Tatra banka · subsidy from the NBS. This again is the outcome of well managed logistics and well...

Tatra bankaAnnual Report 2008

Slovakia

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Tatra banka, a. s.

811 06 Bratislava

SWIFT: TATR SK BXwww.tatrabanka.sk

Slovak Republic

Tel.: +421/2/5919 1111Fax: +421/2/5919 1110

Member of Raiffeisen International

tb_annual_report_210x297_0309_obalka_EN.indd 1 5.5.2009 11:00:41

Annual Report 2008


www.tatrabanka.sk

Nadácia TaTaTatrtrtra a a bababanknknkn y y yy (T(T(T(Tatatattrarara b bbbanannkakakak F FFououo ndndndatattioioion)n)n) PrProgogo rarammmmmmmmee ee PePePersrsononoonalalallititieieiees s s ininin P PPerersososoonnLeLectcturure e ofof P Prorof.f. RRoboberert t J.J. AAumumanann,n,

laureate of The Sveriges Riksbank Prize in Economic Sciencesin Memory of Alfred Nobel

tb annual report 210x297 0309 EN.indd 1 31.3.2009 11:16:46

3 www.tatrabanka.sk

Contents

Statement by the Chairman of the Board of Directors 5

Mission, Vision and Values of Tatra banka 9

Tatra banka – Strong Member of a Strong Group 11

Management’s Report on the Tatra banka Group 15Slovakeconomyin2008 15RiskmanagementandBaselII 19ChangeovertotheEuro 23Summaryofconsolidatedperformance 25

Segment reports 29Corporateclients 29Retailclients 32Treasury 41PaymentsDivision 42RegionalCardProcessingCentre 43Equityparticipations 44HumanResources 48CorporatePhilanthropy 49NadáciaTatrabanky 51Outlookfor2009 53StatementforCorporateGovernance 55

Auditor’s Report 59

Consolidated Financial Statements prepared in accordance with 61 International Financial Reporting Standards

Distribution of the Profit for the Year 2008 153

Top Management 155

Business Locations Network 157

4 www.tatrabanka.sk

Survey of key data in accordance with International Financial Reporting Standards

Tatra,banka,Group 2008 2007 Change

Income statement in thds. SKK in thds. EuR in thds. SKK in thds. EuR

Net interest and dividend income after provisioning

6,580,036 218,417 6,216,953 206,365 5.8%

Net fees and commission income 3,384,924 112,359 3,139,932 104,227 7.8%

Net profit (loss) from trading instruments

2,238,541 74,306 2,075,844 68,905 7.8%

General administrative expenses (7,141,794) (237,064) (6,449,088) (214,071) 10.7%

Profit before income taxes 4,999,912 165,967 4,419,530 146,702 13.1%

Consolidated profit after tax 3,955,780 131,308 3,450,599 114,539 14.6%

Earnings per ordinary share 70.51 2.341 62.85 2.086 12.2%

Balance sheet

Loans and advances to banks 60,631,567 2,012,599 43,098,815 1,430,619 40.7%

Loans and advances to customers, gross

173,643,995 5,763,925 139,826,880 4,641,402 24.2%

Deposits from banks 25,892,154 859,462 10,233,829 339,701 153.0%

Deposits from customers 224,590,942 7,455,054 185,791,986 6,167,164 20.9%

Equity (including consolidated profit)

19,965,192 662,723 17,828,566 591,800 12.0%

Balance sheet total 317,861,026 10,551,053 253,015,572 8,398,578 25.6%

Performance in % in %

Return on equity (ROE) before tax 29.6% 29.2% 1.3%

Cost/income ratio 53.1% 55.1% (3.7)%

Return on assets (ROA) before tax 1.8% 1.9% (6.0)%

Resources

Number of staff on balance sheet date

3,893 3,645 6.8%

Branches on balance sheet date 1) 158 152 3.9%

Ratings Long-term Outlook Short-term Bank Financial Strength

Moody´s Investors Service A1 stable Prime-1 C-

1) Inclusive of Corporate centres, Centre of LivingTB and the Investment CentreTB

ConversionrateusedintheAnnualReport:EUR1=SKK30.1260

5

StatementbytheChairmanoftheBoardofDirectors

www.tatrabanka.sk

Dear Shareholders, Clients and Business Partners,

IamextremelygladtobeableatthebeginningofthisAnnualReporttostatethatwehavehadasuccessfulyear,evenwhenitwasundoubtedlyoneofthemostcomplexyearswehavehadtodate.Itthereforepleasesmeallthemorethatwenotonlymanagedtocopewithitwithoutproblemsandwithgrace,butthatwecanevencharacteriseitasoneofthemostsuccessfulyearswehavehadalsofromtheperspectiveoftheresultsweachieved.Theyear2008wasexceptionalnotjustforourbankandthewholebankingsector,butalsoinageneralsensefortheSlovakRepublicanditskeynationalinterests.

Neverbeforehasourbankhadtofacesuchademandingtaskasitdidlastyear.TheentryofSlovakiatotheEuropeanMonetaryUnion(EMU)willgodowninourhistoryasanimportantmilestonethatconstitutesamajorpillarforestablishingastableeconomicandinvestmentenvironment.Afterfifteenyearsofsovereignty,theSlovakRepublicchangeditsofficialtenderandjoinedtheexclusiveclubofEuropeanUnioncountriespossessingasinglecurrency,theEuro.Thisstephasproventobeastrategicallyimportantandcorrectone,especiallyatpresentwhenEuropeandtheworldiswrestlingwiththeglobaleconomiccrisis.NowothercountriesoftheEuropeanUnionthatarenotEurozonemembersandwhichtookaratherscepticalviewofthisalternativetodate,arenowstartingtoadmitthatitrepresentstheroad

tostability,andtheyarestartingtoshowincreasedinterestinaccedingtothesixteencountriesoftheEUthathavesofaradoptedtheeuroastheircurrency.Thetruthis,however,nowadaysitwillnotbesoeasyforthemtofulfiltheMaastrichtcriteriaandtheirpositionwillbeallthemorecomplex.

AchievingtheambitionsoftheSlovakRepublicleadingtothehighestpossibleintegrationlevelwithintheEUcantoalargeextentbecreditedtotheNationalBankofSlovakia(NBS)andthewholebankingsector,Tatrabankabeingnoexception.InthisregardIcanproudlysaythatourbankmetthedemandingtasksthatitfacedsuperbly.Wemanagedtodealwiththechangeoverfromthekorunatotheeuropracticallywithouthesitationandsoreapedtherewardsoftheendlesshoursofpreparations,forwhichhugegratitudeisowedtoallmycolleagueswhoparticipatedinthisproject.Thefirstdaysoftheyearshowedclearlythatwearejustifiedinbeingproudofourmotto“Thebestfollowsus”,asweculminatedconversionsufficientlyinadvancecomparedtotheoriginalplanandsocouldstartprovidingourclientswiththesamefullservicethattheywereaccustomedtofromourbank,evenbeforethewholebankingsectorplannedtodoso.StatisticsalsodemonstratedhowwemanagedtosatisfythelargestnumberofclientswhoneededtoexchangeSlovakkorunaforeuro,withwhatwasalmostthelowestsubsidyfromtheNBS.ThisagainistheoutcomeofwellmanagedlogisticsandwellorganisedworkandalsocomesfromthefactthatinTatrabankathequalityofteamsisimportantforusandweappreciatetheirworkaccordingly,whichissomethingwedefinitelywanttokeepupalsoinfuture.

Consideringtheimportanceoftheprocessofchangingtotheeuro,Iratheruntraditionallypointedtoouractivitiesrelatingtothefirstdaysoftheyear2009,wherebyweandthewholeofSlovakiaarenowworkingfullywiththeeuroasournationalcurrency.Sayingthat,weshouldnowlookattheresultsthatwemanagedtoproducelastyear.AsIalreadymentioned,conversiontotheeurowasnotmerely

Statement by the Chairman of the Board of Directors

6


www.tatrabanka.sk Statement StrongGroup Management’sReport Reports Outlook

ademandingprocess,butalsoacostlyone.Allthecostslinkedtothechangeovertothenewcurrencywerebornebyourbank,theseamountingtohundredsofmillionsofthenownon-existentSlovakkoruna.Thesecondhalfoftheyearwascomplicatedbythefinancialcrisis,whichsparkedofflikeanavalanchefollowingthefalloftheLehmanBrothersandothermajorUSbanks.ThiscrisisthencrossedtheAtlantictoEurope.Eventhoughintoday’sglobalclimateSlovakiaisalsonotimmunetothecrisis,asitisalsobeinghitbyfallingeconomicgrowthandrisingunemployment,itbecameclearthatunlikeotheradvancedcountries,thebanksinSlovakiaareinagoodandhealthycondition.SlovakbankssurvivedthestormwithoutmajorharmandtheMPsoftheNationalCouncil,atthecabinet’srecommendation,verysensiblyadoptedalawthatguaranteedonehundredpercentprotectionofprivatedeposits.Tatrabankaalsobehavedresponsiblyandadoptedawholerangeoffundamentalmeasuresaimedatguaranteeingthedepositsofitsclientsandappreciatingthemtothemaximumpossibleextent.

Whereasclientsenjoyeddecentyieldsfromstandardproducts,inthecaseoffundswewere,accountingforthesituationonthefinancialmarkets,unfortunatelyunabletomeettheexpectationsofourclientsforobjectivereasons.Thephilosophybehindinvestinginfundsisnottogetanimmediatereturn,however.Clientsthatdecideonthismethodofappreciatingtheirfinancesmustcalculatewiththefactthattheirappreciationisofalong-termnature.Acknowledgedeconomictheorytalksaboutthealternationofgoodyield,weakyieldandlossperiodsandthisisproventobetrueinpractice,whichcouldrepresentagoodbasisforthestrategyofthosewhoseinvestmentobjectiveregardingfundsdidnotworkout,butwhohavealsonotbeenputoffbyit.

Despitethesaidcrisis,lastyearwestillmanagedonceagaintogeneratesomeprettyimpressiveresults.Insummarisingthemostimportantrelevantfactors,ImustmentionthatthebalanceoftheBankatyear-endcametoSKK316.8billion(EUR10.52billion),whichtranslatesasagrowthof25.6%over2007.Onthesideofliabilities,clientdepositsincreasedmostsignificantly,risingby21%toreachSKK225.6billion(EUR7.49billion).Wherethegrowthinclientloansisconcerned,weincreasedtheirvolumeby24%toSKK173.7billion(EUR5.77billion).Asusual,weregisteredgrowthinthegrantingofloansbothforindividualsandlegalentities,aswellasagrowthinprojectfinancing.Wegreatlyincreasedtheleveloffinancingfortheagrariansector.Wealsoincreasedourmarketshareinthefieldofloans,assets,anddepositsforclients.Onthefinalbalance,theseandotherfactorsledtousgeneratinganetprofitofSKK3.625billion(EUR120million),whichis14%morethantheprofitfrom2007.WemanagedtoachieveoursuccessesalsothankstothesupportandfoundationofourparentcompanyRaiffeisenInternationalBank-HoldingAG.

Theyear2008provedtobeyetanotherrecordyearfortheRaiffeisenInternationalgroup.Despitetheoverallnegativetrendinthesecondhalfoftheyear,theRIgroupproducedaconsolidatedprofitofEUR982million,whichis17%morethanin2007.TheRIgroupwilllikelynotseethesametempoofgrowthintheupcomingperiodasitdidinrecentyears,butallbanksthatarepartofthegrouphavesufficientfinancialresourcesandareinagoodstructuralconditiontoallowthemtodealwiththecurrentsituationonthefinancialmarkets.ThechangeintheglobaleconomicsituationledRItoconcentrateevenmoreonthequalityofitsassets,whichwillcontinuetoimprovethroughoutthewholegroup.ToachievethisgoalitwillbeimportanttoapplytheriskstrategyadoptedbyRI,aswellasothermeasuresaimedatincreasingefficiencyandcontinualgrowthintheretailsegment,wheretheprimarygoalofthegroupistosupportfurthergrowthinclientdeposits.

IalsofeelitisimportanttomentionthatTatrabankahasbecomeoneofthestrongestandmoststablelinksinthechainoftheRaiffeisenInternationalgroup,whichisprovenalsobyourresultsfor2008comparedwithothersisterbanks.

7


Auditor’sReport FinancialStatements DistributionoftheProfit Management BusinessLocations www.tatrabanka.sk

WestillholdtotheambitiontobeoneoftheleadersontheSlovakbankingsector.Ourobjectiveistoreturntothepositionthatwouldfundamentallydistinguishusfromthecompetitionintheeyesofourclientsintermsofthequalityofservices.ThatisalsowhylastyearweformulatedtheMission,VisionandValuesofTatrabanka,gettingeverysingleemployeeinvolvedinthewholeprocess,withtheresultthattheyidentifiedasmuchaspossiblewiththeresultsthatweachieved.Thisstepletsussetoutthefuturestrategyandprogresstowardfundamentaltargets.Thefactthatwearemanagingtobeaninnovativebankthatisadvancingthequalityofitsservicesisconfirmedbythevariousprestigiousawardsthatwereceivedinthepastyear.FortheeighthtimeintheBank’shistoryweonceagainwereawardedthetitleofBankoftheYearbyweeklyTrend,aswellasthetitleofBestBankinSlovakiafromthemostrenownedofforeignmagazines–TheBanker,EuromoneyandGlobalFinance.Theseawardscommitustocontinuinginoureffortstodate,withtheaimofprovidingourclientswiththebestpossiblestandardofcomfortandservices.

Inadditiontobanking,wearealsoinvolvedinvariousotherareasofsociety,witheducationandculturebeingkeyareasinthisregard.Astherisinglevelofeducationofthepopulationleadstofurtheradvancementofsociety,andsoalsotothecountrygeneratingbettereconomicresults,ourgoalistosupporttheeducationofyoungpeoplebywayofbursaryprogrammes.ItiswiththisgoalinmindthatthefoundationNadaciaTatrabankyoperates,withastronginvolvementoneducating.WeareproudthatwemanagedtoorganisethelectureofLaureateofTheSverigesRiksbankPrizeinEconomicsSciencesinMemoryofAlfredNobel,ProfessorRobertJ.AumannattheUniversityofEconomicsinBratislava.Thelecturemetwithanexceptionallypositiveresponseandwasinspirationalnotjustformanystudentswhowillformthefutureofourcountry,butalsoforthecurrentscientificcommunity.Whenitcomestotheareaofculture,itisanhonourforusthatwebecamethegeneralpartneroftheSlovakNationalTheatrelastyear,asitcanberegardedasakindofflagshipofcultureinSlovakia.ApartfromtheSlovakNationalTheatre,wealsosupportothertheatresandgalleriesinthevariousregionsthroughoutSlovakia.IntheareaofsportwecontinuedintraditionbyorganisingtheninthTatrabankaOpentennistournamentinco-operationwiththeSlovakTennisAssociation.

Wecanthereforeexpressoursatisfactionwhenevaluatingtheoverallresultsoflastyear.Althoughitistruethatthesaidfinancialandeconomiccrisisstartedtohaveaprogressiveimpactonourmarketinthesecondhalfoftheyear,itdidnotendangerTatrabankaandthebankingsectortoagreatextent,particularlythankstotheexcellentfinancialcondition,rationalmeasures,andgreathumanpotentialthatweboast.Inspiteofthesecircumstances,wecopedwiththechangeovertotheeuroverysuccessfullyandwithoutproblems,andsodealtwellwiththehistorictaskwithwhichwewerefaced.Eventhoughwecoveredthecostsoftheconversionprocessexclusivelyfromourownsources,uptoseveralhundredmillionkoruna,westillmanagedtoproduceverygoodeconomicresults,whichIdeemhugelypositiveinthecontextofcurrenteconomicdevelopmentshereandintheworld.InconclusionthenIwouldjustliketovoiceourdeterminationtocontinueintherationaleconomicpolicyofTatrabankaandtoimprovefurtherthequalityofproductsandserviceswiththeaimofsatisfyingourshareholdersandclientsalike,whotogetherwithallourpartnersandco-workersmeritmysincerethanksandrespect.

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9

Mission,VisionandValuesofTatrabanka

www.tatrabanka.sk

Pushing forward the boundaries of banking - Mission, Vision and Values of Tatra banka

Resultsarebestachievedifyouhaveadirection,knowyourobjectiveandalsohaveaclearideaabouthowtoachieveit.ThecleardefinitionofourMission,VisionandValuesdrivesusforwardontheroadtosuccess.

Mission of Tatra bankaPushing forward the boundaries of banking …

Weprovideexceptionalpersonalandfinancialcomforttoclientsforwhomitisimportantwhois•lookingaftertheirmoney,andhow.Eachofuscreatesaninspiringenvironmentthatweliketoworkin,weachieveourpersonalgoals•andendeavourtobebetter.Weachieveaboveaveragegrowthincompanyvaluesoverthelongterm.•

Vision of Tatra bankaWeareperceivedasthestrongestandmostattractivebankwithdistinctioninthehighestquality•ofservicesTatrabankaisaprestigiousemployer,thebestplacetowork,aplaceweenjoybeingin.•

Values of Tatra bankaSeriousness

Wedothingsasbestaswecan,mediocrityisnotenoughforus.•Virtuousness

Weacthonourablyandwithrespecttowardeveryone,wepromotetransparencyineverythingwedo.•

EnthusiasmWeendeavourtopleasepeopleandexceedtheirexpectations.•

Creativity

Wecomeupwithnewsolutions,supportdaringandinnovativethought.•Responsibility

Wecareaboutthesuccessofourclients,ouremployeesandthesocietyinwhichwelive.Wefeel•responsibilityforeverythingwedo.

Teamwork

Weareawareofthepowerofateam,wearepartofit.Wewillinglyco-operateandshowmutual•respect.

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11

Tatrabanka–StrongMemberofaStrongGroup

www.tatrabanka.sk

TatrabankaisasubsidiaryofthecompanyRaiffeisenInternationalBank-holdingAG,whichisafullyconsolidatedsubsidiaryofRaiffeisenZentralbankÖsterreichAG(RZB)basedonVienna.RZBistheparentcompanyofRZBGroupandthecentralinstitutionofRaiffeisenBankingGroupinAustria,thelargestbankinggroupinthecountryintermsoftotalassets,withthemostextensiveandwidespreaddistributionnetwork.

RZBandRaiffeisenInternationalconfirmedtheirreputationaspioneersintheregionofCentralandEasternEuropethroughtheestablishmentofthefirstsubsidiarybankinHungaryalreadybackin1986.Inovertwentyyearsofoperationonthemarkettenbankswereestablishedandanothertenweregainedbyacquisition.Theresultingnetworkoftheregioncoversuniversalbanksinthefollowing15markets,witharound14.7millionclientsandmorethan3,200businesslocations:

Albania RaiffeisenBankSh.a.•Belarus Priorbank,OAO•BosniaandHerzegovina RaiffeisenBankd.d.BosnaiHercegovina•Bulgaria Raiffeisenbank(Bulgaria)EAD•Croatia RaiffeisenbankAustriad.d.•CzechRepublic Raiffeisenbanka.s.andeBanka,a.s.•Hungary RaiffeisenBankZrt.•Kosovo RaiffeisenBankKosovoJ.S.C.•Poland RaiffeisenBankPolskaS.A.•Romania RaiffeisenBankS.A.•Russia ZAORaiffeisenbank•Serbia Raiffeisenbankaa.d.•Slovakia Tatrabanka,a.s.•Slovenia RaiffeisenBankad.d.•Ukraine VATRaiffeisenBankAval•

RaiffeisenInternationalisthesteeringcompanyofthesebanksonthesaidmarketsandisthemajorityowneroftheirshares(inmostcases100%oralmost100%).TheRaiffeisenInternationalGroupalsoincorporatesmanyfinancialleasingcompanies(includingcompaniesinKazakhstanandMoldavia).RZBownsaround70%ofthecommonstockofRaiffeisenInternational.Theremainingsharesarefreefloat,ownedbyinstitutionalandretailinvestors.Thecompany’ssharesaretradedontheViennaStockExchange.

RaiffeisenInternationalachievedanotherrecordresultforthefullyear2008:thegroup`sconsolidatedprofit(aftertaxandminorities)roseby17percenttoEUR982million(comparedwiththesameperiodin2007).ThebalancesheettotalwasEUR85.4billionatyear-end,alsoup17percent.Onthebalancesheetdate,nearly63,400employeesservicedmorethan14.7millioncustomersinover3,200businessoutlets.

Establishedin1927,RZBprovidesafullrangeofcommercialandinvestmentbankingservices.ItisthethirdlargestbankinAustria.Asof31December2008,theRZBGroup`sbalance-sheettotalamountedtoEUR156.9billion,up14percentcomparedwithyear-end2007.Whiletheoperatingresulthitanotherrecordhigh,theeffectsofthefinancialmarketandbankcrisisbroughtaboutadecreaseinprofits.Consequently,profitbeforetaxdeclinedby60percenttoEUR597million.Onthereportingdate,theGroupemployedastaffof66,650worldwide.

Tatra banka – Strong Memberof a Strong Group

12


www.tatrabanka.sk Statement StrongGroup Management’sReport Reports Outlookwww.tatrabanka.sk Statement StrongGroup Management’sReport Reports Outlook

Inadditiontoitsbankingoperations-whicharecomplementedalsobyarepresentativeofficeinRussia(Moscow)–RZBrunsseveralspecialisedcompaniesinCEEofferingsolutionsin,amongothers,theareasofM&A,realestatedevelopment,fundmanagementandmortgagebanking.

InWesternEuropeandtheUSA,RZBoperatesabranchinLondonandrepresentativeofficesinBrussels,Frankfurt,Madrid,Milan,Paris,StockholmandNewYork.AfinancecompanyinNewYork(withrepresentationsinChicago,HoustonandLosAngeles)andasubsidiarybankinMaltasupplementthescopeofitsoperations.InAsia,RZBrunsbranchesinBeijing(withrepresentativeofficesinHarbinandZhuhai),Xiamen(China)andSingapore,aswellasrepresentativeofficesinHoChiMinhCity,HongKong,MumbaiandSeoul.ThisinternationalpresenceclearlyunderlinestheBank’semergingmarketsstrategy.

RZB has been assigned the following ratings:

Standard&Poor’s short-term A-1 long-term AMoody’s short-term P-1 long-term A1

www.ri.co.atwww.rzb.at

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Auditor’sReport FinancialStatements DistributionoftheProfit Management BusinessLocations www.tatrabanka.skAuditor’sReport FinancialStatements DistributionoftheProfit Management BusinessLocations www.tatrabanka.sk

Raiffeisen Banking GroupTheRaiffeisenBankingGroup(RBG)isAustria’slargestbankinggroupbytotalassets.Asperyear-end2008,RBG’sconsolidatedbalance-sheettotalamountedtomorethanEUR265billion.Itrepresentsaboutaquarterofalldomesticbankingbusinessandcomprisesthecountry’slargestbankingnetworkwith2,250businessoutletsandapproximately22,700employees.RBGconsistsofRaiffeisen Banksonthelocallevel,Regional Raiffeisen Banks ontheprovinciallevelandRZBascentralinstitution.RZBalsoactsasthe“link”betweenitsinternationaloperationsandRBG.RaiffeisenBanksareprivatecooperativecreditinstitutions,operatingasgeneralserviceretailbanks.Eachprovince’sRaiffeisenBanksareownersoftherespectiveRegionalRaiffeisenBank,whichintheirentiretyownapproximately88percentofRZB’sordinaryshares.

TheRaiffeisenBanksgobacktoaninitiativeoftheGermansocialreformerFriedrich Wilhelm Raiffeisen(1818-1888),who,byfoundingthefirstcooperativebankingassociationin1862,haslaidthecornerstoneoftheglobalorganizationofRaiffeisencooperativesocieties.Only10yearsafterthefoundationofthefirstAustrianRaiffeisenbankingcooperativein1886,already600savingsandloanbankswereoperatingaccordingtotheRaiffeisensystemthroughoutthecountry.AccordingtoRaiffeisen’sfundamentalprincipleofself-help,thepromotionoftheirmembers’interestsisakeyobjectiveoftheirbusinesspolicies.

Raiffeisen InternationalRaiffeisenInternationalBank-HoldingAGisafullyconsolidatedsubsidiaryofRZB.ItactsasthesteeringcompanyfortheRZBGroup’ssubsidiariesinCentralandEasternEurope,abovealltheGroup’sbankingandleasingunits.RZBisRaiffeisenInternational’smajorityshareholderowningabout70%ofthecapitalstock.Thebalanceisfree-float,ownedbyinstitutionalandretailinvestors.RaiffeisenInternational’ssharesaretradedontheVienna Stock Exchange.

RZBRaiffeisenZentralbankÖsterreichAG(RZB)isthecentralinstitutionoftheAustrianRaiffeisenBankingGroup.Foundedin1927anddomiciledinVienna,RZBisthethird-largestAustrianbankandaspecialistincommercialandinvestmentbanking.AstheparentcompanyoftheRZBGroup,itranksamongCentralandEasternEurope’sleadingbankinggroups,offeringthefullscopeofcommercial,investmentandretailbankingservicespracticallythroughouttheregion.

RZB GroupThegroupownedandsteeredbyRZB.RaiffeisenInternationalformstheGroup’slargestunit,actingasholdingandsteeringcompanyforthenetworkofbanksandleasingcompaniesinCentralandEasternEurope.TheRZBGroup’ssecondgeographicalfocusisAsia.Branches,specialisedcompaniesandrepresentativeofficesinEuropeandtheUSAcomplementthepresenceontheworld’smostimportantfinancialmarkets.

14



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Bratislava Open Lecture Series Short-term stays of professorsfrom abroadBratislava, 9 October 2008

Prof. Bart J. WilsonProfessor of Economics and Law, Economic Science Institute of Chapman University,USA


15

Management’sReport

www.tatrabanka.sk

Slovak economy in 2008The vital number eight spelled a year full of changesForsometimeitseemedthateventhoughtheyearhadthefatefulnumbereightattheend,nothingfundamentalwasgoingtohappen.Thepoliticalscenewascalmandtherewasnowarorrevolutiononthehorizon.Until,thatis,the15September2008,whichsignalledamajorturnaroundintheeconomicdevelopmentoftheworld,andofSlovakia.

ThefirsthalfoftheyearwasextremelysuccessfulfortheSlovakeconomy.Theeconomygrewbyanaverageof8.6%,butitwasclearthatfollowingrecordresultsin2007thetempoofgrowthwouldgraduallyslowdown.Thegrowthwasdrivenchieflybydomesticdemand,butexportwasstillastrongandpositivecontributortothegrowth.Thegrowthinhouseholdconsumptioncameto7%inthefirsthalfoftheyear,provingthateconomicgrowthwasreflectingalsointhelivingstandardofthepopulation.Theinvestmentactivitiesofcompaniescontinuedjustasfavourably,thisbeingwitnessedinallsectorsofindustryandservices.Threequartersoftheoverallgrowthwasgeneratedinindustrialproductionandtheotherquarterinwholesaleandretail.ItisthereforeevidentthatthesuccessofthesesectorswillcontinuetodeterminewhetherGDPgrowthwillbestrongorweak.

ThefallofLehmenBrothersinvestmentbankinSeptemberproducedanunforeseenproblemonthemarkets–acrisisoftrust.Interbanktradingalmostfrozeentirelyanditwasonlyaquestionoftimebeforethisstateofaffairswouldhittherealeconomy.Nobodycouldsayforsure,though,justhowdeeptheeconomicdeclinewouldbeorhowlongitwouldlast.Inthethirdquarterstillalmostnoeffectscouldbeseeninmacrostatistics.TheGDPenjoyeday/ygrowthof6.6%,andemploymentandwagescontinuedtoseestronggrowthaswell.Itwasn’tuntilOctoberthatthefirstdownturncamein

industrialproduction,whichthencontinuedtofreefall.InDecemberthey/yslumpinproductionhadalreadyreachedasmuchas19%.Thenosediveisaffectingpracticallyallsectors,somemorethanothers,withnonespared.Thefiguresfromthesurroundingcountriesarealmostlikecarboncopies,whichjustgoestoshowthatthisreallyisaglobalcrisisthathashitSlovakiafullforceaswell.Theconstructionindustryandthesectorofservicesareactingasstabilisingelementsforoureconomy.Asthesituationofhouseholdsisgoodoverall,thegrowthinretailsalescontinuedalsoattheyearend.Thedifferenceinpre-stockingofcigarettesatthecloseof2007and2008meantthatstatisticianscalculateday/yGDPgrowthof2.5%forthelastquarterof2008.Onceclearedoftheeffectofpre-stocking,therealgrowthwasover3%,whichinthesetimesofcrisiscanberegardedasahugesuccess.

Management’s Reporton Tatra banka Group

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12.0

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8.0

4.0

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Development of Real GDP Growth

1998 2000 2002 2004 2006 2008

Development of Real GDP Growth(Source: Statistical Office of the Slovak Republic)

16



Healthyeconomicgrowthalsoshowedinrisingemploymentandwages.Employmentinthenationaleconomyincreasedby2.8%y/y,whichconvertsasthegenerationof60,000newjobs.Forthefirsttimesince2000,however,thenumberofSlovaksworkingabroadstartedtofall.Althoughthereisstillaratherimpressive160,000ofthem,ay/ydropofaround10,000wasseen.ThiscanbeputdowntothestronggrowthinwagesinSlovakiainrecentyearsandthefirmingkoruna,whichmadeworkingfarfromhomesuddenlylessattractive.Attheendoftheyearthecrisisstartedhackingawayatjobopportunitiesabroadandsotheinfluxstartedtointensify.Unemploymentmirroredthisdevelopment,havingbeenonthedeclineallyear.Theyearaveragedroppedunderthe10%thresholdforthefirsttimeeverinthehistoryofindependentSlovakia.Theofficialunemploymentrate(accordingtodateofthelabouroffice)didstarttoshowsignsofdeterioratinginthelastthreemonthsoftheyear,though,thisbeingduetotherisingnumberofredundancies.

Theaveragewagein2008increasedbyapproximately8.1%,whichafteraccountingforinflationtranslatedasarealgrowthof3.3%.Thegrowthinwagesisholdingjustslightlyunderthegrowthinlabourproductivity(3.5%y/y),butaccountingfortheexisting“reserve”betweenthelevelofwagesandproductivity,thiscannotberegardedasaproblem.TheshareofcompensationsandremunerationstoGDProseslightlyto37.0%,butwearestillclassedamongthosecountrieswiththelowestlevel.Whenthegoingwasgoodhouseholdsdepositedafaintlylargerpartoftheirearningsassavingsandthistrendcanbeexpectedtocontinuealsointheupcomingperiod.In2008thelevelofsavingsincreasedalittleto9.2%comparedtolastyear’svalueof8.3%.IntheUSAthishadlongbeenonthelevel

around0%anditwasonlyundertheweightofthecrisisthatitstartedrisingslowlythisyear.Ontheotherhand,theaverageintheeurozoneisintherangeofasmuchas14%.

Developmentofinflationwasprimarilydeterminedbyglobalfactors.Atthebeginningof2008consumerinflationwasonthelevelof3.8%,withgrowthseeninthemonthstofollow.JustasoilpricessoaredtoashighasUSD140/barrel,fuelpricesthenfuelledthefireofinflation,sotospeak.Foodprices,whichhadstartedrisingalreadyintheautumnof2007,alsoculminatedinthemiddleoftheyear.FromJulyitwasasifbythewaveofsomemagicwandoilpricesstartedtofallsharply,whichintermsoftheextentandspeedofthedownturnwasunprecedented.ItsslumptothelevelofUSD40abarrelgreatlyhelpedsuppressinflationtotheDecemberfigureof4.4%fromthemaximumof5.4%fromOctober.

0

(%)

12.0

10.0

8.0

18.0

16.0

14.0

6.0

4.0

2.0

consumer inflation

core inflation

Development of consumer and core inflation(Source: Statistical Office of the Slovak Republic)

1998 2000 2002 2004 2006 2008

17



Slovakia satisfied all criteria for inclusion to the Economic and Monetary unionThebiggestquestionbeingaskedbythewholeanalyticalcommunitywaswhetherSlovakiawouldmeettheMaastrichtcriteriaforentrytotheEconomicandMonetaryUnion(EMU)ornot.Essentiallytwocriteriainparticular(fromfive)wereinquestion:inflation(includingitssustainability)andthepublicfinancedeficitfor2007.InJanuary2008theinflationcriterionwas2.9%,whereastheaveragerateofinflationinSlovakiawasjust2.0%.Thisreserveatthebeginningoftheyearwasthereforesufficientlylargeforustobesureofmeetingthecriterion,buttheoutlookofitssustainabilitywasuncertain.BypublishingitsspringforecastsinApril,theEuropeanCommissionindirectlyconfirmedalsoitssustainability,asitanticipatedalowerlevelofinflationforSlovakiaattheendof2008thanthecriterionrequirement.Thiseventuallyprovedtobeacorrectassumption,becauseinDecember2008thevalueofour12monthaverageinflationwas3.9%,whileavalueof4%wassetoutbythecriterion.InMarch2008thevalueofthepublicfinancedeficitfor2007wasalsopublished,comingto2.2%oftheGDP,whichwasenoughbyfartodischargeofthiscondition.ThatiswhyattheendofAprilitwasalreadyentirelyclearthatthedoortotheeurozonewaswideopen,thisbeingformallyconfirmedintheConvergenceReportoftheEuropeanCommission.On19JuneSlovakiawasformallyacceptedtotheEMUatthesummitoftheEuropeanCouncilandon8JulytheconversionrateoftheSlovakkorunaagainsttheeurowasset.

Conversion rate set at EuR 1 = SKK 30.1260FollowingthefirstrevaluationofparityinMarch2007theSlovakkorunawas“bound”tothe

SKK33-34/EURbandforalongtime,anditremainedtherealsointhefirstmonthsof2008.Strongerfirmingofthecurrencywaspreventednotjustbytheadverseregionalsentiment,butalsouncertaintyoverwhethertheEuropeanCommissionandtheEuropeanCentralBank(ECB)wouldallowasecondrevaluationoftheparity.Ifithadnotallowedit,theninlinewithtraditiontheconversionratewouldhavebeensetonthelevelofcentralparityapplicableatthetimeitwasdetermined,i.e.SKK35.4424/EUR.Thisratewassubstantiallyweakerthanthemarketlevel,however,andsothiswouldhavebeenimpassablefromapoliticalperspective.ThedateforsettingtheratewasfastapproachinganditstartedtolooklikenotevenourinitialestimateofaSKK32.50/EURconversionratewouldbeachieved.Eventsstartedmovingatrocketspeedwhenthefirstreportsstartedcominginaboutthe(sustainable)fulfilmentofallMaastrichtcriteria.InthemiddleofMaythekorunabrokethroughtheSKK32/EURlevelandwithinthespaceoftwoweeksitwasonthethresholdofSKK31.00/EUR.

EUR/SKK

USD/SKK

SKK exchange rate development(Source: National Bank of Slovakia)

SKK/EUR

SKK/USD

28

30

32

34

36

38

40

42

44

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

16

21

26

31

36

46

41

18



ThespeedatwhichthecurrencystrengthenedwasunsustainableandobligatoryinterventionattheedgeoftheSKK30.126/EURbandofthetimewasadirectinvitationforfurtherspeculatorsfromabroad.ThatiswhytheNationalBankofSlovakiaandcompetentauthoritiesoftheEuropeanUnionrevaluatedtheparityon28May2008bythemaximumpossibleextent,movingittothethresholdoftheappreciationbandSKK30.126/EUR.Aftertherevaluation,pressurestostrengthenthecurrencyalmostvanishedcompletelyandonlyaverysmallpartofthemarketspeculatedaboutastrongerconversionrate.Thenon8July2008attheECOFINmeetinganirrevocableconversionratewasannouncedfortheSlovakkorunaatthelevelofSKK30.126/EUR.FromthenonthekorunawastradedonlywithinaverynarrowbandandbecauseofthenegativeinterestdifferentialbetweenSlovakandeurorates,themarketratewentfromaweakerleveltotheconversionrateattheendofDecember.

Growth in interest rates followed by sudden dropThesettingofkeyinterestratesoftheNationalBankofSlovakia(NBS)wasparticularlyinfluencedduringthecourseoftheyearbytheanticipatedentryofSlovakiatotheeurozone.Thatiswhythemonetarypolicywasrestrictive,especiallyin2007,withtheaimofbufferinginflationandsomeetthe

inflationcriterionwithreserve.TheykeyrateoftheNBSatthebeginningoftheyearwas4.25%,whichwasonlyslightlyabovetherateoftheEuropeanCentralBank(ECB,4.00%).IngeneralitwasexpectedthatrisinginflationintheeurozonewouldforcetheECBtoincreasetherateandsobothrateswouldthencomeintoline.AtthebeginningofJuly2008theratewasraisedduetofearsofsecondaryeffectshittingfromescalatingoilprices.FromthatmomentonwecouldsaythatthesettingoftheSlovakrateswasfullyinthehandsofFrankfurt.FollowingthefalloftheLehmenBrothersinSeptember,thesituationonthemoneymarketbecamecomplicatedanditwillprobablybesometimeyetbeforeitnormalises.Tradingwithlongerperiodsofmaturitypracticallyendedandonlyshorttermtransactionswerebeingmade.Thecentralbanksstartedtoadoptvariousmeasuresinsupportofthefrozeninterbankmarketbyaddingliquidity.Themoodinthebusinesssectorslumpedrapidlyandadvancedindicatorsstartedtoproducealarmingeconomicpredictions.Theshort-terminterbankratesdistancedfromthoseoftheECB,whichwasyetanotherreasonfortheECBtocutitsratefurthertoaslittleas2.50%,whereitwasattheendoftheyear.ThebleakoutlookfortheeconomyandalsothestatementsofECBrepresentativesindicatedthatrateswouldgoevenlowerin2009.

Jan-

02

Sep-

02

May

-03

Jan-

04

Oct

-04

Jun-

05

Mar

-06

Nov

-06

Júl-0

7

Mar

-08

Dec

-08

SKK/EUR

2-W repo rate

2-W repo rate (%)

6.0

8.0

4.0

2.0

Development of NBS key interest rate and SKK/EUR exchange rate(Source: National Bank of Slovakia)

29

33

37

41

45

EURSKK

19



Risk management and Basel IIWellorganisedandconsolidatedriskmanagementplaysanextremelyimportantroleintermsofthelong-termeffectivefunctioningofabank.ThisroleisapproachedveryresponsiblyinTatrabankaalsointhecontextofthesystemicimportanceofTatrabanksforthewholebankingsector.InthisrespecttheBankcompliesthoroughlywiththerequirementsofEuropeandirectivesimplementingrules,knowasBaselII,wherebylocallegislativenormsareusedupontheirexecution,inparticularrevisionstoAct483/2001Coll.onbanksandMeasure4/2007inlinewithrevisionno.17/2008.Duringtheprocessofnegotiatingandapprovingrespectivelocallegislativenorms,theBankactivelyparticipatesintheactivitiesoftheSlovakBankingAssociation(SBA)anditsspecificcommitteesandworkinggroups.JustasimportantaroleisplayedbytheBankalsoatmultilateralmeetingswithregulatoryauthoritiesandotherorganisations.

