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BELGRADE GATE, Petrovaradin

ANNUALREPORT

2

ANNUAL REPORT 2011

PROJECT THE PLACE I LOVE

BANCA INTESA A.D. BEOGRAD

As the leading bank in the domestic market measured by all performance indicators, Banca Intesa is striving for the best possible results not only in business but also in its commitment to invest in the development of the community in general. In an attempt to help preserve the Serbian cultural and historical heritage, Banca Intesa launched a unique corporate social responsibility project, The Place I Love. Owing to this worthy initiative, a list of more than 1,300 localities was compiled, while nearly 200,230 citizens gave their vote to help select three facili-ties that will be renovated and saved from oblivion.

3BANCA INTESA A.D. BEOGRAD

Project finalists

ANNUAL REPORT 2011

4 BANCA INTESA A.D. BEOGRAD

ANNUAL REPORT 2011

BELGRADE GATE, Petrovaradin

Built from 1692 to 1780 on a hill above the Danube as a fortification, Petrovaradin consists of the Upper and the Lower Town. The Upper Town is a fortress, surrounded by high ramparts with steep, serpentine slopes, while the Lower Town consists of a small settlement with nar-row streets. Belgrade Gate is one of the most monumental structures preserved in the Lower Town. The vaulted gate is of classicist style with two façades of different shape and propor-tions - the outer, 20 m long, and the inner, 40 m long, both 10 m high. The entrance façade has six profiled columns, two iron-decorated windows and Novi Sad coat of arms. The second façade has three oval and two rectangular passages, with eight columns. The 20 m deep Gate has four in-built guardhouses and two entrances into side rooms. On both sides there are two car and two pedestrian passages.

ANNUAL REPORT

2011.CONTENTS


ANNUAL REPORT 2011

KEY FINANCIAL INDICATORS 09

LETTER FROM THE CHAIRMAN OF THE MANAGING BOARD 10

INTRODUCTORY REMARKS OF THE PRESIDENT OF THE EXECUTIVE BOARD 12

MACROECONOMIC ENVIRONMENT AND BANKING SECTOR 16

RETAIL BANKING 24

CORPORATE BANKING 30

TREASURY AND INVESTMENT BANKING 36

CORPORATE SOCIAL RESPONSIBILITY 40

FINANCIAL STATEMENTS 46

ORGANIZATIONAL STRUCTURE 144

BUSINESS NETWORK 145


ANNUAL REPORT 2011

REMAINS OF THENATIONAL LIBRARY,Kosančićev venac

The National Library, founded in 1832, had around 300,000 books, 1,390 hand written books, charters and other writings, over 100 of which on parchment, which dated back from the 12th, 13th and 14th century. It also had collections of Turkish manuscripts, books printed from the 15th to the 17th century, old maps, pictures, newspapers, a collec tion of all books printed in Serbia from 1832, as well as those printed in the neighbouring countries, but also complete libraries of Vuk Stefanović Karadžić, Đura Daničić and others. On the eve of bombing at the start of World War II, on April 1, 1941, everything was ready for library evacuation, but the Ministry of Educa-tion prohibited the evacuation of educational and cultural institutions of Belgrade on April 3 and ordered that all valuable objects be put in the basement. The library was hit by bombs on April 6. Everything in it is beli eved to have burnt down.


ANNUAL REPORT 2011


ANNUAL REPORT 2011

in thousands of dinars

Banca Intesa Beograd 2011 2010 2009

Income Statement

Net interest 19,437,755 17,345,394 15,189,583

Net fees and commissions 5,435,066 5,164,483 4,750,314

Pretax income 10,689,733 8,456,120 6,677,923

Taxes 1,113,156 871,597 466,084

Income from deferred tax assets and liabilities 23,673 35,407 5,792

Losses from deferred tax assets and liabilities 9,410 0 -205,324

Profits 9,590,840 7,619,930 6,012,307

Balance Sheet

Callable deposits and loans 83,162,819 51,409,640 75,035,256

Deposits and loans 249,337,725 245,087,290 181,075,737

Other investments 11,521,581 10,270,578 4,260,122

Transaction deposits 84,678,429 65,078,801 63,897,605

Other types of deposits 150,686,366 171,432,085 144,440,627

Borrowings 57,106,462 45,255,242 30,700,608

Capital 80,414,325 57,289,122 49,786,038

Net Balance 392,322,689 359,122,995 307,938,537

Indicators

Profits / Assets 2.72% 2.35% 2.17%

Profit / Total Capital 13.29% 14.76% 13.41%

Income from interest / Assets 7.92% 7.42% 8.08%

Interest expense / Liability 2.97% 2.59% 3.15%

Capital adequacy 16.86% 18.62% 17.67%

Net asset / Employee 122,601 116,221 103,370

Number of Employees 3200 3090 2979

KEY FINANCIAL INDICATORS


ANNUAL REPORT 2011

LETTER FROM THE CHAIRMAN OF THE MANAGING BOARD

Ladies and gentlemen,

It is a great honour for me to share with you the achievements that Banca Intesa made in 2011,

key business indicators. Against the adverse impact of the global economic slowdown and, in

as well, Banca Intesa recorded continued growth in all segments of operation while making

banking model that we operate and our unrelenting focus on clients.

.stceffe gnigamad sti yb detceffa ylralucitrap tnemtsevni ngierof dna edart htiw ,enoz orue ehtGiven that the EU accounts for around 55% of the country’s foreign trade, Serbia was no exception to the negative impact of the euro zone crisis, which put additional pressure on the existing problems in the domestic economy. Even though Serbia’s GDP expanded 1.6 percent

unemployment was on the rise, local demand weakened, and liquidity in the real economy fell considerably. In such circumstances, the capacity of the business sector to borrow and repay was limited to a great extent. With the NPL ratio reaching 19 percent at the end of the year, banks have become increasingly cautious in risk management and risk taking, and resorted to a conservative lending policy.

-proving to 2.17, as well as a strong capital position. The capital adequacy ratio rose to 19.1 percent, well above the required minimum of 12 percent, which provide more than adequate protection from potential turbulences. In addition, banks are relying on a strong domestic

the year at 1.2 percent and ROE at 6 percent, while coverage of credit portfolio by loan loss reserves and loan loss provisions remained high.

Operating in such a demanding business environment, we demonstrated resilience and strength, and continued to actively meet the growing needs of our clients. With our universal


ANNUAL REPORT 2011

we will succeed in our goals once again.

Sincerely,

Dr. György Surányi,Chairman of the Managing Board

both capital and total assets, thus further strengthening our leadership position. Also, stable -

able market lead on all fronts. Despite lending growth, we preserved the quality of our assets, keeping NPLs below industry average. On top of all this, our strong capital position was further bolstered by a capital increase of 130 million euros coming from our parent group, Intesa San-paolo, which provided us with even bigger capacity for further lending growth and for support

-

We ended the year with a stronger client base and a wider branch network, also boosting our

our clients. At the same time, we continued providing dynamic support for the Serbian gov-ernment’s program of state-subsidized lending for the economy, emerging once again as the most active bank in the domestic market in this regard. Our success and achievements were

Business New Europe, which once again named us the best bank in Serbia.

All macroeconomic indicators show that market challenges and business uncertainties are slated to continue into 2012. Against the backdrop, we will keep operating in a highly disciplined and prudent manner, putting more efforts into advancing all business processes, increasing

operating platform, which will enable us to back our customers, while providing stable support to the government in a bid to help revive economic recovery and encourage growth.

Finally, on behalf of the Managing Board, I would like to extend my appreciation to Banca Intesa’s staff and management for their strong dedication to meeting the strategic goals of the Bank, and for their hard work and commitment to delivering the highest quality service that has always been the keystone of our leadership position in the Serbian banking market.


ANNUAL REPORT 2011

Dear shareholders,

It is my pleasure to present, on behalf of the Executive Board, the results that Banca Intesa achieved in 2011. Despite a challenging macroeconomic environment, Banca Intesa recorded dynamic growth in all key business segments last year. The continuity of the Bank’s successful results is based on full adherence to the fundamental principles of prudent risk management that provide foundation for our business philosophy.

The past year was marked by a slowing global economy and an escalation of the euro zone debt crisis, whose negative effects have brought additional burden upon the local market. The

-tion for a more rapid economic recovery and emergence from crisis. Domestic consumption posted a decline, while unemployment increased to nearly 24 percent. At the same time, the central bank responded to recessionary effects with a slight relaxation of monetary policy,

planned range, and the domestic currency was relatively stable during the period under obser-vation. On the other hand, foreign direct investments, which doubled compared to 2010, were a bright spot. Despite a number of problems that the banking sector faced in the past year, it managed to maintain lending activity and end the year liquid and adequately capitalized.

In such circumstances, Banca Intesa fully preserved its solid capital position and high level of liquidity, further strengthening its leadership in the domestic banking market.

Owing to the stability and strong support of our parent group, Intesa Sanpaolo, the Bank’s capital was increased by additional 130 million euros, considerably strengthening our capa-

citizens. Our total assets rose by more than nine percent relative to the end of 2010, to 392.3 billion dinars, which represents more than 15 percent of total assets in the banking sector. Despite a trend of slowing lending activity in the market, we reported growth in total loans of almost nine percent. Corporate loans reached 198.5 billion dinars, a more than nine percent increase over 2010, while loans to citizens rose by eight percent to 78.9 billion dinars.

INTRODUCTORY REMARKS OF THE PRESIDENT OF THE EXECUTIVE BOARD


ANNUAL REPORT 2011

preserve Serbian cultural and historical heritage, while raising awareness of the importance of these sites and national treasures.

Our constant drive to improve the quality of our operations and the consistency with which we implement our responsible and prudent business strategies, but also our efforts to improve

complex market conditions. The best evidence of these achievements can be found in the numerous ackno wledgements and awards we have received from reputable international and local media.

Even though all macroeconomic forecasts clearly indicate that economic uncertainty and nega-

continuing our cautious risk management policy. We will seek to maintain our leading market position, while at the same time providing value added for our shareholders and for the com-munity at large.

In closing, I would like to thank, both personally and on behalf of the Executive Board, all Ban-ca Intesa employees who, with their professionalism and dedication, provided key contribution to our excellent results in 2011. I would also like to thank our clients and business partners, as well as members of the Managing and Supervisory Board, whose support played a major role in our business success this past year.

Sincerely,

Draginja ÐuriæPresident of the Executive Board

Stability and reliability, as well as a solid capital position, played a dominant role in enabling Banca Intesa to reinforce its market leadership in total deposits as well. A strong focus on

236.8 billion dinars, representing a growth of more than 18 percent over the previous year. Retail savings went up by more than 12 percent, while corporate deposits rose by as much as 26 percent. Our efforts to achieve business excellence and to improve continuously the quality of services provided to customers were rewarded by the constant growth of our client base.

exceeded 1.54 million. Dynamic expansion in key balance sheet items, together with the full

Determined to provide, as in all the previous years, stable support to the Serbian government in its endeavors to stimulate economic activity and jumpstart recovery, we remained the most ac-tive bank in the market in 2011 in terms of participation in the program of subsidized lending to businesses and individuals. We also continued successful cooperation with leading international

sized enterprises as well as public companies highly favorable loans for infrastructure projects, entrepre-neurship development, working capital and investments. Meanwhile, the unique blend of creativity, knowledge and experience of our development team ensured the effective continuation of work on the further improvement of our portfolio of products and services which certainly makes us stand out from competition. In light of the dynamic market changes we developed new service

-cept that provides the highest quality service for our most prestigious clients, and we also devised

our market position in payment cards operations, where Banca Intesa is the absolute leader in terms of the number of payment cards issued, as well as the number and volume of transactions.

