to cover all the risks to which the Bank is exposed and that the capital adequacy ratio is maintained at a minimum level of 12%.

The amount of required reserves for estimated losses arising from credit risk contained in the Group’s loan portfolio are calculated in accordance with the Decision on classification of balance sheet assets and off-balance sheet items (" RS Official Gazette". No.94/11, 57/12, 123/12, 113/13 and 135/14). At December 31 2014 required reserves for estimated losses amounted to RSD 2,494,222 thousand (2013: RSD 2,850,475 thousand).

The Group is obliged to determine the amount of required reserves for estimated losses, which is the sum of the positive difference between the reserve for estimated losses calculated in accordance with this Decision and the determined amount of impairment of balance sheet assets and provisions for losses on off-balance sheet items at the level of the debtor.

Required reserves for estimated losses on balance sheet assets and off-balance sheet items, is deducted from the bank's capital in accordance with the decision on capital adequacy of banks.

The following table shows the calculation of the amount of the base capital, additional capital and total capital of the Group, as well as the calculation of capital adequacy.

31.12.2014 31.12.2013

Base capital: Nominal value of shares paid, except preference shares 13,122,105 13,122,105 Share premium 1,523,079 1,523,079 Profit reserves 96,458 96,458 Loss from previous years (6,385,601) (6,417,717) Current year gain - 30,812 Intangible assets (151,667) (172,017) Required reserves for estimated losses on balance sheet assets and off-balance sheet items (2,494,222) (2,843,793)

5,710,152 5,338,927

Additional capital: Part of revaluation reserves - 71,844 Subordinated liabilities 2,419,167 2,292,843

2,419,167 2,364,687

Equity as of 31 December (1) 8,129,319 7,703,614





33. FINANCIAL MANAGEMENT RISK (continued) 33.5. Capital management (continued) Provisions for estimated potential losses of financial resources in accordance with the requirements of the National Bank of Serbia (continued) 31.12.2014 31.12.2013

Risk balance and off balance sheet assets: Capital requirement for credit risk, counterparty risk and settlement / delivery risk based on free deliveries 5,356,529 5,064,496 Capital requirement for foreign currency risk 5,753 10,854 Capital requirement for operational risk 585,752 550,333

Total capital requirement (2) 5,948,034 5,625,683

Capital adequacy (Capital / Total capital requirement)*12 16,40 16,43

Compliance with the indicators of the National Bank of Serbia The Group is obliged to agree scope and structure of its operations and risky placements with the performance indicators prescribed by the Law on Banks and relevant decisions of the National Bank of Serbia brought on the basis of the mentioned Act. At December 31, 2014, the Group was in compliance with all performance indicators defined values. Group's performance indicators as of 31 December 2014 and 31 December 2013, were as follows:

Performance indicator Prescribed

value Realized value

2014 Realized value

2013

Investment Group in fixed assets and non-financial sector maximum

60% 19.10% 20.66%

Exposure to related parties maximum

20% 3.26% 2.13% The sum of large exposures

maximum 400% 84.39% 111.13%

Average monthly liquidity ratio: - In the first quarter of the reporting period minimum 1.00 1.24 1.17 - In the second quarter of the reporting period minimum 1.00 1.14 1.18 - In the third quarter of the reporting period minimum 1.00 1.11 1.20 - In the fourth quarter of the reporting period minimum 1.00 1.17 1.18

Foreign currency risk indicator maximum

20% 0.59% 1.17% The Bank's exposure to a single entity or group of related entities

maximum 25% 18.26% 22.17%

The Bank's exposure to an entity related to the bank maximum 5% 3.23% 2.12% Capital adequacy minimum 12% 16.40% 16.43%





33. RISK MANAGEMENT (continued) 33.6. The fair value of financial assets and liabilities

Policy of the Group is to disclose information about the fair value of assets and liabilities for which official market information exits and the fair value is materially different than the carrying value. In the Republic of Serbia, there is no sufficient market experience, stability and liquidity with respect to purchase and sale of other financial assets and liabilities because official market information is not readily available. Therefore, fair value cannot be reliably determined in the absence of an active market. The management carries out a risk assessment and, in cases where it is estimated that the carrying value of assets may not be realized, performs impairment of assets. Group’s financial instruments recorded at amortized cost generally mature in short-term and/or carry a variable interest rate that reflects current market conditions. Accordingly, the Group believes that the presented value of the above mentioned financial instruments matches their fair value. Initially (at the time of acquisition) currency forwards are recognized at the contract value, due to the fact that in Serbia there is no active market for derivatives, but their value is adjusted to market value at the end of each month, and the effect of changes in fair value recorded in the income statement as a positive (increase in the fair value) or negative (decrease in the fair value) unrealized foreign exchange differences. Also, the positive fair value of derivatives is presented in assets and negative fair value of derivatives as a liability in the balance sheet. The methodology applied by the Group to determine the fair value of derivatives is consistent with the generally accepted methodologies in the market and to the greatest extent possible incorporates market factors (the official middle exchange rate, interest rates). By fulfilment of contractual rights and obligations under derivative, i.e. the exchange of contractual cash flows, its recognition in the balance sheet and income statement ceases. The final effect of exchange rate differences in the time recognized within realized foreign exchange rate differences and all previously recognized unrealized foreign exchange rate differences are reversed. The fair value of loans and advances to customers is equal to their book value less allowance for impairment losses. Securities available for sale include shares or equity investments in legal entities. Securities available for sale are recorded at fair value. The fair values of the securities to be listed are based on current bid prices. Deposits from banks and customers are mainly deposits or short-term contract with variable interest rates and therefore the Group's management believes that the value at which these are stated in the balance sheet approximate their fair value. In the opinion of the Group, amounts in the accompanying financial statements reflect the value that is the most valid and most useful for reporting in the circumstances. Financial instruments, such as securities available-for-sale are measured at fair value based on available market information and using quoted market prices at the reporting date. If this information is not available other techniques are used.