Theconcept,methodologyanddocumentationforactivitiesintheareaofriskmanagementandBasel2arebeingpreparedincloseco-operationwithRaiffeisenZentralbankÖsterreichAG(RZB)andRaiffeisenInternationalBank–HoldingAG(RI),whilepreservingthelocalspecificsoftheBankandthewholebankingenvironment.RespectivemethodologicalconceptsandprocessstepsthenbecomeanintegratedpartoftheprocessofmanagingindividualareasintheBankandareregularlyupdatedinlinewithlegislativeandinternalchangesandcheckedin-depthbyaninternalaudit.

TheaimofactivitiescarriedoutinthefieldofriskmanagementandBasel2isforemosttosecurethemostaccurateevaluationaspossible,withqualitymanagementandmitigation/eliminationofcredit,marketandoperatingrisk.Achievingthisgoalis,amongotherthings,basedchieflyonensuringthequalitycollectionandarchivingofallrelevantandpotentiallyrelevantdata,onelaborationofareliablemethodologyformeasuringindividualtypesofrisk,onsecuringqualityandsecureITsystemsforprocessautomation,datacollectionandanalysis,calculationsandtheprovisionofoutputs.

Likewise,inlinewithlegislativerequirementstheBankpublishesinformationonaregularbasisaboutitsactivities,workingproceduresandresultsingreatdetail,therebyensuringtransparencyinrelationtoregulators,businesspartnersandclientsalsowhenitcomestoriskmanagement.

Credit riskToquantifyrisk-weightedassetsandregulatorycapitalrequirementsforcreditrisk,whichaccountsforthebiggestpartoftheBank’srisk,since1.1.2008theBankhasbeenusingTheStandardisedApproach,wherebythefocuswas,andis,toconverttousingtheIRBapproachasquicklyaspossible(internalratingbasedapproach)basedontheuseofinternalratingmodelsandownestimatesofriskparametersformanaging,quantifyingandreportingindividualtypesofcredit-typerisksinlinewithitsimplementationplan.

In2008thisgoalwasachievedforthefundamentalnon-retailpartoftheportfolio,astheoutcomeoftheintensiveapprovalprocessisapprovaloftheuseofthebasicIRBapproachfromthesideofregulatorsfrom1.1.2009forsovereignunits,institutions,corporateentities,projectfinancing,insurancecompanies,investmentintofundsandthepurchaseofclaims.PursuanttotheapprovedbasicIRBapproach,theBankisauthorisedtoquantifycapitalrequirementsfortheaforementionedorganisationsthroughitsownestimatesofprojectedprobabilityofthecounterpartydefaulting,wherebythe

20



quantificationofcreditriskthenbecomesmuchmorerisk-sensitive.Furthermore,theneedforcapitalatthetimemorerealisticallycorrespondstotheassignedrisk.Fortherestoftheportfolio,especiallythatofaretailcharacter,theapprovalprocesswilltakeplaceinthenearfutureandtheBankisintensivelypreparingforit.

Thebasicprinciplesofmanagingcreditriskofcorporateentities,includingSME,aresetoutintheCreditManual,whichisbindingforthewholeRIgroupandisbasedontheRZBGroupcreditmanual.TheBank’sguidanceisthenmoredetailedintheareaofmanagingnon-retailcreditriskaselaboratedintheTatrabankaCreditPolicy,whichisre-endorsedeachyearbytheSupervisoryBoard.FortheupcomingperiodtheCreditPolicydefinestarget,limitedandexcludedsectorsoffinancing,theminimumrequirementsofacredittransactionwitheachclient(rating,collateralvalue,requestedmargin),aswellasthetargetstructureoftheloanportfolio.TheBankapproachestheformationofprovisionsveryconservatively,andinadditiontoindividualprovisionsitformsforthenon-retailloanportfolioalsoportfolioprovisions.Thequalityoftheloanportfoliohasbeenabove-standardoverthelongterm.

Regardingretailrisk,in2008theBankconcentratedprimarilyonsupportingprofitablegrowth,portfoliomanagementandtheestablishmentofinfrastructure.Theadoptedprocessofregulardevelopmentandupdatingofscoringratingsgreatlyhelpsproduceareliablyandconsistentlymanagedportfolio.Theaimofestablishinginfrastructureistocreateareliablesolutionthatmakesitpossibletoreactflexiblytochangesintheexternalenvironment.Animportantpartofthisisthedefinitionofgoalsforindividualdepartmentsofcreditriskmanagementandalsoforemployeesthemselves.Thesaidprocesscouldbecharacterisedasacomprehensiveapproachcomprisingthoroughpreparationandsubsequentapplicationoftheprinciplesofcreditrisk,creditpolicyandguidelines,aswellaseffectivemanagementtools.Theactualmanagementofindividualcreditproductswasdominatedbythefocusonthesmallbusinesssegment.Inadditiontoupdatingscoringratings,theprojectforthenewsystemsolutionofprocessingandapprovingapplicationswascompleted.Thesefactorsmadeitpossibletocopewiththesubstantialgrowthoftheportfoliovolume.Otherproductsforindividualsweremarkedbydynamicdevelopmentofthemarket,whichhasbeenamainfeatureofrecentyears.

Thelong-termgoalistosupportstableprofitability.TheBankcarefullymonitorschangestotheportfolioanddevelopmentoftheeconomicsituation,whileflexiblyadaptingthecredittermsaccordingly.

Market riskWheremarketrisksareconcerned,in2008theBankfacedthemostfundamentalchange,i.e.adoptionoftheeurocurrency.Forbanktransactionsonthefinancialmarkets,thearrivaloftheeuroproducednewchallengesandafocusonsurroundingregionalcurrenciesandalsotheinterestofTreasuryclientsinnewcurrencypairs.Wemanagedtocopewiththischallengesuccessfullythankstotheextensiveuseofstresstesting,regularmonitoringoftheconcentrationsofthepositionsofbanksandclients,andtimelyreactiontothepotentialriskoflosses.

TheinsolvencyofLehmanBrothersinvestmentbankandtheonsetofthefinancialcrisishitthefinancialmarketsfirstandforemost.Thebanksectorfacedanincreasedlossofconfidenceandstrongvolatility,whichaffectedinterestrates,theexchangeratesandthecreditspreadofsecurities.Despitethistryingsituation,lastyeartheBankdidnotregisteranylossesfrommarketrisks.TheBank’sprudentinvestmentapproachprovedtobetherightone,andtheslumpingvaluesoftoxicassetsdidnotaffecttheTatrabankaportfolio.

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Increasedattentionwaspaidduringtheyeartocounterpartyriskandsettlementrisk,duetotheshakenconfidenceinthefinancialsector.TheBankreactedactivelybyintensivelycollatinginformationaboutcounterpartiesfrommarketdataandfinancialreports,andbyintensivemonitoringofitsownpositionsitmanagedpotentialriskoflossesfromtransactionsandpaymentrelations.

AsurplusofliquidityhaslongbeencharacteristicoftheSlovakbankingsector.Thefinancialcrisismadeliquidityararecommodity,beingexaminedbythemajorityofplayersonthefinancialmarketsandthepriceofwhichshottounparalleledlevels.ForTatrabankathissituationconfirmedthecorrectnessofthelong-termstrategyofmanagingtheBank’sliabilitiesandtheorientationondiversifiedsourcesoffinancing,whichmakeupastablebasefortheBank’sabilitytograntloanstoitsclients.

Operational riskCalculationofownsourcesforcoveringoperationalriskisdealtwithintheBankusingastandardisedapproachmethod.AstheBankrealisesthegravityandpossibleimpactofoperationaleventsontheBank’sprofitandworth,itutilisesprogressivequalitativeandquantitativemethodsformanagingoperationalrisk.ByapplyingthisapproachtheBankmanagedtoidentifyvariousriskareasin2008fromtheperspectiveofoperationalriskandsotakestepsthatledtomitigatingorcompletelyeliminatingtheidentifiedrisks.

Inconnectionwiththeglobaleconomiccrisis,itsimpactsin2008andthetransitiontoanewcurrency,theBankdidnotregisteranyoperationallosses.

Economic capital, forecasting and stress testing of capital adequacy Tatrabankaimplemented,andiscontinuallyadjustingandsupplementing,themethodologyandprocessproceduresalsointheareaofinternalsettingofcapitaladequacyandeconomiccapital(i.e.thesecondpillar).Aspartofthisprocess,allrelevantrisksareregularlyre-evaluatedintheBankinlinewithitsriskprofile,withtheirquantificationandevaluationinthecontextoftheriskappetitethattheBankiswillingtoundergoandtheprojectedgenerationofcapitalandsubsequentreportingtotheBankmanagement.

Anintegralpartofthisistheprocessofcapitalallocation,whichiscloselylinkedtothebudgetingprocess.Withinthisprocess,usinganapprovedallocationkeyindividualbusinessunitsoftheBankareallocatedaRORAC(returnonadjustedcapital).Thisindicatorexpressesthelevelofreturninrelationtotherisksthatindividualtransactions,portfoliosandbusinessunitsshouldreach,sothattheprojectedgoalsoftheshareholderarereacheduponanacceptablelevelofrisk.

Duetothetransitiontomoresophisticatedwaysofgaugingriskandcapitaladequacy,aswellaschangesintheeconomicenvironment,animportantaspectofriskmanagementisthethoroughpredictionofthedevelopmentofcapitaladequacy,aswellasstresstestingwiththeaimofeliminatingtheimpactofunforeseeneventsandalsoofachievingeffectivecapitalplanning.InformationaboutindividualrisksoftheBankandaboutcapitalistakenintoaccountinthemanagementoftheBankandinitsbusinessstrategiessoastoachieveanoptimumcompromisebetweenreducingindividualtypesofriskandincreasingtheshareonthemarket,profitandROE.

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Measures adopted in the context of the financial crisisRegardingthemanagementofretailrisk,inreactiontodevelopmentoftheglobaleconomymeasureswereadoptedwiththeaimofpreservingahealthyloanportfolio.Certaintermswereadjustedtothisend,suchas:reducingthemaximumvalueofloantocollateralto85%ofitsvalue,shortenedmaturityofcertainproductsandreducingtheacceptablecreditexposuretoclientincome.Tatrabankacontinuestomonitorcarefullythedevelopmentoftheeconomicenvironment,however,anddependingonneeditispreparedtochangetheprocessofcreation,processingandenforcementinordertokeeptheloanportfoliohealthy.

Regardingthemanagementofnon-retailrisk,theBankpromptlyadaptedthecreditpolicyinordertoensurethattheportfolioqualitywasmaintained(accentonthestructureofindividualcredittransactions,increasedfrequencyofregularreviewsofclientswithlowerratings,extensionofthenumberoflimitedsectorsoffinancing).Stresstestingwasalsoappliedtocertainportfolios,basedonwhichthemostsensitiveclientswereallocatedtotheso-calledWatchlist.TheBankisstrengtheningthefunctionofearlywork-outwiththeaimofpinpointingthegreatestnumberofthreatenedclientsinthephasewhenrealinsolvencyhasnotyetoccurred.

Inconnectionwithcounterpartyriskwhentradingonthefinancialmarkets,theBanklaunchedtheperpetualmonitoringofcounterparties(movementinpricesofshares,publishedreportsandimpactsonincomeinrelationtothefinancialcrisis),withwhichitactivelytrades,andthenreactedtothedevelopmentbyadjustingtradinglimits.TheBankintroducedalimitonthemaximumvolumeofdealspercounterpartyperday,whichgreatlylimitedthevolumeofdealsatthetimeofgreatestuncertainty.

AspartofmanagingsettlementrisktheBankintroducedtheso-calledWatchlist,whichcontainedalistofpotentialproblemcounterparties.BasedonthisWatchlist,whichwasupdatedonadailybasisusingavailableinformationoncounterparties,aspecialmodeforsettlementofdealswasintroduced.

Intheareaofliquidity,informationabouttheprimarysourcesoftheBankweremonitoredandreportedtothetopmanagementoftheBankdaily,andanalysisofthebalancewasakeyelementofthemeetingsoftheAsset-LiabilityCommittee(ALCO)onaweeklybasis.

Duetoincreasedmarketvolatility,themonitoringofclientpositionswasintensified,especiallywithrespecttothosewherevolatilityandliquidityhadapotentiallygreaterimpactontheamountofsecurityofclientsandthemanagementofclientpositions.Comparedtotheexistingstressscenario,additionalstressscenarioswerecreatedforvariousmarketfactors,whichcouldhavethegreatestimpactonthespecificposition.

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Intensive preparations for transition of bank to the euroTheprogrammeofeurochangeoverwasstartedbyTatrabankaattheendofthefirstquarterof2006.AtthattimeTatrabankaappliedtheexistingNationalEuroChangeoverPlanfortheSlovakRepublic,whichsetoutthebasicprinciplesforconvertingtotheeuro,aswellastheprojectedtimelinesubjecttofulfilmentoftheMaastrichtcriteriabytheSlovakRepublic.

Key principles defined in the National Euro Changeover Plan SR included in particular:theeurowouldbeadoptedinSlovakiaon1.1.2009concurrentlytocashandnon-cashcirculation•withoutatransitionperiod,i.e.the“BigBang”scenario;from1.1.2009theeurowouldbeusedincashcirculation.Duringthebriefperiodofdual•circulation,until16.1.2009,itwillbepossibletopayintheSlovakterritoryusingalsokorunabanknotesandcoins,whichwillgraduallybetakenoutofcirculation.

In the first two years work relating to the Euro adoption programme focused primarily on:analysingtheimpactofeurochangeoveronallproductsandservicesprovidedtoclients;•analysingnecessarychangesindatabasesandinformationsystemsoftheBank;•analysingimpactsonthebusinessandeconomicresultsoftheBank;•compilingtheframeworkplanforchangeovertotheeuro,whichcontainedalogicalprogressionof•individualsteps,anestimateoftheirdifficulty,manpower,technicalandfinancialrequirementsandhowthewholeprocesswouldbeco-ordinated;participationinworkinggroupsestablishedattheNationalBankofSlovakia(NBS),ortheSlovak•BankingAssociation,whichprovideduswithprogressiveinformationonpreparedlegislationinconnectionwithtransitionoftheSlovakRepublictotheeuro,aswellasthepossibilityofinfluencingthepartoflegislationpreparedforthebankingandfinancialsector.

FollowingthepassingoftheActonintroductionoftheeurocurrencyintheSlovakRepublic,referredtoasthe“GeneralLaw”,inNovember2007TatrabankahadamorefullydetaileddefinitivespecificationoftheactivitiesandtasksthattheBankwouldhavetocarryoutduring2008pursuanttotheEuroChangeoverPlansothatitwouldbepreparedon1.1.2009toprovidethefullrangeofservicestoitsclientsinthenewlocalcurrency,theeuro.

Theyear2008sawtheculminationofworkontheeuroadoptionproject,eventhoughsomeactivitiesarestillongoingin2009.InrelationtotheBank’sexternalsurroundings,i.e.inrelationtoourclientsandinrelationtotheNBSandtheothercommercialbanks,severalimplementationoutputshadtobesecured,especially:

aftertheSKK/EURconversionratewassetwithinthetermsprescribedbylaw,tolaunchand•implementthedualdisplayoffinancialvaluesandpricesofSKKversusEUR;togoaheadwiththesecondarypre-stockingofclients–businessesthatexpressedaninterestinthis•andtosecurethesaleofstart-uppackagesofcoins,intendedchieflyforpre-stockingindividuals;totest,togetherwiththeNBSandtheothercommercialbanks,theconnectiontothenewpayment•systemsSIPSandTARGET2andtopreparefortheirfulluseafterchangeovertotheeuro;

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attheturnof2008/2009tomakeanannualhardcloseofallbankingsystemsinSKKandthen•maketheconversiontoEURsothattheBankiscapableofprovidingitsclientswithstandardservicesinthenewEURlocalcurrencyby5.1.2009atthelatest.On1-4January2009toensurethatthebranchesofourbankprovideclientswithselectedservices,especiallytheexchangeofSKKforEURandthepossibilitytomakedepositsinclientcurrentaccountsandpassbooks.

Todaywecannowproudlysaythatourbankhandledthetransitiontotheeurosuccessfullywithoutanyerrorsthatwouldhaveanegativeinfluenceonourclients,anditdidsoinlinewiththedetailedplansthatwehadprepared,thiswellinadvanceinsomecases.Atthesametime,however,weshouldsaythatthechangeovertotheeurowasthemostcomplex,mostdemandingandmostextensiveprojectthatourbankhaseverhadtodealwith.Therangeoftasksanddeadlinesweresetoutbythe“GeneralLaw”andvariousassociatedlegislativenorms.FailuretocomplywiththemwouldhaveseriouslydamagedtheimageoftheBank,andsonocompromiseatallwaspermissibleinthisrespect.Basically,everythinghadtobedonetoqualityandontime.Thatiswhytheeurochangeoverprojectin2008wasanabsolutepriorityinrelationtoprojectsongoinginparallel.

ThefollowingkeydataprovidesabetterandmorepracticalideaofthescopeandcomplexityoftaskslinkedtothetransitionofTatrabankatotheeuro:

760bankemployeeswereinvolvedinresolvingtheeuroproject;•co-operationwith23externalsub-contractorswasnecessaryforadaptationofsoftwaresystems•usedbytheBank;functionalchangesbroughtonbytransitiontotheeurohadtobemadein88software•applications;dataconversionhadtobecarriedoutin70softwareapplications;•duringtheso-called“conversionwindow”,i.e.intheperiodfrom31.12.2008to4.1.2009it•wasnecessarytoperformapproximately4000activities,mutuallylinkedintermsoflogicandtime.Theseactivitieswerecarriedoutbyroughly600bankemployeesandexternalsuppliers.Co-ordinatingtheseactivitieswasextremelydemanding;arequisiteforthesuccessfultransitionoftheBanktotheeurowastohaveadetailedplanofall•activitiesduringthe“conversionwindow”.Thisplanwaselaboratedandfinelytunedin2008aspartof5testiterations;preparationofthetestenvironmentsimulatingtheintegrationdateof31.12.2008meantlaunching•morethan2,500dailysoftclosesinvariousbanksystemsin2008;upontestingapprox.3500defectswereidentifiedthathadtobeeliminated;•Aspartofthesecondarypre-stocking,theBanksuppliedeuroto3,896businessentitiesworth•EUR36.3million(SKK1.09billion).ThismeantthatregionalcentralrepositoriesoftheBankhadtoprepare,andbywayoftheBank’sbrancheshandover,some14,744packagesofcashinastructurerequestedbyclients.Theseactivitieswerecarriedoutinthecourseof1.11.2008to19.12.2008;duringDecember2008theBanksoldatotalof120,000start-uppackagesofcoinsto•45,469persons;untiltheendofdualcirculation,theBankputintocirculationatotalof246tonsofeurocashworth•EUR277million(SKK8.34billion).BythesamedatetheBankhadwithdrawn188tonsofkorunacashfromcirculationworthSKK18.7billion(EUR620million).

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Regarding changeover to the euro, there are following activities that await Tatra banka in 2009:

implementingphasetwoofdualpricingoffinancialvaluesandprices,i.e.EURvsSKK,atleastto•theendof2009;completingthewithdrawalofkorunacashfromcirculation;•completingtheconversionofcertainsoftwaresystems,whichwereplannedforalaterdatefor•logicalreasons;implementingcertainlower-priorityfunctionalrequirements,eliminatinganyidentifiederrorsand•stabilisingthewholesoftwaresystemoftheBankintheconditionsoftheeurotostandardroutineoperation.

InconclusionweshouldthanktoalltheemployeesoftheBankwhoensured,oftenwithhugeeffort,thetimelyandqualityfulfilmentofallnecessaryactivitiesrelatedtothetransitionofourbanktotheeuro

Theyear2008wasanexceptionallydemandingtestoftheoperationalabilityofTatrabanka.Theachievedresultsentitleustobeproudoftheworkwedidandtobeoptimisticaboutfacingfuturechallengesinotherbankactivities.

Summary of consolidated performanceTheconsolidatedafter-taxprofitoftheTatrabankaGroupwasup14.64%y/y/,i.e.bySKK505million(EUR16.77million)toreachSKK3,956million(EUR131.3million).Thisgrowthwasattributableprimarilytothestrongertempofgrowthseeninconsolidatedoperatingincomecomparedtothegrowthtempoofgeneraladministrativeexpenses,whichreflectedpositivelyalsoinay/ydropinthecost/incomeratioby198bpstothevalue53.14%attheendof2008.Asthegrowthdynamicoftheconsolidatedpre-taxprofitwasfasterthantheaveragevolumeofequity,theROEincreasedy/ytothelevelof29.55%.

Development of income and expenditureDespitethegrowingpressuretocutmarginsduetorisingcompetitionorthechangedsituationonthefinancialmarkets,strongesty/ygrowthintermsofincomewasseeninNetinterestincome,whichincreased16.4%,i.e.bySKK1,111million(EUR36.9million).Thegrowthwasdrivenbygrowingincomefromboththeretailandcorporatesegments,buttheretailsegment(includingsmallcorporateclients)continuestobethelargestcontributortonetinterestincome,i.e.70%ofgeneratednetinterestincomecomesfromtheretailsegment.TheshareofNet interest incomeinthestructureofconsolidatedoperatingincomeincreased80bpsy/ytothelevelof59%.

Net income from commissions and fees,whichaccountsfor25%oftotaloperatingincome,wasup7.8%y/ytoSKK3,385million(EUR112.4million).Thegrowthwasmainlydrivenbythegrowthinfeesfromtransactions,accountmanagementandthecardbusiness,whichisdirectlyrelatedtothegrowingnumberofTatrabankaclientsandthehighervolumeoftransactionsmade.

26



TheshareofNet trading incomeinthestructureofconsolidatedoperatingincomerepresentsalmost17%anditsalmost8%y/ygrowthpositivelycontributedtotheoverallgrowthinincome.Thestructureoftrading incomecomprisesprimarilyforeignexchangegains,revaluationofinterestandcurrencyderivatives,revaluationoftradingsecuritiesandprofitfromthesaleofsecurities.

General administrativeexpenseswereup10.7%y/ytoSKK7,142million(EUR237.1million).Theirgrowthwasmainlyattributabletocostsinconnectionwiththetransitiontotheeurosinglecurrency,i.e.mostlyITcostsforadministrationandmaintenanceofinformationtechnologies,whetherasdepreciationchargesorotherdirectcosts.Theaveragenumberofemployeesincreasedby5.8%y/y,wherebystaffexpenseswereup10%y/y,i.e.SKK300million(EUR9.9million).

Balance sheet developmentConsolidatedassetsoftheBankwereup25.6%y/ytothelevelofSKK318billion(EUR10.55billion)attheendof2008.ThevolumeofTatrabanka’sloanportfoliocamealmosttoSKK174billion(EUR5.76billion),whichisay/yhikeof24%.Theshareofdefaultedloansintheportfoliofell5bpy/ytothelevelof1.40%asof31.12.2008,whichpointstotheprudentapproachtoriskinthecaseofnewlygrantedloansanditsoverallmanagement.

Massivegrowth,almost42%,wasseenprimarilyinthecaseofhousingloans(i.e.housingloans,mortgageloans,includinghomeequityloans),whichtotheendof2008accountedformorethan28%ofthewholeloanportfolio.Thevolumeofinvestmentandoperatingloans,whichtotheendof2008madeup44%ofthewholeloanportfolio,increasedby22%y/ytotheamountofSKK76billion

(EUR2.5billion).Thegrowthinloansin2008developedstronglythankstocorporateclientloans(up21.5%,i.e.non-financialcompanies,includingsoletraders),andalsoloansgrantedtoindividuals(up39%),theseaccountingfor35%ofallloanstotheendof2008.

3,000

2,000

1,000

5,000

29.2% 29.6%

Profit before tax

ROE before tax

20082007

5,000mil.SKK165.97mil.EUR4,420mil.SKK

146.72mil.EUR

mil.SKKmil.EUR (%)

4,000

99.58

66.39

33.19

165.97

132.78

0

30.0

26.0

27.0

28.0

29.0

Development of profit and ROE

4,000

Operating income

Cost/Income ratio

General and administrative expenses

20082007

13,439mil.SKK446.10mil.EUR

11,700mil.SKK

7,142mil.SKK237.07mil.EUR

55,1% 53,1%

mil.SKKmil.EUR (%)

8,000

12,000

16,000

132.78

265.55

398.33

531.10

0

54.0

58.0

56.0

52.0

50.0

Development of Cost/Income

388.37mil.EUR

214.07mil.EUR6,449mil.SKK

27



Tatrabankacontinuedingrowthintheareaofclientdepositstoo,thevolumeofwhichincreased21%y/y,meaninganabsoluteincreaseofSKK38.8billion(EUR1.29billion)toreachSKK224.6billion(EUR7.45billion).Thecontributionofretailtermdepositswasakeyfactorinthegrowth.RetailclientsincreasedtheoverallvolumeofdepositsinTatrabankaby34%y/y,generatingavolumeofSKK125billion(EUR4.15billion),whichtotheendof2008represented56%oftotalclientdeposits.

Theratioofloanstodepositsonaconsolidatedbaseasof31.12.2008was77.3%,whichpointstoabalancedratiobetweenloansanddepositsandindicatessufficientliquidity,i.e.depositsfinancethecreditoperationsoftheBank.Totheendoflastyearloansrepresented75.3%ofclientdeposits,i.e.in2008loansgrewslightlyfasterthandeposits,specificallyby3%.

Tatrabankaacceptedsubordinateddebtin2008worthSKK1.35billion(EUR45million),whichservestoboostthecapitaloftheBankandsupportitsgrowthpotential.DespitetheconversiontoBaselIIstandardsfrom2008,theBankcontinuallyfulfilledthemeasuresoftheNationalBankofSlovakiaoncapitaladequacy.Theconsolidatedindicatorofcapitaladequacycameto9.05%asof31.12.008.

13,439 mil. SKK446.10 mil. EUR

11,700 mil. SKK388.37 mil. EUR

20082007

mil.SKKmil.EUR

10,000

8,000

6,000

4,000

2,00066.39

132.78

199.16

265.55

331.94

398.33

464.7114,000

12,000

0

Structure of profits

Trading profit

Net commission income

Net interest income

Other operating profit (loss)

446.10 mil. EU

388.37 mil. E

-1%

59%

25%

17%

-3%

58%

27%

18%

Other assets

Securities

Loans and advances to customers

Loans and advances to banks

2008

13%

Structure of balance sheet assets317,861 mil. SKK

13%

253,016 mil. SKK8,398.59 mil. EUR

10,551.05 mil. EUR

250,000

300,0009,958.18

8,298.48

6,638.78

4,979.09

3,319.39

1,659.70

200,000

mil.SKKmil.EUR

50,000

100,000

150,000

0

54%

10%

19%

17%

17%

54%

6%

22%

2007

317,861 mil. SKK10,551.05 mil. EUR

253,016 mil. SKK8,398.59 mil. EUR

Deposits from banks

Deposits from customers

Other liabilities

Subordinated debt

Own funds

20082007

Structure of balance sheet liabilities

2007

4%

73%

14%

7%1%

8%

71%

14%

6%1%

250,000

300,0009,958.18

8,298.48

6,638.78

4,979.09

3,319.39

1,659.70

200,000

mil.SKKmil.EUR

50,000

100,000

150,000

0

segm

ent r

epor

ts

Bratisslal vava EEcocononomimic c MeMeeting gConfferrenencece o of f totop p SlSlovovakak econo omomisiststs l livivining g ababroroadadBratatisslalavava, , 1212 J Junune e 20200808

Prrofof. ĽuĽuboboš š PáPáststororProfessor r ofof F Fininanancece, , ThThe e UnUnivivere sisityof Chicago BBooo tht S Schchoool of BBusiness, USA


29

Segmentreports

www.tatrabanka.sk

Segment reports

Theprincipleofdividingupintoindividualsegmentsreflectsthesegmentationprincipleofourshareholder,RaiffeisenInternational.SegmentationinTatrabankaisasfollows:

Corporatecustomers•Retailcustomers•TreasuryandInvestmentbanking•Equityparticipations•

Corporate clients

Corporate customers = Large & Mid Market corporates

Forthesakeofapplyinganindividualapproachandofprovidingthehigheststandardofqualityservices,TatrabankacaresforitscorporatecustomersthroughitsstaffatheadofficeandthenetworkofCorporateCentresthroughoutSlovakia.RelationshipmanagersattheheadofficeinBratislavatakefullcareoflargecorporateclients.Tatrabankahas9CorporateCentresand8CorporateCentresub-agenciestocareforitsSMEsegment.

Inthesegmentoflargecorporatecustomers,Tatrabankamanagedoncemoretogeneratestronggrowth,thisinthefaceofachangingeconomicenvironmentandtherisingfinancialcrisis.Especiallyinthefirsthalfof2008loansgrewdynamicallytoreachthelevelofSKK65.07billion(EUR2.16billion)(+27%).Thegrowthindepositscontinuedatthesametempo,producingavolumeofSKK59.65billion(EUR1.98billion)(+25%).

Incomefromclienttransactionsandinterestincomeproducedthelargestshareofincrementsintotalincome.Thestructureoftotalrevenuesinthesegmentoflargecorporatecustomerschangedsubstantially,however,followingtheannouncementoftheconversionrate.TherewasagradualdeclineinrevenuesfromFXtransactionsandalsohedgingoperations.

12/2008 12/2007 12/2006 12/2005

in SKK thsnd in EuR thsnd in SKK thsnd in EuR thsnd in SKK thsnd in EuR thsnd in SKK thsnd in EuR thsnd

Net,interest,income 1,812,993 60,180 1,449,380 48,111 1,174,646 38,991 974,433 32,345

Net provisioning (602,232) (19,990) (223,762) (7,428) (302,659) (10,046) 158,831 5,272

Net interest income after provisioning

1,210,760 40,190 1,225,618 40,683 871,987 28,945 1,133,263 37,617

Net income from commission and trading

1,072,527 35,601 1,011,187 33,565 854,824 28,375 805,579 26,740

Operating (1,116,849) (37,073) (990,638) (32,883) (891,910) (29,606) (764,124) (25,364)

Profit before tax 1,166,439 38,719 1,246,167 41,365 834,901 27,714 1,174,719 38,994

Cost/Income,ratio 38.71 % 40.26 % 43.95 % 42.93 %

30 www.tatrabanka.sk Statement StrongGroup Management’sReport Reports Outlook

Segmentreports

Atthesametime,theeconomicenvironmentstartedtocool,whichhadthegradualeffectofslowingdownalsothetempoofgrowthinloans.Totheendof2008theBankrecordeditsfirstmajoroutagesindemandalsointhecaseofSlovakcompanies.Evenso,despitethenegativedevelopmentandtherisingrecessiontheeffectivenessofsalesactivitieswithlargecorporateclientsimproved,whichisconfirmedalsobytheachievedCost/Incomeratio.

IntheSMEsegmentspecialattentionwasgiventoacquisitionactivitiesin2008.Thenumberofcustomersincreasedby10%y/y.Intheareaoffinancing,theprimaryendeavouroftheBankwastocreatenewandeffectiveproductsoffinancingforitsclientsthatwouldmeettheirneedsandexpectations.TheloanportfoliovolumecametoSKK36.95billion(EUR1.23billion),whichrepresentsanimpressive33%growth,orSKK9.1billion(EUR300million).

Similarlytoasinthecaseoflargecorporateclients,alsointheSMEsegmentwemanagedtoincreasetheeffectivenessofthegrantingofloans,whichincreasedby43%y/yintermsofquantity.Involumeterms,thistranslatesasan18%growthinnewloans,whichcomestoSKK8.10billion(EUR269million).Tatrabankaoncemoremanagedtomaintainitsmarketshareofcreditgrantinginthissegmentandsoconfirmitspositionasmarketleader.

Despitethecomplexsituationonthemarket,weregisteredanaveragey/ygrowthofroughly6%withregardtocreditproducts.

Project financingTatrabankahaslongheldaleadingpositiononthemarketofprojectfinancing,especiallywhenitcomestofinancingproperties.Thelargestpartoftheportfoliocontinuestobethefinancingofcommercialpropertiesintendedforrental,i.e.officebuildings,shoppingmallsandlogisticsparks.ThevolumeofloansgrantedforcommercialpropertiesincreasedtoSKK1.67billion(EUR55.5million).Accountingforthefinancialcrisisanditsimpactonflatsales,theshareofprojectsconcerningblocksofflatswasdowncomparedto2007.Fromthebeginningof2008theBankpaidincreasedattentiontoseekingoutprojectsintheenergysector.In2008TatrabankasupportedenergysectorprojectscomprisingtotalinvestmentcostsofSKK964.03million(EUR32million).Substantialgrowthwasgeneratedregardingsmallregionalprojectsoutsidethecapitalcity,whichisprovenbythefactthatasmuchas75%ofsmallprojectswerefinancedoutsideBratislava.

Loan programmes and export supportTatrabankaalsodevotedalotofattentiontofinancingofsmallandmedium-sizedenterprises(SME),wheretheaveragevolumeofdrawnloansincreasedby30%,i.e.bySKK3.79billion(EUR130million).WherefastloansbackedbytheguaranteeoftheSlovenskázáručnáarozvojovábanka,a.s.(SZRB)areconcerned,in2008theBankrecordedagrowthof41%inthevolumeofloanscomparedtothepreviousyear,providingatotalof790loansworthSKK2.8billion(EUR92.94million).

TatrabankaenjoyedequalsuccessalsointheloanprogrammeoftheEBRDforthefinancingofenergysavingprojects,wherethewholeamountofallocatedfundsfromtheEBRDwasdrawnin2008,comprisingSKK451.9million(EUR15million).Thebiggestshareofcreditsources,around60%,wasusedintheresidentialsectorprimarilyfortheinsulationofblocksofflats,whiletheremaining40%wasusedinindustryforinvestmentslinkedtoreducingenergydemands.

31Auditor’sReport FinancialStatements DistributionoftheProfit Management BusinessLocations www.tatrabanka.sk

Segmentreports

In2008Tatrabankacontinuedalsodevelopingitsco-operationwithEximbankaSR,whichledtotheimplementationofthenewproduct“InvestmentfinancingabroadwithinsuranceofEximbankaSR”.TatrabankawasthefirstbankinSlovakiatoofferthesuccessfulnewkindoffinancing,whichofferedinvestorsthepossibilitytoinvestinriskiercountrieswhilealsohavingcoverforpoliticalandcommercialriskslinkedtotheinvestment.TogetherwithEximbankatheBanksupportedexportintheformofrefinancingloansworthSKK2billion(EUR66.4million),whichisthelargestvolumeinthebankingsector.ExportswentmostlytothecountriesoftheEuropeanUnion.

Agriculture sector financingTatrabankaisnowtraditionallyclassedamongthosebanksthatprovidestrongsupportfor,andhaveastronginvolvementin,theagriculturesector,devotingalotofattentiontoagriculturalundertakings.ThevolumeofcreditprovidedtotheagricultureandfoodsectorscomestoalmostSKK6billion(EUR199.16million).Anothernaturalsteptowardimprovingthestandardofcareforagribusinessclientelewastosetupaspecialteamthatwoulddealexclusivelywiththefinancingofagriculturalundertakingsandresolvetheirspecificneedsinthefieldofcommodityfinancing,directpaymentsfinancing,environmentalsupportorothersubsidies,thegrantingofloansforthepurchaseofagriculturalequipmentandland,byutilisingourexpertiseandinsightintoEUfunds.

Tatra banka Factoring – number one on the Slovak factoring marketForthefirsttimeinitshistory,TatrabankabecamethebiggestfactoringcompanyontheSlovakmarketforacompleteyear(2008).Thefactoringturnoverincreasedby60%y/yandthemarketshareby7.5%,bywhichtheBankoccupiedfirstplaceintherankingwitha19.8%marketshare.Thisresultisallthemorepreciousconsideringthefactthatthefactoringmarketasawholepostedadeclineof0.60%.ThetotalannualvolumeofrefinancedreceivablescametoSKK9.109billion(EUR302million),ofwhich59%concerneddomesticfactoring,38%exportfactoringand3%importfactoring.Theshareofnon-recoursefactoringintotalturnoverincreasedfromlastyear’s6%to9%in2008.Thenumberofactiveclientswithafactoringproductincreasedby66%.

TreasuryTheClientdepartmentpostedatotalgrowthof5%inthenumberoftransactions,withtheaveragedailyturnoverofFXtransactionsevenrecordingagrowthof27%comparedto2007.

Justlikeinotheryears,thenumberofstructuredandderivativetransactionsincreasedalsoin2008,whichwastoalargeextenthelpedimprovethehedgingoptionsofourclients.

ComparedtothepreviousyeartheClientdepartmentspecialisedactivitiesmorewiththeaimofprovidingabetterqualityservicetoclientsinthefollowingsegments:large.SME,retailandspecialinstitutionalclients.

LastyearTatrabankaincreasedsalesofsecuritiesandinvestmentproducts,especiallyforinstitutionalinvestorsandclientswithaninvestmentfocus.


Segmentreports

Retail clients

Note: Private Individuals, Private banking, Micro companies, Small Enterprises and Special customers

Retail still a key segmentThesituationonthefinancialmarketin2008,especiallyinthelastquarter,wasinfluencedbytheintensifyingfinancialcrisis.Evenso,in2008TatrabankaagainmanagedtodefenditspositionasoneofthestrongestbankinginstitutionsontheSlovakbankingmarket.Theyear2008affirmedthepositionofretailasoneofthekeysegmentsfortheBank.ThestrongfocusofTatrabankaontheretailsegmentledtotheBankstrengtheningitsmarketsharesinrelationtoseveralretailproducts.

Tatrabankaincreaseditsshareonthehousingloansmarket(mortgageloans,homeequityloans)from20.5%in2007to21.81%in2008(11/2008).

ThestronggrowthoftheSlovakeconomyin2008reflectedinagrowthintheloanportfoliofromSKK44.53billion(EUR1.478billion)in2007toSKK55.10billion(EUR1.829billion).TatrabankreactedflexiblytothedevelopmentofinterestratesonthedepositsmarketbyintroducingtheproductSuperTermínTBwithattractiveinterestyield.TheresultofthismovewasagrowthindepositsfromSKK74.41billion(EUR2.47billion)toSKK86.76billion(EUR2.88billion).