As a bank that truly understands the needs of the community and invests generously in social values, we participated in numerous humanitarian efforts in 2011 as well. We are proud of our longstanding relations with major humanitarian organizations in Serbia and of our joint results.

particular mention as a unique project of this kind in Serbia which we initiated in order to help


ANNUAL REPORT 2011

RAMPARTS, Novi Pazar

The Novi Pazar fortress is located in the very centre of town, on the right hand bank of the Raška River. It was built by one of the most renowned Ottoman commanders, Isa-Bey-Isahović, in the 15th century when founding the town of Novi Pazar on the crossroads of caravan trails connecting Bosnia, Dubrovnik and south Adriatic with Constantinople and Thessaloniki. On the basis of the remains of ramparts, bastions and moats, a triangular base of the fortress was identified, consisting of three angular bastions, fortresses of polygonal bases and different dimensions. After the Turkish defeat under the walls of Vienna in 1683 and the Austrian pene-tration to Skopje, Turkish authorities commenced the extension and fortification of the former construction. During the reign of sultan Abdulaziz (1861-1876) two new towers were built, an arsenal, a smaller mosque and new barracks.


ANNUAL REPORT 2011


ANNUAL REPORT 2011

During the slow economic recovery of 2010, Serbia’s gross domestic product (GDP) showed weak growth of 1.0%; yet, in 2011, GDP grew by 1.6% yearonyear. This change was stimu-lated by growth in foreign investment and in net exports.

Consumer prices were above the target tolerance band (4.5% ± 1.5%) throughout the year, reaching their peak in April (+14.7 yearonyear). By the end of the year, consumer price index (CPI) almost entered the target tolerance band (7.0% year-on-year). In addition, the National Bank of Serbia (NBS) began easing monetary policy in June, bringing down the policy rate to a level of 9.75% by the end of December 2011.

Foreign investors’ interest increased in 2011, and foreign direct investment (FDI) doubled over the previous year, reaching the precrisis level of EUR 1.8 billion. Credit agencies confirmed Ser-bia’s long and shortterm foreign and local currency sovereign credit ratings at ‘BB/B’ (stable).

In 2011, Serbia’s ranking as measured by the Global Competitiveness Index (GCI) rose from 96th to 95th place, out of 142 countries; while, according to the World Bank’s Doing Business index, Serbia’s ranking was lowered from 89th to 92nd place.

In September 2011, the International Monetary Fond (IMF) approved an 18-months preca-utionary stand-by arrangement for Serbia of EUR 1.1 billion, with the objective of maintain-ing macroeconomic and fiscal stability while improving the investment climate. The main advantages of the IMF arrangement are: (1) preventative measures against unpredictable crises (specifically for capital inflow); (2) the impact on the preelection political cycle, as political parties will not be able to misuse money from the budget for their pre-election campaigns; and (3) the possibility (if necessary) of using some EUR 1.1 billion defined by the arrangement.

In the first quarter of 2012, the European Council decided to grant Serbia the status of can-didate for membership to the European Union block, which will help improve the country’s image in the investor’s community.

MAcrOEcONOMIc ENVIrONMENT IN 2011

GDP grew by 1.6% year-on-year in 2011. Contribution to GDP growth came from foreign investment and net exports, while final domestic consumption was negative.

MACROECONOMIC ENVIRONMENTAND BANKING SECTOR


ANNUAL REPORT 2011

One of Serbia’s structural economic problems is that industrial productivity has yet to rebound from the 1990s. Currently, Serbia’s main industrial sectors are food processing, chemicals, and the metal industry of which the last two in the past four years experienced particularly sharp growth. In 2011, industrial production increased by 2.1% while the manufacturing industry’s output decreased by 0.4%. Industrial production recorded positive growth in 2011 mainly due to increase in electricity and the mining industry.

The NBS has been setting inflation targets since early 2009, and the choice of an inflation-targeting regime was strengthened by the awareness that permanently high rates of infla-tion adversely affect economic growth and employment. The focus of monetary policy should therefore be shifted from short-term demand management to medium-term price stability, which lies at the core of inflation targeting.

Even though 2011 targets were 4.5% ± 1.5%, CPI was above the target tolerance band through the year. Inflation picked up in the second half of 2010, and continued through early 2011, from 4.2% in June 2010 to 14.7% in April 2011 as a consequence of rising food and administered prices. However, since April inflation has declined as a result of past monetary policy measures, the weakening of cost-push pressures on food prices, and low aggregate demand.

By the end of 2011, CPI decreased to 7% year-on-year, which was just above the tolerance band (4.5 ±1.5). In January 2012, CPI fell to 5.6% year-on-year and entered the target tole-rance band for the first time in seventeen months.

Inflation is expected to remain within the target tolerance band during 2012. It is possible that in the second half of 2012 and at the beginning of 2013, inflation might move toward the

Serbia’s economic growth with major foreign trade partners declined during the course of the year. This is bound to weigh down on export demand and investment in Serbia, and there is no reason to expect GDP to grow by more than 0.5% in 2012. However, it is estimated that net exports will boost GDP in 2012, due to new investments agreed upon earlier, notably in the automotive industry (FIAT Kragujevac). Fixed investment and final consumption will provide negative contributions in the upcoming year.

Real GDP (percent change, unless otherwise indicated) 0.5Real domestic demand -1.4Consumer prices (average) 4.1Consumer prices (end of period) 4.5Unemployment rate (in percentage) 24.2General government finances (in % of GDP) Revenue 40.0Expenditure 45.3Fiscal balance (cash basis) -4.4Gross debt 53.7External debt 85.0Balance of payments (percent change, unless otherwise indicatedCurrent account balance -8.6Export of goods 27.2Import of goods 42.3Trade of goods balance 15.2Gross official reserves (in EUR billion) 11.2

Contribution to y-o-y GDP growth (in %)

IMF projections for 2012

-3.5

1.0 1.65.4

3.8

2007 2008 2009 2010 2011

Domestic demand Total final consumption Investment

Net exports GDP (%)

Contribution to y-o-y CPI

Tolerance band

Regulated prices Non-food core inflation

Food inflation

CPI

Tolerance band

Tolerance band

Targeted inflation

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

11.2

12.6

14.114.7

13.412.7

12.1

10.5

9.38.7

8.17.0

0.6

2.7

2.5

5.6

-0.7


ANNUAL REPORT 2011

The NBS attempts to achieve the targeted rate of inflation through changes in its key policy rate, which is the interest rate charged on two-week reverse-repo operations. This interest rate represents the key monetary policy instrument (other instruments are reserve requirements and operations in the foreign exchange market). The easing in monetary policy began in June, bringing down the policy rate to the level of 9.75% at the end of the year. In 2011, the repo rate yielded 11.54% on average.

The central bank maintains a floating exchange rate regime which gives it the right to inter-vene in case of excessive daily fluctuations in the foreign exchange market, threats to financial and price stability, and risks to the adequate level of foreign exchange reserves. In 2011, the dinar gained 0.8% against the euro and lost -2% against the dollar, in nominal terms.

Despite exhibiting high short-term volatility in 2011, the dinar exchange rate was relatively stable and required little intervention by the NBS, which sold a total of EUR 90 million and bought EUR 45 million on the foreign exchange market.

At the beginning of 2012, the dinar started to depreciate as the ongoing crisis in the euro area spilled over to the Serbian economy through two transmission channels: foreign trade (around 55%

of Serbian export is to the EU), and finan cial channels.

NBS overall foreign reserves reached EUR 12.058 million at the end of December 2011. Net foreign exchange reserves, defined as foreign exchange re-serves less the banks’required reserves and drawings from the IMF, came to EUR 6.660 million. This level of overall foreign reserves is satisfactory by all crite-ria, as it covers M1 by 430%, short-term debt by 1,771%m and more than eight months of imports. Economists expect that around EUR 2 billion in fo-reign exchange reserves will be spent by the end of 2012. This money will be used by commercial banks, by NBS interventions on foreign exchange markets to strengthen the dinar, and for covering Serbia’s trade deficit.

upper bound of the target tolerance band. As the decree restricting trade margins ceases to be valid in July 2012, the prices of processed food could cause minor inflationary pressures. The second half of 2012 could also present a reversal in fruit and vegetable prices, which produced disinflationary effects in the previous period.

Projection of CPI y-o-y

0

2

4

6

8

10

12

14

16

3 6 9 12

2011

3 6 9 12

2012

3 6 9

2013

12.60

14.1014.70

13.40

12.7012.10

12.00 12.25 12.50 12.5012.00 11.75

11.20

10.50

9.308.70

8.10

7.00

12.0011.75

11.2510.75

10.00 9.75


Inflation (y-o-y)

Key policy rate NBS (p.a.)

CPI and key policy rate NBS (in %)

EUR/ RSD and USD/ RSD exchange rates, end of month

76.875.0

73.2

67.1 67.470.6 71.3 70.4

74.771.8

78.080.9

104.6 103.2 103.699.6

97.0

102.5 102.1 101.6 101.2 100.5104.0 104.6


USD EUR

2007 2008 2009 20112010

12.058

10.855

9.082

12.027 11.686

FX reserves, in EUR million


ANNUAL REPORT 2011

The IMF mission emphasized the importance of reform in the legal framework of the labor market. The IMF believes that current labor market regulations have resulted in weak produc-tivity as a result of protecting the jobs of older workers in shrinking industries while forcing younger workers into temporary positions. According to the IMF, the new government should implement the agreed changes in the labor law so that the calculation of severance pay is based only on the duration of employment with the last employer, and the duration of fixedterm contracts is extended from one to three years.

In 2011, the Serbian government revised the budget deficit to 4.5% of GDP (from 4.1% of GDP) or from RSD 120 billion to RSD 142.7 billion. Consolidated fiscal deficit amounted to RSD 158.3 billion, which is RSD 5 billion more than that planned by fiscal policy. The higher fiscal deficit was a consequence of lower inflow of public revenues, while public expenses were even lower than planned.

According to the new budget system law, the government was supposed to continue keeping public debt-to-GDP ratio below 45% in 2011. However, at the end of the year, public debt- GDP breached the limit (45.1%), totaling EUR 14.47 billion. The IMF expressed its concern saying that public debt might be above Serbia’s legal debt ceiling (45% of GDP) in 2012, and also above the level considered appropriate for emerging market economies.

BANKING SEcTOr

The banking sector in Serbia consists of 33 banks, which employ 29,228 people in total.

Of these 33 banks, 21 are foreign owned. They account for 74% of total assets and 75% of total capital. The most significant foreign banks, in terms of their share of total banking sector assets, originate from Italy and Austria (22% and 19%, respectively), followed by those from Greece (15%) and France (10%).