33.6. The fair value of financial assets and liabilities (continued)

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: Market quotations of identical financial instruments Level 2: A comparative approach, which uses information on similar financial instruments or other market information which can be used to determine value of financial instruments and Level 3: Mark to model approach, which uses information that is not obtained from the market, but derived on the basis of a theoretical model to determine the adequate values of the financial instruments. Fair values of financial instruments obtained using the above hierarchy are presented in the following table:

Financial assets as at 31 December 2014:

Financial assets Level 1

Level 2

Level 3

Total

Cash and cash equivalents with Central bank -

-

13,850,517

13,850,517

Financial assets held to maturity -

-

1,074,584

1,074,584 Loans and receivables from banks -

825,328

4,978

830,306

Loans and receivables from customers -

-

47,684,973

47,684,973 Other assets 436 - - 436

Total assets 436

825,328

62,615,052

63,440,816

Financial liabilities as at 31 December 2014:

Financial liabilities Level 1

Level 2

Level 3

Total

Deposits and other liabilities to banks, other financial organizations and Central Bank -

-

17,282,663

17,282,663

Deposits and other liabilities to other customers -

-

40,060,986

40,060,986

Subordinated liabilities -

-

2,434,608

2,434,608

Total liabilities -

-

59,778,257

59,778,257





33. RISK MANAGEMENT (continued) 33.6. The fair value of financial assets and liabilities (continued)

Financial assets as at 31 December 2013:

Financial assets

Level 1

Level 2

Level 3

Total

Cash and cash equivalents with Central bank

-

-

11,669,942

11,669,942

Financial assets available for sale

-

-

93,843

93,843 Loans and receivables from banks

-

585,413

6,531

591,944

Reverse repo placements

-

3,900,000

-

3,900,000 Loans and receivables from customers

-

-

46,505,522

46,505,522

Other liabilities 472 - - 472

Total assets

472

4,485,413

58,275,838

62,761,723

Financial liabilities as at 31 December 2013: Financial liabilities

Level 1

Level 2

Level 3

Total

Deposits and other liabilities to banks, other financial organizations and Central Bank

-

-

16,735,069

16,735,069

Deposits and other liabilities to other customers

-

-

36,510,480

36,510,480

Subordinated liabilities

-

-

2,316,433

2,316,433

Total liabilities

-

-

55,561,982

55,561,982





34. CONTINGENCIES, COMMITMENTS AND LEASE a) Operating lease liabilities The Group has concluded contracts on operating lease. Future minimum payments for mandatory obligations under operating leases are as follows:

2014 2013

Up to 1 year 436,827 403,209 1 to 5 years 2,124,760 2,133,077

2,561,587 2,536,286

b) Operating lease receivables Future minimum lease receivables under operating leases are as follows:

2014 2013

Up to 1 year 3,400 3,800 1 to 5 years 13,000 17,000

16,400 20,800





34. CONTINGENCIES, COMMITMENTS AND LEASE (continued) c) Litigations The Group pursues litigations against third parties only to collect its receivables. At December 31, 2014, the Group filed 3,736 cases (2013: 3,069) for collection of receivables where the largest value of the principal claim, amounts to RSD 881,903 thousand (2013: RSD 927,771 thousand). The Group is involved in 127 cases worth a total of RSD 607,393 thousand (2013: 99 cases worth RSD 527,020 thousand). Provisions for litigations are disclosed under provisions (Note 28). The Bank's management estimates that significant losses arising from the remaining litigations will not incur, other than that provided for. d) Tax risks The tax system of the Republic of Serbia is undergoing continuous review and changes. In Serbia, the tax liability expires after a period of 5 years. In different circumstances, the tax authorities may have different approaches to certain issues and can detect additional tax liability together with related interest and penalties. Management does believe the tax liabilities in the accompanying financial statements are fairly presented. 36. ADDITIONAL INFORMATION ON CASH FLOWS

31.12.2014

31.12.2013

Cash 1,616,372 1,643,215 Bank Account 5,842,853 4,437,214 Nostro Accounts 825,329 585,412

As on December, 31 2014 8,284,553 6,665,841

Obligatory reserve in foreign currency with the National Bank of Serbia is not available for everyday business transactions and therefore is not a part of cash flows (Note 15),

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