Specialattentionwasgivenalsoin2008tothetrainingandprofessionaldevelopmentofemployees.Trainingwasredesignedforthesakeofimprovingthelevelofeducation.Thecontentandtimestructureoftrainingweremodified.Thecreationofatrainingenvironmentasacarboncopyofthereal-lifeenvironmentthatadvisorsworkinatbranchesprovidedasubstantialplus.Thismeantthatworkersweregiventhechancetolearnhowtoworkinbanksystemsdirectlyduringtraining,whichmeanttheywerebetterpreparedfortheirworkonsiteatbranches.Aspartofenhancingtheeducationalprocess,westartedtouseasystemofelectroniceducation,whichmakesitpossibletotrainworkersdirectlyattheworkplacewithouttheneedforalecturer.

12/2008 12/2007 12/2006 12/2005

in SKK thsnd in EuR thsnd in SKK thsnd in EuR thsnd in SKK thsnd in EuR thsnd in SKK thsnd in EuR thsnd

Net interest income 5,009,818 166,295 4,232,786 140,503 3,531,317 117,218 3,214,134 106,690

Net provisioning (703,613) (23,356) (330,822) (10,981) (191,936) (6,371) (431,626) (14,327)


4,306,206 142,940 3,901,964 129,521 3,339,381 110,847 2,782,508 92,362

Net income from commission and trading

3,388,095 112,464 3,013,212 100,020 2,532,439 84,062 2,493,669 82,775

Operating expenses

(5,164,996) (171,446) (4,619,254) (153,331) (3,850,130) (127,801) (3,803,133) (126,241)

Profit before tax 2,529,304 83,958 2,295,920 76,211 2,021,691 67,108 1,473,044 48,896

Cost/Income ratio 61.50 % 63.75 % 63.49 % 66.63 %


Segmentreports

Inlinewiththeselectedbrandstrategyandthedirectionsetoutfortheupcomingperiod,in2008Tatrabankasetitselfthegoalofgreatlyintensifyingitsfocusontheaffluentclientssegment.Privatebankerscontinuetobeakeyelementincaringforpremiumclients.Thenumberofprivatebankerswasincreasedinordertooptimisethesizeofclientportfolios.WiththeintroductionofnewsegmentationrulesinJuly2008,thequalityofthesegmentasawholewasfurtherimproved.TheprimaryobjectiveoftheseandotheradoptedmeasuresistoincreasethelevelofsatisfactionofTatrabanka’saffluentclientsandtocreatespaceforfurthergrowthofthesegmentfromtheranksofnon-clients,withthevisionofleadershipontheSlovakbankingmarket.

In2008wedidnoteaseuponoureffortstoprovideaqualityserviceandprofessionalcarefortheMicrosegment–smallcompaniesandsoletraders.Thisfocusonqualityproducedagrowthof4.4%forusinthenumberofactiveclients.Atatimewhenitwasnecessarytofocusattentiononthecostssideofprocesses,wesuccessfullyimplementedamoreeffectivewayofprocessingbusinessloans,whichinadditiontospeedinguptheprocessalsohelpedcutcosts.Withpre-approvedcreditcardsforselectedbusinessclients,morethanaonefifthy/ygrowthinnewloansforthissegment,andagrowthinliabilitiesof22%togetherwithgreaterefficiency,theprofitabilityofthissegmentwasup79%comparedto2007.

Tatrabankacontinuedintheestablishedtrendofexpendingitsbranchnetworkbyopeninganother6newbranches.Thisincreasedthetotalnumberofbranchesto132.Inadditiontoclassicbranches,TatrabankaalsoexpandedthenumberofspecialisedCentresofLivingTB,whichprovideafullrangeofservicesconcerninghousing.AfullservicelinkedtoinvestmentcontinuestobeprovidedbythespecialisedInvestmentCentreTB.TatrabankaconfirmeditspositionasinnovatorbyopeningTrainingBranch.ThisisthefirstbusinesslocationofitskindontheSlovakbankingmarket,wherenewemployeesaretrainedindirectcontactwithclients.

Financial adviceInlinewithitsMissionstatement,Tatrabankaprovidesqualityadvicethatmeansanexceptionallevelofpersonalandfinancialcomfortforthoseclientswhocareaboutwholooksaftertheirmoney,andhowitislookedafter.Throughacombinationoftopprofessionalismandapersonalapproach,basedonaneedsanalysisclientsareofferedabroadrangeofproductstailor-madetotheirneeds–bothintermsofcreditproductsandvalorisationoftheirfunds.

Intheaffluentsegment,privatebankersensurethemosteffectiveproductmixthroughfinancialplanningwiththeaimofmaximisingthevalorisationofclientassets.

Inanefforttosatisfythegrowingdemandofindividualsforloans,Tatrabankaoffersacomprehensiveportfolioofproductsforfinancinghousing.Inresolvinghousingissues,Tatrabankaclientsgreatlyappreciatetheprofessionaladvicethattheyreceivefrommortgagespecialists.

Theever-popularGeneral-purposeloangrantedbyTatrabankaoffersclientsthepossibilityofreceivingafinancialreservetofinanceabroadrangeofneeds.


Segmentreports

Withregardtoinvestmentopportunities,clientscanchoosefromawiderangeofTatraAssetManagementmutualfunds.ClientscaninvesttheirfundsdirectlyortakeadvantageofthemanagedinvestmentstrategiesofProfileFunds.

Greatsuccesswasenjoyedin2008bythenewlycreatedtimedepositproductSuperTermínTB,whichcombinesattractiveappreciationofavailablefundswiththesecurityofatimedeposit.

TheInvestmentCentreTBprovidestheopportunityofinvestinginRZBGroupfunds.TheInvestmentCentreTBalsoprovidesclientswiththepossibilityofdirectlypurchasingspecificsharesorbonds.

TheoptionofinvestingonaregularbasisisprovidedbytheSavingsProgrammes.WesupportpensionassurancethroughthefundsofDDSTatrabanky.InsuranceproductsoftheBankprovideacombinationofsavingtogetherwithcoverofvariousrisks.

Mortgage loans held the interest of clients also in 2008Forthemarketofretailloanstheyear2008couldbecharacterisedbytheprevailinginterestofprivateindividualsinloans,eventhoughamilddeclinewasseenattheendoftheyearduetotheglobalfinancialcrisis,whichhitalsotheSlovakpropertymarket.Nevertheless,Tatrabankacontinuedtoreinforceitspositionasakeyplayerontheretailloansmarket.

In2008Tatrabankagranted7,154mortgagesworthatotalofSKK14.8billion(EUR491.27million),1,872mortgageloanswithstatebonusforyoungpeopleworthSKK2.3billion(EUR76.35million),5,467homeequityloansworthSKK5.4billion(EUR179.25million).

ThetotalvolumeofnewlygrantedmortgageloansandhomeequityloansworthSKK22.5billion(EUR764.86million)representedagrowthof16%over2007.TheCentreofLivingTBnetworkalsocontributedtotheoverallvolumeofgrantedloans,asitsbranchesapproved10%ofallnewloans.Asof30.11.2008enjoyeda21.6%shareofthemarketwithhousingloans,whichrepresentsagrowthof1%initssharecomparedtotheendoftheyear.

Volume of granted loans 2008 2007growth in %

mil. EuR bn SKK mil. EuR bn SKK

Volume of granted mortgage loans 567.62 17.1 504.55 15.2 12 %

Volume of granted home equity loans 179.25 5.4 139.41 4.2 28 %

Total 746.86 22.5 643.96 19.4 16 %


Segmentreports

Even better loan processing and client serviceIn2008TatrabankaintroducedtheproductMortgageTBforitsclients,whichisaspecificpurposeloanforhousingpurposes.Atthesametime,throughouttheyeartheBankcontinuedtoimprovethemortgageloanunderwritingprocess,whichmeantaswifterserviceforclients.Lastbutnotleast,mortgageloansarenotevenmoreattractivethankstolowinterestrates.

Non-purpose loans still very popularIn2008Tatrabankaenjoyedgreatinterestofitsclientsinnon-purposeloans,astheyhadthechancetoappreciatethespeedandsimplicitywithwhichtheseloansaregrantedandprocessed.ThankstoasuccessfulseriesofsupportingadvertisingcampaignsandotheractivitiesfocusingontheBank’sownclientportfolio,wecouldwitnessrisinginterestnotjustinNon-purposeloanswithoutsecurity,whichin2008wasrenamedtoNon-purpose loanTBClassic,butalsointhecaseofGeneral-purposeloansecuredbyfinances,calledNon-purpose loanTBGarant.

InthecaseofNon-purpose loanTBClassicthetotalvolumeofgrantedloansfor2008soaredtoSKK3.369billion(EUR111.834billion),whichrepresentsa26%growthoverthepreviousyear.

ForNon-purpose loanTBGaranttheyear2008wasmarkedbyanoverallredesign.Comparedto2007weregisteredagrowthinthenumberofsoldloansby62%,comprisingSKK0.995billion(EUR33.03million).

In retail, the business segment is still at the centre of interestThebusinesssegmentalsoreceivedattentionandthankstoactivedevelopmentofsalessupportactivitiesinthebusinesspartoftheretailsegment(smallbusinessandsoletraders),focuswasputontheeffectivenessofsales,trainingandthelaunchoftheautomatedsystemforprocessingBusinessLoansTBExpres.ThisstepledtoaspeedingupofthewholeapprovalandprocessingofBusinessLoanTBExpresapplications.

Non-purpose loanTB Classic 2008 2007 growth in %

Granted loans 32,378 28,027 16 %

Volume of granted loans 3.369 bn SKK 111.83 mil. EUR 2.671 bn SKK 88.66 mil. EUR 26 %

Non-purpose loanTB Garant 2008 2007 growth in %

Granted loans 4,730 2,924 62 %

Volume of granted loans 0.995 bn SKK 33.03 mil. EUR 1.230 bn SKK 40.83 mil. EUR -


Segmentreports

BusinessLoanTB Expres In2008theshareofinstalmentBusinessLoansTBExpresintotalsalesincreaseduponadropintheshareofoverdraftBusinessLoansTBExpres.

TotalsalesofBusinessLoansTBExpresin2008correspondedtothesetbudget,whichrepresentedtheprojectionoftheBankforthesaidyear.

BusinessLoanTB ComfortBusinessLoanTBComfortproducedthefollowingresultsin2008:

Current and time deposit accounts, client assetsIn2008theimportanceofprimarydepositsgreatlyincreasedfortheBank,bringingtotheforefronttheneedtomanagethesefinancialflowsmoreeffectivelythanatanytimeinthepast.Inthesecondhalfoftheyearinparticular,inreactiontothefinancialcrisisandthegradualpreparationofclientsfortransitiontothenewcurrency,competitionamongbanksforretaildepositsstronglyintensified.Banksputalotofemphasisonactivelycommunicating“classic”depositproducts,tryingtolureclientsaboveallbythelevelofinterestrates.

Tatrabankahadanexceptionallysuccessfulyearintermsofthegrowthinthevolumeofdepositsfromretailclients.Primaryretaildepositsincreasedby33%over2007,andasof31.12.2008theirvolumehadreachedSKK104.3billion(EUR3.5billion).Themostsignificantgrowthwasseenindepositstotimedepositaccounts,wheretheBankenjoyeday/ygrowthofalmost110%,takingthetotalvalueofthesedepositstoinexcessofSKK47.1billion(EUR1.5billion).ThisresultwasstronglyinfluencedbyattractivelysetinterestratesoftheproductSuperTermínTBandtheirpromotionthroughtwointensivemediacampaignsinthesummerandautumnof2008,bytheincreasedinterestofclientstodepositavailablefundstobankaccountsattheendoftheyearbeforethechangeovertotheeuro,andalsobythewithdrawalofclientinvestmentsinmutualfundsduetothefinancialcrisis.Averypositiveaspectisthefactthatthegrowthinretailprimarydepositsofindividualwasaccompaniedbyarisingmarketsharefrom13.6%to14,2%,wherebyintimedepositsthedevelopmentwasparticularlyfavourable,astheBank’smarketshareinthisareaincreasedby2.9%toreach15.4%.TheassetsofclientsincurrentaccountsintheBankpostedagrowthof7%comparedto2007,takingthemarketsharetotheendof2008to17.9%.

BusinessLoanTB Expres 2008 2007 growth in %

Granted (qty) 2,525 2,223 13.60 %

Granted volume 2.20 bn SKK 73.03 mil. EUR 1.90 bn SKK 63.07 mil. EUR 15.70 %

Outstanding (qty) 3 666 1 889 94.00 %

Outstanding volume 2.00 bn SKK 66.39 mil. EUR 1.30 bn SKK 43.15 mil. EUR 53.80 %

BusinessLoanTB Comfort for 2008 Approved Sold

Quantity 2,517 2,397

Volume 0.65 bn SKK 21.58 mil. EUR 0.59 bn SKK 19.58 mil. EUR


Segmentreports

Payment cardsIn2008thetotalnumberofissuedpaymentcardscametoalmost1.7million.ThisreaffirmedTatrabanka’stopspotonthemarketwitha32.5%share,whichwasagrowthof1.5%comparedto2007.TheBankretaineditsleadingpositionalsoonthemarketofcreditcards.In2008theirnumberhadreachedalmost777,000,whilethemarketsharehadgrowny/yfrom55%to59%.

Excellentresultswereenjoyedalsowheretheuseofpaymentcardsareconcerned–thetotalvolumeofpaymentcardtransactionsin2008cametoSKK79.4billion(EUR2.6billion),whichisanimpressive14%growthover2007.Non-cashpaymentsworthSKK24.4billion(EUR809.3million)weremadebycardholdersinatotalof17milliontransactions.Tatrabankacreditcardsproducedagrowthintheshareofnon-cashtransactionsfrom82%to86%,whiledebitcardsaccountedfor24%from22%before,andevenhadashareof25%inDecember.

TheofferofVISAstandardcreditcardswithuntraditionaldesigncontinued.FirstlythisconcernedthelimitededitioncardswithbrightyellowbackgroundandsignatureofJúliusSatinsky,holderoftheTatrabankinmemoriamPrizeforart,whichstartedtobeissuedinNovember2007.FromMaytoJune2008weintroducedthelimitededitioncreditcarddevotedtoAlbínBrunovský,holderoftheTatrabankainmemoriamPrizeforlifelongachievement,andattheendoftheyearinNovemberandDecemberweofferedtheeditiondevotedtoKarolKállay,holderoftheTatrabankaPrizeforart.AchangeindesignwasmadeinthecaseoftheVISAelectronstudentpaymentcardsissuedwithcurrentaccountswiththeserviceTatraAcademyTB,withfournewdesignsonofferfromSeptember–Turquoise,Abstract,FlowerandOrange,whichreplacedthefouroptionstillthen–Black,White,CamouflageandEthnocard.

Thebankstatementsforcreditcardswerealsosubjecttoachange,whenduringtheyearallcardholdersstartedtoreceivetheminanew,clearerlayout.

Still the most successful bank regarding acceptance of payment cardsIn2008TatrabankaheldontoitsnumberonespotwithbusinesspartnersinSlovakiaintermsofpaymentcardacceptance.ThetotalvolumeoftransactionsmadeviaTatrabankapaymentterminalsexceededSKK33billion(EUR1.1billion),wherebyitsmarketshareinturnovermadebypaymentcardsreachedalmost39%.

InDecembertheBankgeneratedaturnoverofSKK3.7billion(EUR122.8million),thusexceedingtheSKK3billionmarkforthesecondtimeinitshistory–theonlybankinSlovakiatodatetohavesmashedeventheSKK2billionthreshold.

Thiswasalsoattributabletomorethana24%increaseinthenumberininstalledpaymentterminals.Withatotalof8,359terminalsinoperationtotheendof2008,TatrabankaoccupiedsecondplaceinSlovakiainthenumberofpaymentterminals.Lastyearinterestprevailedinpaymentcardpaymentsatretailers,whichisconfirmedbyay/ygrowthof38%inthenumberofpaymentterminaltransactionstoreachSKK2.8billion(EUR92.5million).

RegardingthenumberofATMs,Tatrabankareinforced3rdplaceonthemarketintheSlovakRepublicwithashareof16.5%.Over15milliontransactionswerecarriedoutatTatrabankaATMs,whichtranslatesasay/ygrowthof8.7%.ThetotalfinancialvolumeoftransactionsworthalmostSKK53billion(EUR1.8billion)posteda12%y/ygrowth.


Segmentreports

Wheretheacceptanceofpaymentcardswasconcerned,theyear2008wasdemandingforTatrabankaduetomigrationtothenewnationalcurrency,theeuro.Tatrabankaexertedhugeeffortintosuccessfullycopingwitheuroadoption,andsoholdersofpaymentcardscouldmaketheirfirsttransactionsatPOSterminalsatretailers–contractualpartnersofTatrabanka,just2minutespastmidnighton1.1.2009.ThefirstwithdrawalsofeurobanknotescouldbemadeatTatrabankaATMsalready30minutesintotheNewYear.

Despitethehugeeuroproject,whichconsumedjustaboutalloftheBank’shumanresources,inJune2008Tatrabankastillmanagedtoputthefirstself-servicepaymentterminalsintooperationonthemarket.Themajorityoftheseterminalsarelocatedinmulti-storeycarparks,wherecardholderscouldpayforparkinginaveryconvenientway–usingtheirpaymentcards.

Since2008TatrabankahasalsohadthewholenetworkofATMsmigratedforalltypesofacceptedcardsusingEMVchiptechnology,whilethePOSterminalsofTatrabankahavebeenequippedwiththistechnologyforacceptingchipcardsaccordingtothestandardsofinternationalcardcompaniesalreadysince2007.

Internet bankingFortheseventhtimenowTatrabankahasbeenawardedthestatusofmostsuccessfulandmostinnovativeinternetbankinthecountry.TheprestigiouseconomicmagazineGlobalFinancedeclaredTatrabankatheBestConsumerInternetBankinSlovakiafor2008.

InternetbankingisaservicethathasbecomeanessentialpartofeverydayaccesstopersonalfinancesforthegrowingnumberofTatrabankaclients.

In2008over12.9milliondomesticpaymentsweremadeusingInternetbanking,meaningInternetbankinghasretainedovera20%y/ygrowthinthenumberofpayments.MorethanthreetimesmorepaymentsweremadetroughInternetbankingthanthroughthewholebranchnetwork.

FunctionalanddesignchangesweremadetoInternetbankingin2008withtheaimofincreasingusercomfortforclients.Thechangesconcernedthedesignofstandingorders,withtheadditionaloptionofenteringstandingordersduringtechnicalinterruptionsandthedisplayingofthedetailsofforeignpaymentordersmadethroughInternetbanking.Attheendof2008Internetbankingwassuccessfullyconvertedtotheneweurocurrency.

ThewebsiteofTatrabankaatwww.tatrabanka.skwasredesignedtoprovideclientswithanewmoderndesign,easiernavigationandbetterpagesearches.


Segmentreports

DIALOG contact centreTheDIALOGcontactcentrewasoneofthemostimportantdistributionchannelsforretailbankingin2008.Aspartoftheexpansionofservices,inadditiontobasicbankingservicesDIALOGalsostartedofferingclientsdetailedinformationabouttheproductsofsupplementarypensioncompanyDDSTatrabankyin2008.

Withtheaimofimprovingthestandardofcustomerservices,thepossibilityofrequestingachangetothedailylimitsonadebitcardwasintroducedalsothroughthisservice.Regardingpayments,westartedtocontactclientsduetoabsentdataonforeignpaymentorders,whichspeededupthepaymentclearanceprocess.

Thecontactcentreactivelycontinuedtoconducttelemarketingaswell.Regardingthesaleofcreditcardsoverthephone,DIALOGcontributedtoalargeextentintotalcreditcardsalesofTatrabanka.Inadditiontosellingcreditcards,thecontactcentrewasalsoactivelyinvolvedinthearrangementofclientmeetingstoconsultgeneral-purposeconsumerloansandmortgageloans.Private bankingTheyear2008wasfarfromastandardyearforprivatebanking.Tatrabankaencounteredthebiggestturbulenceonthesharesmarket,wherethedeclinewastheworstseeninseveraldecades.Evenso,privatebankingstillmanagedtokeepuppositivegrowthinassetsandanincreaseinthenumberofmanagedclients.

ClientassetsundermanagementincreasedbymorethanSKK2.2billion(EUR73.03million)toreachSKK33.7billion(EUR1.12billion),whichisa7%y/ygrowth.OnceagainTatrabankareaffirmeditspositionasleaderinthesegmentofprivatebankinginSlovakia.

Therewere274moreclientsy/y,whichinthisindicatormeansagrowthof14%.

Alreadyin2007theissuepolicyswitchedtomoreconservativetypesofassetsandthistendencywaspreferredalsoduringthecourseof2008.Atregularintervalsweputoutspecialissuesofprotectedstructuredproductsforourclients.Thesereflectedcurrentinvestmentopportunitiesonthemarketandallowinvestorstoachievepotentiallylucrativeyieldswithprincipalguaranteedondateofmaturity.Theissueoftheseproductsisarrangedforusbyotherbankswithinthegroup(RCB,RZB)orbythelargestglobalinvestmentbanks.ThetotalvolumeofinvestmentsintostructuredproductsapproachedtheSKK2.95billionmark(EUR97.92million).

BondoptionscomprisedmostlymortgagebondsandbyparticipatingintheprimarybondissuesofTatraResidenceandTatraLeasingprivateclientsweregiventheopportunityofinvestingalsointocorporatebondsofthirdpartiesfromtheTatrabankagroup.

TatraAssetManagementwasthestrategiccoreproviderofprivatebankingproductsrelatedtofundinvestments.ThevolumeofclientassetsinthesefundsamountedtoSKK6.9billion(EUR229.04million).InvestmentinfundsisalsosecuredbyRaiffeisenCapitalManagement,therebysupplementingtherangeofofferedfundoptionsforourclients.


Segmentreports

LastyearwereallyendeavouredtopushupthebarabitregardingthequalityofserviceprovidedbyPrivatebanking,primarilythroughanewworkplaceonGorkéhoulicainBratislava.Thereclientscandealwithalltheirneedslinkedtobankingservicesinadignifiedenvironment,tothehighestqualityandwithoutwaiting.Weincreasedtheavailabilityofprivatebankerswiththeaimofgivingclientsthepossibilitytocontacttheirbankeratanytime.

ThewholespectrumofserviceswasfullyadaptedtoDirective2004/39/ECoftheEuropeanParliamentandoftheCouncilonmarketswithfinancialinstruments,betterknownasMiFID.Atthecloseoftheyearwefocusedallourattentiononhandlingthechangeovertothenewcurrency.Thetransitiontotheeurowentaheadsmoothlywithoutmajordisruptions.


Segmentreports

Treasury

*average

TheTreasurysegmentcontinuedalsoin2008dischargingoftasksforwhichithadamandatefromtheBank’smanagement.ThedivisionactivelytookpartintwokeyprojectsoftheBank,whichbytheirimportanceappliednotonlytotheyear2008.ThefirsthalfoftheyearwasmarkedbytheMiFIDproject,andthesecondhalfbythechangeovertotheeuro.TheTreasuryDivision,astheproductpointforinvestmentservices,fulfilleditstaskswithfourdepartments:TradingDepartment,ClientsDepartment,InvestmentBankingDepartmentandAssetandLiabilityManagementDepartment.WeseeagreatbenefitalsointheformationoftheTreasurystrategy,whichinaperiodofeconomicrecessionhasprovetobeakeyelementinadaptingflexiblytochangingmarketconditions.

FortheTradingDepartmentthesummermonthsrepresentedamilestonefromseveralaspects.DuringthesummertherateoftheSlovakkorunatotheeurowasfixedatSKK30.126andtradingontheSKKmarketendedtoalargedegree.Thisoutcomewascountedwithimmediatelyinthebusinessplanofthedepartment,andsoactivitiesfocusedmoreonsurroundingFXmarkets.Theglobalfinancialcrisis,whichkickedoffagaininSeptember2008,didhaveaparticularlystronginfluenceonthedepartment,however,especiallyintermsofcounterpartyrisk.TheBankdecidedtocutthenumberoffinancialpartnerstoanessentialminimum.Beingawardedtheprestigioustitleof“BestForeignExchangeBankinSlovakia”fromtherenownedmagazineGlobalFinanceincombinationwiththesaidcircumstances,isatruemarkofthesuccessofthewholeteamofinterbankdealers.Tatrabanka’sshareontheinterbankforeignexchangemarketinSlovakiacameto35%in2008.Onthemoneymarket,TatrabankacontinuedtoactasareferencebankforsettingtheBRIBOR.TheshareoftheBankintradinginterestrateinstrumentscameto16%.TheBankcontinuedtoparticipateinthefixingofthebenchmarkstatebondcurve.

Regardingcorporatecustomercare,in2008weextendedourproductrangetoinclude,inadditiontoinstrumentsformanagingexchangerisk,alsootherinstrumentsthathelpedourclientsmanageinterestandcommodityrisk.WeimplementedtheEUDirective–theMiFID(MarketsinFinancialInstrumentsDirective)atthedepartment,whichstandardisesourclientservicingprocesses.Inadditiontoagrowthinsalesofstructuredproducts,thesuccessofthedepartmentisalsofoundedona15%y/ygrowthinturnoverincurrencyconversionsand25%y/ygrowthindeposits.Likewise,wecontinuedtoimprovethetelephonenetwork,throughwhichweachieveda95%rateofavailability.

Treasury – summary transactions 2008 2007 2006

bn SKK bn EuR bn SKK bn EuR bn SKK bn EuR

Spot foreign exchange operations on interbank market 2849.9 94.6 2 566.74 85.2 897.75 29.8

Interbank money market deposits* 9.04 0.3 9.04 0.3 9.04 0.3

Foreign exchange operations with Tatra banka customers

457.92 15.2 400.68 13.3 292.22 9.7

Money market operations with Tatra banka customers*

66.28 2.2 51.21 1.7 36.15 1.2


Segmentreports

Theongoing20%y/ygrowthinthebalancesheettotalputsdemandsonmarketriskmanagementintheBankBook.In2008thefar-sightedpolicyoftheBanktomaintainaratioofgrantedloanstoreceivedprimarysourcesunderthelevelof90%provedtoberight.Duringtheperiodofstronglydeterioratingliquidityontheinterbankmarket,theBankwasthereforenotdependentoninterbankmarketinstruments.Externaldebtwasacquiredonlytosatisfylegislativerequirementsforthecoverageofgrantedmortgageloansbywayofmortgagedebentureissues.ThegrowthintheloansportfoliohadtobesupportedbyboostingthecapitaladequacyoftheBank,aswasthecasein2007.TheBanktookonsubordinateddebtworthSKK1.35billion(EUR45million).

TheInvestmentBankingDepartmentinco-operationwithothersectionsintheBank,workedontheMiFIDproject.ThisEuropeanDirectivehasbeenimplementedintotheSlovaklegalsystem.Themaintaskoftheprojectwastosetupsalesprocessessothatclientsreceivesufficientinformationtomaketheirdecisions.Wewillinformclientsoftherespectivecategorytowhichtheyareallocatedandtreatthemaccordingly.Amongthedepartment’ssuccesseswecanalsoincludealmost20primarybondissuesfortheTatrabankagroup.

Domestic and foreign paymentsIn2008Tatrabankamaintainedtheupwardtrendinthenumberofreceivedandprocessedpaymentorders.

Thenumberofoutgoinginterbankdomesticpaymentordersincreasedby10.28%.Thelargestshareinthisgrowthcamefromdomesticpaymentordersmadethroughelectronicdistributionchannels,whichaccountfor83.58%ofalldomesticpayments.Atthesametimetherewasa10.88%growthinthenumberofpaymentsmadeinfavourofTatrabankaclients.

Withrespecttoforeignpayments,weposteda9.45%growthinoutgoingforeignpaymentorders.ThispositiveresultwasmostlyattributabletotheactiveuseofelectronicdistributionchannelsbyBankclients.TheshareofoutgoingforeignpaymentordersreceivedbytheBankthroughelectronicdistributionchannelsaccountedfor89.1%ofallorders,ofwhich59.8%weresentforprocessingviaTelebankingand29.3%viaInternetbanking.Some12.71%morepaymentorderswerereceivedfromabroadinfavourofTatrabankaclientsthanin2007.

Electronicbankingisrisinginimportanceeachyearcomparedtopaperordersbeingusedatbranches,whichasaresultisseeingaclearandprogressivedeclineintheuseofthesepaperslips.


Segmentreports

Regional Card Processing CentreSinceitsestablishmentin2002,theRegionalCardProcessingCentrehasoperatedwithinTatrabankaasthecentreresponsibleforissuingandadministeringpaymentcardsandprocessingpaymentcardtransactionsofcardsissuedbypartnerbankswithintheRaiffeisenInternationalgroupInadditiontoTatrabanka,itsservicesarealsousedbybanksinAlbania,Bulgaria,theCzechRepublic,Croatia,Kosovo,Romania,SerbiaandUkraine.Comparedwith2007,theRegionalCardProcessingCentresawa34%increaseinthevolumeofprocessedtransactions,takingthetotalvolumetomorethan100milliontransactions.Theportfolioofadministeredcardsexpandedby17%y/y,thankstowhichtherearenowover2millionactivecreditanddebitcardsincirculation.

AstheRegionalCardProcessingCentreprovidesitsservicesnotjusttoTatrabanka,butalsosevensisterbanksunderRaiffeisenInternationalBank-HoldingAG,italsofulfilsthestrategicgoaloftheRaiffeisenInternationalgroupaimedatconsolidatingtheissueandadministrationofpaymentcardsofitssubsidiarybanksintoasinglecentre.Thebiggesttaskthatthecentrehadtodealwithin2008wasthesmoothtransitionofthecardsystemtotheeuro,whichitmanagedtodowithminimuminterferencetoclientservices.

ThegoaloftheRegionalCardProcessingCentrecontinuestobetheprovisionofhighqualitycompetitiveservicesrelatingtotheprocessingofcardtransactionsinsupportofmoderntrendsandafullservicewhenitcomestotheissueofpaymentcards.


Segmentreports

Equity participationsTatra Asset Management

ForthemarketwithmutualfundsinSlovakia,theyear2008wasayearfullofturnarounds.Inthefirsthalfoftheyearthevolumeofassetsinmutualfundsincreased,chieflythankstothesaleofmoneymarketfundsandcapitalprotectedfunds,wheninApril2008assetsculminatedatSKK161billion(EUR5.34billion)andattheendofJulytheystillcomprisedSKK158.5billion(EUR5.26billion).Inthesecondhalfof2008thesituationturnedandwiththeweightofthefinancialcrisisandgreaterinterestyieldondepositproductsofbanks,assetmanagementcompaniesregisteredahighlevelofredemption,especiallyinOctoberandNovember.Thevolumeofassetsinopen-endmutualfundstotheendof2008wasSKK112.8billion(EUR3.74billion),whilethetotalvolumeofassetsundermanagementbyassetmanagementcompanies,includingassetsinspecialfundsandinmanagedportfolios,totalledSKK168.6billion(EUR5.6billion).Thetotalvolumeofassetsinmutualfundsthereforefellin2008comparedtothevaluein2007,thisbySKK45.9billion(EUR1.52billion),whichtranslatesasadropof28.9%.

Despitethemajordeclineinthevolumeofassetsinopen-endmutualfundsandunfavourabledevelopmentonthemutualfundsmarketinSlovakia,TatraAssetManagement(TAM)defendeditspositionasmarketleaderthankstocost-optimisationbymergingseveralsmallermutualfundscarriedoutinJuly2008,andalsothankstotheflexiblereactiontothechangedsituationonthemarketandwell-timedearlyadaptationofproductstotheeurotheBankevenmanagedtostrengthenitsleadingpositionasitsmarketsharetotheendof2008hadincreasedto38%fromthe35%attheendof2007.

ThetotalvolumeofsalesofTAMmutualfundsinthepastyearfellby9.5%y/ytoreachSKK28.5billion(EUR950million).Adecisivelypositiveinfluenceonthesalesvolume,inadditiontotheintroductionofanothertwonewproducts–oneissueofacapitalprotectedfundandanewcombinationfundintendedforprivatebanking–cameaboveallfromthesaleofthemoneyfund,whichaccountedformorethanhalfoftotalsales.NetsalesofTAMmutualfunds(totalsalesminusredemption)fellintotheredonay/ybasis,whentheydroppedbySKK7.8billion(EUR260million),whichwasadropofSKK21.8billion(EUR720million),overthepreviousyear.Duetothesaidcircumstances,thetotalvolumeofassetsinTAMmutualfundswasdown22.8%y/y,amountingtoSKK42.9billion(EUR1.42billion).Eveninthefaceofthisdownturn,consideringthesmallerdeclineinassetscomparedtotheotherassetmanagementcompanies,TatraAssetManagementactuallyincreaseditsmarketsharelastyearinopen-endmutualfundstothealreadymentioned38%.

SKK/EuR mill.

2003 2004 2005 2006 2007 2008

mil. SKK mil. EuR mil. SKK mil. EuR mil. SKK mil. EuR mil. SKK mil. EuR mil. SKK mil. EuR mil. SKK mil. EuR

Total revenues

187.2 6.21 231.5 7.68 429.9 14.27 507.9 16.86 698.8 23.20 641.5 21.29

Profit after tax

9.0 0.30 48.1 1.60 98.8 3.28 113.4 3.76 178.9 5.94 197.1 6.54

ROE 14.8 % 53.9 % 60.8 % 42.2 % 43.1 % 32.7 %


Segmentreports

Thesaidsituationonthemutualfundsmarketandthedropinvolumeofmanagedassetsalsohadanimpactonthecompany’srevenues,whichfell8.2%y/y,totallingSKK641.5million(EUR21.29million).Thekeycomponentinrevenuescamefromincomefrommutualfundmanagementfees(81%).

Totalcostsofthecompanyweredown16.7%y/ytoSKK397.9million(EUR13.21million).Thelargestpartofexpenses–justasinthepreviousyear–wasspentonmutualfundsalesbrokerage(68%).

In2008thecompanygeneratedaprofitaftertaxofSKK197.1million(EUR6.54million),whichis10.2%morethaninthepreviouscalendaryear.

Doplnková dôchodková spoločnosť Tatra banky

Thesupplementarypensionsavingsmarkethasyetanothersuccessfulyearbehindit.Theoverallnumberofclientsofsupplementarypensionsavingscompaniescametoalmost950,000.ThetotalvolumeofassetsundermanagementbysupplementarypensionsavingsfundsamountedtoSKK28.2billion(EUR940million),whichmeantay/ygrowthof12.8%.

In2008DoplnkovádôchodkováspoločnosťTatrabanky(DDSTatrabanky)wasthesecondfastestgrowingsupplementarypensionsavingscompanyonthemarket,enjoyinga31.6%shareoftheoverallincreaseinnetassetvalueofsupplementarypensionfunds,rightbehindINGTatrySympatia,whichproduceda32.5%share.

ThetotalnumberofclientsofDDSTatrabankyinthepastyearincreasedby2.8%toreach211,000.Itadministeredatotalof6,965employercontractstotheendoflastyear,whichisanincreasedy/ygrowthto5.4%.

SKK/EuR Mill.

2003 2004 2005 2006 2007 2008

mil. SKK mil. EuR mil. SKK mil. EuR mil. SKK mil. EuR mil. SKK mil. EuR mil. SKK mil. EuR mil. SKK mil. EuR

Total revenues

x x x x x x 67.3 2.23 125.2 4.16 155.9 5.17

Profit after tax

x x x x x x 8.5 0.28 39.3 1.30 54.34 1.80

ROE x x x 13.4 % 47.2 % 41.8 %


Segmentreports

ThetotalvolumeofassetsinsupplementarypensionfundsofDDSTatrabankyincreased14.7%y/yandcametoSKK7.9billion(EUR262million),whichslightlystrengthenedthepositionofDDSTatrabankyasthesecondlargestsupplementarypensionsavingscompanyinSlovakiawithamarketshareof27.9%comparedtoashareof27.5%,whichithadattheendofthepreviousyear.

Attheendof2008DDSTatrabankyadoptedmeasures,proceduresandrulesduetothechangeovertotheeuro,whichitthensuccessfullyimplemented.Theoutcomewastheproblem-freetransitiontotheeuroandadaptationofallprocesses,activitiesandindividualproductsofthecompanytothenewcurrency.

RevenuesofDDSTatrabankyinthepastyearcametoSKK155.9million(EUR5.17million),withthekeyportionbeingattributabletorevenuesfromsupplementarypensionfundmanagementfees(93%).TotalcostsofthecompanycametoSKK88.6million(EUR2.94million),beingabsorbedmostlybyoperatingexpenses(92%)andsupplementarypensionsavingsbrokeragefees(7.2%).In2008thecompanygeneratedaprofitaftertaxofSKK54.3million(EUR1.80million),whichwasagrowthof38.4%overthepreviousyear.

2003 2004 2005 2006 2007 2008

Employer,contracts 4,255 5,040 5,837 6,366 6,610 6,965

Individual contracts 127,264 143,638 157,159 187,333 204,996 210,725

DDP contributions (SKK thsnd) 1,172,033 1,350,789 1,482,206 292,487

(EUR thsnd) 38,904,37 44,837,98 49,200,23 9,708,79

DDS contributions (SKK thsnd) 1,239,326 1,696,569 1,827,756

(EUR thsnd) 41,138,09 56,315,77 60,670,38

DDP allowances paid (SKK thsnd) 235,387 399,510 423,757 181,623

(EUR thsnd) 7,813,42 13,261,30 14,066,16 6,028,78

DDS allowances paid (SKK thsnd) 184,925 372,465 502,879

(EUR thsnd) 6,138,39 12,363,57 16,692,52


Segmentreports

Tatra LeasingIn2008TatraLeasingoccupiedthirdplaceintherankingofleasingcompaniesinSlovakiawithnewtransactionsexpressedatcostexcludingVATamountingtoSKK10,018,733thousand(EUR330million),whichcomparedto2007representsa12.19%growthinthevolumeoftransactions.TatraLeasingboosteditsmarketsharein2008to12.4%comparedwith2007whenithadamarketshareof11.43%.Atotalof7,470newcontractswereconcludedin2008.

ThelargestportionoftransactionsofTatraLeasingmadein2008concernedmachinery,equipmentandrailwaywagons(44.62%).Thiscategorywasfollowedbytrucks,trailersandsemi-trailers(19.27%),passengervehicles(12.20%),utilityvehicles(10.90%),realestate(8.98%)andothercommodities(4.03%).

IntherealestatesegmentTatraLeasingranked2ndamongleasingcompaniesinSlovakiawithageneratedvolumeofnewtransactionsworthSKK899,433,000excludingVAT(EUR29.84million).

in thsnd EuR SKK

12/2007 ACTuAL 12/2008 ACTuAL 12/2007 ACTuAL 12/2008 ACTuAL

Volume,Assets,(avg) 283,732 433,080 9,596,073 13,561,528

Interest Income 17,811 27,039 602,369 846,690

Net Interest Result 6,812 8,397 230,399 262,943

Net Profit after Tax 2,310 1,749 78,112 54,757

CIR 2 64.04% 54.61% 64.04% 54.61%

OPEX / AA (after H.O.Allocation) 1.82% 1.38% 1.82% 1.38%

Gross Income per employee 61 86 2,069 2,695


Segmentreports

Human ResourcesWe endeavour to please peopleTheyear2008wasayearofdynamiceconomicgrowthintheSlovakRepublic,whichreflectedinadropinunemploymentandalackoflabourforceonthemarket.Whilemakinghighqualitativedemandsofnewemployees,wemanagedtoattainthenumberofemployeesat99%.Withtheaimofretainingthebestemployeesandattractingemployeesfromthemarketwhohavestrongpotentialforprofessionalgrowth,welaunchedtheprojectcalled“EmployerBrand”.