In 2011, FDI reached EUR 1.8 billion, which was above the pre-crisis level of EUR 1.59 billion and double compared to 2010, when it recorded only EUR 0.83 billion. The top three investors were: Luxemburg (EUR 812 million), the Netherlands (EUR 241 million) and Austria (EUR 155 million).

Following the balance of payments adjustments in 2009 and 2010 through the dinar deprecia-tion and reduction in the current account deficit, real appreciation of the dinar in the previous year once again contributed to a widening of the external imbalance. Serbia ended 2011 with a current account deficit of EUR 2.968 million, which was 42.5% higher compared to 2010, but still lower by half than in 2008.

However, Serbia’s total trade recovered in 2011 as exports amounted to EUR 8.439.4 million (+14.1% yearonyear), while imports reached EUR 14.449.7 million (+14.5% yearonyear), causing a EUR 6.010.3 million deficit (14.95% yearonyear). Exportimport ratios main-tained the previous year’s level of 58.4%. Germany was ranked as the first major foreign trade partner in exports, with EUR 952.4 million, followed by Italy (EUR 936.6 million) and Bosnia and Herzegovina (EUR 852.6 million), while the Russian Federation (EUR 1.908.1 million), Germany (EUR 1.557.6 million), and Italy (EUR 1.293.7 million) were the major foreign trade partners in imports. The average net salaries and wages paid in 2011 amounted to RSD 37,853, and increased by +10.8% yearonyear in nominal terms while in real terms they declined by 0.4% yearonyear. The unemployment rate, based on the Labor Force Survey, increased to 23.7%, while the employment rate (35.3%) continued to decline.

FDI in Serbia since 2005, in EUR billion

200720062005 2008 2009 20112010

1.16

3.24

1.451.59

1.30

0.83

1.80

FDI by branch of activity, in EUR million

883

441406

14493

Wholesale and retail trade; repairof motor vehicles and motorcycles

Manufacturing

Financial and insurance activities

Real estate activities

Construction

External trade, in EUR million

5.9617.393

8.439

11.50512.622

14.450

-5.543 -5.229-6.010

Export Import Deficit

20112009 2010


ANNUAL REPORT 2011

Despite a high level of nonperforming loans (NPLs), banks are highly capitalized, providing more than adequate protection. Indeed, capital adequacy ratio is among the highest in the region. The capital adequacy of the banking sector is 19.1%, far above the prescribed 12%.

The banking sector is very liquid, with an average liquidity ratio 117% above the required minimum of 1. There is also a strong domestic deposit base, and there are virtually no direct investments in any highrisk financial instruments.

In addition, all profitability indicators are showing progress (ROA 1.2% and ROE 6%).

The only concern is the deteriorating NPL situation. Serbia has one of the highest NPL levels in the region, with many more NPLs in the corporate segment than in retail. However, coverage of credit portfolios by loan-loss reserves and loan-loss provisions remains high.

The IMF has recommended the adoption of a factoring law to allow non-lending institutions to take over recovery of nonperforming assets, as well as the expediting of bankruptcy court procedures. Recent changes to the law on corporate income tax may ease the financial burden of NPL write-offs.

In December 2011, a program to provide financial support to banks was adopted. Banks may voluntarily apply to sell their NPLs to the Deposit Insurance Agency, or they may request a capital injection from the government.

The NBS recently introduced a new Capital Adequacy Decision, which initiated significant recapitalizations of banks in 2011.


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LOG CHURCH,Aranđelovac

The Log Church in Darosava - St. Peter and Paul’s Cathedral, was constructed at the time of libe rated Serbia under the rule of Prince Miloš, during a great restoration of Orthodox churches and their liberation from secrecy to which they had been forced. The church is first mentioned in the 1833 census, and it is believed that it was built in 1832. It boasts an abundance of orna-mented details - porch fence, massive doors with rosettes, small window openings with inte-rior shutters, latch closing the door, an iconostasis from 1832, as well as the octagonal rosette on the ceiling. All elements have been carved in wood with stylized geometrical ornaments, painted red, green and white. In 1951 the church was put under the protection of the state as a cultural monument. Regular service in the church was performed until 2002, and now it is performed only on certain holidays.


ANNUAL REPORT 2011


ANNUAL REPORT 2011

Banca Intesa achieved positive retail results in 2011, despite challenging market conditions in the wake of the global financial crisis and drop in confidence in the banking sector and the euro towards the end of the year. However, continuous innovation of products and services, combined with a quick response to market signals and the dedicated, professional work of the Bank’s staff, helped the bank confirm its leadership in the market. As in previous years, Banca Intesa strengthened its business and experienced strong growth in all retail areas – individuals, small business, and agriculture – while maintaining a focus on asset quality.

INDIVIDuALS

2011 was a dynamic year for new business relationships, as Banca Intesa underscored its role as a pioneer in the Serbian market. In the second half of the year, the Bank entered the afflu-ent market segment through a personalized service model, Magnifica, providing a range of dedicated products and services to its valuable customers. Magnifica offices and relationship managers spanned the most important cities across Serbia.

The Bank also broadened its offerings in the mass market by improving existing products and services, and delivering the best customer experience possible. Banca Intesa worked hard

to simplify its processes, which reduced approval lead-times. A tailored offer was made for the pre-viously loanwise, nonbanked retired population, successfully providing Senior Cash loans for reti-rees up to 74 years old.

Significant efforts were made to increase the crosssell ratio (the number of products per customer), as well as to reactivate dormant customers. Besides dedicated campaigns for these customers, a spe-cial dormancy-prediction model was developed. This allowed Banca Intesa to increase its overall profitability per customer, as well as to increase customer activity rates.

The past year was also marked by the implemen-tation of the consumer protection law. The new

RETAIL BANKING

1.251.35 1.37 1.42

2008 2009 2010 2011

Number of customers (in millions)


ANNUAL REPORT 2011

Besides growing its portfolio, in the past year the Bank introduced the Visa Magnifica card allowing zero-fee cash withdrawal on Intesa Sanpaolo group ATMs. Contactless chips on the Bank’s payment cards made for fast and convenient payments.

Once again, Banca Intesa was the market leader with regard to the number of issued payment cards. At the end of the year, 1,169,540 payment cards were in circulation, which represents a year-on-year increase of 7.1%. A total of 819,476 debit cards were issued to individuals and 36,683 to legal entities. Credit cards were received by a total of 303,725 individuals and 9,656 legal entities.

The total value of approved limits for credit cards was EUR 229.57 million, an increase of 4% com-pared to 2010.

Significant efforts were put into strengthening the customer on-boarding process, as well as the activation of cards. In 2011, the Bank ran several campaigns, including ”spend and get” programs, for promoting customer card use. As a result, more than 20,000 dormant cardholders began using their payment cards. The Bank’s main goal of establishing credit-card holder usage behavior in the earliest phase was successfully achieved.

In its constant quest for solutions that reduce cash circulation and increase the use of electronic pay-ment solutions by customers, Banca Intesa conti-nued developing its Point of Sale (POS) network.

The Bank boasts the largest network of POS terminals in Serbia, which was further expanded in 2011 (to 23,177). Additionally, a continued desire to innovate led to the introduction of terminals for contactless payments.

regulations did not bring significant adjustments to the Bank’s daytoday business, since its operations were already based on its parent Group’s best prac-tices. This preparedness further strengthened the Bank’s good relationship with its customers.

Banca Intesa’s loan portfolio grew above Serbian market average rates, while the Bank’s focus on asset quality kept the NPL ratio well below market average. In terms of structure, the lending portfolio is dominated by mortgage loans, which at the end of the year accounted for about a half of the portfolio.

Despite the euro zone crisis, Banca Intesa managed to continuously grow its stable deposit base. Fur-thermore, at the initiative of the NBS, banks were called to moderate the interest rates paid on depo-

sits during November, the traditional savings month. Banca Intesa renewed deposits at matu-rity at lower rates than in previous years, thus reducing its cost of funding. Growth in deposits, which outperformed market average, showed that customers put a premium on the trustwor-thiness and reliability of the leading bank in Serbia. At the end of 2011, retail deposits were at the level of EUR 1,181,357,283, having grown 13% year-on-year.

PAyMENT cArDS

In the area of payment-card operations, Banca Intesa underscored its leading position in the Serbian market in 2011, in the number and volume of transactions and, indeed, in its overall portfolio. As in other areas of its operations, the Bank improved its procedures and processes to follow all innovations in the card business. Banca Intesa has an exclusive agreement with American Express for Serbia, and its portfolio is comprised of debit and credit cards of the American Express, Visa, MasterCard and DinaCard brands. The Bank is both the issuer and acquirer for all of these brands.

Deposits – indiduals (EUR million)

499.7528.8

618.5667.4

2008 2009 2010 2011

Loans outstanding – individuals (EUR million)

60.89

982.781,043.67

96.35

1,085.001,181.35

2010 2011

Total deposits

Dinar deposits

Foreign currency deposits

215.42224.31 219.82

229.57

2008 2009 2010 2011

Credit cards approved limits (EUR million)

728,784

284,058

744,349

279,493

1,012,842 1,023,842

793,417

298,601

1,092,018

856,159

313,381

1,169,540

2008 2009 2010 2011

Total payment cardsDebit cards Credit cards

Number of issued payment cards


ANNUAL REPORT 2011

Almost a half of all POS transactions in Serbia (45%) are made through Banca Intesa termi-nals. In 2011, Banca Intesa remained the leader in POS-acquiring business and managed to increase total turnover, year-on-year. The total volume increased by 7.75%, while the number of transactions grew by 8.37%.

SMALL BuSINESS

No area of today’s economy receives more attention than small businesses, which are widely viewed as the engine of job growth. To expand its offerings for its small-business clientele, Ban-ca Intesa made several agreements with the Development Fund of the Republic of Serbia, the European Fund for Southeast Europe (EFSE), the Council of Europe Development Bank (CEB),

as well as the Guarantee Fund of the Autonomous Province of Vojvodina, to provide the market with subsidized loans, lowerthanmarket rates, and loans for previously unbanked segments.

In 2011, cooperation was established with a number of business entities, and as of December 31, 2011, the customer base reached 112,253.

Small business is the focus of Banca Intesa’s retail activities. The Bank has been increasing lending to this segment, providing the highest quality of products and services to creditworthy borrowers. Through loans to micro enterprises and entrepre-neurs, Banca Intesa retained a leading position in this market segment. The Bank’s loan portfolio saw strong growth, reaching EUR 184.19 million at the end of the year.

At the end of 2011, the total amount of small business deposits stood at EUR 119.98 million.

In early 2011, Banca Intesa concluded an agreement that regulates relations with the Develop -ment Fund of Serbia, regarding the package of economic measures the Serbian govern-ment has proposed to overcome the economic crisis. The agreement includes subsidized interest rates and provides better terms for loans to maintain solvency for working capital financing and for the export and investment projects of entrepreneurs and legal entities.

The Bank continued providing investment and workingcapital loans to entrepreneurs and legal entities via an EFSE credit line under the Framework agreement for the granting of individual loans signed in March 2010. The main feature of those loan models was that interest rates for the loan user are more attractive, based on the cost of funding, than those for comparable, same-pur-pose commercial loans from both the Bank and others. This led to the enlargement of the Bank’s small-business credit portfolio. The last tranche of the credit line was drawn in the last quarter of 2011.

A new tranche, worth EUR 1 million, was drawn in 2011 under the CEB credit line for micro loans for entrepreneur development. These loans sought to support entrepreneurs with new ideas aimed at increasing the number of employees and spreading new business activities. On the other hand, this contract further contributed to the strengthening of the comparative advantages of Banca Intesa in the Serbian market as a responsible corporate citizen.

Furthermore, the Bank extended its successful cooperation with the Guarantee Fund of Vojvodina, further confirming its efforts in the field of corporate social responsibility. This co-operation program included start-up loans for unemployed women and loans for women who have been running businesses for up to three years. The interest rates were set significantly lower than current market rates, as part of efforts to create opportunities for underprivileged customers.

2008 2009 2010 2011

100,455 103,904110,867 112,253

Number of customers

POS network* Banca Intesa and other banks’ cards

Loan outstanding - small business and agriculture (EUR million)

2008 2009 2010 2011

133.26

153.14167.55

184.19

2008 2009 2010 2011

104.64 104.01 102.27

119.98

Deposits - small business and agriculture (EUR million)

72,038

31.57

67,802

29.82

74,899

30.94

80,706

33.53

201020092008 2011

Number of transactions (millions)

Turnover (all cards* RSD million)


ANNUAL REPORT 2011

cuSTOMEr rELATIONShIP MANAGEMENT (crM)

All Banca Intesa initiatives have been complemented by CRM solutions, which have provided the Bank with the necessary information and market intelligence to better understand its cus-tomers’ financial needs and to improve insights into their behavioral profile.

During 2011, CRM continued to support Retail Division activities regarding insight and interac-tion with customers. About 200 CRM campaigns ran using different channels including direct mail, branches, call center, SMS and e-mail, for all retail segments. An increased number of branch campaign initiatives from Banca Intesa’s regional centers contributed to increased us-age of the CRM application, compared to 2010.

Moreover, CRM was crucial for a number of activities, including support for the Magnifica service model launch as well the customer-reactivation campaign and the development of the dormancy-prediction model. CRM also provided application support for strategic processes including complaint management and external sales management.

Strength, flexibility, and innovation are just some of the reasons for why 1.5 million clients, on both the individual and small-business fronts, choose Banca Intesa to be their reliable business partner.

In 2012, it is Banca Intesa’s intention to continue providing the best solutions to its customers, with a standard of excellence in service which fully satisfies their needs.

AGrIcuLTurE

In a bid to support the key strategic sector of the Serbian economy, Banca Intesa put in place a tailored offer for agriculture producers. In addition to loans for the purchase of mechanization and the launch of the Farmer Hit account bundle, the Bank concluded several agreements that supported producers in their need for agricultural machinery, land and insurance policies. Spe-cial arrangements were concluded with the Ministry of Agriculture, Trade, Forestry and Water Management, as well as local governments, the Guarantee Fund of Vojvodina and the EFSE.

Banca Intesa’s dedication to this segment allowed it to increase market share by 2.2%, yearon-year, to 16.4% at the end of 2011.

rETAIL NETWOrK

During 2011, Banca Intesa further strengthened its retail network after investing significant resources to enhance local coverage and client service and satisfaction, as well as the quality of work conditions. One in five branches saw either full or small refurbishment in the past year, while four new branches were opened including a selfservice one. The Bank’s retail network at the end of 2011 consisted of 208 branches, including eight with offices specialized for mort-gage loans, in 115 cities across Serbia.

As part of the refurbishment process, a new branch format was adopted, which added sales positions through better space organization while widening waiting areas for better service and comfort.

DIrEcT chANNELS

Banca Intesa’s use of direct channels strengthened over the course of 2011. The growth of online banking demonstrated the Bank’s continued commitment to introducing new and innovative tools to manage customers’ finances. A significant increase in the number of active online banking users was achieved. Almost 100,000 customers were active users of Intesa Online, a yearonyear increase of 27.7%. At the same time, the Bank introduced business payment-card statements by e-mail.

In 2011, Banca Intesa was the only bank in Serbia to provide payment card processing for Internet transactions. In the course of the year, more than 100 domestic on-line merchants relied on the Bank for ecommerce services.

Customers want the same kind of service when they bank by telephone. Banca Intesa’s welltrained call center team and its stateofthe art call center technology helped the Bank meet those expectations. Besides serving callers, the call center also helped follow up on many Retail Division campaigns.

The Bank’s reach does not end there. Banca Intesa is proud to distinguish itself in the field of innovation by becoming the first bank in Serbia to offer access to accounts from mobile phones. The Intesa Mobi service was launched in 2010, but was further upgraded in 2011 by the launch of special versions for both iOS and Android platforms. Banca Intesa’s multifunc-tional ATMs, roundtheclock selfservice areas and ebanking solutions allow customers to contact the Bank 24 hours a day.


ANNUAL REPORT 2011

PUBLIC SWIMMINGAREA,Sombor

With the construction of the Great Bačka canal in the 18th century, the residents of Sombor got their first public swimming area. In the 1930s, the Strand (beach) was built on the left hand side of the Apatin bridge, where it is still located today. Today, the public swimming area in Sombor comprises an outdoor Olympic-size pool of 50 m x 25 m, a large outdoor pool of 25 m x 8 m, beach volleyball courts, 5-a-side soccer pitches, as well as a children’s playground. Apart from these facilities, in the area there is also a derelict building that was once used as a cafe and res-taurant. The beginnings of water polo in the former Yugoslavia are tied to this swimming area.


ANNUAL REPORT 2011


ANNUAL REPORT 2011

Owing to the strong support of its parent Group and to the business policy and strategy upon which the Bank’s leadership position on the domestic market is based, Banca Intesa ended 2011 with solid results, achieving its business goals and fulfilling the expectations of its share-holders in all business segments.

Throughout the year, Banca Intesa was fully committed to meeting the needs and expectations of its clients. For a third year in a row, the Bank actively supported the Government of the Republic of Serbia’s package of measures, leading the banking sector in terms of the number and amount of subsidized loans provided to businesses. At the same time, it secured funds from international credit lines in order to provide most affordable funding and expert consul-tant support for its clients.

Although the negative impact of the economic crisis was less visible in the banking sector than in the real economy, banks are operating in interaction with the rest of the economy and the difficulties facing the businesses are reflected on banks as well.

CORPORATE BANKING

Share in loans and deposits

Corporate loans

Corporate deposits

2009

16.88% 16.96%17.70% 18.00% 18.20% 17.80%17.14%

19.03%20.00%

23.10% 23.60%

22.00%

2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011


ANNUAL REPORT 2011

Banca Intesa confirmed its leadership position both in deposits and in loans, increasing its loan portfolio in 2011.

As in previous years, Banca Intesa remained the most active bank in the market with regard to supporting the Serbian government’s package of economic measures and supplying subsidized lending to businesses, with the Corporate Division providing more than 1,000 subsidized loans in 2011, totaling over EUR 200 million.

The Corporate Division met its budgeted targets, and the Bank not only managed to retain its last year’s market share in corporate banking, but succeeded in increasing it, posting a rise in both loans and deposits and strengthening its leadership position.

The number of corporate clients remained unchanged relative to the previous year, mainly be-cause Banca Intesa has a significant market share and the market left little room for any major acquisition of liquid and creditworthy clients in a difficult year such as 2011. At the same time, Banca Intesa’s operations with Italian and other international clients intensified, leading to an even larger market share in this segment.

Owing to its offer of products and services, as well as professional attitude and partnership with clients, Banca Intesa reaffirmed their confidence in a period of economic difficulty, offering them financial support and security, which resulted in increased total deposits and market share in deposit operations.

Deposits (in EUR thousand) Loans (in EUR thousand)

Number of clients**excl. entrepreneurs and small business clients of the Retail Division

Market share in deposits (by deposit currency)

Dinar deposits Foreign currency deposits

562,

203

511,

431

521,

357

630,

451

637,

185

594,

184

296,

458

342,

992

313,

162

375,

569

512,

893

487,

419858,661 854,422 834,518

1,006,021

1,150,0771,081,604

2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

Corporate dinar deposits

Corporate foreign currency deposits

2009

19.10%20.82%

23.00%

25.60%24.30%

21.80%

14.35%

16.87% 16.50%

19.90%

22.80% 22.30%

2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

Dinar loans Foreign currency loans

1,43

1,57

5

1,64

6,43

6

1,69

1,41

2

82,8

04 117,

879

113,

760

106,

077

105,

581

103,

841

1,514,378

1,764,314 1,805,1721,898,488 1,953,768 1,943,934

2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

1,79

2,41

1

1,84

8,18

7

1,84

0,09

3

LC

SME

2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

331

443405 424

540567

2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

7,6798,387

7,0287,759 7,897 8,040


ANNUAL REPORT 2011

The funds from the credit line, which has a repayment period of up to 10 years, will be pri-marily used for financing small and mediumsized business investment projects, procurement, reconstruction, or extension of fixed assets, as well as financing working capital required for the implementation of investment projects that also seek to preserve or increase the number of employees.

KfW crEDIT LINE

In 2011, Banca Intesa continued to provide active support and lending for public companies and local governments using German KfW development bank funds with the aim of supporting the implementation of infrastructure and other investment projects. An additional EUR 30 million has been secured for this purpose.

Since the beginning of its cooperation with this financial institution, the Bank has approved more than EUR 70 million worth of loans for over 300 projects for financing local government capital investments aimed at improving the lives of citizens.

ITALIAN crEDIT LINE

As of 2005, Banca Intesa has been offering loans from the Italian credit line to its clients as part of its standard offering.

In December 2011, the Bank signed with the NBS an agreement for a new, second Italian line of credit, worth EUR 30 million. The funding will be available during 2012 to public enterprises and utility companies.

DOcuMENTAry LETTErS Of crEDIT, GuArANTEES AND DOcuMENTAry cOLLEcTIONS

The total number of banking instruments related to goods imports and exports is still rising, with a shift in the structure of the instruments towards documentary collection and away from guarantees and letters of credit. The number of processed documentary collections soared by nearly 50% in 2011 relative to the previous year, with the number of vostro letters of credit and guarantees where the Bank acted as an advising bank also posting growth, suggesting that businesses are increasingly aware of the importance of these instruments.

Expertise and knowledge in the areas of guarantees and documentary collection is the reason why clients choose Banca Intesa as a partner to help them conduct international transactions. A team of Banca Intesa experts has begun holding training sessions, seminars and workshops intended for the clients in order to promote these banking products. This practice is set to continue in the coming years.

Despite the current slow-down in economic activity, the number and volume of issued guaran-tees in domestic trade remains high.

Owing to its prudent lending and risk management policy, in 2011 Banca Intesa maintained the NPL level well below the banking sector average.

EBrD crEDIT LINE

In mid2011 Banca Intesa and the European Bank for Reconstruction and Development (EBRD) signed an agreement on the use of the “Western Balkans Private Sector Support Facility” credit line, owing to which the Bank continued to offer attractive products to its corporate clients.

Funding amounting to EUR 10 million has been earmarked for financing small and mediumsized business investments in facilities, equipment, software, management system improve-ment and general construction and modernization, in order to improve compliance with one or more EU directives in environmental protection, employee safety, and product safety and quality.