Weconductedemployeesatisfactionsurveys.Theoutputsofthesurveywerereflectedintheplanofimprovements,whichwewillmonitorregularly.Inconnectionwiththesaidprojectwepreparedseveralmeasuresforimprovingworkingconditionsofemployeesandcareoftheirhealth.

Thesespecificmeasuresalsocontributedtothefactthatforthefirsttimesince2005thenumberofjobapplicationswereceivedincreasedinTatrabankato46,376,whichisa41%growthcomparedwith2007(33,000applications).

Anotherkeysuccesswasareductioninfluctuation.Afterfouryearsofcontinualgrowthintheleveloffluctuation,wemanagedtohaltthegrowthandinfactevenreduceditcomparedto2007by2.4%toreach16.4%forthewholeBank.Theimpactofthefinancialcrisisonthisresultismarginalasitischieflydowntothesuccessofimprovingourworkwithpeople.

Intheprocessofperformancemanagementwemadequalitativeprogress,wherebywefocusedoncalibratingtheevaluationofmanagersanddevelopmentofcompetencesthatweneedintheBank.UsingtheprocessofplanningreplacementsformanagerialpostswemanagedtocoverallmanagersoftheBank.TheoutcomeofthisisnotjustthemappingofpotentialreplacementsformanagerialpostsintheBank,butalsotodetermineapoolofpeoplewithhighpotential,so-calledHiPos.Wepreparedandappliedformsofeducationforthemthatmovethemforwardintermsofimprovingtheirmanagerialskills.

Wefocusedspecialattentionon“Talentmanagement”,theprocessofseekingandrecruitingtalenteduniversitygraduatesfortheBank.WeextendedtheManagementtraineeprogrammeTBandkick-startedpreparationsforotherspecialisedprogrammes–Credit Risk Management traineeprogrammeTB,Jawa traineeprogrammeTB.ThesaidprogrammesrepresentanattestedtoolforincreasingthenumberoftalentsintheBank.AllofthesaidactivitiesarebasedonthestrategicgoalsoftheBankandtheygreatlyhelptheBanktoachieveitsobjectivesontheSlovakbankingmarket.

Thestaffstructurein2008remainedunchangedonceagain.Wehave70%womenand30%meninourworkforce.

Weareayoungorganisationwithanaverageageof30,andovera50%shareofuniversity-educatedstaff.


Segmentreports

Corporate PhilanthropyWe feel responsibility for everything we doWearefullyawareinTatrabankaofoursocialresponsibilityandtheneedforsuccessfulbusinessentitiestoparticipateinprojectsandactivitiesthatwouldotherwisenotbepossiblewithoutthesupportofcommercialpartners.Tatrabankavehementlyperceivesthisrolepreciselytherewherethereisahighconcentrationoftalent,abilityandintellect.Tatrabankafoundedthenewstrategicobjectiveofitssocialroleontwomainpillars,decidingtobeactiveprimarilyintheareasofeducationandart.ThesensebehindTatrabanka’sactivityregardingcorporatephilanthropyandsociallyresponsiblebehaviouristoperceivecarefullytheneedsofsocietyandalsoparticipateindealingwiththeseneedsbyprovidingsupport,co-operationandbyfinancingqualityandexceptionalprojects.TheaimofTatrabankainthisrespectistocreatelong-termstablepartnershipswithdevelopmentprospects.

Art – a key pillar of corporate philanthropyThecruxofthecorporatephilanthropyofTatrabankain2008wasinthefieldofart,whichaccountedforalmost70%ofsupportedprojectsandstrategicsponsoring.Supportwentchieflytotheatreswithnationwidecoverageandfineart.In2008TatrabankabecamethegeneralpartneroftheSlovakNationalTheatre,andparticipatedinpremiereperformancesoftheAstorkatheatreandL+Stheatre.InregionsofSlovakiaTatrabankasupportedtheMunicipalTheatreinŽilina,theChamberTheatreinMartin,theJ.G.TajovskyTheatreinZvolen,theJ.PalarikTheatreinTrnava,theJ.ZaborskyTheatreinPrešov,andtheNationalTheatreinKošice.

InexhibitionhallsTatrabankacontributedtothepreparationoftheuniqueexhibitionofJanZrzavýintheCityGalleryofBratislavaandduringthecourseoftheyearitsupporteddistinctlyregionalprojectsingalleriesinBanskáBystrica,Humenne,andapresentationofSlovakartistsinBeijing.Inadditiontoestablishedartisticgroups,wealsodidnotforgetaboutyoungartistsandin2008wesupportedtheexhibitionhallforyoungartists,GaleriaM++,alsoknownasthe“GalleryontheBoat”.Intermsofthetheatricalactivitiesofyounggraduatesofacting,TatrabankanoticedandhappilysupportedtheArtTeatrotheatreanditsupportedfineartofyoungartiststhroughapartnershipintheauctionFoundationforContemporaryArtinco-operationwithauctionhouseSOTHEBY’S.

In2008oneofthemoresignificantartisticprojectssupportedbyTatrabankaintheareaoffilmwastheArtfilmfestivalinTrenčianskeTeplice,andinthefieldofmusicthefestivalOživenétance,andasusual,thePohodafestivalinTrenčín.Apartfromlargefestivalprojects,theBankalsocoveredsmalleronesofnolessquality,suchasThefestivalofclassicalmusicRevivalsinKremnicaundertheauspicesofPeterMichalica,ortheamateurfilmfestivalAmatfestinŽilina.


Segmentreports

A bank that loves knowledgeAfterart,educationbecamethesecondstablepillaroftheBank’scorporatephilanthropyin2008.Tatrabankainvestedseveralmillionkorunaintoqualityeducationalprojectsforuniversities,whereitisfullyawareoftheneedtosupportscientificknowledgeandimprovethetuitionprocess.Tatrabankasupportedinparticulareducationaleventsfromthefieldsofeconomy,finance,andprimarilyscientificconferences,theissueofuniversitytextbooks,theadvancementoflibrarysystems,aswellasotherinterestingandinnovativeprojectsatuniversities.

Tatrabankaregularlysupportseducationaldevelopmentalsobysupportingestablishedconferencesfortopspecialistsandworkexperienceprogrammes.In2008theBankbecametheexclusivepartnerofTRENDconferencesandthegeneralpartneroftheHNCLUB,theguestatwhichwasdirectorofMicrosoft,SteveBallmer.Withregardtotheimprovementofthequalityofschooling,theBanksupportedthenon-profitorganisationsINEKOanditsmonitoringofschoolreforms,andalsotheprojectofthenon-profitapoliticalassociationINESSfocusingonbetterinformationprovisioninschoolsabouthowthesystemofpublicfinancesworks.


Segmentreports

Nadácia Tatra banky (Tatra banka Foundation)From2008NadáciaTatrabankystartedtocarveoutanimageofitselfasaprestigiousphilanthropicinstitutionfocusingforemostonincreasingthequalityofeducationinSlovakuniversities.Otherareasthatitisactiveinincludeartandtherestorationofculturalmonuments,butitdevotesmostofitsattentiontoimprovingthequalityofeducationinSlovakuniversitiesandeducationalinstitutions.

NadáciaTatrabankyreceivesfundingfromthe2%incometaxallocations,whichisthenredistributedtotargetgroups,whichmostlyreferstoqualityuniversitystudents,activeandprogressivepedagoguesandscientificactivitiesthathelpdevelopqualityeducationinschools.ItwaswiththeseverygroupsinmindthattheBanksetupthegrantprogrammesKnowingmore,SupportingqualityeducationandStudentstotheworld,wherebyineachprogrammeoverSKK1million(EUR33,193.92)wassharedbetweenapplicants.

AkeyprogrammeofNadáciaTatrabankyistheonecalledPersonalitiesinPerson,pursuanttowhichthefoundationco-operatesintheorganisationofworkshopsandlecturesoftopscientistsfromabroadatSlovakuniversities.TheprogrammePersonalitiesinPersonwaslaunchedbythefoundationon12May2008withalecturefromLaureateofTheSverigesRiksbankPrizeinEconomicSciencesinMemoryofAlfredNobel,ProfessorRobertJ.Aumann.ItwasfollowedinJune2008bytheConferenceoftopSlovakeconomistslivingabroad,whichwasahighlightofacademiceventshappeninginSlovakia.TheprogrammePersonalitiesinPersoncontinuedinOctober2008withlecturesandworkshopsbytopeconomicscientistsProfessorAndreasOrtmannandProfessorBartJ.Wilson.Whenimplementingtheproject,weweregreatlyassistedbytheVirtualScientificLaboratories,comprisingthreetopqualitySlovakeconomistsworkinginforeignuniversities.

AnotherprojectthatNadáciaTatrabankywasstronglyinvolvedinin2008wastheprojectcalledDivémaky.ItsaimistosupporttalentedRomachildrenlivinginsociallydeprivedconditions.DivémakyrepresentsauniqueprojectinSlovakia,characteristicbytheindividualformofdonation.Totheendof2008theDivémakyprojecthadmediatedhelpfor53children.

TheemployeeprogrammeDobrésrdce(Goodhearts)alsometwithhugesuccessin2008.ItletsemployeesoftheTatrabankaGroupapplyforfundinginsupportofprojectsofnon-profitorganisations,schoolsandsoon.TheprogrammePartnershipinRegionscontinuedtosupportprojectsthroughoutSlovakia.

Attheendoftheyearon29November2008,theNadáciaTatrabankyprizesforartwereceremoniouslyawardedtoSlovakartists.Forthefirsttimeaspartoftheawards,aprizewasgivenoutinthecategoryofYoungArtist.TheNadáciaTatrabankyawardsceremonywasoneoftheclimaxesofthefoundation’sactivitiesandwasagrandculminationtothefoundation’sworkin2008.

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DrDr. JáJán n ZáZábobojnjníkíkAssoociate Professor of Economim cs,Department of Economics, Queen‘s University, Kingston, Ontario, Canada


53

Outlookfor2009

www.tatrabanka.sk

Outlook for 2009

Wenowfacethehistoricallysignificantyear2009,whichwillbeknownasthefirstyearinwhichtheeuroistheofficialcurrencyinSlovakia.Thismeansitwillbeayearespeciallyofgettingfamiliarwithandacceptingthenewcurrency.Itistheeuroinparticularthatwillhaveastronginfluenceonthewholeofsociety,aswellasonhowourBankwillfunction.Wehavetoprepareforthefactthatrevenuesfromcertainactivitiesthatwecarriedoutsuccessfullytodatewillnolongerbeashighastheywereinthepast.Thatistheothersideofthecoinforus,sotospeak.Overall,though,apositivemoodprevailsinrespectofcurrencystabilitythattheeuroprovides,whichwecouldalreadyfeelatthebeginningofthecalendaryearwhenourcurrencywasmorestablethanthoseofourneighboursfromtheEUthathavestillnotadoptedtheeuroastheirnationalcurrency–theCzechRepublic,HungaryandPoland.Currencystabilityisyetanotherkeyfactorforpotentialforeigninvestors.WehavethuscreatedtheconditionsinSlovakiaforfurthereconomicgrowth,butitisthecurrenteconomiccrisisthatwillprovetobethenegativefactorinfluencingitsactualdevelopment.ItwillobjectivelyslowdownthetempoofgrowthoftheSlovakeconomy,whichissomethingwewillhavetoprepareforinatimelyandresponsibleway.

Oneofthefundamentalstepswillbetocontinuewiththerestructuringprocessthatwestartedbackin2007,whenwereducedthenumberofmanagementlevelsfromsixtothree.IfTatrabankawantstooperateeffectivelyalsoinfuture,itwillhavetocontinuewiththistrend.Atthesametimewehavesetourselvesonefundamentalgoalthatwewillhavetomoveforwardwith,thisbeingtodistinguishthequalityofourservicesfromthatofthecompetition.Improvingandperfectingtheclientserviceisanextremelyimportantfactorthatweputemphasisonandwhichisapriorityforus.Arequisiteforthisistohavequalityhumanpotential.Withthisinmind,wewillcontinuetrainingandimprovingthequalityofouremployees.

Justasinpreviousyears,nowalsowewanttopresenttheBankasaconservativebankthatisalsoinnovativeandcapableofofferingclientsnewproductsbasedonthecurrentsituationonthemarket.Wherethedevelopmentofnewproductsisconcerned,wewanttoplaceemphasisontheiruniqueness,butalsotheirsimplicity,andthetopqualitythatwillprovideclientswithexceptionalpersonalandfinancialcomfort.Wemustensureallofthiswhileaccountingforacceptablerisk.

Whenitcomestothechangeovertotheeuro,wefaceanimportanttaskintheshapeofTatrabanka’sparticipationintheestablishmentoftheSingleEuroPaymentsArea(SEPA).BytheestablishmentofSEPAwemakeitpossibleforourclientstomakenon-cashpaymentsineuroatanyplaceintheeurozonefromasinglebankaccount,usingacommonsetofpaymentinstruments.Allretailpaymentsineurowillthusbecomedomesticpaymentswithintheeurozone,withnodifferencebetweencross-borderpaymentsanddomesticones.

WithrespecttotheSMEsegment,theBankisfocusingonimprovingthestandardofcareandadvicebyfurtherenhancingtheindividualapproachithastoclients,whileconcurrentlyoptimisingprocessesandcosts.Accountingfortheprojectedgrowthinriskinthecaseofloanclientsandthegrowingneedtheyhaveforfinancing,primarilyforoperationalneeds,furthergrowthisexpectedinthevolumeofloansusingthegovernment-backedprogrammeofSZRBguarantees,andalsoincreaseduseoffactoringandstructuredtradefinancing.


Outlookfor2009

Financingfortheinsulationofblocksofflatsisanotherareainwhichthebankexpectsfurthergrowth,withpreferencetobegiventotheuseofEBRDsources.

In2009Tatrabankawantstocontinuereinforcingitspositionasabankforexporters,anditwantstoapplyitsknow-howandcapacitiesinthisareatoincreasethevolumeofdocumentarytransactions,chieflyasaformofsecuringcollectionforexecutedexports,aswellasfinancingexportandinsuringtheriskandinvestmentofSlovakundertakingsinco-operationwithEximbanka.

TheBankdecidedtosupportthedrawingoffundsforprojectsfinancedfromEUfundsbyofferingflexibleproductsthatmakeinter-financingandco-financingofprojectspossible,especiallyinthefieldsofenvironment,energy,schoolingandthemunicipalsphere.Throughspecificproductsitalsofocusesonmaintainingastrongshareofthefinancingofagriculturalundertakings,includingprimaryproducers,asasectorthatenjoysarelativelystablepositionevenduringaneconomiccrisis.

Fromtheperspectiveoffactoring,wewanttomaintainthemarketpositiononthedomesticfactoringmarketanddefendourpositionasthebiggestfactoringcompanyinSlovakia.Weplantocontinueincreasingtheprovisionofinformationtoclientsaboutfactoringasaproductbywhichitiseasierforclientstoovercomethecurrenteconomiccrisisthanktoswifteraccesstocashandalsopossibleriskprotection.Inrespectofalternativefinancingandsupportforeuro-projects,wewillputemphasisonprovidingcomprehensivefinancialsolutionsforentitiesdoingbusinessintheagriculturalsectorwiththeaimofboostingthepositionoftheBankasastrongpartnerinagribusiness.WewanttoincreasetheactivitiesoftheBankintheareaofmunicipalfinancinginrelationtoStructuralFunds.IntheareaofStructuredtradefinancingweplantofocusonofferingproductsinco-operationwithEximbanka,whichinrealitymeansspreadingclientrisktoalevelacceptablefortheBank.ThismainlyconcernsguidingactivitiesinsupportofSlovakexport.

Thesaideconomiccrisiswilldefinitelyinfluencethesolvencyofindividualsandcompaniesalike.Wecanexpectthistoaffectthesecondhalfofthisyearinparticular.ItisnotjusttheBankitselfthatwillhavetoprepareforthissituation,butalsooursubsidiaryTatraLeasing.Duetotheuncertaintyspringingfromtheeconomiccrisisandpotentialrisks,theprimarygoalwillbetoidentifyrisksandimplementthekindofstabilisationcounter-measuresthatwillsuccessfullycounteractthecrisisnotjustforthecompanyTatraLeasing,butalsoitsclientportfolio.Theperiodofacceleratedgrowthinrecentyearshasmadeitpossibletomapoutthescopethatwillconcernthecorebusinessofthecompanyinfuture.ThemanagementofTatraLeasingwantstoutilisetheseobservationstooptimiseinternalprocessescombinedwiththeirautomation.Theabilitytoavoidtherisksoftheeconomiccrisis,theresultsofoptimisationandtheautomationofprocesseswillconstitutethebasisforincreasingefficiencynotjustforthecompany,butalsoindividualpostsandemployeesofTatraLeasing.

Wehavetopreparenotjustforriskslinkedtonon-paymentofloans,butalsopreparenewhealthyproductsforclients.OurobjectiveistooccupyaplaceamongthestrongestbankplayersontheSlovakmarketandincreaseourmarketshareinindividualsegments.Thequalityofservicesiscloselyrelatedtothedevelopmentofelectronicbanking.Tatrabankisjustlyproudofthefactthatithasbeenclassedas“BestConsumerInternetBankinSlovakia”severaltimesalready.Wethereforewanttocontinueincreasingthelevelofcomfortofferedbyelectronicbanking,itssecurityandstability,aswellasintroducenewfunctionalitiesandimprovementsforusersofInternetbankingande–commercetransactions.


Outlookfor2009

Theareaofpaymentcardsisjustasimportantforustoconcentrateon.Inthiscontextwewanttocontinuewiththetransitiontochiptechnologynotjustinthecaseofdebitcards,butalsocreditcards,whichwouldincreasethesecurityoftheiruse.Wealsowanttoextendtheportfolioofcardproductsandnewservicesforourclients.

Weplantoforgeaheadalsointhecaseofcreditproductsandwanttocontinueintheprovisionofcreditseentodateforcorporateandretailclientsalike.Wewillfocusattentionontheautomationandoptimisationofprocesses,whichwillproduceanevenbetterqualityclientservice.Inthisregard,ourgoalisalsotoextendtherangeofbankinsuranceproducts.

Statement for Corporate GovernanceThecorporategovernancesystemofTatrabankaisregulatedbytheCodeofCorporateGovernanceinSlovakia,whichisanintegralpartoftheStockExchangerulesfortheacceptanceofsecuritiesontheregulatedmarket(hereinafter“Codex").Itispubliclyavailableon-lineathttp://www.bcpb.sk/.

Specifically,theappliedgovernancemethodsarebasedontheCodexandonregulationslaiddownintheinternalguidelinesoftheBankanditssubsidiaries,suchascompetencyguidelines,branchprocedures,organisation,andmanagementoftheoperation.

InternalcontrolsappliedinTatrabanka,a.s.constituteacontrolsystemcoveringalllevelsoftheorganisationalstructureandjobpositions,whichincludesprocesscontrol,bothdirectandindirectcontrol,aswellasoutofprocesscontrol.

Internalcontrolsaredesignedtoensurethesafetyandprotectionofassetsandindividuals,toguaranteethereliabilityandaccuracyofbookkeeping,tosupportcompliancewithandcommunicationofthestrategyandgoals,toenhanceeffectivenessandcompliancewithapplicableregulations,andtominimiserisks.

Directcontrolreferstoallformsofcontinuouscontrolmeasures,proceduresandmechanismsinindividualunitsoftheBankoritsbranches,whichareadirectandimmediatepartofbusinessprocessesonadailybasisandwithoutwhichtheworkingprocesscannotbedeemedcomplete.Directprocesscontrolisconductedbyemployeesororganisationalunits,whicharedirectlyinvolvedinspecificprocesses.

Indirectcontrolmeansallformsofongoingcontrolmeasures,proceduresandmechanismsinindividualunitsoftheBankoritsbranches,whichareanindirectpartofprocesses.IndirectprocesscontroliscarriedoutbythemanagersofindividualBankunitsorbrancheswhoareresponsibleforcontrolledprocessesandtheresultsofcontrols,orbyemployeesauthorisedbythem.

Outofprocesscontrolisindependentofoperationalandbusinessprocedures.Outofprocesscontrolisconductedbyaseparateandindependentinternalcontrolandinternalauditunitasaregularreviewofthefunctionalityoftheinternalcontrolsystemandevaluationofitsefficiency.

56

Outlookfor2009


OrganisationallytheunitisdividedintotheInternalcontrolandinternalauditretaildepartment,theHeadquarters’andsubsidiaries’internalcontrolandinternalauditdepartmentandtheInternalcontrolandinternalauditsecurityandinformationsystemsecuritydepartment.

WithintheorganisationalstructureofTatrabanka,a.s.,theInternalcontrolandinternalauditunitreportstotheBoardofManagingDirectorsandtheSupervisoryBoard.ThefindingsofitsauditandinternalcontrolactivitiesarecommunicatedtotheSupervisoryBoardinsemi-annualsummaryreports.TheBoardofManagingDirectorsisinformedaboutconductedauditsandcontrolsinauditandcontrolreports.TheDirectoroftheInternalcontrolandinternalauditunitinformstheBoardofDirectorsandSupervisoryBoardaboutallsignificanteventsthatoccurintheBank.

Aspartofriskmanagement,theBank(theGroup)monitors,evaluatesandultimatelymanagesthefollowingtypesofrisksinparticular:creditrisk,marketrisksandoperationalrisk.

Creditrisk,i.e.theriskthatsomecounterpartywillnotbeabletorepayfullamountsoweduponmaturity,ismonitoredonaregularbasis,andthefinancialpositionofeachclientisreviewedandassessedatleastonceayear.Exposuretoanysingledebtorisconstrainedbylimitsofcapitalexposure,whichareevaluateddailyandreportedtotheNBSonamonthlybasis.Retaildebtorsareassessedusingscoringmodelsdevelopedforindividualproducts;SMEandcorporateclientsareassessedusingtheratingmodels.

TheGroupisexposedtomarketrisksinconnectionwithitsactivityfromopenpositionschieflyfromtransactionswithinterestrate,cross-currencyandequityproducts.Todeterminethelevelofmarketriskofitspositions,theGroupappliesinternalproceduresandmodelsforindividualtypesofrisksthattheGroupisexposedto.Theselimitsaremonitoreddaily.

Operationalriskisgovernedbyastandardproceduredefinedbytheparentcompanyaswellasinternallydevelopedmethodsandprocedures.Toidentifyoperationalrisk,theBank(theGroup)usesathree-dimensionalmodelconsistingofthreecomponents:riskcategories,businessfunctionsandbusinesslines.TheBank(theGroup)putsemphasisonimprovingprocessqualityandonactionsaimedatmitigatingoperationalrisks.

MoreinformationonindividualrisksthattheBank(theGroup)isexposedtocanbefoundinthenotestothefinancialstatementsending31December2008,whichwerepreparedinaccordancewithInternationalFinancialReportingStandardsasadoptedbytheEuropeanUnion,whichareanintegralpartoftheAnnualReportfor2008.

ThehighestbodyoftheCompanyistheGeneralMeeting.TheGeneralMeetingtakesdecisionsonissuesthatfallunderitsjurisdictionpursuanttotheCommercialCode.In2008theAnnualGeneralMeetingoftheCompanywasconvenedon30April.TherighttoattendtheGeneralMeetingandexerciseotherrightswasusedby89.13%ofownersofordinaryshares.Amongotherissues,theshareholdersapprovedindividualandconsolidatedfinancialstatementsandtheAnnualReport,decidedonthedistributionofprofitandthepaymentofdirectors’fees,approvedtheAuditorforthenextthreeyearperiod,changestotheArticles,theissueofmortgagebondsandtheacquisitionofownshares.TheshareholderswerepaiddividendstotheamountapprovedbytheGeneralMeetingattheratiooftheirrespectivesharestosharecapital.


Outlookfor2009

TheBoardofManagingDirectorsisthestatutorybodyoftheCompany.MembersoftheBoardareelectedandrecalledbytheBank’sSupervisoryBoard.TheSupervisoryBoardappointsandrecallsthechairpersonandvice-chairpersonsoftheBoardofManagingDirectors.In2008theBoardofManagingDirectorscomprisedsixmembers.TheBoardofManagingDirectorsconvenesusuallyonceaweek.TheBoardmakesdecisionsonallissuesrelatedtotheCompanyexceptforthoseissuesfallingunderthejurisdictionoftheGeneralMeetingorSupervisoryBoard.AttheGeneralMeeting’sauthorisation,onceayeartheBoardisauthorisedtodecideontheissueofpreferencesharesuptothespecifiedamount.

Thesharecapitalconsistsof50,216ordinaryshareswithaparvalueofSKK20,000(EUR663.88),whichaccountfor87%ofthesharecapital,and1,500,532preferredshareswithaparvalueofSKK100(EUR3.32),whichaccountsfor13%ofthesharecapital.

TheshareinthesharecapitaloftheCompanycorrespondingtoaqualifyingshare(minimumof10%)isheldbyRaiffeisenInternationalBank-Holding,AGandTatraHolding,GmbH,bothbasedinAustria.

EachholderofordinarysharesistheCompany'sshareholder.EachshareholderenjoysfundamentalshareholderrightsaslaiddownbytheCommercialCodeandtheparentcompany’sArticles,namely:therighttoshareintheCompany'sprofit,basedontheproportionoftotalfacevalueoftheirsharestothesharecapital;therighttoattendtheGeneralMeeting,voteattheGeneralMeeting,requestinformationandexplanationsatthemeeting,andraisemotionsattheGeneralMeeting,wherebythevotingrightisdeterminedbytheproportionoftotalfacevalueofsharestothesharecapital,andalsotherighttoshareintheliquidationbalance.

Eachholderofpreferredsharesenjoyssimilarrights;theonlydifferencebeingthatpreferredsharesarenotaccompaniedbytherighttovoteattheGeneralMeeting,exceptincaseswherethelawacknowledgesvotingrightsalsotosuchshares.Insuchcasesthevotingrightisbasedontheproportionoftotalfacevalueoftheirsharestosharecapital.Preferredsharesareassignedapreferentialrightapplicabletodividends,i.e.iftheCompanygeneratesaminimumnetprofitequaltothenumberofissuedpreferredshares,aminimumdividendofSKK1(EUR0.03)perpreferredsharewillbepaidtotheholdersofpreferredshares.

Thenegotiabilityofordinarysharesisnotlimited.TheCompanyhaspre-emptionrightstopreferencesharesatthepricedeterminedaccordingtotheprinciplessetoutintheCompany’sArticles.PreferencesharescanbetransferredtoapartyotherthanthecompanyorpledgedinfavourofapartyotherthanthecompanyonlyifapprovedbytheBoardofManagingDirectorsTheBoardofManagingDirectorscanrefusetograntapprovalifthepreferenceshareswerenotofferedfirstlyforsaletotheCompany

RelationsbetweentheBank(theGroup)andmembersofitsbodiesoremployeesinconnectionwithterminationofemploymentand/orresigningfromapostforanyreason,aregovernedinaccordancewiththeapplicableLabourCode

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59 www.tatrabanka.sk

Auditor’sReport

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Financial Statements

61 www.tatrabanka.sk

Consolidated Financial Statements for the year ended 31 December 2008 (prepared in accordance with International Financial Reporting Standards as adopted by the European Union and Independent Auditor's Report)

61

(in thousands of SKK) Note 2008 2007

Interest and similar income 13,699,058 11,084,402

Interest and similar expenses (5,811,564) (4,307,498)

Net interest income (1) 7,887,494 6,776,904

Provisions for impairment losses (2) (1,307,458) (559,951)

Net interest after provisioning 6,580,036 6,216,953

Fees and commissions income 3,897,480 3,588,318

Fees and commissions expense (512,556) (448,386)

Net fees and commission income (3) 3,384,924 3,139,932

Net profit (loss) from trading instruments (4) 2,238,541 2,075,844

Net profit (loss) from financial instruments at fair value through profit or loss (5) (16,188) (308,947)

Net profit (loss) from investments in associated undertakings (6) 26,283 37,494

General administrative expenses (7) (7,141,794) (6,449,088)

Other operating profit (loss) (8) (71,890) (292,658)

Profit before income taxes 4,999,912 4,419,530

Income taxes (9) (1,044,132) (968,931)

Profit after tax 3,955,780 3,450,599

Basic and diluted earnings per ordinary share (face value SKK 20 000) in SKK

(10) 70,513 62,846

Basic and diluted earnings per preference share (face value SKK 100) in SKK

(10) 353 314

Consolidated Income Statement

62


www.tatrabanka.sk Statement Strong Group Management’s Report Reports Outlook

Consolidated Balance Sheet

Assets(in thousands of SKK)

Note 31 December 2008

31 December 2007

Cash and deposits in central banks (11) 27,945,408 10,494,673

Loans and advances to banks (12) 60,631,567 43,098,815

Loans and advances to customers, gross (13) 173,643,995 139,826,880

Impairment losses for loans and advances (14) (3,273,800) (2,310,198)

Held for trading financial assets (15) 12,726,340 9,910,385

Financial assets at fair value through profit or loss (16) 10,989,336 13,282,362

Held to maturity financial assets (17) 30,377,035 33,588,487

Available for sale financial assets (18) 20,011 4,481

Investments in associated undertakings (19) 389,492 363,209

Non-current intangible assets (20, 22) 1,047,569 1,028,032

Non-current tangible assets (21, 22) 2,685,714 2,704,330

Current income tax asset (23) 985 1,816

Deferred income tax asset (24) 31,943 -

Other assets (25) 645,431 1,022,300

Total assets 317,861,026 253,015,572

Equity and liabilities

Deposits from banks (26) 25,892,154 10,233,829

Deposits from customers (27) 224,590,942 185,791,986

Held for trading financial liabilities (28) 6,978,832 6,112,765

Liabilities from debt securities (29) 33,855,439 27,493,171

Provisions for liabilities and charges (30) 1,138,889 1,183,331

Current income tax liability (31) 643,985 195,071

Deferred income tax liability (32) 20,239 394,800

Other liabilities (33) 1,139,328 1,260,695

Subordinated debt (34) 3,636,026 2,521,358

Total liabilities 297,895,834 235,187,006

Equity (excluding current year profit) (35) 16,009,412 14,377,967

Current year profit after tax 3,955,780 3,450,599

Total equity 19,965,192 17,828,566

Total equity and liabilities 317,861,026 253,015,572


63Auditor’s Report Financial Statements Distribution of the Profit Management Business Locations www.tatrabanka.sk

Consolidated Statement of Changes in Equity

(in thousands of SKK) Share capital

Share capital – treasury

shares

Share premium

Share premium –

treasury shares

Reserve fund and

other funds

Retained earnings

inclusive of consolidated

profit after tax

Total

Equity as of 1 January 2007 1,101,853 (2,619) 907,197 (21,243) 308,584 13,580,818 15,874,590

Transfers - - - - 857 (857) -

Dividends paid - - - - - (1,773,397) (1,773,397)

Issue of preference shares 25,422 - 208,712 - - - 234,134

Sale of own preference shares - 8,215 566 67,448 - - 76,229

Amortisation of discount of preference shares

- - 53,029 - - - 53,029

Re-purchase of preference shares - (9,391) - (77,227) - - (86,618)

Consolidated profit after tax - - - - - 3,450,599 3,450,599

Equity as of 31 December 2007 1,127,275 (3,795) 1,169,504 (31,022) 309,441 15,257,163 17,828,566

(in thousands of SKK) Share capital

Share capital – treasury

shares

Share premium

Share premium –

treasury shares

Reserve fund and

other funds

Retained earnings

inclusive of consolidated

profit after tax

Total

Equity as of 1 January 2008 1,127,275 (3,795) 1,169,504 (31,022) 309,441 15,257,163 17,828,566

Transfers - - - - 4,662 (4,662) 4,662

Dividends paid - - - - - (2,130,810) (2,130,810)

Issue of preference shares 27,098 - 240,907 - - - 268,005

Sale of own preference shares - 8,638 - 76,780 - - 85,418

Amortisation of discount of preference shares

- - 69,886 - - - 69,886

Loss on sale of preference shares - - (4,053) 4,053 - - -

Re-purchase of preference shares - (10,141) 290 (101,802) - - (111,653)

Profit after tax - - - - - 3,955,780 3,955,780

Equity as of 31 December 2008 1,154,373 (5,298) 1,476,534 (51,991) 314,103 17,077,471 19,965,192

64



Consolidated Cash Flow Statement(in thousands of SKK) 2008 2007

Cash flows from operating activities

Profit before tax 4,999,912 4,419,530

Adjustments (Note 37): (6,776,679) (4,548,045)

Cash flow used in operating activities before changes in working capital,interest received and paid and income taxes paid (Note 37)

(1,776,767) (128,515)

(Increase)/decrease in operating assets:

Obligatory reserve with National Bank of Slovakia (7,014,858) 3,170,642

Loans and advances to banks (16,613,096) (17,310,321)

Loans and advances to customers (33,849,145) (35,563,112)

Held for trading financial assets (837,793) 5,538,582

Financial assets at fair value through profit or loss 2,200,747 (7,176,245)

Available for sale financial assets - (517)

Other assets 376,869 50,834

Increase/(decrease) in operating liabilities:

Deposits from banks 15,523,593 5,317,298

Deposits from customers 38,519,962 26,259,925

Liabilities from debt securities 6,153,493 7,526,431

Other liabilities (121,367) 132,632

Cash from operations before interest paid and receivedand income taxes paid

2,561,638 (12,182,366)

Interest paid (5,169,290) (4,140,168)

Interest received 12,405,306 9,893,182

Income taxes paid (1,000,891) (741,964)

Net cash flows from operating activities 8,796,763 (7,171,316)

Cash flows from investing activities

Net (increase)/decrease in held to maturity financial assets 3,134,382 4,703,344

Interest received from held to maturity financial assets 1,401,495 1,423,371

Proceeds from sale or disposal of non-current tangible and intangible assets 32,768 32,829

Purchase of non-current tangible and intangible assets (910,528) (851,323)

Dividends received 57,516 4

Net cash flows from investing activities 3,700,103 5,308,225

Cash flows from financing activities

Preference shares issue and redemption 241,770 223,745

Subordinated debt 1,094,895 2,520,224

Dividends paid (2,130,810) (1,773,397)

Net cash flows from financing activities (794,145) 970,572

Effects of exchange rate changes on cash and cash equivalents (369,767) (79,893)

Change in cash and cash equivalents 11,332,954 (972,412)

Cash and cash equivalents, beginning of the year (Note 37) 9,512,852 10,485,264

Cash and cash equivalents, end of the year (Note 37) 20,845,806 9,512,852



Notes to the consolidated financial statements for the year ended 31 December 2008

I. General informationScope of activitiesThe consolidated Group of Tatra banka (“the Group”) includes the parent company Tatra banka, akciová spoločnosť, (“the Bank” or “Parent Company”) with registered seat at Hodžovo námestie 3, Bratislava, and thirteen subsidiaries and associated undertakings The Bank was established on 17 September 1990 and incorporated with the Commercial Registry on 1 November 1990.The identification number of the Parent Company is 00 686 930, its tax identificationnumber is 202 040 8522.

The principal activities of the Parent Company are as follows:receiving deposits;• provision of loans;• system of payments and clearing;• investing activities for its clients; investing activities and supplementary services under Act No. • 566/2001 Coll. on Securities and Investing Services and on amendments and additions to certain legislation, as amended, including:

to accept and forward client’s instruction for one or several financial instruments related 1. to the following financial instruments:

convertible securities, a) money market instruments, b) trustee shares or securities issued by foreign entities of collective investments, c) options, futures, swaps, forwards and other derivatives concerning currencies, interest rates d) or yields to be settled by their delivery or cash,

execution of the client’s instruction on his account in relation to the following financial instruments: 2. convertible securities, a) money market instruments, b) trustee shares or securities issued by foreign entities of collective investments, c) options, futures, swaps, forwards and other derivatives concerning currencies, interest rates d) or yields, to be settled by their delivery or cash,

trading on own account in relation to the following financial instruments:3. convertible securities, a) money market instruments, b) trustee shares or securities issued by foreign entities of collective investments, c) options, futures, swaps, forwards and other derivatives concerning securities, currencies, d) interest rates or yields, or other derivative instruments, financial indices or financial measures, to be settled by their delivery or cash, options, futures, swaps, forwards and other derivatives concerning commodities, which e) have to be settled cash or which may be settled cash based on choice by one of the contracting parties; that does not apply if the reason for the settlement is insolvency or other event resulting in termination of the contract, options, futures, swaps and other derivatives concerning commodities, which can be settled f) cash if traded at a regulated market or under a multilateral business system, options, futures, swaps, forwards and derivatives other than those described under g) par. f), concerning commodities, which are not used for business purposes, have the nature of other derivative financial instruments and are cleared or settled through clearing or settlement systems or are subject to regular margin calls,

66



portfolio management in relation to the following financial instruments: 4. convertible securities, a) money market instruments, b) trust certificates or securities issued by foreign collective investing entities, c) options, futures, swaps, forwards and other derivatives concerning currencies, interest rates d) or yields, to be settled by their delivery or cash,

investment consulting in relation to the following financial instruments: 5. convertible securities, a) money market instruments, b) trust certificates or securities issued by foreign collective investing entities, c) options, futures, swaps, forwards and other derivatives concerning currencies, interest rates d) or yields, to be settled by their delivery or cash,

underwriting and placement of financial instruments upon a fixed liability in relation to the 6. following financial instruments:

convertible securities, a) money market instruments, b) trustee shares or securities issued by foreign entities of collective investments, c)

placement of financial instruments without a fixed liability in relation to the following financial 7. instruments:

convertible securities, a) money market instruments, b) trustee shares or securities issued by foreign entities of collective investments, c)

keeping in custody and management of financial instruments on the client’s account, including 8. a custodian management and related services, in particular management of cash and financial collaterals in relation to the following financial instruments:

convertible securities, a) money market instruments, b) trustee shares or securities issued by foreign entities of collective investments,c)

granting loans and borrowings to an investor to be able to trade one or several financial 9. instruments if the lender or provider of the borrowing is involved in the business, provision of consulting on capital structure, business strategy and consulting and services in 10. relation to merger, fusion, change, or split of the company or company acquisition,trading foreign exchange values if such are associated with investment services provision, 11. making investment survey and financial analysis of other form of general recommendation for 12. trading the financial instruments, services related to underwriting of these financial instruments and investing into securities on its 13. own account,

dealing on its own account a) financial instruments of the money market in Slovak Crowns and in • foreign currencies, including exchange services, b) financial instruments of the capital market in Slovak Crowns and in foreign currencies, c) coins of precious metals, commemorative banknotes and coins, groups of banknotes and circulation coins;managing clients’ receivables and securities on clients’ accounts including consulting service • (portfolio management);financial leasing;• providing guarantees, opening and confirming Letters of Credit; •



issuing and managing media of payment;• providing consulting services in business;• issues of securities, participation in securities issues, and provision of related services;• financial mediation activities;• depositing of valuables;• leasing safes;• providing banking information;• special mortgage activities under Article 67 (1) of the Banking Act;• acting as a depositary; and• processing of banknotes, coins, commemorative banknotes, and coins.•

The Parent company’s shareholders as a percentage of voting rights:

Akcionári materskej spoločnosti v percentuálnych podieloch na upísanom základnom imaní:

The Parent Company performs its activities in the Slovak Republic through its 158 branches and sub-agencies inclusive of business centres, “Centrum bývania” branches, and the Investment centre.