In order to help the successful implementation of individual projects, the EBRD has provided potential beneficiaries of this credit line with free consulting assistance of experts and the right to incentives amounting to between 10% and 20% of the loan, depending on the type of project, contingent upon successful project completion, which significantly reduces the loan cost and makes the credit line more attractive.

cEB crEDIT LINE

In August 2011, Banca Intesa and the Council of Europe Development Bank (CEB) signed an agreement on the use of a new credit line worth EUR 20 million.

Corporate dinar loans Corporate foreign currency loans

2009

17.36% 17.2%18.0% 18.4% 18.5% 18.1%

11.39%

14.7% 14.5%13.90% 13.9% 13.5%

2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

Market share in loans (by loan currency)


ANNUAL REPORT 2011

Apart from its electronic payment system, the Bank is constantly investing efforts in broaden-ing its product range and creating more benefits for its clients.

fAcTOrING

The Factoring Department experienced a growth trend in 2011 in factoring product sales. Factoring allows companies to solve their need for optimum liquidity quickly and efficiently. In addition to clients gaining simpler access to liquid funds, when the Bank purchases receivables, prompt maintenance of receivables accounts, reconciliation of open items, their collection and all operational collection activities are turned over to the Bank, which improves clients’ operating efficiency.

As in previous years, domestic factoring had the highest share in 2011. Domestic factoring accounted for 66.5% of overall turnover and international factoring for the remaining 33.5%.

Keeping in mind the business environment, Banca Intesa believes that there is real potential for further development of factoring in the domestic economy. In the following period the Bank plans to maintain its current market share in this business segment, which will require putting additional efforts into promotion and sales of this product considering the fact that clients generally prefer classic shortterm financing over factoring.

Despite forecasts that the economic crisis would give way to economic recovery and prospe-rity in 2011, the optimistic scenario did not become reality. During the past year, the economy remained heavily influenced by the crisis, as evidenced by prominent illiquidity of businesses, a large number of frozen corporate bank accounts, substantial difficulties with the collection of receivables, increasing defaults and NPL amounts, as well as minimal international and domestic investment activities.

PrOjEcT AND SPEcIAL fINANcING

Bearing in mind the continuing negative impact of the global economic crisis, Banca Intesa did not change its strategy for project financing in 2011. Despite the modest growth of the overall portfolio, restrictive policy guidelines were followed in the financing of residential and business real estate, while the Bank focused on financing mediumsized residential construc-tion projects with an average loan amount of EUR 1.3 million, an average apartment size of 55 square meters, and mid-range quality of construction.

In order to spread risk and in circumstances when the banks were reluctant to compete, spe-cial finance projects in the form of syndicated loans and club deals were intensified to finance both projects and regular operations of large clients whose credit standing was not seriously affected by the global economic crisis, such as Telekom, which received a syndicated loan of EUR 470 million, or Farmakom, which received parallel financing with the International Finance Corporation (IFC).

Year 2011 saw a rise in the number of investors interested in renewable-energy projects. As a result of this increased interest, several projects involving wind farms, solar power plants and biogas were identified as having potential for project financing, so it is expected that some of these projects might be implemented in 2012.

PAyMENT OPErATIONS

As the leading bank in the domestic market, Banca Intesa is continually engaged in the in-novative development of software and access systems for its clients, in keeping with global trends and IT development, in order to provide them with the most up-to-date products and services. Banca Intesa places particular priority on ebanking services, ensuring maximum ease and convenience for its clients, as well as significant savings.

This is best demonstrated by the fact that the Corporate Division’s clients effected 78.5% of all payments electronically, with this percentage standing at 75.5% among SMEs and 92.9% among large companies.

Amount in EUR thousand Number

2009 2010 Q1 20112011 Q2 2011 Q3 2011 Q4 2011

385,709

335,242 345,409

131,884

69,527 64,644 79,354

4,9355,647 5,582

1,216 1,420 1,5021,444

2009 2010 Q1 20112011 Q2 2011 Q3 2011 Q4 2011

Guarantees and bill guarantees

88,600

131,600

242,800

36,590

76,570 82,320

47,320 156 146

603

87124

262

130

Amount of purchased receivables (in EUR thousand) Number of clients

2009 2010 Q1 20112011 Q2 2011 Q3 2011 Q4 2011 2009 2010 Q1 20112011 Q2 2011 Q3 2011 Q4 2011

Factoring (amount of purchased receivables and number of clients)


ANNUAL REPORT 2011

OLD BATH,Jošanička Banja

jošanička Banja is located on the slopes of Mt Kopaonik, in the valley of the jošanica river and its tributary Samokovka. It is 550 m above sea level, has the characteristics of a climatic spa and is among balneological settlements with the warmest water in Europe. It has five mineral water springs used for healing purposes. jošanička Banja has a long tradition in treating rheumatic ailments, and the first data on the organized use of the spa date back to 1922. The healing wa-ter of jošanička Banja was first used by the Turks in the 14th century. The Turks constructed a primitive, the so-called Old Bath, which was redecorated and extended in the 18th century. The new bath was constructed in 1935, when the spa was to a certain extent equipped.


ANNUAL REPORT 2011


ANNUAL REPORT 2011

In 2011, during a period of mild economic recovery, all aspects of the Treasury Department’s performance showed improvement. The escalation of the euro zone’s public debt in the final quarter of the year stressed the importance of adequate liquidity management as a primary goal for all financial institutions. Thus the Bank’s cautious longterm policy proved to be the right choice, as well as its primary guide in the task of securing liquidity.

Following a decline in the volume of foreign exchange trading due to the the global economic crisis, the Bank in 2011 set a record foreign exchange trading volume of EUR 7.2 billion in total.

Foreign exchange trading for corporate clients continued to grow, reaching an absolute maxi-mum turnover of EUR 4.2 billion, following a sharp decline in the midst of the 2009 crisis.

TREASURY AND INVESTMENT BANKING

2004

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2005 2006 2007 2008 2009 2010 2011

Foreign exchange trading in 2009-2011 (EUR million)

Foreign exchange trading for corporate clients (EUR million)

2009 2010 2011

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Corporate clients

Other banks

Retail clients

NBS


ANNUAL REPORT 2011

With a market share of more than 20%, Banca Intesa kept its lead in foreign exchange trading for corporate clients in Serbia.

Banca Intesa in 2011 maintained its lead in the purchasing of NBS securities and Serbian government bonds, with a market share of 12.37%.

Banca Intesa

Other banks

20.02%

79.98%

Share in foreign exchange trading for legal entities in 2011 Banca Intesa’s share in purchase of NBS securities and Serbian government bonds

Banca Intesa

Other banks

12.37%

87.63%


ANNUAL REPORT 2011

ELEMENTARY SCHOOL, Čumić, Kragujevac

Elementary school Prota Stevan Popović at the village of Čumić was opened in 1793, after it was constructed some time before that. Prota Stevan Popović, well-known for his literacy, founded the school by opening his home to all pupils from the village of Čumić and neighbouring villa-ges, teaching them in the patron saint celebration room. he dedicated his large guest room to work with pupils, and he with his family lived in the kitchen and a small room. The school could accommodate 20 students, of 7 to 17 years of age, who attended it from the first to the fourth grade. The fall of Serbia to the Turks in 1813 did away with all educational achievements from the period of the first Serbian uprising, so the Čumić school was then closed. It reopened its doors in 1815.


ANNUAL REPORT 2011


ANNUAL REPORT 2011

During 2011, Banca Intesa made significant progress in positioning itself as a financial institu-tion completely devoted to achieving business success in a socially responsible manner, caring for the community and the satisfaction of its clients and employees while striving for minimal negative environmental impact.

In accordance with its clear commitment to optimal results in not only economic terms, but also in terms of social and environmental impact, in 2011 Banca Intesa adopted a corporate social responsibility (CSR) strategy, institutionalizing this business model within the organization.

This threeyear strategy calls for the incorporation of CSR within the decisionmaking process at all Bank levels. It introduces CSR into everyday business activities and defines goals in five areas in which Banca Intesa measures its commitment to CSR market, community, environ-ment, workplace, and corporate governance.

cLIENT SATISfAcTION MANAGEMENT

From a customer satisfaction perspective, 2011 can be assessed as a year of stability for Banca Intesa. The main task of the Customer Satisfaction Management Unit was to retain a

CORPORATE SOCIAL RESPONSIBILITY

85.6

8584.5

85.4

2008 2009 2010 2011

ECSI Loyalty

87.386.9

85.9

87.1

2008 2009 2010 2011


ANNUAL REPORT 2011

Respondents rated very highly their relationships with Banca Intesa employees, as well as the advisory and operational support they receive from the Bank. Research shows that the clients have recognized and rated positively the Bank’s efforts in the area of CSR and support to local economic development and cultural activities.

Although broadly at the level of statistical average from the previous years, client satisfaction and loyalty indices for individuals and small business showed growth in relative to the previ-ous year - 0.9% for ECSI and 1.2% for the Loyalty Index. In the SME segment, a high level of customer satisfaction and loyalty was also retained. The Bank is especially pleased that a high percentage of clients rate themselves as fully satisfied with their cooperation with Banca Intesa, and that a similarly high percentage of them are prepared to recommend and extend cooperation with the Bank.

high level of customer satisfaction, continue with efforts aimed at eliminating causes of dis-satisfaction, further promote customer confidence and improve service quality.

In order to better incorporate the opinions, suggestions, and complaints of its clients in the process of planning activities aimed at improving the level of their satisfaction, the Bank added to its existing communication channels official profiles on the most popular social networks, Facebook and Twitter. Owing to continual monitoring and analysis of customer opinions, a positive trend recorded in almost all indicators and key factors for determining customer satis-faction and loyalty in 2010 continued to be positive in 2011.

In 2011, Banca Intesa successfully interviewed more than 20,000 clients – individuals and com-panies – in cooperation with the GfK market research company, in order to define customer satisfaction indices both for the Bank as a whole and for individual branches.

Image

Repurchase intention

ESCI

LOYALTY SME

Relationship with personnel

Competitive advantage

Service value

Would recommend ECSI Loyalty

Aftersales support Branch organization

86.7

85.9

84.2

85

2008 2009 2010 2011

92.1 91.991.3

92.2

2008 2009 2010 2011

81.9

80.9

79.5

81.8

2008 2009 2010 2011

90.7

91.691.1

92.3

2008 2009 2010 2011

85.2

86.1

85.285.6

2008 2009 2010 2011

86.1

85.3 85.2

86.6

2008 2009 2010 2011

85.4

84.4

83.1

84.8

2008 2009 2010 2011

90.4

91

89.8 89.7

2008 2009 2010 2011

81.4 81.6

80.6 80.8

2008 2009 2010 2011

83.1

81.9

82.782.0

2008 2009 2010 2011


ANNUAL REPORT 2011

At the initiative of its parent group, in 2011, Banca Intesa organized the first student competi-tion dedicated to customer satisfaction under the name of Prove Yourself 100% (Customer Satisfaction University Award). The competition aims to provide an opportunity to the most successful students at local universities to apply their theoretical knowledge in the preparation of customer satisfaction management projects, putting them in real business situations, as well as to encourage logical thinking, creativity and competitiveness. The high quality of the stu-dent project solutions and their great interest in the competition led to a decision to continue with the Prove Yourself 100% competition on an annual basis.