The Parent Company’s ordinary shares are publicly traded on the Bratislava Stock Exchange

The members of the statutory body and supervisory board of the parent company as at 31 December 2008:

Supervisory BoardChairman: Rainer FRANZVice-Chairman: Herbert STEPICMembers: Peter BALÁŽ

Robert GRUBERRenate KATTINGERJán NEUBAUER Pavol FEITSCHER

(in thousands of SKK) 31 December 2008

31 December 2007

Raiffeisen International Bank – Holding AG 72.44% 72.44%

Tatra Holding GmbH 14.11% 14.11%

Other 13.45% 13.45%

(in thousands of SKK) 31 December 2008

31 December 2007

Raiffeisen International Bank – Holding AG 63.02% 64.54%

Tatra Holding GmbH 12.28% 12.57%

Other 24.70% 22.89%

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Board of DirectorsChairman: Igor VIDAVice-Chairman: Miroslav ULIČNÝMembers: Marcel KAŠČÁK

Michal LIDAY Martin PYTLIKPeter NOVÁK (since 21 May 2008)

Changes in the Bank's statutory bodies in 2008:Peter Novák – member of the Board of Directors since 21 May 2008Karel Fíla – termination of the office as at 26 June 2008

Business name of ultimate parent company:Raiffeisen-Landesbanken Holding GmbH, Austria

Business name of ultimate parent company preparing consolidated financial statements: Raiffeisen Zentralbank Österreich AG, Austria

Business name of immediate parent company:Raiffeisen International Bank – Holding AG, Austria

Business name of immediate parent company preparing consolidated financial statements:Raiffeisen International Bank – Holding AG, AustriaConsolidated financial statements of the Raiffeisen Zentralbank Group (“RZB Group”) are maintained with the Handelsgericht Vienna Register Court at Marxergasse 1a, 1030 Vienna, Austria.

The RZB group represents the parent company Raiffeisen Zentralbank and its subsidiaries and associates, owned directly or indirectly through its subsidiaries.



Definition of the consolidated Group:As of 31 December 2008, the Group comprised the Parent company and the following companies (“consolidated entities”):

Company Direct share in %

Share of the

Group in %

Indirect share through

consolidated entities

Company ID No.

Principal activities Consolidation method

Seat

Tatra Group Servis, s.r.o.

99.5% 100%Tatra

Billing, s.r.o.35 730 561 business activities

Full consolidation method

Bratislava

Tatra Asset Management, správ. spol., a.s.

100% 100% n/a 35 742 968 asset management Full consolidation

methodBratislava

ELIOT, s.r.o. 0.5% 100%Tatra Group Servis, s.r.o.

31 392 687asset leasing and

management Full consolidation

methodBratislava

Tatra Office, s.r.o. 0% 100%Tatra Group Servis, s.r.o.

35 780 860 IT supportFull consolidation

methodBratislava

Tatra Group Finance, s.r.o.

0% 100%Tatra Group Servis, s.r.o.


management, DDP administrator

Full consolidation method

Bratislava

Tatra Billing, s.r.o. 100% 100% n/a 35 810 572 servicesFull consolidation

method Bratislava

TL Leasing, s.r.o. 0% 100%Tatra Group Servis, s.r.o.

31 398 456 leasingFull consolidation

methodBratislava

CENTRUM BÝVANIA, s.r.o.



managementFull consolidation

methodBratislava

Tatra Residence, s.r.o.



managementFull consolidation

methodBratislava

Tatra-Leasing, s.r.o. 48% 48% n/a 31 326 552 leasing Equity method Bratislava

Slovak Banking Credit Bureau, s.r.o.

33.33% 33.33% n/a 35 869 810 servicesUnconsolidated

due to immateriality

Bratislava

Doplnková dôchodková spoločnosť Tatra banky, a.s.

100% 100% n/a 36 291 111supplementary

retirement savings Full consolidation

methodBratislava

Regional Card Processing Centre, s. r. o.

100% 100% n/a 44 548 605automated data

processingFull consolidation

methodBratislava

70



Establishment of SubsidiaryThe Parent company established a 100% owned subsidiary – Regional Card Processing Centre, s. r. o., which was incorporated in the Commercial Register on 18 December 2008. The assets and liabilities of the Parent company related to these operations were transferred to the new subsidiary at cost in January 2009 (see also note 52). The company's main scope of business is automated data processing, services related to computer data processing and order-made software design, and software design, implementation, and upgrades within the scope of business. The customers of the subsidiary belong to the RZB group of companies.

Distribution of profit of the parent company for 2007Profit of the parent company for the year ended 31 December 2007 in accordance with International Financial Reporting Standards in the amount of SKK 3 180 569 thousand was distributed based on the decision of the General Assembly held on 30 April 2008:

The financial statements for 2007 and payment of compensation to the members of the supervisory board in the amount of SKK 18 300 thousand were approved by the General Meeting on 30 April 2008. Dividends without claim to payment as of the date of the holding of the General Assembly in the amount of SKK 11 012 thousand were posted to retained earnings as of 31 December 2008.

Profit distribution proposal of the parent company for 2008

The proposal on director’s fees distribution is in the amount of SKK 17,051 thousand. The profit distribution for the year 2008 is subject to the approval of the General Assembly.

Change in the Bank's Scope of Business By its decision No. OPK-1156/3-2008 dated 28 April 2008, the National Bank of Slovakia changed the banking license for Tatra banka, a.s. The current scope of the banking license is provided under GENERAL INFORMATION in the Scope of Activities section and in the Commercial Register under “Scope of Business” section.

Regulatory requirementsThe Group is subject to the regulatory requirements of the National Bank of Slovakia, which include limits and other restrictions pertaining to minimum capital adequacy requirements, provisioning to cover credit risk, liquidity, interest rate, and foreign currency position. In 2008, the Group fulfilled all these regulatory requirements.

Dividends – ordinary shares 1,908,208

Dividends – preference shares 222,602

Contribution to retained earnings from previous years 1,049,759

Total 3,180,569

Dividends – ordinary shares 1,621,981

Dividends – preference shares 242,380

Contribution to retained earnings from previous years 1,760,717

Total 3,625,078



II. Principal accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below:

Statement of compliancea) The consolidated financial statements of the Group for the year 2008 and comparatives for 2007 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) in Commission Regulation (EC) 1126/2008, and current interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).

Commission Regulation (EC) 1126/2008 of 3 November was issued to incorporate all standards presented by the International Accounting Standards Board (IASB) and all interpretations presented by the International Financial Reporting Interpretations Committee (IFRIC), which were fully endorsed in the Community as at 15 October 2008, except for IAS 39 (relating to recognition and measurement of financial instruments) in a single document. Commission Regulation (EC) 1126/2008 of 3 November 2008 replaces Commission Regulation (EC) 1725/2003 of 29 September 2003.

IFRS as adopted by the EU do not currently differ from IFRS as issued by the International Accounting Standards Board (“IASB”), except for portfolio hedge accounting under IAS 39 which has not been approved by the EU. The Group has determined that portfolio hedge accounting under IAS 39 would not impact on the financial statements had it been approved by the EU at the balance sheet date.

In 2008, the Group adopted all of the new and revised Standards and Interpretations issued by the IASB and IFRIC as adopted by the EU that are relevant to its operations and effective for accounting periods commencing 1 January 2008 as follows:

IFRIC 11 Interpretation of IFRS 2 – Group and Treasury Share Transactions • (effective 1 March 2007);Amendment to IAS 39 and IFRS 7 “Reclassification of Financial Assets” (effective 1 July 2008);• IFRIC 14 – IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their • Interaction (effective 1 January 2008).

The adoption of these new and revised standards and interpretations has not resulted in changes to the Group’s accounting policies that would have affected the amounts reported for the current or prior years.

At the date of the authorization of these financial statements, the following standards were in issue but not yet effective however, the Group has decided to apply them before their effective date:

IFRS 8 Operating Segments (effective 1 January 2009).•

At the date of the authorization of these financial statements, the following standards were in issue but not yet effective and the Group did not apply them:

72



IASB Documents endorsed by the EU:Amendment to IAS 23 Borrowing costs (effective 1 January 2009);• Amendment to IFRS 2 Share-based payments: Vesting conditions and cancellations • (effective 1 January 2009);Amendments to IAS 1 Presentation of Financial Statements: A revised presentation • (effective 1 January 2009);IFRIC 13 Customer Loyalty Programmes (effective for the reporting periods beginning • on or after 1 July 2008);Amendments to IAS 32 Financial instruments: Presentation - Puttable Financial Instruments and • Obligations Arising on Liquidation (effective 1 January 2009);“IFRS Improvements” (effective for the reporting periods beginning on or after 1 January 2009);• Amendment to IAS 27 Consolidated and Separate Financial Statements and IFRS 1 First Time • Adoption of IFRS: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective for the reporting periods beginning on or after 1 January 2009).

IASB Documents not yet endorsed by the EU:

Standards:IFRS 1 First-time Adoption of IFRS – Restructured standard (2008) (effective for the reporting • periods beginning on or after 1 January 2009);Revised IFRS 3 Business Combinations (effective 1 July 2009);•

Amendments:Amendments to IAS 27 Consolidated and Separate Financial Statements (effective 1 July 2009);• IAS 39 (revised in 2008) Financial Instruments: Recognition and Measurement: Eligible Hedged • Items (effective for the reporting periods beginning on or after 1 July 2009);IAS 39 Reclassification of Financial Assets: Effective Date and Transition (effective from 1 July • 2008);

Interpretations:IFRIC 12 Service Concession Arrangements (effective 1 January 2008, may not be adopted prior • to the endorsement of arrangements currently accounted for under IFRIC 4);IFRIC 15 Agreements for Construction of Real Estate (effective 1 January 2009); • IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective 1 October 2008);• IFRIC 17 Distributions of Non-cash Assets to Owners (effective for the reporting periods beginning • on or after 1 July 2009); IFRIC 18 Transfers of Assets from Customers (effective for transfers of assets from customers received • on or after 1 July 2009).

The adoption of these standards and interpretations in future periods is not expected to have a material impact on the Group’s profit or equity.

Purpose of preparationThe purpose of the preparation of these consolidated financial statements in the Slovak Republic is to comply with the Act on Accounting No. 431/2002 Coll. as amended. Pursuant to Article 22 of the Act on Accounting No. 431/2002 Coll., effective from 1 January 2005 the Group is required to prepare its



consolidated financial statements under Regulation (EC) 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the Application of International Accounting Standards. The consolidated financial statements prepared in compliance with IFRS have effectively replaced consolidated financial statements prepared under Slovak Accounting Standards. The financial statements are intended for general use and information and are not intended for purposes of any specific user or consideration of any specific transactions. Accordingly users should not rely exclusively on these financial statements when making decisions.

Basis of preparationThe financial statements are prepared on an accrual basis of accounting whereby the effects of transactions and other events are recognised by the Group when they occur, and are reported in the financial statements of the periods to which they relate and on the going concern assumption of the Group.

The financial statements are prepared under the historical cost convention; certain financial instruments were revalued to fair value.

Significant accounting judgementsThe presentation of financial statements in conformity with IFRS requires the preparation of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and future changes in the economic conditions, business strategies, regulatory requirements, accounting rules, or/and other factors could subsequently result in a change in estimates or other adjustments that could have a material impact on the reported financial position and results of operations. The effect of a change in an accounting estimate shall be recognised prospectively by including it in profit or loss in the period of the change, if the change affects that period only, or the period of the change and future periods, if the change affects both.

Significant areas of judgement include the following:Provisioning for incurred credit losses and identified contingencies involve many uncertainties about • the outcome of those risks and require the management of the Group to make many subjective judgements in estimating the loss amounts.The income taxes rules and regulations have recently experienced significant changes; there is • a limited historical precedent and/or interpretation judgement with respect to the extensive and complex issues affecting the banking sector.

The reporting currency used in the financial statements is the Slovak crown (“SKK”) with accuracy to SKK thousand, unless otherwise indicated.

The recent financial crisis and negative economic development have an impact on the Group. The Group's management took into consideration all significant events which could have an impact on the financial statements, measurement of assets and liabilities recognised in these financial statements, on liquidity and availability of funds with respect to the current economic situation. There is an increased level of uncertainty about future economic development which could result in material future adjustments to valuation and impairment of assets

74



As described in section 1 below and disclosed in detail in Note 2 and 14, the Group creates provision for impairment of loans and receivables where there is objective evidence that, as a result of past events, the estimated future cash-flows are negatively impacted. These provisions are based on the Group’s historical and current experience concerning default rates, recovery rates of loans, or time needed from a loss event to crystallize in loan default, as well as subjective judgments of the Group’s management about estimated future cash-flows. Considering current economic conditions, the ultimate outcome of these estimates may differ from the amounts of impairment provisions recognizedas of 31 December 2008.

Consolidation principlesb) Subsidiary undertakings are those companies in which the Group, directly or indirectly, has an interest of more than 50% of the voting rights or otherwise has power to exercise control over their operations; these were included in consolidation using the full consolidation method except for those where the influence was insignificant. Subsidiaries were consolidated as of the date when the Group gained control over them, and deconsolidated on the date of their disposal or loss of the controlling interest. All receivables and payables, disposals and purchases, as well as expenses, revenues, profits, and losses on transactions within the Group were eliminated.

Investments in associated undertakings represent entities in which the Group holds more than 20 per cent of the voting power and exercises significant influence. Investments in associated undertakings are valued using the equity method in the consolidated financial statements. Under the equity method, investments are initially measured at cost and subsequently adjusted for post-acquisition changes in the Group’s share of the net assets of an entity wherein the investment was made. The profit or loss of respective investors includes their share in the profit or loss of the entity wherein the investment was made. Gains/(losses) resulting from the revaluation of associates using the equity method are disclosed as “Net gains/(losses) from investments in associated undertakings” in the income statement.

All acquisitions of subsidiaries are accounted for using the acquisition method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. If the cost of the business combination exceeds the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised, the difference is disclosed as goodwill [Note l) of Principal Accounting Policies].

Foreign currencies c) Assets and liabilities denominated in foreign currencies are translated into Slovak crowns and reported in the financial statements as at the exchange rate declared by the National Bank of Slovakia (“NBS” or “National Bank of Slovakia”) valid as of the balance sheet date. Income and expenses denominated in foreign currencies are recorded in Slovak crowns in the underlying accounting system of the Group and are reported in the financial statements at the actual exchange rate of the National Bank of Slovakia valid as of the date of the transaction.



Exchange rate gains (losses) from all foreign exchange transactions are included in “Net profit (loss) from trading instruments”.

Off balance sheet transactions denominated in foreign currency are translated into Slovak crowns in the Group’s off-balance sheet using the NBS spot exchange rate valid as of the balance sheet date.

The unrealised gain or loss from fixed term transactions is calculated using the anticipated forward rate based on a standard mathematic formula which takes into account the National Bank of Slovakia spot rate and interest rates effective as of the balance sheet date and is reported in the item “Held for trading financial assets” or in the item “Financial liabilities held for trading” in the balance sheet, and “Net profit (loss) from trading instruments” in the income statement.

Cash and deposits in central banksd) Cash and deposits in central banks comprise cash held, and cash balances with the National Bank of Slovakia, including the compulsory minimum reserve with the National Bank of Slovakia.

The compulsory minimum reserve with the National Bank of Slovakia is a required reserve to be held by all commercial banks licensed in the Slovak Republic.

Due to Slovakia's entry into the eurozone as at 1 January 2009, the system of the creation and monitoring of compulsory minimum reserves has changed, as is the interest rate applicable on the compulsory minimum reserves. The interest rate will be determined by the European Central Bank on a regular basis after the end of each period.

Financial instrumentse) A financial instrument is any contract which results in a financial asset in one entity and a financial liability in another.

The Group classifies financial instruments in four categories, in accordance with the Group’s intent on the acquisition of the instruments and pursuant to the Group’s investment strategy, as follows:

Loans and receivables 1. Financial assets or financial liabilities at fair value through profit or loss 2.

Financial assets or financial liabilities held for trading a) Financial assets or financial liabilities at fair value through profit or lossb)

Held to maturity financial assets3. Available-for-sale financial assets 4.

1. Loans and receivables Loans and other receivables represent non-derivative financial assets with fixed or determinable payments unlisted in an active market and are less any impairment measured at amortised cost, using the effective interest rate method.

76



When signing a loan agreement, the Group records the issued loan commitment on the off-balance sheet. Loans are recognised on the balance sheet when the funds are provided to debtors. During the performance of their activities, the Group records contingent liabilities with inherent credit risk. The Group accounts for these contingent liabilities in off-balance sheet accounts, and records a provision for such liabilities that reflects the level of risk of issued guarantees, letters of credit, and unused credit limits as of the balance sheet date.

Provisions for loan impairmentThe provision for possible loan losses is calculated to reduce loans to their recoverable amount representing expected future cash flows discounted to the present value using the original effective interest rate implicit in the loan at inception, or the fair value of the related collateral. Specific provisions for identified potential losses on loans are assessed with reference to the credit standing and financial performance of the borrower and considering collateral.

Loans and advances to corporate customers are generally individually significant and are analysed on an individual basis. The Group adjusts the value of a corporate receivable if there is reason to believe that the receivable demonstrates characteristics leading to the impairment of the receivable. These characteristics mainly include: overdue receivable, information that a large-scope foreclosure procedure is pending against the debtor, that the debtor is in bankruptcy or liquidation, if an identified fraud is associated with the receivable, if the receivable was restructured due to the fact that the debtor did not have sufficient funds to repay the receivable in line with the original repayment schedule, or if the Group concludes - based on the regular monitoring of the client’s financial position - that the client will be unable to fully repay the amount outstanding.

The calculation of specific provisions is based on an estimate of expected cash flows reflecting estimated delinquency in loan repayments, as well as income from loan collateral. Impairment amount is determined by the difference between the loan’s carrying amount and the net present value (“NPV”) of the estimated cash flows discounted by the loan’s original effective interest rate. Specific provisions are recorded when there is objective evidence of loss event which occurred after initial recognition.

For loans and advances to corporate customers where no impairment was identified on an individual basis, loans and advances are divided into groups with similar credit risk characteristics and portfolio-based provisions are calculated. Portfolio-based provisions cover losses which have not yet been individually identified, but based on historical experience, are deemed to be inherent in the portfolios of the balance sheet date. The provision depends on the client rating, historical default rate for the given client rating, collateral value, and recovery rate. For groups where the Group does not have a sufficiently long time period for the calculation of a historical default rate, the Group uses default probabilities derived from other similar groups or from RZB Group data. For the SME portfolio (loans to small and medium enterprises), the portfolio provision is created based on an expert estimate.

The SME includes companies with annual revenues of up to approximately EUR five million, and a gross exposure of up to EUR 100 thousand.



The Group provides for a retail receivable if there is evidence of impairment of the receivable. If such evidence is identified, specific provisions are established.

Specific provisions are established for: foreclosures, bankruptcies and liquidations, frauds, in the event of the debtor’s death, and for receivables which were at least once overdue or are currently overdue more than 180 days. For the aforementioned cases, the Group creates provisions at 100% of the amount outstanding.

For retail receivables where no impairment was identified individually, portfolio-based provisions are created using a flow rate model. Portfolio provisions cover losses which were not identified individually; however, based on historical experience they were inherent to the portfolios as at the balance sheet date. A flow rate model (also known as a roll rate model) is the model for the calculation of provisions based on the principle of a percentage flow of overdue receivables into the saturation status (180 days overdue). A vintage based recovery rate with a time-span of no more than 36 months is applied on receivables in the saturation status. For both the flow rate model and the vintage based recovery, the Group uses portfolio segmentation per products and their types (according to their risk characteristics), and 12-month flow rate averages are used for the calculation of the flow rates.

Provisions for losses from loans to customers are charged as “Provisions for impairment losses” in the income statement.

In line with the internal policy, according to a valid decision on ceasing the recovery of claims issued by the competent court, the Board of Directors, or other Group bodies (Problem Loan Committee, Executive Committee), the Group writes off its loans to customers against the recorded provision. Should the amount of receivable written-off exceed the amount of recorded provisions, the difference is recognised through the income statement. Receivables written off which are still in the collection process under the law are recorded in off-balance sheet accounts.

If, after the write off, the Group collects further amounts from the client or obtains control of collateral worth more than initially estimated, a recovery is recognised through the income statement in the caption “Provisions for impairment losses”.

Interest income on loans to customers to which the Group is entitled but which are overdue for more than 90 days is not recognized by the Group in revenues if the Group does not expect its collection. As of 31 December 2008, such interest amounts to SKK 85,862 thousand (31 December 2007: SKK 88,616 thousand).

Loan collateralIn terms of handling collateral, the Group places great emphasis mainly on the valuation and revaluation of individual collaterals, determination of the value of pledged collateral for secured loans, determination of collateral acceptability for the purposes of credit risk mitigation and collateral enforcement, should the client be in default.

78



The Group mainly accepts the following types of collateral: Financial collateral (cash, guarantees, etc.), • Real estates,• Chattels,• Receivables, and • Life insurance.•

In terms of legal instruments, the Group uses:Pledge,• Assignment of receivable intended to serve as security,• Transfer of title intended to serve as security,• Blockage of cash,• Contract for purchase of securities, and • Agreement on liability replacement.•

The methodology of collateral valuation and the frequency of its revaluation depend on the type of collateral and the minimum requirements pursuant to the effective legislative standards implemented in the Group’s internal regulations. Determination of the value of collateral is specific for each type of collateral, and the Group respects an adequate degree of prudence.

The value of pledged collateral is determined on a case-by-case basis for each type of collateral depending on the type of collateral and transaction, and individual risk characteristics. The value of pledged collateral is obtained by discounting the initial value of collateral obtained in valuation and revaluation.

Factors based on which discounting factors are determined relate mainly to the enforceability of collateral if the counterparty defaults (e.g. type, location and condition of real estate), potential default of the security provider (e.g. credit quality and maturity of financial collateral), and other factors (business strategy and group orientation). The discounting factors applied are subject to regular revaluation.

The claim value of collateral is derived from the value of pledged collateral up to the amount of the current amount receivable. If the value of pledged collateral is lower than the balance of the receivable, the Group will determine the claim value of collateral up to the amount of the value of pledged collateral.

The claim value of collateral contains a number of uncertainties and risks. The amounts which may be recovered in the course of liquidation of the collateral for bad debts could differ from the estimated amounts, and the difference could be material.

The Group’s decisions in the enforcement of collateral is individual and depends on factors such as the current condition and value of collateral, the current amount receivable, the promptness of the satisfaction of the receivable, collection-related costs, etc. The respective competent body of the Group decides which security instrument will be used in the specific case.



The Group uses mainly the following forms of enforcement of collateral:voluntary auction,• foreclosure procedure,• realisation of the collateral for the Group’s receivable in a bankruptcy procedure, or • sale of receivables.•

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

Financial asset or financial liability held for trading a) The Group has acquired held-for-trading financial assets or liabilities to utilise short-term price fluctuations to generate profits. In this category, the Group recognises securities (equity investments, debt securities, Treasury bills, shares) and financial derivative instruments (interest rate swaps, currency swaps and cross-currency swaps, forward exchange contracts, interest rate forwards, currency options, share index options, and commodity derivatives).

All purchases and sales of trading securities are recognised as of the date of settlement.

All purchases and sales of financial assets or liabilities held for trading that require delivery within the time frame established by regulation or market convention (‘normal way’) are recognised as spot transactions. Transactions that do not meet the 'normal way' settlement criteria are treated as financial derivatives.

Certain financial derivative transactions, while providing effective economic hedges under the Group’s risk management policy, do not qualify for hedge accounting under the specific rules stipulated by IAS 39 and are therefore treated as derivatives held for trading.

Derivatives embedded in other financial instruments or other host contracts are treated, in terms of accounting, as separate derivatives if no close linkage exists between their risks and attributes, and risks and attributes of the host contract, and if the host contract is not recognised at fair value and changes in fair value are recognised in profit and loss.

The Group records unrealised gains and losses from the revaluation of these assets to their fair values in the income statement line “Net profit (loss) from trading instruments”. Net interest income from held for trading securities is accrued on a daily basis and recorded in the income statement line “Net profit (loss) from trading instruments”. The fair value of held for trading financial derivatives is disclosed in Note 49.

Refinancing costs of trading securities is disclosed in the income statement line “Net profit (loss) from trading instruments”. Refinancing costs represent costs of refinancing positions contracted in trading activity.

Dividend income from held for trading securities is disclosed in the income statement line “Net profit (loss) from trading instruments”.

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Financial assets/liabilities at fair value through profit or loss (“FVTPL”)b) Based on the Group’s documented risk management strategy and in accordance with its investment strategy, the Group mainly recognises debt securities in the given portfolio. The performance of these securities is evaluated on a fair value basis. The aforementioned debt securities are treated by the Group at initial recognition as financial assets at fair value through profit or loss.

Financial assets disclosed in the portfolio at fair value through profit or loss are initially recognised at cost excluding costs of transaction and are subsequently re-valued to fair value through profit or loss.

The Group recognises unrealised gains and losses from the revaluation of these assets to their fair values in the income statement line “Net profit (loss) from financial instruments at fair value through profit or loss”.

Net interest income from securities at fair value through profit or loss is accrued on a daily basis and recorded in the income statement line “Interest and similar income”.

3. Held to maturity financial assets This portfolio is a non-derivative financial asset with fixed or floating payments and fixed maturity that the Group intends and is able to hold to maturity. The held to maturity portfolio includes debt securities in line with the approved strategy for the creation of a strategic securities portfolio. It mainly includes securities issued by the government and other creditworthy securities.

Held to maturity financial assets are measured at amortised cost using the effective interest rate method, less impairment. Interest income and discounts and premiums on held-to-maturity securities are accrued on a daily basis and recognised as “Interest and similar income” in the income statement.

4. Available-for-sale financial assets (AFS)The AFS portfolio includes the Group’s investments in other entities, with a share of less than 20% of share capital and voting rights. The portfolio is measured at cost less impairment provisions, which are recognised as “Net profit (loss) from investments in subsidiary and associated undertakings” in the income statement, as their market price in an active market cannot be reliably measured.

The portfolio mainly includes shares in privately held companies for which no market exists or companies participation in which is mandatory (Burza cenných papierov v Bratislave a.s., S.W.I.F.T. s. c., VISA INC., USA). The Group does not expect the selling or otherwise disposing of the given participation shares in the near future. For companies against which bankruptcy proceedings are underway, 100% provisions are created and the participation shares will be written off after the completion of the bankruptcy proceedings.

Dividend income from available for sale financial assets is reported as “Interest and similar income” in the income statement.



Derecognition of financial instrumentsThe Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group substantially retains all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled, or expire.

Inland securities in the Group’s portfolio are mainly listed and traded on the Bratislava Stock Exchange, foreign securities are listed on the foreign stock exchange, where they are traded. Foreign securities are traded in an inter-bank market.

Fair value of financial instruments f) For the determination of a fair value of financial instruments, the following applies:

Fair value of shares – the close price for the trading day on the given market is applied; if no close • price of the trading day is known, the close price of the next trading day announced at the given stock exchange is applied.

Fair value of shares and other equity interests in companies, the price of which is not listed on an • active market and the fair value of which cannot be determined reliably, are recognised at cost less impairment.

Fair value of debt securities – the close price as announced by the stock exchange or an average • of quotes in the Bratislava Stock Exchange market makers module, the price announced in the NBS Benchmark or the price announced via generally accepted information system (Bloomberg, Reuters) is applied in accordance with the current legislation.

Fair values of financial instruments not quoted in active markets are determined using valuation • techniques such as the theoretical price derived from the yield as read from the yield curve of government bonds and the credit margin of issuers’ debt securities with comparable credit risk under generally accepted revaluation rules. Where valuation techniques are used to determine fair values, financial instruments are measured and periodically reviewed by qualified personnel independent of the area that created them. To the practical extent, models use only observable data; however, areas such as credit risk, volatilities and liquidity require expert estimates. Changes in the assumptions related to these factors could affect the reported fair value of financial instruments.

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The fair value of government and NBS treasury bills is determined by discounting the face value to • present value by the required proceeds by maturity which is established as an average of the Bribid and Bribor rates until the maturity of the respective Treasury bill.

Fair value of capital market derivatives – with respect to equity derivatives, the Group uses the • close price of the given day and/or last known close price to determine the face value; for OTC derivatives the fair value is determined by discounting cash flows to their present value where construction of a zero curve and calculation of discounting factors form a basis for valuation.

Fair value of monetary market derivatives is determined by the latest price of the derivative as • announced by the stock exchange on the given trading day. For OTC derivatives, the fair value is determined by valuation methods discounting future cash flows to the present value using verifiable market data. Fair value of options is determined by application of a generally recognised analytical revaluation model using verifiable market data. If the Group does not use a revaluation model to determine fair values, it can use a revaluation agent if the position is closed.

For determination of the fair values of its financial assets and liabilities, the Group uses the following information:

Bloomberg – close prices of the last trading day, source: BGN – Bloomberg generic prices – where the value is determined by the values of various contributors (financial market entities contributing their prices into the information system) and other important market information. This Bloomberg method aims to establish a fair value.

Reuters – close prices of the last trading day; for prices which have no closing value internal price fixing is performed at 15.00 hours of the current day using the prices disclosed by the contributors.

BCPB – the official website of Burza cenných papierov a.s. www.bsse.sk.

EBOS – an electronic trading system of BCPB through which the stock exchange provides its members with stock exchange information.

With respect to the definition of the fair value of financial instruments which are not revalued to fair value, the Group applies the net present value method using the prime interest rates of individual currencies disclosed by central banks, which approximate market values. More detailed information on the methods of calculation of fair values of financial instruments not revalued to fair value is provided in Note 50.

Sale and repurchase agreements – repo transactionsg) Securities sold under sale and repurchase agreements (“repo transactions”) are recorded as assets in the balance sheet lines “Held for trading financial assets”, “Financial assets at fair value through profit or loss” or “Held to maturity financial asset”, and the counterparty liabilities are included in “Deposits from banks” or “Deposits from customers”.



Securities purchased under agreements to purchase and resell (‘reverse repos’) are recorded as assets in the balance sheet line “Loans and advances to banks” or “Loans and advances to customers” as appropriate.

The difference between the sale and repurchase price is treated as interest and accrued evenly over the life of the repo agreement using the effective interest rate.

Non-current tangible and intangible assetsh) Non-current tangible and intangible assets are stated at historical cost less accumulated depreciation/amortisation together with accumulated impairment losses. Non-current assets are depreciated using the accelerated or straight–line method based on the estimated useful life. Tangibles in progress, land, and artwork are not depreciated.

The estimated useful economic lives (in years) are set out below:

Goodwilli) Goodwill represents the excess of the cost of the acquisition over the fair value of identifiable assets, liabilities and contingent liabilities of the acquired company as at the acquisition date. Goodwill is initially recognized at cost and subsequently its value is adjusted for accumulated losses from its impairment. Goodwill is tested once or several times a year provided that the events or changes in circumstances indicate that the impairment of value is in compliance with IAS 36 – Impairment of assets. Impairment of goodwill cannot be reversed in the following reporting periods.

Impairment of tangible and intangible assets (excluding goodwill)j) At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss (if any).

Recoverable amount is the higher of fair value less costs to sell and the present value of future cash flows expected to derive from the asset. If any of the above amounts exceeds the carrying amount, there is no need to estimate the other amount. If the estimated recoverable amount of an asset is lower than its carrying amount, the carrying amount of the asset shall be reduced to equal the recoverable amount. The impairment loss shall be recognised directly through profit and loss.

Machinery and equipment, computers, vehicles 4 – 10

Software up to 10

Fixtures, fittings and equipment 6 – 10

Energy machinery and equipment 10 – 15

Optical network 30

Buildings and structures 10 – 40

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Leases k) A lease is classified as finance lease when the terms of lease provide for transferring substantially all the risks and rewards of ownership of the leased asset to the lessee. All other leases are classified as operating leases.

1. The Group as lessor Amounts due from leases under finance lease are recognised as receivables at the amount of the Group’s net lease investment. Finance lease income is allocated to reporting periods so as to express a constant periodic rate of return on the Group’s net investment in respect of the lease.

The present value of future lease payments is recognised in the balance sheet as “Loans to customers, gross”, line “Finance lease receivables”.

2. The Group as lesseeAssets under finance lease are recognised as the Group’s assets at fair value as at the acquisition date, or if the fair value is lower, at present value of minimum lease payments. The relevant payable to a lessor is recognised in the balance sheet as a finance lease payable. Finance lease payments are apportioned between financial charges and reduction of outstanding lease payable (to produce a constant periodic rate of interest on the outstanding balance). Financial charges are recognised directly in the income statement, unless they are allocated directly to the relevant asset. In this case, financial charges are capitalised.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Liabilities from debt securitiesl) Debt securities issued by the Group are stated at amortised cost using the effective interest rate method. The Group issues mortgage bonds and investment notes. Interest expense arising on the issue of securities is included in the income statement line “Interest and similar expenses”.

Subordinated debtm) Subordinated debt refers to the Group’s external funds and in the event of bankruptcy, composition or Group’s liquidation, the entitlement to its repayment is subordinated to liabilities to other creditors. The Group’s subordinated debt is recognised in the separate Balance Sheet line “Subordinated debt”. Interest expense paid on the received subordinated debt is recognised through profit and loss in “Interest and similar expenses”.



Cash and cash equivalents in the cash flow statement n) Cash and cash equivalents for the purpose of “cash flow statement” preparation comprise cash held, and cash balances with the National Bank of Slovakia except for the statutory minimum reserve. Cash equivalents include treasury bills, demand deposits with other banks, and short-term government bonds.

Provisions for liabilities o) The amount of provisions for liabilities and charges is recognized as an expense and a liability when the Group has legal or constructive obligations as a result of past events. It is probable that an outflow of resources embodying economic benefits will be required to settle such obligation and a reasonable estimate of the amount of the resulting loss can be made. Any loss resulting from the recognition of provision for liability is recognized in the income statement for the period.

Provision for employee benefitsp) The Group has a defined benefit program under which employees are entitled to a lump-sum payment upon taking retirement or a working jubilee. As at 31 December 2008 there were 3,734 employees at the Group covered by this program (2007: 3,258 employees). The method of calculation of the liability applies actuarial calculations, based on employee’s age, number of years worked, employee turnover, mortality tables, and discount rates.

The employee benefit costs are assessed using the projected unit credit method with actuarial valuation at the balance sheet date, measured as the present value of the estimated future cash outflows discounted by interest approximating yield on investment grade fixed income securities. Actuarial gains and losses from both the jubilee benefit obligation and post-employment defined benefit plans are charged to the income statement in the current year in “General administrative expenses”. The provision for employee benefits is recognised in the Balance Sheet line “Provision for liabilities”.

Key assumptions used in actuarial valuationLong-term employee provisions were calculated in accordance with the currently valid mortality tables issued by the Statistical Office of the Slovak Republic.

The Group also has also a defined contribution plan for employees. All company contributions are expensed (see note 7).

Accrued interestq) Accrued interest income and expense related to financial assets and liabilities are presented together with the corresponding assets and liabilities in the balance sheet.

Real annual discount rate 4%

Annual future real rate of salary increases 2%

Annual employee turnover 8 – 21%

Retirement age Based on valid law

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Recognition of income and expense r)

Interest income and expense, and interest related charges1.

Interest income and expense, and interest related charges arising on all interest-bearing instruments except for “Held for trading financial assets or financial liabilities” are accrued in the income statement using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period.

Interest income from “Held for trading financial assets or financial liabilities” is recognised in the income statement as “Net profit (loss) from trading instruments”.

Interest income (expense) from securities includes revenues from coupons with fixed and floating rates, and amortised discount or premium.

Fees and commissions income/expense 2.

Fees and commissions that do not form part of the effective interest rate are recognised as expense and income in the income statement in “Net fees and commission income” from financial assets and liabilities not restated to fair value on an accrual basis as earned.

Dividend income 3.

Dividend income is recognised in the income statement at the moment of the dividend being approved to the Group.

Basic and diluted earnings per share s) The Group reports earnings per share attributable to the holders of ordinary and preference shares. The Group calculated earnings per share on ordinary shares by dividing profits attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period. Earnings per share on preference shares were determined by dividing profits attributable to holders of preference shares by the weighted average number of preference shares outstanding during the period.

Taxation and deferred taxationt) Income taxes are calculated in accordance with the provisions of the relevant legislation of the Slovak Republic, based on taxable profit. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.



Deferred income tax is provided, using the balance sheet liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The tax rate anticipated for future periods was used to determine deferred income tax, i.e. 19%. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

The Group recognises the due corporate income tax in the Balance Sheet line “Current tax liability” and the deferred tax in “Deferred tax asset” or “Deferred tax liability”.

The Group is a payer of various statutory taxes and value added tax (VAT) recognised in the income statement line “Other operating profit (loss)” except for VAT on the acquisition of non-current tangible and intangible assets, which is included in the cost of non-current tangible and intangible assets.

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III. Segment reporting

As at the balance sheet date, the Group decided to apply IFRS 8 – Operating Segments prior to its effective date, i.e. before 1 January 2009.

The basis for classification per segments is an internal principle for the Group management which is customer oriented. It also reflects the segmentation principle of the majority shareholder (Raiffeisen International). The segmentation applied by the Group is as follows:

Corporate customers• Financial institutions and public sector • Retail customers• Treasury and Investment Banking• Equity investments•

Corporate companies include all resident and non resident companies including those companies which are state owned. A small company that is a subsidiary of a large company are treated within the corporate customer segment. The segment corporate customers consists of the sub-segments Large customers and Mid Market. Due to their tailor made business, smaller sized companies with project finance or trade finance focus are also be reported under Corporate Customers. In terms of products, corporate customers were mainly provided with investment and operating loans in the form of instalment credits or overdraft facilities, factoring and documentary financing, project financing of commercial real estate projects, office premises, construction of shopping centres, etc.