EMPLOYEE RELATIONS

In accordance with the growth and increase in the volume and diversity of its business and staff-ing, Banca Intesa as the leading bank in the market continues to cultivate a collegial working environment. Employees are guided towards an understanding of the roles assigned to them for the purpose of implementing key strategies. The Bank enables its employees to grow on a personal and professional level and, above all, foster continued commitment to employee engagement.

The employees of Banca Intesa strive to offer the Bank’s clients outstanding service on a daily basis, taking the time to understand fully their needs and priorities. The long-term client relation-ships that the Bank fosters enable its staff to help each client put their money to work for them in the most effective way possible. To this end, Banca Intesa continues to attract, retain, and develop the best talent in the banking industry, and, above all, to cultivate diversity.

Employee performance management plays a key role in steering employees toward the crea-tion of long-term relationships with clients and toward strong ties with their peers. As a leader in financial services, Banca Intesa is devoted to professional development of its employees by creating exceptional learning opportunities that enable the employees to fulfill their potential. By matching staff capabilities and appropriate education and training initiatives, the Bank continues to invest in its employees.

Average number of training hours per employee 17

Percentage of employees who attended some type of training 57%

Total training hours 54,877

In the past year, Banca Intesa began the process of designing more efficient performance assess-ment approaches, as well as harmonizing the performance assessment process with employee reward system. Communication during the employee performance assessment process is even more effective and frequent, while the performance goal definition system is more transparent. Its assessment is based not only on results but, equally, on the way in which goals were reached. Together with their superiors, employees regularly analyze their performance and priority needs for further development.

In its approach to management and leadership development in 2011, Banca Intesa employed a strategy of creating a high performance culture, within its parent Group as well as the Bank itself. An integral component of the strategy was the need to develop a clear internal and external direction of leadership conduct and skills necessary to maintain a stable business in unpre dictable times.

Banca Intesa is devoted to providing a clear career development plan in order to retain its key employees. Above all, the Bank strives to provide equality and eliminate all forms of discrimina-tion, including gender-based discrimination, in order to create an environment in which each individual has the same opportunity to express and exercise his or her rights, and to participate in the decision-making process through delegation of work and tasks. Through careful planning and promotion of employees in the previous years, the Bank provided growth to its employees within the organization and successfully filled most of its higher positions via promotions.

Through continuous two-way communication with its employees via regular surveys, Banca Intesa regularly monitors the results at all levels of the organization. This ensures that the opinions of the Bank’s employees are taken into account when adopting corporate decisions that affect their interests.

Training data

Age structure

Educational level

MA

PhD

No degree

High schooldiploma

BA

Collegedegree

32%

22%

1% 1%Dr 0%

44%

20-30

30-40

40-50

50-60

Over 60

49%

16%

1%

14%

20%


ANNUAL REPORT 2011

SuPPOrT TO ENTrEPrENEurShIP

In its desire to identify, affirm and reward the best examples of entrepreneurship, but also to encourage the establishment and development of own business, for the fourth consecutive year Banca Intesa, in cooperation with the Blic daily, held the Blic Entrepreneur competition for the best entrepreneur in Serbia in the SME category and awarded the winner EUR 30,000 to support its continued development.

Banca Intesa is strategically directed towards supporting SMEs, based on an inherent understand-ing that this segment of the economy is the driver of economic growth and recovery. At the end of 2011, the fifth Blic Entrepreneur competition was announced. The winner will be selected in 2012.

rESTOrATION Of hISTOrIcAL hErITAGE

In the middle of the year, Banca Intesa embarked upon a unique CSR project named The Place I Love in order to create a list of sites that hold special sentimental value for the citizens of Serbia, to restore at least three sites selected by popular vote, and to remind the public of Serbia’s rich cultural and historical heritage and of the need to preserve it.

In the first phase of the project, citizens nominated sites for reconstruction. The Bank received a total of 1,290 nominations through the project’s official website, via specially designed cards handed out in branches, and via the call center. An expert committee comprised of distinguished cultural workers created a list of 10 final nominees, from among which the winners were chosen. Nearly 200,230 votes decided that the planned RSD 30 million will be donated for the recon-struction of Belgrade Gate at Petrovaradin, Town Ramparts in Novi Pazar and the Remains of the National Library at Kosančićev Venac, which was destroyed in the 1941 bombing of Belgrade.

VOLuNTEErING

In an effort to make the New Year’s holiday more cheerful for children with special needs, in 2011 Banca Intesa again donated to educational institutions throughout the country several hundred carepackages prepared and distributed by Bank employees to children during school assemblies.

Spreading the spirit of corporate activism and environmental responsibility, in 2011 Banca Intesa participated in the Our Belgrade and Let’s Clean Up Serbia volunteer programs. Bank employees, their families and friends participated in these activities.

cOOPErATION Of fINANcIAL AND cIVIL SEcTOr

Banca Intesa and the European network of nongovernmental organizations, Euclid Network, signed a memorandum of understanding in 2011. Inspired by the experiences of many Western European countries, this document officially marked the cooperation between the financial and nonprofit sectors on the Empowernet platform for the first time in Serbia.

With the aim of understanding the needs and challenges of Serbia’s nonprofit sector, particularly in the area of finding sources of financing, Banca Intesa established cooperation with Euclid Net-work on EU projects in Serbia that will seek to strengthen ties between the domestic civil sector and those of EU countries, to educate the civil sector in Serbia regarding the ways and possibilities of civil sector participation in the process of EU integration, as well as to promote financial sustain-ability based on cooperation.

ENVIrONMENTAL IMPAcT

In 2011, Banca Intesa confirmed its strategic commitment to continuous reduction of its negative environmental impact. Understanding the importance of responsible recyclables management, the Bank successfully recycled 37,770 kilograms of paper and handed over 18,950 kilograms of electronic and electrical waste, as well as 120 kilograms of toner cartridges to a legal person regis-tered for waste management. Additionally, as of 2011 all copies of internal magazine “Es:presso,” whose circulation numbers more than 3,000 copies, have been printed on recycled paper.

Last year, the Bank began developing a new procedure for the procurement of goods and ser-vices, which stipulates that active engagement in protecting the environment must be included in supplier selection criteria.

cOrPOrATE PhILANThrOPy

In 2011, Banca Intesa donated RSD 111.6 million toward numerous projects to support nonprofit and humanitarian organizations, educational, social, and health institutions, as well as cultural and sports manifestations.

In order to contribute to the improvement of conditions for the medical treatment of children in one of the oldest health institutions in the country, Banca Intesa donated funds towards the re-construction of the cardiology and cardiac surgery departments at the Children’s University Clinic in Tiršova Street and designed the related project. Bearing in mind that 1,500 children are hospi-talized annually in these facilities, whose resources are limited, the Bank donated RSD 25 million to prepare and implement a complete plan for repair works to the 480 square meter building, its outfitting, and equipment.

Continuing its partnership spanning several years with nonprofit organization Our Ser-bia, Banca Intesa sponsored the eleventh consecutive School of Friendship, visited by 600 children from across Serbia and the region. Also, it was the sixth consecutive year that the Bank participated in the organization’s Send a Friendship Card charity campaign, which raises funds to improve the living conditions of Serbia’s youngest citizens in underdeveloped municipalities.

Gender structure

Female

Male

% of employees % of managers

29%

71%

53%

47%


ANNUAL REPORT 2011

The National Museum in Vranje was founded in 1960, and has comprised the Museum-home of Bora Stanković since 1967 and a Gallery since 1992. The seat of the Museum is in the Pasha’s Residence built in 1765 and has a surface of 400 square meters of exhibition space with around 30,000 exhibits from the field of oenology, archaeology and cultural history. clothing and objects in daily use from the ethnological collection are displayed in the rooms. On the upper floor there is a Bedroom from the early 20th century, a Maid’s room and a Salon. Objects from the archaeological collection are in the halls, whereas the Museum-house of Bora Stanković contains objects that belonged to the writer and members of his family, as well as posters, photographs of theatre plays and editions of his works.

NATIONAL MUSEUM, Vranje


ANNUAL REPORT 2011


FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011


Rajac wineries are a unique architectural complex of wine cellars created from the mid-18th to the 1930s. Formed as a group of 270 wineries around the central square with a well and a congregation area, they were built from trimmed stone and wood logs. The cellars are partly dug in the ground to ensure minimum temperature variations during the year, and rooms for accommodation during wine picking or nurturing are on the upper floor. They have two opposite entrances on two levels or a window where there are no other doors, through which a wooden guttering for pouring grapes into the tub is placed. Rajac used to have 316 wineries, down to only around 60 now. Wine from the barrels from these stone cellars has unique taste, smell and colour, and is attributed miraculous power and medicinal properties due to its ex-quisite quality.

RAJAC WINERIES, Negotin

2011.CONTENTS

BANCA INTESA A.D. BEOGRAD 49BANCA INTESA A.D. BEOGRAD

INDEPENDENT AUDITOR’S REPORT 51

INCOME STATEMENT 52

BALANCE SHEET 53

STATEMENT OF CHANGES IN EQUITY 54

CASH FLOW STATEMENT 55

NOTES TO THE FINANCIAL STATEMENTS 57


FINANCIAL STATEMENT FOR 2011


TO THE SHAREHOLDERS OF BANCA INTESA A.D. BEOGRAD

We have audited the accompanying financial statements of Banca Intesa a.d. Beograd (hereinafter: the Bank), which comprise the balance sheet as at 31 December 2011, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

MANAGEMENT’S RESpONSIBILITy FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Law on Accounting and Auditing and regulations of the National Bank of Serbia governing financial reports of the banks and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AuDITORS’ RESpONSIBILITy

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

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

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

OpINION

In our opinion, the financial statements give a true and fair view of the financial position of the Bank as at 31 December 2011, and of its financial performance and its cash flows for the year then ended in accordance with the Law on Accounting and Auditing and regulations of the National Bank of Serbia governing financial reports of banks.

Belgrade, 19 March 2012

Mirjana KovačevićAuthorized Auditor Ernst & Young Beograd d.o.o.

INDEPENDENT AUDITORS’ REPORT FINANCIAL STATEMENT FOR 2011

FINANCIAL STATEMENT FOR 2011INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2011

(RSD thousand) Note 2011 2010

Interest income 3 31,090,463 26,631,103Interest expense 3 (11,652,708) (9,285,709)

Net interest income 19,437,755 17,345,394

Fee and commission income 4 7,378,106 6,950,505Fee and commission expense 4 (1,943,040) (1,786,022)

Net fee and commission income 5,435,066 5,164,483

Net gain on sell of securities at fair value through profit and loss 169 1,219Net gain on sell of securities available for sale 44 -Net foreign exchange gains / (losses) 5 1,937,273 (13,798,805)Gains from dividends and shares - -Other operating income 6 414,248 397,426Impairment losses of financial assets and provisions, net 7 (4,259,378) (4,364,160)Salaries, wages and other personal expenses 8 (4,434,178) (3,996,296)Depreciation and amortization 9 (864,976) (890,691)Other operating expenses 10 (6,397,975) (6,176,280)Gains on changes in value of assets and liabilities 11 23,452,765 24,281,001Losses on changes in value of assets and liabilities 12 (24,031,080) (9,507,171)

Profit before tax 10,689,733 8,456,120

Income tax 13 (1,113,156) (871,597)Profit from created deferred tax assets and reduction of deferred tax liabilities 13 23,673 35,407Loss from reduction deferred tax assets and creation of deferred tax liabilities 13 9,410 -

pROFIT 9,590,840 7,619,930

Notes on the following pages form part of these Financial statements.


Approved by the management of Banca Intesa a.d. Beograd



FINANCIAL STATEMENT FOR 2011 BALANCE SHEET AS AT 31 DECEMBER 2011

(RSD thousand) Note 2011 2010ASSETSCash and cash equivalents 15 16,222,561 20,053,248Revocable deposits and loans 16 83,162,819 51,409,640Interest and fee receivables, receivables from sales, changes in fair value of derivatives and other receivables 17 2,985,589 2,390,298Loans and advances (excluding treasury shares) 18 249,337,725 245,087,290Securities 19 17,784,587 19,380,689Equity investments 20 962,568 948,033Other placements 21 11,521,581 10,270,578Intangible assets 22 595,399 561,462Property, equipment and investment property 23 6,583,749 6,388,002Non-current assets held for sale and discontinued operations 60,192 50,685Deferred tax assets 13 47,317 33,054Other assets 24 3,058,602 2,550,016

Total assets 392,322,689 359,122,995

LIABILITIESTransaction deposits 25 84,678,429 65,078,801Other deposits 26 150,686,366 171,432,085Borrowings 27 57,106,462 45,255,242Liabilities arising from securities 28 2,385,649 132,790Interest, fee and changes in fair value of derivatives 28 165,937 94,607Provisions 29 2,229,010 2,419,833Tax liabilities 43,334 56,962Liabilities from profit 269,029 220,031Deferred tax liabilities - -Other liabilities 30 14,344,148 17,143,522

Total liabilities 311,908,364 301,833,873

EquityEquity 31 41,759,627 28,446,332Reserves from profit 31 28,400,323 20,780,393Revaluation reserves 31 665,615 560,107Unrealized losses arising on securities available for sale 31 2,080 117,640Profit 31 9,590,840 7,619,930

Total equity 80,414,325 57,289,122

Total liabilities and equity 392,322,689 359,122,995

Off – balance sheet items 32 245,058,656 157,073,304

Notes on the following pages form part of these Financial statements.Belgrade, 19 March 2012Approved by the management of Banca Intesa a.d. Beograd




STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD 1 JANUARY 2011 - 31 DECEMBER 2011

(RSD thousand)

Share capital Other capitalShare

premiumReserves

from profit

Revaluation reserves and

unrealized losses arising on securities

available for sale Profit Total

Balance as of 1 January 2010 18,477,400 11,158 9,957,774 14,768,086 559,313 6,012,307 49,786,038Profit for the year - - - - - 7,619,930 7,619,930Effects of changes in fair values of securities available-for-sale - - - - (116,846) - (116,846)Profit distribution - - - 6,012,307 - (6,012,307) -

Balance as of 31 December 2010 18,477,400 11,158 9,957,774 20,780,393 442,467 7,619,930 57,289,122Profit distribution - - - 7,619,930 - (7,619,930) -Share issue 2,838,500 - 10,474,795 - - - 13,313,295Profit for the year - - - - - 9,590,840 9,590,840Effects of changes in fair values of securities available-for-sale - - - - 221,068 - 221,068

Balance as of 31 December 2011 21,315,900 11,158 20,432,569 28,400,323 663,535 9,590,840 80,414,325






STATEMENT OF CASH FLOWS FOR THE PERIOD 1 JANUARY 2011 - 31 DECEMBER 2011

(RSD thousand) 2011 2010

CASH FLOW FROM OpERATING ACTIVITIES

Cash inflows from operating activities 39,360,945 33,445,034

Interest 28,811,049 24,244,341Fees 7,470,150 7,152,214Other operating income 3,079,746 2,048,479Dividend and other share income - -

Cash outflows of cash from operating activities (25,076,241) (20,259,105)Interest (6,878,133) (4,731,441)Fees (2,041,222) (1,922,121)Salaries and other personal expenses (5,260,446) (4,574,219)Taxes and contributions paid (626,113) (550,749)Other operating expenses (10,270,327) (8,480,575)

Net cash inflow from operating activities before increase or decrease in placements and deposits 14,284,704 13,185,929

Decrease in placements and increase in taken deposits 22,645,049 11,267,655Decrease in securities at fair value through profit and loss,Investments held for trading and short-term securities held to maturity (16,490,984) -Increase in deposits with banks and other clients (6,154,065) (11,267,655)

Increase in placements and decrease in taken deposits (43,181,291) (33,867,457)Increase in loans and placements to banks and other clients (43,181,291) (29,969,357)Increase in securities at fair value through profit and loss,Investments held for tradng and short-term securities held to maturity - (3,898,100)

Net cash outflow from operating activities before tax (6,251,538) (9,413,873)

Income tax paid (1,064,158) (755,169)

Net cash outflow from operating activities (7,315,696) (10,169,042)

CASH FLOW FROM INVESTING ACTIVITIES

Cash inflow from investing activities 1,398,836 439,697Inflow from long-term investment in securities 1,309,360 -Inflow from sales of equity investments - 3,209Inflow from sales of intangible and tangible fixed assets 89,476 436,488

Cash outflow from investing activities (13,480,293) (1,861,231)Outflow from long-term investment in securities (12,230,528) (815,546)Outflow from purchase of equity investments (14,555) -Outflow from purchase of intangible and tangible fixed assets (1,235,210) (1,045,685)

Net cash outflow from investing activities (12,081,457) (1,421,534)


FINANCIAL STATEMENT FOR 2011STATEMENT OF CASH FLOWS FOR THE PERIOD 1 JANUARY 2011 - 31 DECEMBER 2011

(RSD thousand) 2011 2010

CASH FLOWS FROM FINANCING ACTIVITIES

Cash inflows from financing activities 18,588,338 8,191,615Inflow from capital increase 13,313,295 -Inflow from borrowings received, net 5,275,043 8,191,615Inflow from securities - -

Cash outflows from financing activities (3,043,037) (155)Outflows from subordinated borrowings (3,025,761) -Outflows from securities (17,276) (155)

Net cash inflow from financing activities 15,545,301 8,191,460

Total net inflow of cash 81,993,168 53,344,001Total net outflow of cash (85,845,020) (56,743,117)

Net decrease in cash (3,851,852) (3,399,116)

Cash at the beginning of year 20,053,248 23,163,886

Exchange rate gains 355,324 415,470Exchange rate losses (334,159) (126,992)

Cash at the end of year (Note 15) 16,222,561 20,053,248




57



NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011

1. CORpORATE INFORMATION

Banca Intesa Beograd a.d. Beograd (hereinafter referred to as the “Bank“) was established as a joint stock company, pursuant to the Memorandum on Association and Operations of Delta banka DD, Beograd dated 16 September 1991. On 19 September 1991, the National Bank of Yugoslavia issued a certificate and permition for the foundation of Delta banka DD, Beograd.

On 16 October 1991, the Bank was duly registered with the Commercial Court in Belgrade and subsequently commenced its operations. On 7 June 1995, a new Memorandum on Association was concluded, with a new Article of Association adopted at the General Assembly meeting held on 10 July 1995, whereby reconciliation of the Bank’s acts with the provisions of the Law on Banks and other financial organizations was made.

In 2005, based on Decision of General Assembly of Shareholders, a change of shareholders of the Bank occurred. Existing shareholders sold their shares, two shareholders in a whole and the major-ity part was sold to Intesa Holding International SA. After this ownership change, the Bank has two shareholders, out of which Intesa Holding International S.A., Luxemburg owns more than 90% of the Bank’s share capital.

Pursuant to the General Manager’s Decision no. 18600 dated 7 November 2005, the Approval of National Bank of Serbia and the Decision of the Agency for Commercial Registries no. BD 98737/2005 dated 29 November 2005, the Bank changed its previous name into Banca Intesa a.d. Beograd.

In accordance with the Decision of the Agency for Commercial Registries no. BD. 159633/2006 dated 5 October 2006, the abovementioned alteration and the change of legal form of the Bank into a closed joint-stock company were registered.

The Bank is authorized and registered with the National Bank of Serbia for performing payment transactions, loan and deposit activities in the country and clearing and settlement transaction services abroad. In accordance with the provisions of the Law on Banks, the Bank operates on the principles of liquidity, safety and profitability.

During the year ended 31 December 2007, the legal status change was carried out through merger by absorption, whereby the acquirer was Banca Intesa a.d. Beograd, and the acquired bank was Panonska banka a.d. Novi Sad. On 26 July 2007, the Decisions on signing of the letter of intent to perform the legal status change of merger by absorption and launch relating activities were passed at the meetings of the Board of Directors of both Banca Intesa a.d. Beograd and Panonska banka a.d. Novi Sad. Draft of the Agreement on merger was prepared and adopted by the Boards of Directors of both banks at the meetings held on 29 October 2007.

Upon registration of the procedure of merger by absorption with the Agency for Commercial Registers, the Bank as the acquirer and the legal successor has continued to operate under its existing business name, while the acquired bank – Panonska banka a.d. Novi Sad ceased its operations without liquidation process, and its shares were withdrawn and cancelled.


FINANCIAL STATEMENT FOR 2011NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011

1. CORpORATE INFORMATION (continued) In accordance with article 384 of the Law on business companies of the Republic of Serbia, 30 September 2007 was determined as the date of merger that is the date when all operations of Panonska banka a.d. Novi Sad were considered as taken over by the Bank. The legal status change of merger by absorption was carried out in such a way that the acquired bank – Panonska banka a.d. Novi Sad transferred all assets and liabilities as of 30 September 2007 to the Bank as the acquirer in exchange for share issue to the shareholders of the acquired bank by the Bank acquirer.

In accordance with the valuation performed, the shares were exchanged in such way that shareholders of the acquired bank received 1 ordinary share of the Bank acquirer in exchange for 38 ordinary shares of the acquired bank. In order to exchange the total number of shares of Panonska banka a.d. Novi Sad, the Bank issued additional 26.166 ordinary shares, with nominal value of RSD 100,000.00 and consequently after the merger, the Bank’s share capital amounted to RSD 15,752,700,000.00, divided into 157,527 ordinary shares with nominal value of RSD 100,000.00 per share.

Shareholders of the acquired bank in the merger have become the shareholders of Banca Intesa a.d. Beograd, with the appropriate number of ordinary shares, and they have the same status, rights and obligations as the shareholders of the Bank, with the right to participate in profit distribution of the Bank acquirer starting from 1 January 2008.

Since there were no significant differences in the accounting policies applied in the preparation of the financial statements of both banks, neither adjustments to net assets nor adjustments to net results for 2007 of the Bank were made as a consequence of the accounting for the merger by absorption.

The Agreement on merger by absorption was adopted at the Bank’s Assembly meeting held on 17 December 2007.