Financial institutions and public sector consist of:

Banks/Supra-Nationals includes all local and international banks including their majority owned subsidiaries in the country and all institutions such as the World Bank, EBRD, EIB, IMF, and KfW. In terms of products on the side of assets, exposures to banks mainly included nostro accounts and term placements made. On the side of liabilities, they included mainly loro accounts, term placements received and loans received from banks.

Brokers & Asset Management Companies include foundations, all broker houses, mutual fund companies, leasing companies, investment banks and other banks like these entities. Insurance companies include e.g. pension funds. These entities were mainly provided with investment and operating loans

Public sector includes all government entities, ministries, municipalities and alike. Corporates that are owned by the public sector (state owned) are shown under the segment corporate customers. Banks which belong to the government are defined as financial institutions. Securities of Slovak Republic are disclosed in segment Treasury and Investment Banking. Embassies and trade representatives are shown in this segment.



Retail Customers consist of Individuals (Consumers), which include all consumer customers from low end to upper income. Segment of retail clients also includes SME clients, micro companies and private banking clients. For private banking, individuals are defined locally, with special treatment to individually manage their assets. In terms of products, retail customers – micro businesses and sole traders – were mainly provided with operating loans called BusinessÚverTB Expres and BusinessÚverTB Comfort, company credit cards (VISA Standard/Gold/Platinum, MercedesCard, AMEX, Diners Club) and others. Retail customers – households were mainly provided with mortgage loans, equity home loans, TB mortgage loan, Bezúčelový úverTB Classic, Bezúčelový úverTB Garant, private credit cards (VISA Standard/Gold/Platinum, MercedesCard, AMEX, Diners Club) and others. Retail customers placed their financial funds mainly in current accounts and term deposits.

Treasury and Investment Banking consist of business transactions conducted on own account and risk of the Group that are originated from managing market risk positions like FX-dealing, securities and derivatives trading, money market trading, liquidity management and funding, strategic positioning (investment portfolio), interest rate gapping (maturity transformation).

Segment reporting is based on the schemes of contribution margins which are calculated as a basis for group management. In the schemes, revenues and expenses are allocated under the principles of causality, i.e. revenues and expenses are allocated to individual segments based on the place of their origin.

Revenue items in the statement per customer segments consist of Net Interest Income, Provisions and Provisions for Losses, Net Fee and Commission Income, Net Profit (Loss) on Financial Instruments Available for Trading, Net Profit (Loss) on Financial Instruments at Fair Value through Profit or Loss and Other Operating Profit (Loss).

The item “Provisions and Provisions for Losses” includes net additions to or release of specific and portfolio provisions resulting from credit risk, write-off of loan receivables, and also revenues from written-off loan receivables. General administrative expenses consist of direct and indirect expenses. Direct expenses (personnel expenses and other administrative expenses) are allocated as per individual segments and indirect expenses are allocated as per the approved ratios.

Geographically, operating profit was primarily generated by the provision of banking services in the Slovak Republic. Some assets and liabilities are placed outside the Slovak Republic. The summary of the most significant exposures of total assets and liabilities to customers in foreign countries is included in Note 41 “Foreign assets and liabilities”. Owing to their immateriality the Bank decided not to report the total amount of revenues from foreign entities.

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The consolidated income statement and other indicators per segments as at 31 December 2008:

(in thousands of SKK) Corporate customers

Financial institutions and public

sector

Retail customers

Treasury and investment

banking

Equity investments

and other

Total

Net interest income 1,792,787 209,876 5,009,818 506,430 368,583 7,887,494

Provisions and provisions for losses (602,232) (1,446) (703,613) - (167) (1,307,458)


1,190,555 208,430 4,306,205 506,430 368,416 6,580,036

Net fees and commissions income 381,125 3,883 2,844,152 31,541 124,223 3,384,924

Net profit (loss) from financial trading instruments

691,402 15,581 1,019,491 512,067 - 2,238,541

Net profit (loss) from financial instruments at fair value through profit or loss

- - - (16,188) - (16,188)

Net profit (loss) from investments in subsidiaries and associated undertakings

- - - - 26,283 26,283

General administrative expenses (1,116,849) (125,669) (5,357,644) (407,224) (134,408) (7,141,794)

Other operating profit (loss) - - - - (71,890) (71,890)

Profit before income taxes 1,146,233 102,225 2,812,204 626,626 312,624 4,999,912

Total assets 91,729,042 5,752,629 76,315,258 123,580,965 20,483,132 317,861,026



The consolidated income statement and other indicators per segments as at 31 December 2007:

(in thousands of SKK) Corporate customers

Financial institutions and public

sector

Retail customers

Treasury and investment

banking

Equity investments

and other

Total

Net interest income 1,422,158 232,533 4,232,786 545,598 343,829 6,776,904

Provisions and provisions for losses (223,762) (5,361) (330,822) - (6) (559,951)


1,198,396 227,172 3,901,964 545,598 343,823 6,216,953

Net fees and commissions income 367,273 3,103 2,517,092 30,564 221,900 3,139,932

Net profit (loss) from financial trading instruments

643,914 11,319 934,678 485,933 - 2,075,844

Net profit (loss) from financial instruments at fair value through profit or loss

- - - (308,947) - (308,947)

Net profit (loss) from investments in subsidiaries and associated undertakings

- - - - 37,494 37,494

General administrative expenses (1,142,480) (178,590) (4,619,254) (308,370) (200,394) (6,449,088)

Other operating profit (loss) - - - - (292,658) (292,658)

Profit before income taxes 1,067,103 63,004 2,734,480 444,778 110,165 4,419,530

Total assets 76,001,874 7,110,695 56,874,286 101,701,159 11,327,558 253,015,572

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IV. Other Notes

Net interest income1.

Interest income from loans to customers increased due to the loan portfolio increase as disclosed in Note 13.

Provisions for impairment losses 2. Movement in provisions for impairment losses for loans disclosed on the balance sheet and provisions for off-balance sheet liabilities are as follows:

(in thousands of SKK) 2008 2007

Interest and similar income 13,699,058 11,084,402

from loans and advances to banks 1,698,706 1,595,825

from loans and advances to central banks 1,310,499 1,149,598

from loans and advances to customers 10,090,850 7,576,761

from finance lease receivables 14,130 -

from held to maturity financial assets 1,324,425 1,440,076

from financial assets at fair value through profit or loss 513,431 471,736

from received dividends from financial assets available for sale 57,516 4

Interest and similar expenses (5,811,564) (4,307,498)

on deposits from banks (458,196) (304,593)

on deposits from central banks (259) (715)

on deposits from customers (3,737,849) (3,072,695)

on subordinated debts (152,738) (35,086)

on liabilities from debt securities issued by the Group (1,462,781) (895,124)

Net interest income 7,887,494 6,776,904


Specific provisions for loan receivables (922,596) (464,338)

Additions to provisions (1,636,507) (1,033,066)

Released provisions 729,569 654,019

Written-off claims (20,579) (89,543)

Recovery from written-off claims 4,921 4,252

Portfolio provisions for loan receivables (256 171) (219,124)

Additions to provisions (256,171) (291,644)

Released provisions - 72,520

Specific provisions for off-balance sheet items (127,425) 251,636


Released provisions 134,838 386,853

Portfolio provisions for off-balance sheet items (1,266) (128,125)


Released provisions 3,412 -

Total (1,307,458) (559,951)



Released specific provisions include a gain on sale of loans and advances to customers amounting to SKK 118,193 thousand (gross) and SKK 13 thousand (net of provisions) for consideration of SKK 48,150 thousand. As a result of this transaction, the Group disclosed in “Specific provisions for loan receivables” profits from the disposal of these loans of SKK 48,137 thousand.

In 2008, the Group increased the provisioning for corporate customers due to a standard growth in the credit portfolio in the given segment and for the reasons outlined in Section a) of the Principal Accounting Policies.

More information on provisions for loan losses and provisions for off-balance sheet liabilities are disclosed in Notes 14 and 30 respectively.

Net fees and commission income3.


Fees and commission income 3,897,480 3,588,318

from payment transfers business 2,463,254 2,187,180

from credit processing and guarantee business 375,890 369,056

from securities business 140,480 91,692

from activities regarding banknotes, foreign exchange and coins 93 -

from activities regarding management of investment and pension funds 753,703 787,336

from activities regarding brokerage for third parties 119,898 95,080

for other banking services 44,162 57,974

Fees and commission expense (512,556) (448,386)

from payment transfers business (398,108) (362,031)

from credit processing and guarantee business (25,150) (16,231)

from securities business (14,435) (9,005)

from activities regarding management of investment and pension funds (14,996) (10,446)

from activities regarding banknotes, foreign exchange and coins (18,199) (20,442)

for other banking services (41,668) (30,231)

Net fees and commission income 3,384,924 3,139,932

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Net profit (loss) from trading instruments 4.

The profit from foreign exchange differences in the amount of SKK 3,734,251 thousand consists mainly of foreign currency exchange business, payment and transfer business and revaluation of assets and liabilities denominated in foreign currency.

Net profit (loss) from financial instruments at fair value through profit or loss (“FVTPL”)5.


Interest-rate contracts 159,326 226,988

Securities 122,312 (67,280)

thereof: interest income, net 11,481 (22 564)

fair value adjustment 75,407 (117,714)

profit (loss) from securities sold 35,331 72,581

dividends 93 417

Profit (loss) from derivatives 37,014 294,268

thereof: interest income (expense) (114,559) (59,367)

realised profit (loss) from derivatives 1,034 (22,123)

fair value adjustment 150,539 375,758

Currency contracts (1,628,837) (862,247)

Profit (loss) from derivatives (1,009,884) (723,402)

thereof: realised profit (loss) from derivatives (1,743,147) (1,130,194)

fair value adjustment 733,263 406,792

Exchange differences from securities held for trading (618,953) (138,845)

Index-related contracts (31,584) 1,403

Securities (39,536) -

thereof: revaluation to fair value (24,617) -

profit (loss) from securities sold (14,919) -


thereof: realised profit (loss) from derivatives 1,893 1,293

fair value adjustment 6,059 110

Commodity contracts 5,385 13,720


thereof: realised profit (loss) from derivatives 5,248 11,054

revaluation to fair value 137 2,666

Foreign exchange differences 3,734,251 2,695,980

Foreign exchange differences 3,734,251 2,695,980

Total 2,238,541 2,075,844


Interest-rate contracts (16,188) (308,947)

Securities (16,188) (308,947)

thereof: profit (loss) from securities sold (46,824) -

thereof: fair value adjustment 30,636 (308,947)



Net profit (loss) from investments in associated undertakings6.

General administrative expenses7. The Group’s general administrative expenses comprise staff expenses, other general expenses, depreciation, amortization and write-downs of non-current tangible and intangible assets. Such expenses break down as follows:


From investments in associated undertakings 26,283 37,494

Total 26,283 37,494


Staff expenses (3,306,598) (3,007,630)

Wages and salaries (2,565,881) (2,332,377)

Social security costs (665,949) (563,448)

Other social expenses (71,341) (67,178)

Provisions for anniversaries and other loyalty benefits (3,427) (44,627)

Other general expenses (2,971,799) (2,543,499)

Costs on premises (517,615) (491,124)

Costs on information technology (957,770) (692,159)

Communication costs (231,134) (218,639)

Legal and consultancy costs (81,719) (92,569)

thereof: expenses paid for the audit of financial statements (14,810) (11,110)

thereof: other assurance and valuation services provided by auditors (1,102) (1,750)

thereof: other services provided by auditors (2,253) (5,456)

Advertising and entertainment expenses (375,704) (359,286)

Deposits guarantee fund (164,981) (147,145)

Consumption of stationeries (103,793) (85,169)

Transport and processing of cash (28,807) (22,819)

Travelling expenses (62,122) (65,169)

Education of employees (43,235) (38,542)

Other items (404,919) (330,878)

Depreciation, amortization and write-downs of non-current tangible and intangible assets (863,397) (897,959)

Non-current tangible assets (552,764) (479,615)

Non-current intangible assets (310,633) (418,344)

Total (7,141,794) (6,449,088)

96



The Group does not have pension arrangements separate from the state pension system of the Slovak Republic. Pursuant to Slovak legal regulations, an employer is obliged to pay contributions to social security, health insurance, medical insurance, accident insurance, unemployment insurance, and contributions to a guarantee fund set as a percentage of gross salary. These expenses are charged to the income statement in the period in which the employee was entitled to salary.

The Group contributes to a defined contribution supplementary pension plan administered by a private pension fund, based on the employment period of the employee. No liabilities arise to the Group from the payment of pensions to employees in the future. Supplementary retirement insurance expenses amounted to SKK 22,190 thousand as of 31 December 2008 (2007: SKK 20,622 thousand).

Administrative costs associated with information technology increased due to projects performed in the Group. The most important include the implementation of BASEL II requirements and, in particular, the Group's transition to the euro.

Other operating profit (loss)8. Other operating profit (loss) includes revenues and expenses from non-banking activities, disposal of non-current tangible and intangible assets, and VAT which the Group in unable to claim:

Legal events occurred in 2008 based on which the Group released provisions for litigation. Detailed information on provisions for litigation is stated in Notes 30 and 42.

In 2008, the Group recorded an increased expense for other taxes owing to an increased amount of non-deductable VAT paid mainly from IT expenses.


Revenues from non-banking activities 564,473 143,199

thereof: revenues from release of litigation provisions 344,176 3,742

revenues from disposals of tangible and intangible assets 32,768 32,829

Expenses arising from non-banking activities (660,273) (478,188)

thereof: other taxes (445,130) (328,241)

creation of litigation provisions (168,638) (36,975)

disposals of tangible and intangible assets (46,505) (112,972)

Other operating income 96,756 138,799

Other operating expenses (72,846) (96,468)

Total (71,890) (292,658)



Income taxes9.

Slovak legal entities must individually report taxable income and remit corporate income taxes thereon to the appropriate authorities. In 2008 the corporate income tax rate amounted to 19% (2007: 19%).

The tax on profit before tax differs from the theoretical amount that would arise using the basic income tax rate as follows:


Current tax expense (1,450,636) (805,708)

Deferred tax expense/benefit 406,504 (163,223)

Total (1,044,132) (968,931)


Profit before tax 4,999,912 4,419,530

Theoretical tax calculated at a tax rate of 19% 949,983 839,711

Non-Taxable income (43,770) (71,603)

Tax non deductible expenses 85,271 74,045

Provisions and reserves, net (64,642) (48,023)

IFRS adjustments effects 1,500 4,452

Effect of change in tax legislation - (170,329)

Additions to/(release of) allowance for uncertain realisation of deferred tax assets 116,204 340,445

Effect of tax losses 1,720 2,583

Effect of consolidation (2,134) (2,350)

Total income tax expense 1,044,132 968,931

Effective tax for the period 20.88 % 21.92 %

98



Deferred tax assets and liabilities as of 31 December 2008 and as of 31 December 2007 relate to the following items:

In 2007, an amendment to the Income Tax Act resulted in new terms and conditions for companies with regard to the tax deductibility of provisions for loans. By the end of 2009, the Group is required to pay the difference between the provisions included in the tax base in accordance with the Income Tax Act effective up to 31 December 2007 and provisions tax deductable pursuant to the Income Tax Act effective 1 January 2008. As a result, the Group did not recognise deferred tax assets of SKK 495,189 thousand (2007: SKK 378,262 thousand), which mainly related to tax-deductible temporary differences resulting from provisions, due to their uncertain timing and realisation in future reporting periods.

Earnings per share10.

Dividend per ordinary share paid in 2008 (from 2007 profit) was SKK 38,000, in 2007 (from 2006 profit) it was SKK 32,300.

(in thousands of SKK) Book value Tax value Temporary difference

(gross)

31 December 2008

31 December 2007

Deferred tax assets

Loans and advances to customers(net of impairment provisions)

170,370,269 173,623,246 3,252,977 618,066 436,770

Other assets 645,431 696,838 18,481 3,511 4,031

Provisions for liabilities and charges 1,138,889 - 497,857 94,593 68,570

Other liabilities 1,139,328 641,688 497,640 94,552 246

Total 810,722 509,617

Deferred tax liabilities

Loans and advances to customers(net of impairment provisions)

170,370,269 169,241,696 1,149,395 (218,385) (436,770)

Non-current tangible assets 2,685,714 2,236,008 449,706 (85,444) (88,662)

Total (303,829) (525,432)

Net deferred tax asset/(liability) 506,893 (15,815)

Allowance for uncertain realisation of deferred tax asset (495,189) (378,985)

Net deferred tax asset/(liability) 11,704 (394,800)


Profit after tax in the accounting period 3,955,780 3,450,599

Average number of ordinary shares outstanding during the period 50,216 50,216

Average number of preference shares outstanding during the period 1,176,877 937,965

Earnings per ordinary share (face value SKK 20 000) in SKK 70,513 62,846

Earnings per preference share (face value SKK 100) in SKK 353 314



Cash and deposits in central banks 11.

The minimum obligatory reserve is maintained as an interest bearing deposit under the regulations of the National Bank of Slovakia. The amount of the reserve depends on the level of deposits accepted by the Group. The Group’s ability to withdraw the reserve is restricted by statutory legislation, and therefore it is not included in “Cash and deposits in central banks” for the purposes of cash flow statement preparation (see Note 37).

Loans and advances to banks 12.

The Group received treasury bills from the NBS in the amount of SKK 48,236,630 thousand (31 December 2007: SKK 30,381,275 thousand) as collateral for the reversed repo transactions.

Loans and advances to banks break down along geographical lines are as follows:


Cash in hand 5,143,754 3,275,042

Balances at central banks 22,801,654 7,219,631

thereof: obligatory minimum reserves 8,996,492 1,981,634

deposits repayable on demand 3,804,745 1,237,747

overnight deposits with the National Bank of Slovakia 10,000,417 4,000,250

Total 27,945,408 10,494,673


Giro and interbank clearing business 1,896,890 999,813

Money-market business 9,992,723 11,559,929

Reverse repo transactions with the National Bank of Slovakia 48,237,530 30,362,620

Other loans to banks 504,424 176,453

Total 60,631,567 43,098,815


Slovakia 49,113,267 39,779,161

Other countries 11,518,300 3,319,654

Total 60,631,567 43,098,815

100



Loans and advances to customers, gross13. An analysis of loans and advances to customers is as follows:

As of 31 December 2008, the total amount of syndicated loans sponsored by the Group represented SKK 7,729,520 thousand (31 December 2007: SKK 6,678,266 thousand). The Group’s contribution represented SKK 3,503,165 thousand (31 December 2007: SKK 2,643,866 thousand). Syndicated loans are included in “Investment and operating loans”.

The Group has a significant position on the project financing market. As of 31 December 2008, the amount of loans provided for project financing represented SKK 19,321,559 thousand (31 December 2007: SKK 14,654,139 thousand).

An analysis of loans by customer group is as follows:

An analysis of loans by contractual maturity period is as follows:


Bank overdrafts 26,718,285 22,154,592

Receivables from credit cards 2,373,034 2,035,364

Factoring and loans backed by bills of exchange 1,943,108 2,216,850

Housing loans 4,309,001 -

Mortgage loans 34,412,286 27,873,669

American mortgages 10,095,663 6,581,472

Finance lease receivables 769,178 -

Consumer loans 6,148,913 5,004,311

Investment and operating loans 75,973,517 62,495,783

Other loans 10,901,010 11,500,839

Total 173,643,995 139,826,880


Public sector 638,267 1,037,383

Corporate clients 108,052,059 92,032,508

Retail clients 64,953,669 46,756,989

Total 173,643,995 139,826,880


Short-term loans (up to 1 year) 58,417,740 51,454,861

Medium-term loans (1 year to 5 years) 27,101,633 20,058,341

Long-term loans (over 5 years) 88,124,622 68,313,678

Total 173,643,995 139,826,880



An analysis of loans and advances to customers by geographical segment is as follows:

Impairment losses for loans and advances 14. The movement in provisions for loan losses during 2008 is as follows:

The movement in provisions for loan losses during 2007 is as follows:


Slovakia 167,714,050 134,689,770

Other countries 5,929,945 5,137,110

Total 173,643,995 139,826,880

(in thousands of SKK) As of 1 January

Allocated Released Used Transfers, exchange

differences

As of 31 December

2008

Specific provision 1,758,456 1,636,507 (681,433) (227,770) (19,872) 2,465,888

Corporate clients 1,190,044 1,195,192 (585,210) (118,411) (19,661) 1,661,954

Retail clients 568,412 441,315 (96,223) (109,359) (211) 803,934

Portfolio provision 551,741 256,171 - - - 807,912

Corporate clients 385,576 95,622 - - - 481,198

Retail clients 166,165 160,549 - - - 326,714

Total 2,310,197 1,892,678 (681,433) (227,770) (19,872) 3,273,800

(in thousands of SKK) As of 1 January


differences

As of 31 December

2007

Specific provision 1,460,168 1,033,066 (598,319) (133,246) (3,213) 1,758,456

Corporate clients 1,130,614 707,370 (526,076) (119,029) (2,835) 1,190,044

Retail clients 329,554 325,696 (72,243) (14,217) (378) 568,412

Portfolio provision 332,618 291,644 (72,520) - - 551,742

Corporate clients 102,711 282,866 - - - 385,577

Retail clients 229,907 8,778 (72,520) - - 166,165

Total 1,792,786 1,324,710 (670,839) (133,246) (3,213) 2,310,198

102



Held for trading financial assets15.

In 2008, the Group provided government bonds in standard repurchase transactions with commercial banks, which are recognised in “Debt securities provided as guarantee in repurchase transactions”.

Securities held for trading in the Group’s portfolio are as follows:


Debt securities and other fixed-interest securities 4,565,543 4,280,170

Government bonds 4,563,657 3,997,772

thereof: Euro bonds 794 376,211

other bonds 4,562,863 3,621,561

Bonds issued by other sectors 1,886 282,398

Shares and other floating-rate securities 458,979 110,082

Equity securities 4,013 5,716

thereof: issued by financial institutions in the Slovak Republic 3,279 4,662

issued by other entities in the Slovak Republic 734 1,054

Government bonds 195,311 104,366

Other floating rate securities 259,655 -

Debt securities provided as guarantee in repurchase transactions 330,855 -

Government bonds 330,855 -

thereof: Euro bonds 330,855 -

Positive fair values arising from derivative financial instruments 7,370,963 5,520,133

Interest-rate contracts 4,396,483 2,784,973

Exchange-rate contracts 2,762,453 2,593,046

Index-related contracts 60,450 117,951

Commodity contracts 151,577 24,163

Total 12,726,340 9,910,385


Debt securities held for trading 4,760,854 4,384,536

thereof: debt securities and other fixed income securities 4,760,854 4,384,536

Equity securities held for trading 4,013 5,716

Other floating rate securities 259,655 -

Debt securities held for trading provided as guarantee in repurchase transactions 330,855 -

Total securities held for trading 5,355,377 4,390,252



Financial assets at fair value through profit or loss 16.

In 2008, the Group provided government bonds in standard repurchase transactions with commercial banks, which are recognised in “Debt securities provided as guarantee in repurchase transactions”.

Held to maturity financial assets 17.

Available for sale financial assets 18.


Debt securities and other fixed income securities 6,470,055 13,281,814


thereof: Euro bonds - 5,106,527

other bonds 5,615,521 7,224,378

Bonds issued by bank sector 19,907 20,491


Shares and other floating-rate securities 571 548

Unit trust certificates 571 548

Debt securities provided as guarantee in repurchase transactions 4,518,710 -

Government bonds 4,518,710 -

thereof: Euro bonds 4,518,710 -

Total 10,989,336 13,282,362


Debt securities and other fixed income securities


Bonds issued by bank sector 7,238,525 8,991,537


Total 30,377,035 33,588,487

Company(in thousands of SKK)

Group investment

(%)

Cost Provision Carrying amount31 December

2008

Carrying amount31 December

2007

RVS, a. s. 0.68 1,400 (1,400) - -

SLOVAKIA INDUSTRIES a. s., Banská Bystrica N/A 1,432 (1,432) - -

Burza cenných papierov v Bratislave, a. s. 0.09 300 - 300 300

S.W.I.F.T. s. c., Belgium 0.04 2,822 - 2,822 2,822

International Factors Group s. c., Belgium 0.70 259 - 259 259

D. Trust Certifikačná Autorita, a. s. 10.00 1,100 - 1,100 1,100

VISA INC., USA 0.07 15,530 - 15,530 -

Total 22,843 (2,832) 20,011 4,481

104



The Group received preference shares in VISA INC., USA as dividends in specie based on fulfilment of conditions resulting from the provision of the card business. This transaction is recognised in the Income Statement in “Net interest income”.

Movements in provisions for available-for-sale financial assets:

Investments in associated undertakings 19.

As of 31 December 2008, the Group recorded investments in these associated undertakings:

The summary of selected items for the associate Tatra-Leasing, s.r.o., Bratislava, is as follows:


At 1 January 13,005 11,608

Additions - -

Reversals (10,173) -

Exchange difference - 1,397

Total 2,832 13,005


1 January 363,209 325,715

Share in profits of associated undertakings after tax (Note 6) 26,283 37,494

389,492 363,209

Associated undertaking(in thousands of Slovak crowns)

Ownership interest

in %

Cost Provision Net book value

Share in net assets

at 31. 12. 2008

Share in net assets at 31. 12. 2007

Tatra-Leasing, s.r.o. 48.00% 96,000 - 96,000 389,392 363,109

Slovak Banking Credit Bureau, s.r.o.

33.33% 100 - 100 100 100

96,100 - 96,100 389,492 363,209

Description(in thousands of SKK)

2008 2007

Total assets 14,619,274 11,828,331

Total liabilities 13,808,041 11,071,855

Net assets 811,233 756,476

Group’s share on net assets 389,392 363,109

Interest income and similar income 846,690 602,369

Profit after tax 54,757 78,112

Group’s share on profit after tax 26,283 37,494

Contingent liabilities 334,532 449,272



Non-current intangible assets20.

Non-current tangible assets21.

As at 31 December 2008, the Group did not recognise any liabilities under contracts for purchase of non-current tangible assets (2007: SKK 146,599 thousand).

Insurance coverageNon-current tangible assets are insured covering SKK 4,055,261 thousand against natural disaster, SKK 5,078,592 thousand against fire damage, SKK 5,071,223 thousand against water damage, and SKK 690,978 thousand against theft and vandalism. Electronic equipment is insured covering a maximum risk of SKK 1,924,033 thousand. Based on the effective motor hull insurance, vehicles have been insured up to SKK 344,484 thousand.


Software 730,560 458,038

Goodwill 271,746 271,746

Intangibles in progress 45,263 298,248

Total 1,047,569 1,028,032


Land and buildings used by the Group for its own operations 1,483,034 1,464,348

Other non-current tangible assets 1,202,680 1,239,982

Total 2,685,714 2,704,330

106



Development of non-current tangible and intangible assets22. Development of non-current tangible assets as at 31 December 2008:

Development of non-current tangible assets as at 31 December 2007:

(in thousands of SKK) Land and buildings

Machinery & equipment

Other non-current

assets

Means of transport

Construc-tion in

progress

Total

Cost

1 January 2008 1,995,912 3,063,476 974,344 252,447 113,566 6,399,745

Additions - - - - 579,469 579,469

Disposals (28,181) (70,157) (72,386) (59,420) - (230,144)

Transfer from tangibles in progress 110,270 315,154 73,729 91,248 (590,401) -

31 December 2008 2,078,001 3,308,473 975,687 284,275 102,634 6,749,070

Accumulated depreciation

1 January 2008 (531,564) (2,344,591) (709,946) (109,314) - (3,695,415)

Depreciation charge (67,233) (377,249) (53,471) (54,811) - (552,764)

Disposals 3,830 65,629 63,363 52,001 - 184,823

31 December 2008 (594,967) (2,656,211) (700,054) (112,124) - (4,063,356)

Net book value 1. 1. 2008 1,464,348 718,885 264,398 143,133 113,566 2,704,330

Net book value 31. 12. 2008 1,483,034 652,262 275,633 172,151 102,634 2,685,714

(in thousands of SKK) Land and buildings

Machinery & equipment

Other non-current

assets

Means of transport

Construc-tion in

progress

Total

Cost

1 January 2007 1,904,047 2,918,034 973,945 242,131 130,188 6,168,345

Additions - 493,731 493,731

Disposals (10,652) (168,081) (34,647) (48,951) - (262,331)

Transfer from tangibles in progress 102,517 313,523 35,046 59,267 (510,353) -

31 December 2007 1,995,912 3,063,476 974,344 252,447 113,566 6,399,745

Accumulated depreciation

1 January 2007 (474,357) (2,188,862) (687,810) (103,707) - (3,454,736)

Depreciation charge (60,014) (316,866) (56,783) (45,952) - (479,615)

Disposals 2,807 161,137 34,647 40,345 - 238,936

31 December 2007 (531,564) (2,344,591) (709,946) (109,314) - (3,695,415)

Net book value 1. 1. 2007 1,429,690 729,172 286,135 138,424 130,188 2,713,609

Net book value 31. 12. 2007 1,464,348 718,885 264,398 143,133 113,566 2,704,330



Development of non-current intangible assets as at 31 December 2008:

Development of non-current intangible assets as at 31 December 2007:

(in thousands of SKK) Software Goodwill Other Intangible in progress

Total

Cost

1 January 2008 1,959,287 304,940 612 298,342 2,563,181

Additions 414 - - 330,645 331,059

Disposals (82,918) - (612) - (83,530)

Transfer from intangibles in progress 583,724 - - (583,724) -

31 December 2008 2,460,507 304,940 - 45,263 2,810,710

Accumulated amortisation

1 January 2008 (1,501,343) (33,194) (612) - (1,535,149)

Amortisation charge (310,633) - - - (310,633)

Disposals 82,029 - 612 - 82,641

31 December 2008 (1,729,947) (33,194) - - (1,763,141)

Net book value 1. 1. 2008 457,944 271,746 - 298,342 1,028,032

Net book value 31. 12. 2008 730,560 271,746 - 45,263 1,047,569

(in thousands of SKK) Software Goodwill Other Intangible in progress

Total

Cost

1 January 2007 1,694,874 304,940 612 353,914 2,354,340

Additions - - - 357,592 357,592

Disposals (148,751) - - - (148,751)

Transfer from intangibles in progress 413,164 - - (413,164) -

31 December 2007 1,959,287 304,940 612 298,342 2,563,181

Accumulated amortisation

1 January 2007 (1,142,173) (33,194) (612) - (1,175,979)

Amortisation charge (418,344) - - - (418,344)

Disposals 59,174 - - - 59,174

31 December 2007 (1,501,343) (33,194) (612) - (1,535,149)

Net book value 1. 1. 2007 552,701 271,746 - 353,914 1,178,361

Net book value 31. 12. 2007 457,944 271,746 - 298,342 1,028,032

108



Current income tax assets23.

Deferred income tax asset24.

Net deferred income tax asset resulted mainly from temporary taxable differences described in Note 9.

Other assets25.

Prepayments for the acquisition of non-current tangible and intangible assets are recognised in “Prepayments and other deferrals” in the amount of SKK 10,291 thousand (31 December 2007: SKK 37,711 thousand). In “Values in transit” the Group recognises a receivable from an entity that provides services related to the operation of ATMs and cash transports.

Deposits from banks 26.


Current income tax assets 985 1,816

Total current income tax assets 985 1,816

(in thousands of Slovak crowns) 2008 2007

Income tax asset – deferred 31 943 -

Total deferred income tax asset 31 943 -


Prepayments and other deferrals 248,779 261,803

Other receivables from the state budget 29,228 28,293

Values in transit 117,342 313,846

Other assets 250,082 418,358

Total 645,431 1,022,300


Giro and interbank clearing business 1,234,128 719,813

Money-market business 18,777,686 8,141,025

Loans received 1,159,892 1,372,991

Loans received – repurchase transactions 4,720,448 -

Total 25,892,154 10,233,829



Deposits from banks by geographical segment:

An analysis of loans received by type of counterparty is as follows:

As of 31 December 2008, part of loans received from banks was secured by government bonds of the Slovak Republic included in the securities portfolios in the amount of SKK 5,846,413 thousand (31 December 2007: SKK 1,815,086 thousand) and in favour of the following subjects(in thousands SKK):


Slovakia 1,803,933 1,751,656

Other countries 24,088,221 8,482,173

Total 25,892,154 10,233,829

Type of loan(in thousands of SKK)

Curr. Type of loan according to

maturity

Contractual maturity

Carrying amount of loan

31. 12. 2008


31. 12. 2007

Loans received from central banks:

– central banks SKK long-term March 2009 2,171 10,972

Loans received from banks:

– commercial banks SKK long-term June 2014 121,081 182,665

– commercial banks CZK repaid - - 505,822

– reconstruction and development banks EUR long-term May 2020 578,274 673,532

– reconstruction and development banks EUR long-term March 2016 458,366 -

Repurchase loans received from banks:

– commercial banks EUR short-term January 2009 4,720,448 -

Total 5,880,340 1,372,991

(in thousands of SKK) Carrying amount of debt securities

Carrying amount of received loan

Guaranteeexpiry date

In favour of

Government bond SKK 996,849 578,274 22. 1. 2013 Reconstruction and development banks

Government bond EUR 1,696,236 1,661,223 7. 1. 2009 Commercial banks

Government bond EUR 1,499,052 1,459,616 7. 1. 2009 Commercial banks

Government bond EUR 1,654,276 1,599,609 27. 1. 2009 Commercial,banks

110



Deposits from customers27. Deposits from customers by product group are as follows:

Deposits from customers by geographical segment are as follows:

Loans received by particular customer are as follows:

Held for trading financial liabilities28.

Liabilities from debt securities29.


Current accounts 112,069,234 103,031,463Sweep accounts 4,403,375 4,493,684Time deposits 100,647,657 69,649,641Savings deposits 5,427,557 6,490,907Loans received 2,043,119 2,126,291Total 224,590,942 185,791,986


Slovakia 218,938,108 182,441,984Other countries 5,652,834 3,350,002Total 224,590,942 185,791,986


Curr. Type of loan according to

maturity



31. 12. 2008


31. 12. 2007

Loans received from customers:– other financial institutions SKK short-term November 2009 2,043,119 2,126,291

Total 2,043,119 2,126,291


Negative fair value of financial derivativesInterest-rate contracts 4,499,997 3,154,360Currency contracts 2,269,720 2,808,775Index-related contracts 60,341 128,133Commodity contracts 148,774 21,497

Total 6,978,832 6,112,765


Issued debt securities – mortgage bonds 33,239,738 24,078,546Issued debt securities – bonds 615,701 502,076Other liabilities from debt securities – investment notes - 2,912,549Total 33,855,439 27,493,171



The Group issued the following mortgage bonds with the following terms and conditions:

Name(in thousands of SKK)

Interest rate Curr. Number of

mortgage bonds issued

Mortgage bonds unit

face value in currency

Issuedate

Maturitydate

Coupon payment

31 December 2008

31 December 2007

Mortgage bonds II 5.50 % SKK 9,912 100,000 17. 12. 2002 17. 12. 2012 annually 1,010,547 1,024,315

Mortgage bonds III 6.00 % SKK 4,359 100,000 11. 3. 2003 11. 3. 2010 annually 463,238 475,686

Mortgage bonds IV 4.60 % SKK - 10,000 14. 1. 2004 14. 1. 2008 annually - 519,781

Mortgage bonds V 5.00 % SKK 10,000 100,000 21. 5. 2003 21. 5. 2013 annually 1,042,708 1,045,518

Mortgage bonds VI 4.60 % SKK - 1,000,000 8. 8. 2003 8. 8. 2008 annually - 509,072

Mortgage bonds VII 4.60 % SKK - 100,000 31. 10. 2003 31. 10. 2008 annually - 1,007,643

Mortgage bonds VIII 5.00 % SKK 1,000 1,000,000 31. 3. 2004 31. 3. 2009 annually 1,037,500 1,037,500

Mortgage bonds IX 4.50 % SKK 1,000 1,000,000 25. 6. 2004 25. 6. 2009 annually 1,023,155 1,023,218

Mortgage bonds XI 2.70 % SKK - 1,000,000 31. 3. 2005 31. 3. 2008 annually - 1,020,464

Mortgage bonds XII 2.90 % SKK 963 1,000,000 15. 11. 2005 15. 11. 2010 annually 960,176 867,749

Mortgage bonds XIII 12M BRIBOR SKK 1,000 1,000,000 21. 11. 2005 21. 11. 2010 annually 1,004,291 1,004,153

Mortgage bonds 3M BRIBOR SKK 500 1,000,000 22. 3. 2006 22. 3. 2009 quarterly 500,326 500,302

Mortgage bonds XVI 6M BRIBOR + 0.04 % SKK - 100,000 2. 8. 2006 2. 8. 2008 6-monthly - 734,892

Mortgage bonds XVII 6M BRIBOR + 0.08 % SKK 650 1,000,000 24. 11. 2006 24. 11. 2011 6-monthly 652,659 652,919

Mortgage bonds 4.65 % SKK 600 1,000,000 6. 12. 2006 6. 3. 2009 annually 622,785 622,785

Mortgage bonds XX 4.24 % SKK 9,501 100,000 31. 1. 2007 31. 1. 2009 annually 987,714 1,041,145

Mortgage bonds XXI 3M BRIBOR + 0.04 % SKK 1,000 1,000,000 10. 5. 2007 10. 5. 2009 quarterly 1,005,705 1,006,259

Mortgage bonds XXII 4.6 % SKK 500 1,000,000 25. 6. 2007 25. 6. 2012 annually 511,910 511,910

Mortgage bonds XXIII 0 % SKK 2,732 100,000 1. 8. 2007 30. 7. 2010 - 255,917 266,720

Mortgage bonds XXIV 3M EURIBOR + 0.175 %

EUR - 1,000,000 17. 8. 2007 17. 8. 2008 quarterly - 4,393,778

Mortgage bonds XXV 4.6 % SKK 10,000 100,000 18. 10. 2007 18. 10. 2010 annually 1,008,327 1,007,696

Mortgage bonds XXVI 0 % SKK 4,929 100,000 31. 10. 2007 29. 10. 2010 - 454,351 439,405

Mortgage bonds XXVII 3M EURIBOR + 0.315 %

EUR - 1,000,000 20. 12. 2007 19. 12. 2008 quarterly - 3,365,636

Mortgage bonds XXVIII 3M EURIBOR + 0.30 % EUR 1,000 100,000 31. 1. 2008 31. 1. 2010 quarterly 3,020,437 -

Mortgage bonds XXIX 4.25 % SKK 4,770 100,000 20. 2. 2008 20. 2. 2010 annually 494,800 -

Mortgage bonds XXX 4.30 % SKK 2,452 100,000 25. 2. 2008 25. 2. 2013 annually 250,906 -

Mortgage bonds XXXIII 4.75 % EUR 200 1,000,000 27. 5. 2008 27. 5. 2010 annually 6,198,508 -

Mortgage bonds XXXIV 4.60 % SKK 4,900 100,000 18. 6. 2008 18. 6. 2011 annually 499,823 -

Mortgage bonds XXXV 0 % EUR 30,000 950 31. 10. 2008 31. 10. 2012 - 692,298 -

Mortgage bonds XXXVI 3M BRIBOR + 0.70 % SKK 1,000 2,000,000 30. 7. 2008 30. 7. 2010 quarterly 2,016,602 -

Mortgage bonds XXXVII 6M BRIBOR + 0.20 % SKK 200 2,000,000 30. 7. 2008 30. 7. 2011 annually 408,042 -

Mortgage bonds XXXVIII 5.70 % SKK 4,781 100,000 11. 8. 2008 11. 8. 2010 annually 488,849 -

Mortgage bonds XXXIX 3M EURIBOR + 0.20 % EUR 100 1,000,000 18. 8. 2008 18. 8. 2010 quarterly 2,995,364 -

Mortgage bonds XL 3M EURIBOR + 0.30 % EUR 50 1,000,000 18. 8. 2008 18. 8. 2011 quarterly 1,486,254 -

Mortgage bonds XLI 5.50 % SKK 400 2,000,000 20. 8. 2008 20. 8. 2011 annually 821,397 -

Mortgage bonds XLII 5.70 % SKK 3,140 100,000 17. 9. 2008 17. 9. 2010 annually 319,220 -

Mortgage bonds XLIII 5.50 % SKK 2,500 100,000 19. 11. 2008 19. 11. 2009 annually 251,604 -

Mortgage bonds XLIV 5.99 % EUR 8,300 1,000 19. 11. 2008 19. 11. 2009 annually 251,793 -

Mortgage bonds XLV 5.33 % SKK 5,000 100,000 27. 11. 2008 7. 5. 2010 annually 502,532 -

Total mortgage bonds 33,239,738 24,078,546

112



The Group issued other debt securities with the following terms and conditions:

The issued mortgage bonds and other bonds are bearer bonds issued in book-entry form.

The bonds are negotiable and are not subject to any pre-emptive right. The entitlement to receiving the face value plus yield is governed by generally binding legal regulations and the bond issue terms and conditions, the full wording of which is published as required pursuant to Act No. 530/1990 Coll. on Bonds as amended.

Some issued mortgage bonds of the Group are quoted on the Bratislava Stock Exchange.

Pursuant to Article 68 of the Act on Group, the amount of issued mortgage bonds shall not be less than 90% of the volume of granted mortgage loans. In 2008 and 2007, the Group met the above requirement.

As at 31 December 2008, the entire issue of the mortgage bonds No. 33 was secured by cash recognised in “Loans and advances to banks” in the amount of SKK 6,196,656 thousand.

As of 31 December 2008, part of the issued mortgage bonds was secured by government bonds of the Slovak Republic included in securities portfolios in the amount of SKK 2,934,481 thousand (31 December 2007: SKK 4,621,714 thousand) in favour of the below business entities:

Name(in thousands of SKK)

Interest rate

Curr. Number of bonds

issued

Bond unit face value in currency

Issue date Maturity date

Coupon payment

31 December

2008

31 December

2007

Tatra Residence01 5.75% SKK 5,000 100,000 5. 12. 2007 5. 12. 2010 annually 502,076 502,076

Tatra Residence02 6.00% SKK 1,125 100,000 31. 10. 2008 31. 10. 2011 annually 113,625 -

Total bonds 615,701 502,076

Description(in thousands of SKK)

Carrying amount of government

bonds

Guarantee for issue of

Carrying amount of

mortgage bonds

Security termination

date

Pledged in favour of

Government bonds SKK 1 166 078 MB VIII 1 037 500 31. 3. 2009 Commercial banks

Government bonds SKK 572 925 MB IX 511 578 25. 6. 2009 Commercial banks

Government bonds SKK 523 887 MB XIII 502 145 21. 11. 2010 Commercial banks

Government bonds SKK 671 591 MB XVIII 622 785 6. 3. 2009 Commercial banks



Investment notes issued by the Group in 2008 and 2007:

Provisions for liabilities and charges30. In 2008, movements in provisions for liabilities and charges were as follows:

In 2007, movements in provisions for liabilities and charges were as follows:

Note

TYPE TB promissory note

FORM registered, not to order

NATURE certificate-form security

NUMBER 752 (2007: 2,362)

PAR VALUE of the notes issued (in thousand SKK)

38 141 112 (2007: 64,033,461)

AVERAGE INTEREST RATE 4.07% (2007: 4.03%)

DESCRIPTION OF RIGHTSThe owner is entitled to receive the note amount; without the issuer’s approval the owner is not authorised to assign the note and/or the rights attributable to the note to a third party

(in thousands of SKK) 1 January 2008


differences

31 December 2008

Provisions for anniversaries and other long-service benefits

42,582 7,067 (3,640) - - 46,009

Legal disputes (Note 42) 788,310 168,638 (344,176) - - 612,772

Specific provision 167,724 262,263 (134,838) - (1,022) 294,127

thereof:

guarantees 33,917 19,685 (25,265) - (76) 28,261

irrevocable loan commitments 133,807 242,578 (109,573) - (946) 265,866

Portfolio provision 184,715 4,678 (3,412) - - 185,981

Total 1,183,331 442,646 (486,066) - (1,022) 1,138,889

(in thousands of SKK) 1 January 2008


differences

31 December 2008

Provisions for anniversaries and other long-service benefits

- 42,582 - - - 42,582

Legal disputes (Note 42) 755,077 36,975 (3,742) - - 788,310

Specific provision 419,559 135,217 (386,853) - (199) 167,724

thereof:

guarantees 294,794 23,715 (284,584) - (8) 33,917

irrevocable loan commitments 124,765 111,502 (102,269) - (191) 133,807

Portfolio provision 56,590 128,125 - - - 184,715

Total 1,231,226 342,899 (390,595) - (199) 1,183,331

114



Current income tax liability 31. Movements in the current corporate income tax liability as at 31 December 2008 were as follows:

Movements in the current corporate income tax liability as at 31 December 2007 were as follows:

Deferred income tax liability 32. Movements in the deferred income tax liability as at 31 December 2008 were as follows:

In 2008, deferred income tax liability arose mainly from temporary taxable differences described in Note 9.

Movements in the deferred income tax liability as at 31 December 2007 were as follows:

Other liabilities33.

(in thousands of SKK) 1 January 2008 Allocated Used 31 December 2008

Current tax 195,071 1,450,636 (1,001,722) 643,985

Total 195,071 1,450,636 (1,001,722) 643,985


Deferred income tax 394,800 - (374,561) 20,239

Total 394,800 - (374,561) 20,239


Current tax 130,865 805,708 (741,502) 195,071

Total 130,865 805,708 (741,502) 195,071


Deferred income tax 231,577 163,223 - 394,800

Total 231,577 163,223 - 394,800


Deferred items 87,163 17,593

Other liabilities to state budget 70,918 69,700

Liabilities from spot transactions 6,245 5,226

Social fund 21,852 29,910

Employee liabilities 572,949 553,785

Other liabilities 380,201 584,481

Total 1,139,328 1,260,695



The summary of social fund balances, additions and drawings is as follows:

Subordinated debt34.

Subordinated debt analysed by individual bank:

In 2008, the Group drew subordinated debt, which is, along with the subordinated debt drawn in 2007, in accordance with the Act on Banks No. 483/2001 Coll. as amended NBS Decree No. 4/2007 on banks' own funds of financing and banks' capital requirements and on securities dealers' own funds of financing and securities dealers' capital requirements to cover credit and operational risk of the Banking book and the market risks resulting from the Trading book.

The subordinated debt received in 2008 ranks behind other debts and its settlement is not vested. The subordinated debt was taken from a related party.


At 1 January 29,910 32,831

Additions 32,696 29,421

Drawing (40,754) (32,342)

At 31 December 21,852 29,910


Subordinated debt 3,636,026 2,521,358

Total 3,636,026 2,521,358


Curr. Type of loan by

maturity

Start of loan drawdown


Carrying amount of

loan 31 December

2008

Carrying amount of

loan 31 December

2007

Subordinated debt from banks:

– commercial banks EUR Long-term September 2007 September 2012 2,259,450 2,521,358

– commercial banks EUR Long-term October 2008 October 2013 1,376,576 -

Total 3,636,026 2,521,358

116



Equity35. Equity breaks down as follows:

Share capital consists of 50,216 ordinary shares with a par value of SKK 20 thousand each and 1,500,532 preference shares with a fair value of SKK 100. The structure of shareholders is included in the “General Information” section. Earnings per share are disclosed in Note 10.

The type, form, nature and par value of equity shares and preference shares issued by the Group:

Description of rights:Each holder of an equity share is the Company's shareholder. Each shareholder enjoys its fundamental shareholder rights resulting from the Commercial Code and from the Group’s Articles, namely:

The right to share in the Company's profit (dividend), based on the proportion of total face value of • their shares to the total face value of all shareholders;The right to attend the General Meeting, vote at the General Meeting, ask for information thereon, • and explanations regarding the Company's issues and/or issues concerning the controlled entities and related to the agenda of the General Meeting, make motions at the General Meeting; The right to share in the liquidation balance. •


Share capital - ordinary shares 1,004,320 1,004,320

Share capital – preference shares 150,053 122,955

Treasury shares (5,298) (3795)

Share premium – ordinary shares 100,430 100,430

Share premium – preference shares 1,376,104 1,069,074

Share premium – treasury shares (51,991) (31022)

Reserve and other funds 314,103 309,441

Retained earnings (excluding current year consolidated profit after tax) 13,121,691 11,806,564

Total 16,009,412 14,377,967

Type Equity shares Preference shares

Form registered registered

Nature non-certified non-certified

Number 50 216 shares 1 500 532 shares

Par value SKK 20 000 SKK 100

Issue No. (ISIN) SK1110001502, 01-04 series SK1110007186, SK1110008424,SK1110010131, SK1110012103, SK1110013937, SK1110014901



Each holder of preference shares enjoys similar rights as holders of equity shares; the only difference is that the preference shares are not equipped with the right of voting at a General Meeting, except for cases for which the law assigns voting power to such shares. Preference shares are assigned a preferential right applicable to dividends, i.e. if the Company generates minimum net profit equal to the number of issued preference shares, a minimum dividend of SKK 1 (in words: one Slovak crown) per preference share will be paid to the preference shares holders.

Preference shares are subscribed and/or purchased during a subscription period which is announced by the Group’s management on an annual basis after the Parent company’s Annual General Meeting. The right to subscribe and/or purchase preference shares is vested in any employee who works in the Group for at least one year as of the end of a subscription period and is employed for an unlimited period of time. Preference shares are sold by the Parent company with discount that is recognised in costs during a three-year period.

Voting power exercisable at the General Meeting is determined by the face value of the share, where one vote is assigned to each share at face value of SKK 20,000. If the law requires voting by the preference shares’ holders, their voting is conducted separately and each preference share at face value of SKK 100 is assigned one vote.

Equity shares are publicly traded on the securities market, while preference shares are non-publicly traded.

The following table shows the Group’s contributions to share premium, equity restricted funds, and retained earnings (except for current year profits). The use of equity-restricted funds is restricted (legal reserve fund) as per the Commercial Code valid in the Slovak Republic.

The contribution of the Group entities to the consolidated profit after tax for the respective period:


Parent Company 13,991,698 12,655,878

Entities consolidated using full consolidation method 601,530 368,994

Entities consolidated using equity method 267,109 229,615

Total share premium, equity restricted funds, and retained earnings 14,860,337 13,254,487


Parent Company (bank) 3,625,078 3,180,569

Entities consolidated using full consolidation method 304,419 232,536

Entities consolidated using equity method 26,283 37,494

Consolidated profit after tax 3,955,780 3,450,599

118



Capital management36. For capital management purposes the Group defines regulatory capital, internal capital and economic capital.

Regulatory capital is the capital defined by the capital adequacy rules under Pillar 1. When quantifying the regulatory capital, the Group complies with current legislation (Decree of the National Bank of Slovakia No. 4/2007), defining its structure and minimum amount. As at the balance sheet date, the Group applied BASEL II – the standardised approach for the calculation of capital requirements.

Regulatory capital, designated as own funds of the Group’s financing, comprises the sum of the Group’s original own funds and additional own funds less the value of deductible items. The Group does not generate any supplementary own funds. Regulatory capital is assigned for the coverage of credit risk, risks arising from the positions recorded in the Trading book (market risks), foreign exchange risk, equity risk, and commodity risk.

The National Bank of Slovakia as the supervising authority requires that the Group maintains the proportion of total regulatory capital to risk-weighted assets at 8% or above. In 2008 and 2007, the Group met the above minimum capital requirement.

In 2008, the amount of regulatory capital increased mainly owing to the allocations from profits of the current year and owing to the subordinated debt received as an additional own fund (see Note 34).

Internal capital is the capital that needs to be held by the Group for the coverage of the Group’s risks. Internal capital is distinguished by its structure, which may differ from the structure of the regulatory capital, and its minimum level. The Group defines internal capital as IFRS capital adjusted for deductible items. Unlike the regulatory capital requirement, it covers all the Group’s existing material risks. The Group aims to maintain the minimum level of the internal capital above the economic capital level. In 2008, the Group achieved the above goal.

Economic capital is the necessary capital and/or it responds to the minimum capital requirement, for the coverage of unexpected losses resulting from the Group’s internal risks to meet the minimum reliability threshold resulting from the Group’s credibility. The benefits of the knowledge of economic capital are important for the Group, e.g. for active portfolio management, valuation, controlling, etc.



The below table provides the outline of the structure of the Group’s regulatory capital including capital adequacy indicators for the years ending 31 December:

* comparable data for the year 2007 are calculated according to requirements of BASEL I


The Group’s original own funds 16,009,412 14,377,967

Paid up registered capital 1,154,373 1,127,275

(-) Treasury shares (5,298) (3,795)

Share premium 1,424,543 1,138,482

Funds from profit and other capital reserves 314,103 309,441

Other specific items of the Group’s original own funds 13,121,691 11,806,564

(-) Items deductible from the Group’s original own funds (1,047,568) (1,028,032)

(-) Intangible assets (1,047,568) (1,028,032)

Additional own funds 3,615,120 2,520,225

Subordinated debts 3,615,120 2,520,225

(-) Items deductible from the Group’s original and additional own funds (389,392) (363,109)

(-) from the Group’s original own funds (194,696) (181,555)

(-) from additional own funds (194,696) (181,554)

Additional own funds - -

Total own funds 18,187,571 15,507,051

(in thousands of SKK) 2008 2007*

Adequacy of own funds (%) 9.05 10.28

Own funds 18,187,571 15,507,051

Risk-weighted assets (RWA) 201,010,842 150,798,476

RWA from receivables recorded in the Banking book 171,257,674 142,517,288

RWA from positions recorded in the Trading book 9,808,777 7,930,825

RWA from operating risk – standardised approach 17,686,213 -

Other RWA (foreign exchange risk) 2,258,178 350,363

120



Information for Cash Flow Statement37. Profit from operating activities before changes in working capital and interest received and paid is summarized as follows:

Cash and cash equivalents as of 31 December 2008, 31 December 2007, and 31 December 2006 comprise of the following:

Related parties38. Related parties as defined by IAS 24 are those counterparties that represent:

enterprises that directly, or indirectly through one or more intermediaries control, or are controlled a) by, or are under common control with the reporting enterprise. (This includes holding companies, subsidiaries and fellow subsidiaries);

associates – enterprises in which the Group has significant influence and which is neither b) a subsidiary nor a joint venture of the investor;


Cash flows from operating activities

Profit before income taxes 4,999,912 4,419,530

Adjustments: (6,776,679) (4,548,045)

Interest expense 5,811,564 4,307,498

Interest income (13,641,542) (11,084,398)

Dividend income (57,516) (4)

Provisions for impairment losses on loans and advances, net 919,160 469,517

(Profit) loss on sale and other disposals of non-current assets 13,442 80,143

(Profit) loss from financial derivative instruments and held for trading securities (1,113,499) 294,485

(Profit) loss from securities at fair value through profit or loss 14,945 391,327

Share in retained earnings of associates (26,283) (37,494)

Discount applicable to preference shares 69,886 53,029

Depreciation and amortization 863,397 897,959

Foreign exchange (gain) loss on cash and cash equivalents 369,767 79,893

Cash flow of operating activities before changes in working capital, interest received and paid and income taxes paid

(1,776,767) (128,515)

(in thousands of SKK) 2008 2007 2006

Cash in hand (Note 11) 5,143,754 3,275,042 2,840,589

Deposits with National Bank of Slovakia repayable on demand (Note 11) 3,804,745 1,237,747 526,638

NBS overnight deposits (Note 11) 10,000,417 4,000,250 300,081

NBS T-bills at fair value - - 4,954,155

Giro and interbank clearing business (Note 12) 1,896,890 999,813 1,863,801

Total 20,845,806 9,512,852 10,485,264



individuals owning, directly or indirectly, an interest in the voting power of the Group that gives them c) significant influence over the Group, and anyone expected to influence, or be influenced by that person in their dealings with the Group;

key management personnel, that is those persons with authority and responsibility for planning, d) directing, and controlling the activities of the Group, including directors and officers of the Group and close members of the families of such individuals; and

enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any e) person described in (c) or (d) or over which such a person is able to exercise significant influence. This includes enterprises owned by directors or major shareholders of the Group and enterprises that have a member of key management in common with the Group.

In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely the legal form.

A number of group transactions are entered into with related parties in the normal course of business. These transactions were carried out on commercial terms and conditions and at market rates.

The following are assets, liabilities, revenues, expenses, commitments and contingencies with related parties as at 31 December 2008:

*including members of RZB and RIB Boards of Directors

(in thousands of SKK) RZB RZB Group

Associates Statutory bodies and Supervisory

Board*

Other related parties

Total

Loans and advances to banks and customers

2,997,428 387,152 263,668 4,407 174,619 3,827,274

Receivables from financial derivative transactions

706,281 320 - - - 706,601

Other assets 1,701 23,898 - - - 25,599

Deposits from banks and customers 12,734,880 757,425 404,505 139,647 - 14,036,457

Liabilities from financial derivative transactions

698,328 13,946 - - - 712,274

Subordinated debt 2,259,450 1,376,576 - - - 3,636,026

Other liabilities 7 7,266 - - - 7,273

Guarantees issued 772,103 109,365 116,618 - - 998,086

Commitments - - 1,342,495 8,130 48,966 1,399,591

Guarantees received 1,095,413 629,925 3,500 - - 1,728,838

122



The following are assets, liabilities, revenues, expenses, commitments and contingencies with related parties as at 31 December 2007:

*including members of RZB and RIB Boards of Directors

The following are revenues and expenses with related parties as of 31 December 2008:



Board*


Total

Loans and advances to banks and customers

1,850,867 468,586 341,067 3,120 34,299 2,697,939

Receivables from financial derivative transactions

164,502 18,909 1,023 - - 184,434

Other assets 658 28,835 - - - 29,493

Deposits from banks and customers 281,279 1,249,776 2,403 101,578 - 1,635,036

Liabilities from financial derivative transactions

312,699 1,212 597 - - 314,508

Subordinated debt 2,521,358 - - - - 2,521,358

Other liabilities 251 7,611 - - - 7,862

Guarantees issued 797,868 46,378 158,619 - - 1,002,865

Commitments - - 97,451 - - 97,451

Guarantees received 523,863 333,939 3,500 - - 861,302



Board


Total

Interest and similar income 99,363 7,730 12,299 32 41 119,465

Fees and commissions income 5,963 120,294 7,853 - - 134,109

Unrealized gain (loss) on financial derivative transactions

128,278 (1,122) 13 - - 127,169

Operating revenues 805 10,173 8,627 - - 19,605

Interest and similar expenses (219,173) (41,979) (1,874) (4,107) - (267,133)

Expenses on charges and commissions (12,055) (10,548) - - - (22,604)

Administrative expenses (7,853) (79,511) - (125,618) - (212,982)

Operating expenses - (82) (311) - - (393)



The following are revenues and expenses with related parties as of 31 December 2007:

Compensation of members of the Company’s bodies39. The remuneration and salaries paid to the Group’s statutory bodies and members of the Supervisory Board (gross):

*including proxies and members of the Boards of Directors of the subsidiaries

Foreign currency items40. The Consolidated Financial Statements contain the following volumes of assets and liabilities denominated in foreign currencies:


Statutory bodies* 90,376 85,145

Supervisory board 18,300 19,100

Total 108,676 104,245


Assets 52,334,551 45,710,735

thereof: EUR (non-sensitive position due to the transition to Euro) 47,780,141 37,764,655

Liabilities 61,715,836 50,768,118

thereof: EUR (non-sensitive position due to the transition to Euro) 51,647,346 38,996,854



Board


Total

Interest and similar income 67,531 5,004 11,664 25 47 84,271

Fees and commissions income 3,005 106,761 6,584 - - 116,350

Operating revenues 2,549 10,601 9,611 - - 22,761

Interest and similar expenses (41,716) (21,940) (278) (3,476) - (67,410)

Expenses on charges and commissions (12,685) (11,130) - - - (23,815)

Unrealized gain (loss) on financial derivative transactions

(66,870) 7,481 212 - - (59,177)

Administrative expenses (17,465) (71,057) - (110,287) - (198,809)

Operating expenses (135) (61) (214) - - (410)

124



Foreign assets and liabilities41. Assets and liabilities with counterparties outside Slovakia are as follows:

Contingent liabilities and other off-balance-sheet items42. The Group reports the following contingent liabilities and other off-balance sheet items:

Off-balance sheet commitments from guarantees represent obligations that the Group will make payments in the event that a customer cannot fulfil its obligations against third parties.

A documentary letter of credit is an irrevocable undertaking of the issuing Group acting at the request of a customer (buyer) to make payment to the beneficiary (seller) or to pay or accept bills of exchange drawn by the beneficiary against stipulated documents, provided all terms and conditions of the letter of credit are complied with. The documentary letters of credit are collateralised depending on the creditworthiness of the customer and on the same basis as guarantees or loans.

The primary purpose of unused credit facilities (loan commitments) is to ensure that funds are available to a customer as required. Commitments to grant loans issued by the Group represent issued loan commitments and unused part of approved overdraft loans.


Assets 21,812,374 11,914,638

thereof: Austrian assets 11,625,366 2,783,998

thereof: Foreign assets 10,187,008 9,130,640

Liabilities 38,234,293 18,084,318

thereof: Austrian liabilities 19,805,405 4,520,371

thereof: Foreign liabilities 18,428,888 13,563,947


Contingent liabilities: 11,163,226 9,176,519

from guarantee credits 38,411 53,771

from other guarantees 10,041,567 8,486,699

from letters of credit 1,083,248 636,049

Commitments: 77,215,927 95,770,598

from irrevocable loan promises/stand-by facilities

up to 1 year 40,656,044 64,198,146

more than 1 year 20,499,616 21,829,472

from revocable loan commitments

up to 1 year 2,690,489 1,922,372

more than 1 year 13,369,778 7,820,608

Total 88,379,153 104,951,223



The risk associated with off-balance sheet financial commitments and contingent liabilities is assessed similarly as for loans to customers, taking into account the financial position and activities of the entity to which the Group issued the guarantee and taking into account the collateral obtained. As of 31 December 2008 the Group created reserves for these risks amounting to SKK 480,108 thousand (2007: SKK 352,439 thousand) (Note 30).

Legal disputesIn the ordinary course of business, the Group is subject to legal actions and complaints. As of 31 December 2008 the Group created provisions for the aforementioned risks amounting to SKK 612,772 thousand (2007: SKK 788,310 thousand) (Note 30).

Contingent liabilities from operating leaseThe Group recognises contingent liabilities from non-cancellable operating leases as a lessee on the off-balance sheet as of 31 December 2008 as follows:

For operating leases of buildings, lease periods rank between 5 months and 11 years with optional prolongation by 1 month up to 15 years. The largest operating lease contracts for buildings allow for adjustments to the rent based on the Harmonized Consumer Price Index calculated and published by Eurostat, or based on comparable indices which are most identical with the above index.


Total non-cancellable payments for operating leases 989,037 1,142,313

Less than 1 year 256,264 260,137

1 year to 5 years 565,715 679,340

More than 5 years 167,058 202,836

Operating lease expense in other administrative costs 326,431 388,818

126



Finance lease 43. The movements in finance lease receivables are analyzed as follows:

Finance lease receivables include lease receivables recognised as “Loans to customers, gross” (Note 13).

Values in custody and management44.

The Group reported values received in custody and administration at fair values. Values received in custody and administration does not represent the Group’s property and accordingly they are not part of the Group’s assets.

By the end of 2007, unit trust certificates of open unit trusts of Tatra Asset Management were registered. For the above reason, the Group does not recognise the unit trust certificates as values in custody.


Gross investment 941,080 -

Minimum lease payments 941,080 -

Up to 3 months 9,967 -

From 3 months up to 1 year 105,829 -

From 1 year up to 5 years 459,937 -

Over 5 years 365,347 -

Unearned finance income 171,902 -

Up to 3 months 9,886 -




Net investment 769,179 -

Up to 3 months 82 -





Values in custody 3,442,028 5,638,888

Investment notes 1,875,470 3,359,765

Promissory notes 266,828 1,327,300

Merchandise and trust receipts 1,299,730 951,823

Values in management 8,432,251 9,519,289

Securities 8,432,251 9,519,289

Total 11,874,279 15,158,177



Revenues from custody and administration are disclosed in the income statement as “Fees and commissions income” and as at 31 December 2008 they amounted to SKK 7,945 thousand (31 December 2007: SKK 9,798 thousand).

In addition to amounts in the table above, in accordance with the depository function for Tatra Asset Management, správ. spol., a.s. (TAM), as of 31 December 2008 the Group reported deposited securities in custody of the TAM Unit Trusts in the amount of SKK 31,794,236 thousand (as of 31 December 2007: SKK 43,891,436 thousand).

Repurchase agreements45. The following repurchase and redelivery commitments were in place on 31 December 2008 (under reverse repo transactions):

Assets pledged as collateral46. Liabilities secured by the Group’s assets:

The pledge attributable to the aforementioned liabilities comprised of the following assets recognised on the balance sheet:


Repurchase transactions (debtor)

Securities sold (carrying amount) 4,849,565 -

Total 4,849,565 -


Reverse repurchase agreements (as lender)

Securities purchased (fair value) 48,236,630 54 182,579

thereof: for loans granted to central banks 48,236,630 30,381,275

thereof: for loan commitments granted to central banks - 23,801,304

Total 48,236,630 54,182,579


Deposits from banks (received loans) 578,274 1,179,354

Liabilities from debt securities 8,872,516 4,201,123

Total 9,450,790 5,380,477


Loans and advances to banks 6,382,157 100,099

Financial assets at fair value through profit or loss 3,259,739 3,811,228

Held to maturity securities 6,890,026 2,625,572

Total 16,531,922 6,536,899

128



For information on securities pledged as collateral for the Group’s liabilities see Note 26 “Deposits from banks” and Note 29 “Liabilities from debt securities”.

The Group opened margin accounts as a collateral for derivative transactions. The amount of cash deposited by the Group in margin accounts depends on the volume and risk exposures of the deals made. The amount of cash deposited in margin accounts equals the amount of assets pledged as collateral and is recognised in “Loans and advances to banks”.

The Group pledged in favour of the NBS government bonds held in the held-to-maturity securities portfolio for euro currency and coins provided to the Parent company in advance due to Euro transition in the amount of SKK 6,218,435 thousand as of 31 December 2008.

Default loan portfolio47. Default loans represent the loans receivable portfolio as defined by the “International Convergence of Capital Measurement and Capital Standards” issued by the Basel Committee and known as Basel II. In the Slovak Republic, the definition of default is set forth in Article 73 of the NBS Decree No. 4/2007 on banks’ own funds of financing and banks’ capital requirements.

There is no definition of default loans in the methodology of International Financial Reporting Standards.

The following summary analyses the default loan portfolio as at 31 December 2008:

The following summary analyses the default loan portfolio as at 31 December 2007:

(in thousands of SKK) Corporate clients

Retailclients

Total

Default loans 1,325,108 1,055,994 2,381,102

Provisions for default loans 843,337 689,628 1,532,965

Claim value of received collateral for default loans 612,421 246,076 858,497

% coverage by provisions for assets 63.6% 65.3% 64.4%

% coverage by provisions for assets and received collaterals 109.9% 88.6% 100.4%


Retailclients

Total

Default loans 1,269,658 724,007 1,993,665

Provisions for default loans 829,492 486,397 1,315,889

Claim value of received collateral for default loans 990,866 109,631 1,100,497





Average number of staff48. The following is information on the Group’s average headcount:

Derivative financial instruments49. The total volumes of unsettled derivative financial instruments are as follows on 31 December 2008:


Group employees 3,761 3,555

thereof: members of the Board of Directors 6 6

Total 3,761 3,555

(in thousands of SKK) Nominal amounts by maturity Fair values

Up to1 year

From 1 to 5 years

More than5 years

Total Positive(Note 15)

Negative(Note 28)

a) Interest-rate contracts 64,304,986 84,769,007 21,639,209 170,713,202 4,396,483 (4,499,997)

OTC products:

Interest rate swaps 41,808,997 84,750,931 21,639,209 148,199,137 4,348,786 (4,454,813)

Forward rate agreements 22,495,989 - - 22,495,989 47,593 (45,080)

Interest rate options-buy - 9,038 - 9,038 104 -

Interest rate options-sell - 9,038 - 9,038 - (104)

b) Exchange-rate contracts 89,614,099 14,900,420 - 104,514,519 2,762,453 (2,269,720)

OTC products:

Currency swaps 22,575,743 395,596 - 22,971,339 297,929 (223,153)

Currency and interest rate swaps - 543,477 - 543,477 78,435 (78,210)

Foreign currency forwards 35,849,274 106,750 - 35,956,024 873,107 (461,908)

Currency options-buy 15,639,129 6,689,155 - 22,328,284 1,512,982 -

Currency options-sell 15,549,953 7,165,442 - 22,715,395 - (1,506,449)

c) Index-related contracts 352,521 - - 352,521 60,450 (60,341)

OTC products:

Index call options 176,204 - - 176,204 60,450 -

Index put options 176,317 - - 176,317 - (60,341)

d) Commodity contracts 586,083 - - 586,083 151,577 (148,774)

OTC products:

Commodity swaps 586,083 - - 586,083 151,577 (148,774)

Total 154,857,689 99,669,427 21,639,209 276,166,325 7,370,963 (6,978,832)

130



The total volumes of unsettled derivative financial instruments are as follows on 31 December 2007:

Fair value of financial instruments50. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Insofar as market prices were available (which was mainly the case for securities and derivative instruments traded on stock exchanges and functioning markets), they were used. All other financial instruments were valued using internal measurement models, including in particular present value models or accepted option price models, or use was made of external expert opinions.

(in thousands of SKK) Nominal amounts by maturity Fair values

Up to1 year

From 1 to 5 years

More than5 years

Total Positive(Note 15)

Negative(Note 28)

a) Interest-rate contracts 49,491,273 74,066,278 24,589,540 148,147,091 2,784,973 (3,154,360)

OTC products:

Interest rate swaps 49,491,273 64,254,202 23,016,920 136,762,395 2,784,813 (3,147,113)

Forward rate agreements - 4,895,957 786,310 5,682,267 - (7,060)

Interest rate options-buy - 10,081 - 10,081 160 -

Interest rate options-sell - 10,081 - 10,081 - (187)

Stock exchange products:

Interest rate futures - 4,895,957 786,310 5,682,267 - -

b) Exchange-rate contracts 161,110,131 21,169,043 1,053,651 183,332,825 2,593,046 (2,808,775)

OTC products:

Currency swaps 43,422,152 400,931 - 43,823,083 558,462 (500,667)

Currency and interest rate swaps 198,720 570,423 - 769,143 65,388 (65,005)

Foreign currency forwards 36,804,224 1,237,684 - 38,041,908 533,356 (941,993)

Currency options-buy 48,035,010 12,149,328 129,568 60,313,906 295,360 (287,950)

Currency options-sell 32,650,025 5,612,298 - 38,262,323 1,097,822 (970,706)

Other cross-currency instruments - 1,198,379 924,083 2,122,462 42,658 (42,454)

c) Index-related contracts 272,562 352,255 1,023,126 1,647,943 117,951 (128,133)

OTC products:

Index call options 272,562 - - 272,562 12,627 (16,760)

Index put options - 352,255 - 352,255 105,324 (105,114)

Index forwards - - 511,563 511,563 - (6,259)

Stock exchange products:

Index futures - - 511,563 511,563 - -

d) Commodity contracts 404,443 - - 404,443 24,163 (21,497)

OTC products:

Commodity swaps 404,443 - - 404,443 24,163 (21,497)

Total 211,278,409 95,587,576 26,666,317 333,532,302 5,520,133 (6,112,765)



Fixed-interest receivables from and payables to banks or customers were only re-measured to fair values different from their carrying amount on the balance sheet if they had a remaining term of more than one year. Variable-rate receivables and payables were only taken into account if they had an interest rollover period of more than one year. Only in those cases does discounting based on an assumed interest rate in line with market rates have a significant effect.

Risk report51.

Credit risk The Group bears a credit risk, i.e. the risk that the counterparty will not be able to repay in full amounts owed, at their maturity. The Group classifies loan exposure borne by the Group by setting limits of risk accepted with respect to one debtor, or a group of debtors, and with respect to individual countries. The aforementioned risks are monitored on a regular basis and reviewed at least annually. Exposure to one debtor, including banks and securities dealers, is also limited by partial limits set for balance sheet and off-balance sheet exposures, and by daily limits of exposure in relation to items traded, such as forward foreign currency contracts. The actual exposure is compared to set limits on a daily basis.

The loan exposure is managed based on regular analyses of the debtor’s and potential debtors’ ability to repay the principal amount and interest and based on potential adjustments to such loan limits. Credit risks are also partially managed by collaterals and guarantees received from private individuals or legal entities.

Retail debtors are assessed by the Group using the scoring models developed for individual products. Credit risk in the retail portfolio is managed by the following main tools: Credit scoring is a tool used by the Group in the loan decision process for private individuals and also for small companies. The next important tool in the loan approval process is the system of underwriting by specialists whose goal is to optimise revenues from loans to risk taken by the Group. The regular monitoring of the existing portfolio quality and trends together with appropriate strategies to secure the quality of the existing portfolio are also very important part of risk management that significantly contribute to retaining portfolio quality and to targeted level of risk charges.

(in thousands of SKK) Fair value2008

Carrying amount 2008

Difference2008

Fair value2007

Carrying amount 2007

Difference2007

Assets

Loans and advances to banks 60,631,567 60,631,567 - 43,098,815 43,098,815 -

Loans and advances to customers, gross 178,762,487 173,643,995 5,118,492 139,539,043 139,826,880 (287,837)

Held-to-maturity financial assets 30,397,962 30,377,035 20,927 33,458,972 33,588,487 (129,515)

Liabilities

Deposits from banks 25,892,154 25,892,154 - 10,233,829 10,233,829 -

Deposit from customers 224,591,029 224,590,942 87 185,723,407 185,791,986 (68,579)

Liabilities from debt securities 34,019,215 33,855,439 163,776 27,364,924 27,493,171 (128,247)

Subordinated debt 3,636,026 3,636,026 - 2,521,358 2,521,358 -

132



When claiming receivables, the Group uses internal or external resources depending on the amount and type of receivable. Receivables up to a certain amount are forwarded to collecting agencies. In the case of unsuccessful collection of receivables, the receivable is sold to an external company that specialises in the enforcement of receivables using legal action. Receivables over a certain amount and specific or selected types of receivables are dealt with by an expert team of internal employees in co-operation with the legal function and professional divisions of the Group.

As part of credit risk monitoring and management, the Group also closely observes the area of exposure and residual risks:

Exposure risk represents the risk resulting from the concentration of the Group’s transactions with an entity, a group of economically-related parties, state, geographical area, industry sector, collateral provider, etc. The risk is closely related to both exposures in the Banking book and exposures in the Trading book. In order to manage exposure risk effectively, the Group’s objective is to focus on quality portfolio management and its adequate diversification while adhering to set exposure limits (large assets exposure and other). Simultaneously, the Group develops methods for exposure risk quantification.

Residual risk represents the risk stemming from insufficient enforceability of rights arising to the Group from received security against credit risk. The Group eliminates this risk in particular by means of consistent observing of legal and operational requirements, and conservative valuation and revaluation methods, and by applying appropriate discounts depending on the type and quality of the received collateral.

The table below shows the maximum amount of credit risk regardless of received collateral:


Credit risk related to balance sheet assets:

Loans and advances to banks 60,631,567 43,098,815

Loans and advances to customers, net 170,370,195 137,516,682

Held for trading financial assets 12,726,340 9,910,385

Financial assets at fair value through profit or loss 10,989,336 13,282,362

Held to maturity financial assets 30,377,035 33,588,487

Available-for-sale financial assets 20,011 4,481

Investments in associated undertakings 389,492 363,209

Deferred tax asset 985 1,816

Other assets 645,431 1,022,300

Total 286,182,335 238,788,537



The table below shows the summary of the quality of the loan portfolio as of 31 December 2008:

The table below shows the summary of the quality of the loan portfolio as of 31 December 2007:


Credit risk related to off-balance sheet items:

Contingent commitments from guarantees 11,163,226 9,176,519

Irrevocable loan commitments/stand-by facility 61,155,660 86,031,724

Revocable loan commitments/stand-by facility 16,060,267 9,742,980

Total 88,379,153 104,951,223

(in thousands of SKK) Total carrying amount

Not impaired Assessed on an individual

basis – impaired

Specific provision

Portfolio provision

Net carrying amount

Claim value of received

collateral

% coverage

by provisions for assets

% coverage by

provisions for assets

and received

collateral


60,631,567 60,631,567 - - - 60,631,567 48,236,630 - 79.56%

Loans to customers 173643995 163,143,203 10,500,792 2,465,888 807,912 170,370,195 96,960,647 1.89% 57.72%

thereof:

public sector 638,267 638,264 3 3 - 638,264 291,152 - 45.62%

corporate clients 108,052,059 98,684,149 9,367,910 1,661,955 481,199 105908905 55438473 1.98% 53.29%

retail clients 64,953,669 63,820,790 1,132,879 803,930 326,713 63,823,026 41,231,022 1.74% 65.22%

Total 234,275,562 223,774,770 10,500,792 2,465,888 807,912 231,001,762 145,197,277 1.40% 63.37%

(in thousands of SKK) Total carrying amount

Not impaired Assessed on an individual

basis – impaired

Specific provision

Portfolio provision

Net carrying amount

Claim value of received

collateral

% coverage

by provisions for assets

% coverage by

provisions for assets

and received

collateral


43,098,815 43,098,815 - - 43,098,815 30,329,171 - 70.37%

Loans to customers 139,826,880 133,368,294 6,458,586 1,758,456 551,742 137,516,682 85,675,332 1.65% 62.92%

thereof:

public sector 1,037,383 1,037,383 - - - 1,037,383 414,317 - 39.94%

corporate clients 92,032,508 86,430,329 5,602,179 1,190,044 385,577 90,456,887 53,938,124 1.71% 60.32%

retail clients 46,756,989 45,900,582 856,407 568,412 166,165 46,022,412 31,322,891 1.57% 68.56%

Total 182,925,695 176,467,109 6,458,586 1,758,456 551,742 180,615,497 116,004,503 1.65% 64.68%

134



The summary of individual types of received collateral for financial assets at claim value is as follows:

The summary below represents an analysis of non-impaired loan portfolio by overdue days as of 31 December 2008:


Collateralisation of issued loans 145,197,277 116,004,503

Cash 1,111,585 850,170

Guarantees 14,218,819 15,063,206

Securities 50,752,650 32,209,270

Real estate 70,841,230 61,561,486

Movables 3,311,905 2,478,268

Receivables 4,961,088 3,842,103

Collateralisation of debt securities 3,144,296 4,662,685

Guarantees 478,554 479,626

Securities 2,665,742 4,183,059

Collateralisation of receivables from derivative transactions 166,716 233,256

Cash 166,716 -

Securities - 233,256

Total 148,508,289 120,900,444

(in thousands of SKK) Within maturity

Within 90 days

From 91 to 180

days

From 181 days up

to 1 year

Over 1 year

Received collateral for overdue loans

(in claim value)

Loans and advances to banks 60,631,567 - - - - -

Loans to customers 159,832,725 3,096,245 212,731 1,502 - 1,152,271

thereof:

public sector 638,264 - - - - -

corporate clients 97,544,927 1,137,246 474 1,502 - 907,235

retail clients 61,649,534 1,958,999 212,257 - - 245,036

Total 220,464,292 3,096,245 212,731 1,502 - 1,152,271



The summary below represents an analysis of non-impaired loan portfolio per days overdue as of 31 December 2007:

The following summary represents an analysis of individually impaired loan portfolio as of 31 December 2008:

The following summary represents an analysis of individually impaired loan portfolio as of 31 December 2007:

(in thousands of SKK) Public sector

Corporate clients

Retailclients

Total

Loans assessed on an individual basis – impaired 3 9,367,910 1,132,879 10,500,792

Specific provisions 3 1,661,955 803,930 2,465,888

Claim value of received collateral - 5,359,562 470,563 5,830,125

% coverage by provisions for assets 100% 17.7% 71% 23.5%

% coverage by provisions for assets and received collaterals 100% 75.0% 112.5% 79.0%

Interest income from impaired loans - 22,903 34,618 57,521


Retailclients

Total

Loans assessed on an individual basis – impaired 5,602,179 856,407 6,458,586

Specific provisions 1,190,044 568,412 1,758,456

Claim value of received collateral 3,428,005 273,796 3,701,801



Interest income from impaired loans 11,194 23,782 34,976

(in thousands of SKK) Within maturity

Within 90 days

From 91 to 180

days

From 181 days up

to 1 year

Over 1 year

Received collateral for overdue loans

(in claim value)

Loans and advances to banks 43,098,815 - - - - -

Loans to customers 131,339,059 1,913,565 113,973 1,683 14 925,547

thereof:

public sector 1,037,383 - - - - -

corporate clients 85,727,991 700,414 228 1,683 14 387,373

retail clients 44,573,685 1,213,151 113,745 - - 538,174

Total 174,437,874 1,913,565 113,973 1,683 14 925,547

136



The summary below represents the quality of loan portfolio that is non-impaired and non-overdue in accordance with internal rating:


Loans and advances to banks: 60,631,567 43,098,815

A1 - Minimum risk 9 8

A2 - Excellent credit rating 114,829 2,482,621

A3 - Very good credit rating 59,931,801 38,577,617

B1 - Good credit rating 177,813 1,658,420

B2 - Standard credit rating 356,231 331,368

B3 - Ordinary credit rating 4,780 -

B4 - Sub-standard credit rating 4,032 2,503

B5 - Significantly sub-standard credit rating 6,794 15,214

With no assigned rating 35,278 31,064

Loans to customers: 159,832,725 131,339,059

thereof public sector: 638,264 1,037,383

A1 - Minimum risk 111,255 290,601

A3 - Very good credit rating 285,342 399,668

B1 - Good credit rating 17,792 12,327

B2 - Standard credit rating 204,940 185,415

B3 - Ordinary credit rating 6,501 143,267

B4 - Sub-standard credit rating 10,612 552

B5 - Significantly sub-standard credit rating 1,199 4,517

C – Doubtful/high risk of default 19 -

With no assigned rating 604 1,036

Thereof corporate customers without project financing: 79,313,606 74,437,942

1.0 - Excellent credit rating 1,489,474 2,153,934

1.5 - Very good credit rating 7,901,630 5,414,413

2.0 - Good credit rating 10,120,630 11,642,395

2.5 - Standard credit rating 19,224,034 14,599,368

3.0 - Ordinary credit rating 11,548,957 14,905,148

3.5 - Sub-standard credit rating 16,131,752 16,198,887

4.0 - Significantly sub-standard credit rating 8,923,548 8,372,441

4.5 – High probability of default 3,448,130 943,037

5.0 – Defaulted 2,434 192,625

With no assigned rating 523,017 15,694

Thereof corporate customers – project financing: 18,231,321 11,290,049

6.1 – Excellent project financing profile rating 9,300,931 3,808,331

6.2 - Good project financing profile rating 7,029,546 6,194,787

6.3 – Acceptable project financing profile rating 1,832,403 1,286,931

6.4 – Weak project financing profile rating 68,441 -

thereof retail clients: 61,649,534 44,573,685

Clients with no assigned rating 61,649,534 44,573,685

Total 220,464,292 174,437,874



The scoring system of the Group’s corporate clients (applied for the entire RZB Group) is based on the client's economic rating and complies with the rules of the Internal Rating Based Approach (IRB) as required by the Basel II. The rating range has 10 grades from 0.5 to 5.0, and 5 grades for project financing from 6.1 to 6.5.

Credit risk associated with the securities portfolio is low as the majority of purchased debt securities are government bonds issued by the Slovak Republic. In the case of exposure for corporate debt securities, which amount to SKK 1,574,722 thousand (2007: SKK 1,692,444 thousand), the risk category of the respective issuers is 1.5 – Very good credit rating.

Credit risk from derivative transactions is also minimal as transactions are secured by a certain form of hedging (e.g. blockage of client’s financial funds, etc.).

The structure of the Group’s credit risk exposure to the Slovak Republic (entities controlled by the Slovak Republic, guarantees issued by the Slovak Republic, and similar exposures) is as follows:

The overall impact of Slovak Republic on the Group’s results of operations represented income of SKK 3,248,794 thousand (2007: SKK 2,788,226 thousand), which is mostly of an interest nature.

Credit risk exposure to the National Bank of Slovakia is as follows:

The overall impact of the National Bank of Slovakia on the Group's results of operations represented income of SKK 1,311,860 thousand (2007: SKK 1,186,883 thousand) which is mostly of an interest nature.


Deposits with the National Bank of Slovakia 3,804,745 1,237,747

Zero coupon government bonds and other securities received by the NBS for refinancing 7,084,581 5,928,465

Loans and advances to banks 67,234,440 36,344,504

Loans to customers 7,783,077 6,745,881

Debt securities 31,277,982 35,101,527

Total 117,184,825 85,358,124


Deposits with the National Bank of Slovakia 22,801,654 7,219,631

thereof: compulsory minimum reserves 8,996,492 1,981,634

demand deposits 3,804,745 1,237,747

overnight deposits with the NBS 10,000,417 4,000,250

Reverse repo transactions with the NBS 48,237,530 30,362,620

Total 71,039,184 37,582,251

138



Restructuring The Group can modify repayment terms of its loan receivables if the client’s financial position is weak and the client would be unable to repay, within a specified period of time, its liabilities to the Group.

With overdraft loans, Agreement on Debt Instalments is concluded – this agreement cannot be extended, only transformed into an instalment credit after declaration of extraordinary maturity. In extraordinary circumstances, the overdraft loan can be extended, however, with the use of a gradual reduction.

In the case of instalment loans, repayment schedules are modified due to the client’s inability to keep the agreed upon deadlines.

In 2008, the carrying amount of loan receivables whose repayment terms were modified due to the client’s default and deteriorated financial position amounted to SKK 304,513 thousand (2007: SKK 28,978 thousand).

In 2008, the Group turned into liquidity its liens over property as received collateral for its bad debt totalling SKK 36,080 thousand (2007: SKK 67,463 thousand).

Market risk The Group is exposed to market risks. Market risks result from open positions from transactions with interest rate, cross-currency, and equity products that are subject to general and specific market changes. To assess the approximate level of market risks associated with the Group’s positions, and the expected maximum amount of potential losses, the Group uses internal reports and models for individual types of risks faced by the Group. The Group uses a system of limits, the aim of which is to ensure that the level of risks the Group is exposed to at any time does not exceed the level of risks the Group is willing and able to accept. These limits are monitored on a daily basis.

For risk management purposes, market risk is regarded as the risk of potential losses the Group may incur due to unfavourable development in market rates and prices. To manage market risks, the Group uses a system of limits imposed on individual positions and portfolios.

As to the structure of trades, the Group primarily faces the following market risks:Currency risk• Interest rate risk•

Market risks at which the Group faces insignificant exposure:Equity price risk • Commodity risk •



Currency riskCurrency risk represents the potentiality of loss resulting from unfavourable movements in foreign currency exchange rates. The Group controls this risk by the determination and monitoring of open position limits.

Open currency positions are subject to real-time monitoring through the banking information system. The currency position of the Group is monitored separately for each currency, as well as for three currency groups, formed according to the respective market liquidity. Limits for these positions are set in line with the RZB Group standards. Data on the Group currency positions and on the Group’s compliance with the limits set by RZB are reported on a weekly basis.

In addition to the limit on an open currency position, the Group also sets a negative gamma limit on an option position for each currency match subject to trading. The Group also sets the vega limit on the overall option position.

Positions from client option trades to currency matches, where no gamma limit on trading has been specified by the Group, are closed in the market, so as to ensure that the Group has no open position for this currency match.

Moreover, the Group sets three stop-loss limits for the following areas: The overall currency position1. The currency option position2.

The Group’s foreign exchange balance and off-balance sheet positions as of 31 December 2008 and 2007 were as follows:

(in thousands of SKK) Net FX position31 December 2008

Net FX position31 December 2007

EUR (3,867,205) (1,232,199)

USD (4,072,301) (2,025,382)

SKK 9,381,285 5,057,383

Other (1,441,779) (1,799,802)

Total net FX balance sheet position - -

EUR 1,634,643 1,376,494

USD 4,051,428 2,029,810

SKK 712,773 (5,555,668)

Other 1,633,607 1,961,204

Total net FX off-balance sheet position 8,032,451 (188,160)

Total Net FX position 8,032,451 (188,160)

140



Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The length of time for which the rate of interest is fixed on a financial instrument therefore indicates to what extent it is exposed to interest rate risk.

The Group controls and manages its interest rate risk for all trades, and for the Banking Book and the Trading Book separately. Interest rate risk is monitored and assessed on a daily basis.

For the monitoring of interest rate risk, the Group uses the gap analysis method (interest GAP), method of market value sensitivity to yield curve shift by defined number of basis points (basis point value – BPV) and three stop-loss limits to interest rate sensitive instruments.

Internal interest rate risk limits applicable in the Banking Book are set in the form of limits on open positions in each time band of the interest gap for each currency that is included in the Banking Book (SKK, EUR, and USD).

The Group’s limit on the interest rate risk of the Banking Book is set in the form of limits on the sensitivity of the overall position to the yield curve shifts (BPV) in the Banking Book with a limit on the position concentration in one time basket and one currency.

The interest rate risk limits applicable in the Trading Book are set in the form of limits on sensitivity of the overall position to the yield curve shifts (BPV). The limits are set for individual currency included in the Trading Book. The loss resulting from interest rate variations is limited to three stop-loss limits.

Once a week, Integrated Risk Management submits to the Assets and Liabilities Committee information on the actual amount of credit risk by individual currency and information on the use of credit risk limits (ALCO).

In the case of exceeding the set limit, the interest rate positions are closed by using both traditional and derivative financial instruments.

The table below provides information in carrying amount on the extent of the Group’s interest rate exposure based either on the contractual maturity date of its financial instruments or, in the case of instruments that re-price to a market rate of interest before maturity, the next re-pricing date. Those assets and liabilities that do not have a contractual maturity date or are not interest-bearing are grouped in the unspecified category.



Interest rate gap of financial assets and liabilities as of 31 December 2008:

(in thousands of SKK) Up to3 months

From3 months to

1 year

From 1to 5 years

Over5 years

Unspecified Total

Assets

Cash and balances with central banks 22,801,654 - - - 5,143,754 27,945,408

Loans and advances to banks 52,841,476 277,252 7452315 - 60,524 60,631,567

Loans and advances to customers, net 109,112,073 34,958,300 23,200,692 2,550,719 548,411 170,370,195

Held for trading financial assets 2,721,002 2,741,020 6,134,667 1,125,638 4,013 12,726,340

Financial assets at fair value through profit or loss

289,576 474,280 6,246,587 3,978,322 571 10,989,336

Held to maturity financial assets 12,999,083 10,695,261 6,682,691 - - 30,377,035

Available for sale financial assets - - - - 20,011 20,011

Other assets - - - - 645,431 645,431

Interest rate position for financial assets as of 31 December 2008

200,764,864 49,146,113 49,716,952 7,654,679 6,422,715 313,705,323

Liabilities

Deposits and advances from banks 24,126,264 1,674,775 75,994 2,354 12,767 25,892,154

Deposits from customers 95,022,280 96,286,409 38,761,514 24,029 379,897 224,590,942

Held for trading financial liabilities 2,538,855 2,235,532 1,416,252 788,193 - 6,978,832

Liabilities from debt securities 14,128,398 3,464,016 16,263,025 - - 33,855,439

Provisions for liabilities and charges - - - - 1,138,889 1,138,889

Other liabilities - - - - 1,139,328 1,139,328

Subordinated debt 3,636,026 - - - - 3,636,026


140,715,952 96,513,416 56,516,785 814,576 2,670,881 297,231,610

Net interest rate position as of 31 December 2008

60,048,912 (47,367,303) (6,799,833) 6,840,103 3,751,834 16,473,713

142



Interest rate gap of financial assets and liabilities as of 31 December 2007:

(in thousands of SKK) Up to3 months

From3 months to

1 year

From 1to 5 years

Over5 years

Unspecified Total

Assets

Cash and balances with central banks 7,219,631 - - - 3,275,042 10,494,673

Loans and advances to banks 42,913,428 154,322 - - 31,065 43,098,815

Loans and advances to customers, gross 89,675,205 24,586,388 19,954,463 3,004,292 296,334 137,516,682

Held for trading financial assets 2,378,677 2,287,899 3,301,760 1,936,333 5,716 9,910,385

Financial assets at fair value through profit or loss

334,366 556,824 5,033,208 7,357,415 549 13,282,362

Held to maturity financial assets 12,795,925 4,850,245 15,942,317 - - 33,588,487

Available for sale financial assets - - - - 4,481 4,481

Other assets - - - - 1,022,300 1,022,300


155,317,232 32,435,678 44,231,748 12,298,040 4,635,487 248,918,185

Liabilities

Deposits from banks 9,980,654 176,363 60,650 4,105 12,057 10,233,829

Deposits from customers 86,599,869 59,751,805 36,444,863 27,107 2,968,342 185,791,986

Held for trading financial liabilities 2,921,875 2,112,647 655,374 422,869 - 6,112,765

Liabilities from debt securities 14,428,614 3,401,873 8,647,583 1,015,101 - 27,493,171

Provisions for liabilities and charges - - - - 1,183,331 1,183,331

Other liabilities - - - - 1,260,695 1,260,695

Subordinated debt 1,133 - 2,520,225 - - 2,521,358


113,932,145 65,442,688 48,328,695 1,469,182 5,424,425 234,597,135

Net interest rate position as of 31 December 2007

41,385,087 (33,007,010) (4,096,947) 10,828,858 (788,938) 14,321,050



The average interest rates calculated as a weighted average for each asset and liability category are as follows (in %):

Equity price risk Equity price risk arises from the Group’s exposure to changes in equity investment prices. Equity price risk is determined at the Group level. Equity price risk is measured using individual exposures, and the calculating and monitoring of the overall equity investments position. Equity investments positions are reported on the level of the overall portfolio on a weekly basis.

Commodity risk Commodity risk arises from the Group’s exposure to changes in commodity prices. Commodity risk is determined at the Group level and is measured using positions in individual commodities. Sensitivity analysis is applied for the measurement and management of commodity risk.

Sensitivity analysis of market risks Sensitivity analysis reflects the implications on the Group’s profit/loss arising from the movements in market parameters (interest rates, exchange rates, share prices, etc.) by predetermined delta value. For monitoring and limiting of risk, the Group uses 100 basis points for interest rates, a 5% movement in exchange rates, and 50% movement in share prices and 30% movement in commodity prices.

GAP method assorts the Group’s positions into baskets and examines the Group’s final position in individual baskets. This method is used in interest rate risk management. The stress scenario is similar to the sensitivity analysis; however it takes into consideration a marginal situation on the market. It combines movements in the market parameters, so that these are the least favourable for the Group.


SKK FCY SKK FCY

Assets

Cash and deposits in central banks 1.52 - 1.64 -

Treasury bills and other eligible bills - - 4.68 -

Loans and advances to banks 4.41 3.07 4.61 3.89

Loans and advances to customers 6.69 5.50 6.58 5.12

Debt securities 3.82 4.01 4.28 4.01

Total assets 5.22 4.92 5.14 4.64

Total interest bearing assets 5.39 5.10 5.34 4.81

Liabilities

Deposits from central bank 4.33 - 2.61 -

Deposits from banks 3.60 4.54 3.47 4.70

Deposits from customers 2.09 2.14 1.98 2.38

Liabilities from debt securities 4.49 5.01 4.10 4.41

Subordinated debt - 5.91 - 5.36

Total liabilities 1.97 3.06 1.92 2.70

Total interest bearing liabilities 2.37 3.27 2.23 2.94

144



The table below shows the Group’s sensitivity to movements in exchange rate, assuming negative movements in exchange rates by 5% to the detriment of the Group.

Change in the present value of assets and liabilities of the Group following the movements in exchange rates of the selected currencies to the detriment of the Group as of 31 December 2008:

* non-sensitive position due to the transition to euro

Change in the present value of assets and liabilities of the Group following the movements in exchange rates of the selected currencies to the detriment of the Group as of 31 December 2007:

The table below shows the Group’s sensitivity to movements in the interest rate assuming negative movement of the yield curve to the detriment of the Group by 100 basis points.

Change in the present value of assets and liabilities of the Group following the change in the interest rate for the selected currencies as of 31 December 2008:

* non-sensitive position due to the transition to euro

(in thousands of SKK) Present value of exchange rate

Exchange rate in sensitivity scenario

Group’s position in respective currency

Group’s loss in respective scenario

EUR* 30.126 30.126 2,224,655 -

USD 21.385 22.454 20,873 1,044

CZK 1.131 1.188 113,395 5,670

Total 2,358,923 6,714

(in thousands of SKK) Present value of exchange rate

Exchange rate in sensitivity scenario

Group’s position in respective currency

Group’s loss in respective scenario

EUR 33.603 35.283 171,309 287,825

USD 22.870 24.014 4,685 5,357

CZK 1.263 1.326 4,320 273

Total 180,314 293,455

(in thousands of SKK) Yield curve shift Group’s loss from yield curve shift

Trading Book:

SKK 100 BPV (190)

EUR 100 BPV 10,550

SKK + EUR* 100 BPV 10,360

USD 100 BPV 450

Banking Book:

SKK 100 BPV (126,050)

EUR 100 BPV 133,740

SKK + EUR* 100 BPV 7,690

USD -100 BPV 490

Total 18,990



Change in the present value of assets and liabilities of the Group following the change in the interest rate for the selected currencies as of 31 December 2007:

Change in the present value of assets and liabilities of the Group’s Trading Book following the change in share prices as of 31 December 2008:

Change in the present value of assets and liabilities of the Group’s Trading Book following the change in share prices as of 31 December 2007:

In the Trading Book, the Group has no commodity position; therefore the change in the present value of assets and liabilities in the Group’s Trading Book following the change in commodity prices is also zero as of 31 December 2008 and 31 December 2007.

The Group in the sensitivity analysis scenario uses the negative development of exchange rates, yield curves movements, and decrease in share prices. In the case of exactly opposite movements, the Group would book profit instead of loss in approximately the same amount.

Liquidity risk Liquidity risk is the risk that the Group may not be able to fulfil its obligation to settle its liabilities when they become due.

The Group wishes to maintain its solvency, i.e. the ability to meet its financial liabilities in a proper manner and in time, and to manage its assets and liabilities so as to ensure continuous liquidity. Liquidity management is the responsibility of the Assets and Liabilities Committee (ALCO) and the Treasury

(in thousands of SKK) Yield curve shift Group’s loss from yield curve shift

Trading Book:

SKK -100 BPV 40,860

EUR 100 BPV 7,840

USD 100 BPV 3,040

Banking Book:

SKK 100 BPV 25,246

EUR 100 BPV 3,569

USD -100 BPV 7,154

Total 87,709

Amount of shares in the Group’s Trading Book

Decrease in share prices (in %)

Group’s loss from decrease in share prices

4,013 50% 2,007

Amount of shares in the Group’s Trading Book

Decrease in share prices (in %)

Group’s loss from decrease in share prices

5,716 20% 1,143

146



Division. Regular meetings of ALCO are held on a weekly basis, during which the Group’s liquidity is evaluated and, subsequently, decisions are taken based on the current state of affairs.

The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from margin and other calls on cash settled derivatives. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Group sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of interbank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.

The Integrated Risk Management function monitors the Group’s liquidity on a daily basis and reports on its development. Information on the liquidity position is reported to ALCO on a weekly basis. The Asset and Liabilities Management function submits reports on the Group’s structure of assets and liabilities to ALCO for approval on a quarterly basis, and proposes the size and structure of the portfolio of securities held strategically for the following period subject to monitoring.

The Group is obliged to perform its activities so as to ensure that at any time it meets the liquidity requirements and coefficients set by the National Bank of Slovakia. Before the year-end 2008, the liquidity requirements were tightened due to current developments on the financial markets. As of 31 December 2008, the Bank was in compliance with the liquidity requirements set by the National Bank of Slovakia.

The Group monitors long-term liquidity risk by developing a liquidity and crisis liquidity gap based on internal rules and assumptions. The limits are approved by the Integrated Risk Management Department, ALCO and the Group’s management.

Deposits from customers are the primary funding source for the Bank. Although the terms of the majority of the deposits permit customers withdrawals with little or no advanced notice, the actual balances maintained by customers provide a stable source of funding.



The Group’s liquidity position reflecting the existing residual maturity of assets and liabilities as of 31 December 2008:

*) Off-balance sheet position includes receivables and liabilities from spot transactions and financial derivative transactions where the supporting instrument is replaced, in particular from future loans and borrowings, guarantees and letters of credit, and delta option equivalents.

(in thousands of SKK) Up to 12 months

Over 12 months

Unspecified Total

Cash and balances in central banks 27,945,408 - - 27,945,408

Loans and advances to banks 53,116,635 7,459,109 55,823 60,631,567

Loans and advances to customers, net 67,231,686 99,843,349 3,295,160 170,370,195

Held for trading financial assets 5,462,022 7,260,305 4,013 12,726,340

Financial assets at fair value through profit or loss 413,856 10,574,909 571 10,989,336

Held-to-maturity financial assets 21,566,871 8,810,164 - 30,377,035

Available-for-sale financial assets - - 20,011 20,011

Investments in associated undertakings - - 389,492 389,492

Non-current intangible assets - - 1,047,569 1,047,569

Non-current tangible assets - - 2,685,714 2,685,714

Current tax asset 985 - - 985

Deferred tax asset 31,943 - - 31,943

Other assets 117,144 - 528,287 645,431

Total assets 175,886,550 133,947,836 8,026,640 317,861,026

Liabilities

Deposits from banks 24,826,464 1,059,909 5,781 25,892,154

Deposits from customers 185,367,957 38,846,388 376,597 224,590,942

Held for trading financial liabilities 4,774,387 2,204,445 - 6,978,832

Liabilities from debt securities 5,976,293 27,879,146 - 33,855,439

Provisions for liabilities - - 1,138,889 1,138,889

Current tax liability 643,985 - - 643,985

Deferred tax liability - - 20,239 20,239

Other liabilities - - 1,139,328 1,139,328

Subordinated debt 20,906 3,615,120 - 3,636,026

Total liabilities 221,609,992 73,605,008 2,680,834 297,895,834

Equity (excluding current year profit) - - 16,009,412 16,009,412

Profit after tax - - 3,955,780 3,955,780

Total equity and liabilities 221,609,992 73,605,008 22,646,026 317,861,026

Net balance sheet position (45,723,442), 60,342,828 (14,619,502) -

Net off-balance sheet position* (30,405,419) (54,389) (1,338,064) (31,797,872)

Cumulative balance sheet and off-balance sheet position (76,128,861) (15,840,422), (31,797,872) -

148



The Group’s liquidity position reflecting the existing residual maturity of assets and liabilities as of 31 December 2007:

*) Off-balance sheet position includes receivables and liabilities from spot transactions and financial derivative transactions where the supporting instrument is replaced, in particular from future loans and borrowings, guarantees and letters of credit, and delta option equivalents.

(in thousands of SKK) Up to 12 months

Over 12 months

Unspecified Total

Cash and balances in central banks 10,494,673 - - 10,494,673

Loans and advances to banks 43,083,612 15,203 - 43,098,815

Loans and advances to customers, net 60,205,203 74,986,766 2,324,713 137,516,682

Held for trading financial assets 4,566,555 5,338,114 5,716 9,910,385

Financial assets at fair value through profit or loss 491,190 12,790,624 548 13,282,362

Held-to-maturity financial assets 5,039,760 28,548,727 - 33,588,487

Available-for-sale financial assets - - 4,481 4,481

Investments in associated undertakings - - 363,209 363,209

Non-current intangible assets - - 1,028,032 1,028,032

Non-current tangible assets - - 2,704,330 2,704,330

Current tax asset 1,816 - - 1,816

Other assets 313,846 - 708,454 1,022,300

Total assets 124,196,655 121,679,434 7,139,483 253,015,572

Liabilities

Deposits from banks 9,408,779 825,050 - 10,233,829

Deposits from customers 184,899,855 771,952 120,179 185,791,986

Held for trading financial liabilities 5,034,522 1,078,243 - 6,112,765

Liabilities from debt securities 14,659,629 12,833,542 - 27,493,171

Provisions for liabilities - - 1,183,331 1,183,331

Current tax liability 195,071 - - 195,071

Deferred tax liability - 394,800 - 394,800

Other liabilities - - 1,260,695 1,260,695

Subordinated debt 1,133 2,520,225 - 2,521,358

Total liabilities 214,198,989 18 423,812 2,564,205 235,187,006

Equity (excluding current year profit) - - 14,377,967 14,377,967

Profit after tax - - 3,450,599 3,450,599

Total equity and liabilities 214,198,989 18 423,812 20,392,771 253,015,572

Net balance sheet position (90,002,334) 103,255,622 (13,253,288) -

Net off-balance sheet position* (50,016,017) 473,155 18,476,575 (31,066,287)

Cumulative balance sheet and off-balance sheet position (140,018,351) (36,289,574) (31,066,287) -



The summary below represents the worst case scenario of the analysis of contractual maturityof financial liabilities as of 31 December 2008 (in non-discounted values):

The summary below represents the worst case scenario of the analysis of contractual maturity of financial liabilities as of 31 December 2007 (in non-discounted values):

Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. As in the case of other types of risks, operational risk is managed by applying the standard principle including the separation of functions in risk management and controlling.

For regulatory capital needs, the Group is going to use “The Standardised Approach” according to BASEL II requirements. Under the Standardised Approach, the Group’s activities are divided into eight business lines. Gross Income for each business line is represented by a general indicator serving as a representative for a range of business activities, thereby representing an operational risk rate for each business line. The capital to cover operational risk is calculated as net interest income and net interest-free income multiplied by an assigned ß factor for each business line separately. Total capital requirement equals the sum of eight partial requirements for each business line.

(in thousands of SKK) Residual maturity

Carrying amount

Contractual cash flows

Up to 3 months incl.

From 3 months up to

1 year incl.

From 1 year up to

5 years incl.

Over 5 years

incl.

Non-derivative financial liabilities:

Deposits from banks 25,892,154 26,326,771 23,133,838 1,702,055 524,030 966,848

Deposits from customers 224,590,942 227,118,205 197,366,506 29,656,599 72,074 23,026

Liabilities from debt securities 33,855,439 36,653,916 3,660,888 4,016,538 28,976,490 -

Other liabilities 1,139,328 1,139,328 1,139,328 - - -

Subordinated debt 3,636,026 4,418,412 50,785 133,509 4,234,118 -

Derivative financial liabilities:

Trading derivatives 6,978,832 102,137,765 71,204,150 20,318,554 9,736,285 878,776

(in thousands of SKK) Residual maturity

Carrying amount

Contractual cash flows

Up to 3 months incl.

From 3 months up to

1 year incl.

From 1 year up to 5

years incl.

Over 5 years incl.

Non-derivative financial liabilities:

Deposits from banks 10,233,829 10,743,800 9,490,529 201,349 134,229 917,693

Deposits from customers 185,791,986 186,608,558 180,039,110 5,800,655 744,970 23,823

Liabilities from debt securities 27,493,171 29,648,787 4,593,386 11,044,021 12,961,380 1,050,000

Other liabilities 1,260,695 1,260,695 1,260,695 - - -

Subordinated debt 2,521,358 3,175,884 34,369 103,863 3,037,652 -

Derivative financial liabilities:

Trading derivatives 6,112,765 150,029,167 85,102,804 48,537,898 16,185,667 202,798

150



For the identification of operational risk the Group uses a three-dimensional model compound of risk categories, business functions, and business lines (Risk Management Association methodology). Operational risk loss data collection will cover the collection of all operational losses by risk category.

The Group puts the accent on process quality improvement and operational risk mitigation actions. The essential assumption of set goals is based on operational risk awareness and operational risk Group culture.

The Group has rolled in an implementation of Key Risk Indicators. These indicators are used as the next tool of operational risk management and serve for the monitoring and analysis of operational risk-sensitive areas.

The Group is also active in preparing Business Continuity plans. The plans aim at minimizing impacts of unexpected events on the Group’s operation.

The next objective of the Group is to implement an advanced operational risk management model.

Other risksSimultaneously, in terms of implementation of internal process of capital adequacy determination, the Group monitors and develops quantification and management methods aimed at other risks, in particular:

Strategic risk;• Reputation risk; • Other risks and risk factors.•

Basel II The Group rigorously meets the requirements of the European directives implementing the rules known as Basel II, while following in their implementation the local legislative standards, in particular amendment to Act No. 483/2001 Coll. on Banks and NBS Decree No. 4/2007 as amended by Decree No. 17/2008.

The concepts, methodology, and documentation for the activities in the Basel II Project are prepared in close co-operation with both RZB and Raiffeisen International Bank - Holding AG while reflecting the local specifics of the Group and the entire Group environment.

The objective of the Basel II implementation is primarily to ensure the most accurate assessment and proper management of credit, market and operation risks. The achievement of this objective is based, among others, on the appropriate collection and archiving of all comprehensive data or potential comprehensive data, on the development of a reliable measurement methodology for individual types of risks, on the maintenance of effective and well-developed processes for the prudent management of individual types of risks, on the maintenance of quality and secure IT systems for the automation of processes, data collection, data analysis, calculations, and provision of outputs.



The Group's intention is to implement as soon as possible the advanced approaches to management, quantification and reporting of individual risks. For credit risk, the Group's objective is to implement the IRB approach based on the use of internal rating models; in 2008, the authorisation process for recognition of the basic IRB approach for the non-retail portfolio segment took place.

The authorisation process resulted in approval of the use of the basic IRB approach for sovereign units, institutions, corporate entities, project financing, insurance companies, fund investments and purchased receivables from 1 January 2009. For the SME and retail portfolio, the authorisation process will take place in the near future.

The Group continuously modifies and supplements its methodology and process procedures for Pillar 2 (internal process of capital adequacy assessment) in the context of its risk appetite and performed business activities. As part of this process, pursuant to the approved methodology, the Group performs on a regular basis risk relevance and materiality assessment, risk quantification and assessment with respect to the Group's capital and subsequent reporting. The process of capital allocation which is closely linked with budgeting forms an integral part.

Due to the transition to advanced approach of risk and capital adequacy measurement (pursuant to Pillar 1 and Pillar 2) as well as the changes in the electronic environment, a thorough prediction of capital adequacy developments and its stress testing are significant aspects for the purposes of eliminating effects of unforeseen events and for efficient capital planning. Information on the Group's individual risks and capital are reflected in the management of the Group and its business strategies to achieve an optimum compromise between mitigation of individual risk types and augmentation of the Group's market share, profit and return on capital.

EUROAs at 1 January 2009, the Slovak Republic entered the eurozone and the Slovak crown (SKK) was replaced by the euro (EUR). As a result, the Group converted its bookkeeping to EUR as at this date, and the financial statements in 2009 and subsequent years will be prepared in EUR. Comparable data will be translated using the exchange rate of EUR/SKK 30.1260.

Events after the Balance Sheet date52. Between the Balance Sheet date and the date of approval of these financial statements the Parent Company increased the registered capital in its subsidiary, Regional Card Processing Centre, s. r. o., by EUR 532,826 by transfer of assets and liabilities to the subsidiary.

Approval of the consolidated financial statements53. The most recent previous financial statements (as of 31 December 2007) were signed and approved for issue on 19 February 2008.

The financial statements were signed and authorised for issue on 3 March 2009.

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153

Distribution of the Profit

www.tatrabanka.sk

Distribution of the Profitfor the Year 2008

2008 2008

(in thousands of SKK) (in thousands of EUR)

Profit after tax 3,625,078 120,331

Dividends - Ordinary shares 1,621,987 53,840

Dividends - Preferred shares 242,299 8,043

Allocation to retained earnings 1,760,792 58,448

Profit according to separate financial statements of Tatra banka, a. s., see Note 35 to the consolidated financial

Dividends without claim to payment as of the date of holding of General Meeting will be settled to the retained earnings

The Financial statements, the proposal for distibution of the profit and annual remuneration in the amount of SKK 6,417 thousand (EUR 213 thousand).

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tb_annual_report_210x297_0309_EN.indd 10 5.5.2009 11:02:34

155

Top Management

www.tatrabanka.sk

Top Management

Supervisory BoardDkfm. Rainer Franz Chairman of the Supervisory Board, Member of the Board of Directors of Raiffeisen International Bank-Holding AG, Vienna

Dr. Herbert Stepic Vice-Chairman of the Supervisory Board, CEO of Raiffeisen International Bank-Holding AG, Vienna

Ing. Prof. Peter Baláž, PhD.Member of the Supervisory Board, Professor of University of Economics, Bratislava

Mag. Renate KattingerMember of the Supervisory Board, Senior Vice-President of Raiffeisen International Bank-Holding AG, Vienna

Ing. Ján Neubauer, CSc.Member of the Supervisory Board, Director of Finance FIT PLUS, s. r. o.

Dr. Robert GruberVice-Chairman of the Board of Directors of Raiffeisenlandesbank Niederosterreich-Wien AG, Vienna

Ing. Pavol FeitscherAdvisor to the Board of Managing Directors of Tatra banka, a. s.

Bank managementBoard of Directors

Ing. Igor VidaChairman of the Board of Directors and General Director

Ing. Miroslav UličnýVice-Chairman of the Board of Directors and Deputy General Director

Ing. Marcel KaščákMember of the Board of Directors

Mgr. Michal LidayMember of the Board of Directors

Dr. Martin PytlikMember of the Board of Directors

Ing. Peter NovákMember of the Board of Directors (from 21. 5. 2008)

Confidential clerks:Ing. Eva KollárováIng. Zuzana Koštialová (from 15. 4. 2008)Mgr. Natália Major (from 15. 4. 2008)

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157

Bussiness Locations Network

www.tatrabanka.sk

Business Locations Network

As of 31.12.2008 Tatra banka provided services to individual clients through 132 branches,8 Centers of livingTB and 1 Investment CentreTB:

location branches Centers ofliving branches

Piešťany 2 Poprad 2 Považská Bystrica 1 Prešov 5 Prievidza 3 Púchov 1 Rimavská Sobota 1 Rožňava 1 Ružomberok 1 Senec 1 Senica 1 Sereď 1 Skalica 1 Snina 1 Spišská Nová Ves 1 Stará Ľubovňa 1 Stupava 1 Šaľa 1 Šamorín 1 Štúrovo 1 Topoľčany 1 Trebišov 1 Trenčín 3 Trnava 3 1Vráble 1 Vranov nad Topľou 1 Zlaté Moravce 1 Zvolen 2 Žiar nad Hronom 1 Žilina 4 1

location branches Centers Investment ofliving centre branches

Bánovce nad Bebravou 1 Banská Bystrica 5 1Bardejov 1 Bratislava 43 3 1Brezno 1 Čadca 1 Dolný Kubín 1 Dubnica nad Váhom 1 Dunajská Streda 1 Galanta 1 Hlohovec 1 Humenné 1 Kežmarok 1 Komárno 1 Košice 8 1Kysucké Nové Mesto 1 Levice 1 Liptovský Mikuláš 1 Lučenec 1 Malacky 1 Martin 2 Michalovce 1 Modra 1 Myjava 1 Námestovo 1 Nitra 3 1Nové Mesto nad Váhom 1 Nové Zámky 1 Partizánske 1 Pezinok 1

As of 31.12.2008 Tatra banka provided services to legal entities by way of its 9 Corporate Centres,8 Corporate Centre sub-agencies and several satellite workplaces throughout Slovakia:

Corporatecenters

1

4

1

1 1

1

1

1

Corporatecenters

1 1 1

1 1

1

Tatra bankaAnnual Report 2008

Slovakia

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Slov

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Ann

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8

Tatra banka, a. s.

811 06 Bratislava

SWIFT: TATR SK BXwww.tatrabanka.sk

Slovak Republic

Tel.: +421/2/5919 1111Fax: +421/2/5919 1110


tb_annual_report_210x297_0309_obalka_EN.indd 1 5.5.2009 11:00:41

Tatra banka · subsidy from the NBS. This again is the outcome of well managed logistics and well...

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Transcript of Tatra banka · subsidy from the NBS. This again is the outcome of well managed logistics and well...