As at 31 December 2011, the Bank operated through its Head Office located in Belgrade, Milentija Popovica 7b, with its associated organizational divisions in Belgrade, 7 regional centers and 208 branches.

The Bank had 3,200 employees as at 31 December 2011 (31 December 2010: 3,090 employees).

The Bank’s registration number is 07759231. The Bank’s tax identification number is 100001159.

59




2. SuMMARy OF SIGNIFICANT ACCOuNTING pOLICIES

2.1. BASIS OF pREpARATION AND pRESENTATION OF FINANCIAL STATEMENTS

The accompanying financial statements have been prepared in accordance with the accounting regulations prevailing in the Republic of Serbia, which are based on the Law on Accounting and Auditing (Official Gazette of the Republic of Serbia, no. 46/2006, 111/2009), the Law on Banks (Official Gazette of the Republic of Serbia, no. 107/2005, 91/2010) and the respective regulations issued by the National Bank of Serbia based on the aforementioned legislation. Pursuant to the Law on Accounting and Auditing, banks are obliged to maintain, prepare and present their financial statements in accordance with the International Accounting Standards (IAS), i.e. International Financial Reporting Standards (IFRS“), and Interpretations of Standards.

IAS, IFRS and interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee up to 1 January 2009 have been officially translated by the Decision of Ministry of Finance of Republic of Serbia number 401-00-1380/2010-16 and are published in Official Gazette of the Republic of Serbia no. 77 dated October 25, 2010.

Any new or amended IFRS and IFRIC interpretations issued subsequent to 1 January 2009 have not been applied in the preparation of the accompanying financial statements.

The accompanying financial statements have been prepared in the form prescribed by the Rulebook on format and contents of financial statements for banks (Official Gazette of the Republic of Serbia No: 74/2008, 3/2009, /correction 12/2009/ and 5/2010). These Rulebooks determine the legal definition of a complete set of financial statements, and minimal content of Notes to the financial statements, which contain departures from IAS 1 Presentation of Financial Statements regarding the presentation of certain financial statement items.

As a result of the abovementioned, the Bank’s management has not included an explicit and unreserved statement of compliance of the accompanying financial statements with the requirements of all standards and interpretations issued by International Accounting Standards Board, which comprise International Financial Reporting Standards.

The accompanying financial statements have been prepared under the historical cost convention, except for the measurement at fair value of securities held for trading as well as securities available for sale.

The accompanying financial statements include receivables, liabilities, operating results, changes in equity and the Bank’s cash flow, excluding its subsidiary – Intesa Leasing d.o.o., Beograd. The Bank also prepares consolidated financial statements separately, in accordance with the respective accounting regulations of the Republic of Serbia.

The Bank’s financial statements are stated in thousand of Dinars, unless otherwise stated. The Dinar (RSD) is the functional and official reporting currency of the Bank. All transactions in currencies that are not functional currency are considered to be transactions in foreign currency.

The accompanying financial statements have been prepared under the going concern principle, which implies that the Bank will continue its operations in the foreseeable future.

In the preparation of these financial statements, the Bank has adhered to the principal accounting policies further described in Note 2.

The accounting policies and accounting estimates applied in the preparation of these financial statements are consistent with those followed in the preparation of the Bank’s annual financial statements for the year ended 31 December 2010.



2. SuMMARy OF SIGNIFICANT ACCOuNTING pOLICIES

2.2. COMpARATIVE FIGuRES

The comparative figures represent financial statements of the Bank as of and for the year ended 31 December 2010, which were audited.

2.3. SIGNIFICANT ACCOuNTING ESTIMATES AND JuDGMENTS

use of Estimates

The preparation and presentation of the financial statements requires the Bank’s management to make estimates and reasonable assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as income and expenses for the reporting period.

These estimations and related assumptions are based on information available as of the date of the preparation of the financial statements. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis, and changes in estimates are recognized in the income statement in the periods in which they become known.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

Impairment of Financial Assets

The Bank assesses, at the end of each reporting period, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired, and impairment losses are incurred, if and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event“) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. The Bank reviews its loan portfolio at least on a quarterly basis, in order to assess impairment.

In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any reliable evidence indicating that there is a measurable decrease in the estimated future cash flows from a loan portfolio before the decrease can be identified with an individual loan in that portfolio. The evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers toward the Bank, or national or local economic conditions that correlate with defaults on assets of the Bank.

The Bank’s management performs estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly, in order to reduce any differences between estimated and actual losses.

61




2. SuMMARy OF SIGNIFICANT ACCOuNTING pOLICIES (continued)

2.3. SIGNIFICANT ACCOuNTING ESTIMATES AND JuDGMENTS (CONTINuED)

useful Lives of Intangible Assets, property and Equipment

The determination of the useful lives of intangible assets, property and equipment is based on historical experience with similar assets as well as on any anticipated technological development and changes influenced by wide range of economic or industry factors. The appropriateness of the estimated useful lives is reviewed annually, or whenever there is an indication of significant changes in the underlying assumptions.

Due to the significant share of tangible and intangible assets in total assets of the Bank, the impact of each change in these assumptions could materially affect the Bank’s financial position as well as the results of its operations.

Impairment of Non-Financial Assets

At the end of each reporting period, the Bank’s management reviews the carrying amounts of the Bank’s intangible assets and property and equipment presented in the financial statements. If there is any indication that such assets have been impaired, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its recoverable amount.

An impairment review requires from management to make subjective judgment concerning the cash flows, growth rates and discount rates of the cash generating units under review.

provisions for legal proceedings

The Bank is subject to a number of legal proceedings arising from daily operations that relate to commercial, contractual and employment matters, which are resolved and considered during regular business activity. The Bank regularly estimates probability of negative outcomes to these matters as well as the amounts of probable or reasonable estimated losses.

Reasonable estimates include judgment made by management after considering information including notifications, settlements, estimates performed by legal department, available facts, identification of other potentially responsible parties and their ability to contribute as well as prior experience.

Provision for legal proceedings is recognized when it is probable that an obligation exists for which a reliable estimation can be made of the obligation after careful analysis of the individual matter (Note 29). The required provision may change in the future due to occurrence of new events or obtaining additional information. Matters that are either contingent liabilities or do not meet the recognition criteria for provision are disclosed, unless the possibility of an outflow of resources embodying economic benefits is remote.




2.3. SIGNIFICANT ACCOuNTING ESTIMATES AND JuDGMENTS (CONTINuED)

Retirement and Other PostEmployment Benefits

The costs of defined employee benefits payable upon the termination of employment, i.e. retirement in accordance with the fulfilled legal requirements are determined based on the actuarial valuation. The actuarial valuation includes an assessment of the discount rate, future movements in salaries, mortality rates and fluctuation of employees. As these plans are long-term, significant uncertainties influence the outcome of the estimation. Additional information is disclosed in Note 29 to financial statements.

2.4. INTEREST INCOME AND ExpENSES

Interest income and expense, including penalty interest and other income and other expenses from interest bearing assets as well interest bearing liabilities are recognized on an accrual basis based on obligatory terms defined by a contract between the Bank and customers.

For all interest-bearing financial instruments measured at amortised cost and interest bearing financial instruments available for sale, interest income and expense are recognized within “Interest income“ and “Interest expense“ in the income statement using the effective interest method, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability.

Loan origination fee, which is a part of effective interest rate, is recorded within “Interest income“. Loan origination fees, which are charged, collected or paid on a one-time basis in advance, are deferred and amortized to interest earned on loans and advances over the life of the loan using the straight-line method, which approximates the effective yield.

From the moment of charges being filed, and for receivables from retail clients past due over 180 days, the Bank calculates suspended interest on total receivables (including principal, interest and costs) instead of regular interest. Transfer of total interest overdue to the suspended interest in off-balance before the moment of charges being filed could be prescribed by special decisions of the Bank’s authorities.

Suspended interest is calculated and recorded as off-balance sheet item until final settlement of dispute.

2.5. Fee and Commission Income and Expenses

Fees and commissions originating from banking services are generally recognized on an accrual basis when the service has been provided.

Fees and commissions mostly comprise of fees for payment operations services, issued guarantees and other banking services.

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2.6. FOREIGN CuRRENCy TRANSLATION

Items stated in the financial statements are valued by using currency of the Bank’s primary economic environment (functional currency). As disclosed in Note 2.1., the accompanying financial statements are stated in thousand of Dinars (RSD), which represents the functional and official reporting currency of the Bank.

Transactions denominated in foreign currency are translated into dinars at the official exchange rate determined on the Interbank Foreign Currency Market, prevailing at the transaction date.

Assets and liabilities denominated in foreign currency at the balance sheet date are translated into dinars at the official median exchange rate determined on the Interbank Foreign Currency Market, prevailing at the balance sheet date (Note 37).

Gains or losses on foreign exchange arising upon the translation of balance sheet items are credited or debited as appropriate, to the income statement, as Gains or losses on foreign exchange transactions and translations (Note 5).

Gains or losses arising upon the translation of financial assets and liabilities with contracted foreign currency clause are credited or debited as appropriate, to the income statement, as gains/losses from changes in value of assets and liabilities (Notes 11 and 12).

Commitments and contingencies denominated in foreign currency are translated into dinars at the official median exchange rate prevailing at the balance sheet date.




2.7. Financial Instruments

All financial instruments are initially recognized at fair value including any directly attributable incremental costs of acquisition or issue that are directly attributable to the acquisition or issuing of financial asset or liability, except for financial assets and financial liabilities at fair value through profit and loss. Financial assets and financial liabilities are recorded in the balance sheet of the Bank on the date upon which the Bank becomes counterparty to the contractual provisions of a specific financial instrument. All regular way purchases and sales of financial assets are recognized on the settlement date, which is the date the asset is delivered to the counterparty.

DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Financial assets

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

• the rights to receive cash flows from the asset have expired; or • the Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a

‘pass-through’ arrangement; and either the Bank has transferred substantially all the risks and rewards of the asset, or the Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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

Financial liabilities

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

The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, securities held-to-maturity and securities available-for-sale. Management of the Bank determines the classification of its investments at the time of initial recognition.

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2.7. FINANCIAL INSTRuMENTS (CONTINuED)

2.7.1. Financial Assets at Fair Value through Profit or Loss

This category includes two sub-categories: financial assets held for trading and those designated at fair value through profit or loss.

Financial assets are classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term and generating profit from short-term price fluctuations. These assets are stated at fair value in the balance sheet.

Financial instruments held for trading comprise financial derivatives and Government’s savings bonds.

All realized or unrealized gains and losses from changes in fair value of trading securities are recognised in the income statement.

During 2007, the Bank introduced several types of financial instruments which met definition of financial derivatives according to IAS 39 “Financial Instruments: Recognition and Measurement” and for which basic underlying variable is foreign exchange rate. Derivatives used by the Bank are FX swap and FX forward contracts. For the accounting purposes, and in accordance with the requirements of IAS 39, the derivatives are classified as financial instruments held for trading and are recorded in the balance sheet at fair value, while all fair value changes are recorded in the income statement under unrealized foreign exchange gains and losses.

Derivatives are initially recognised when the Bank becomes a party to agreement with the other contractual party (the agreement date). The notional amount of the derivative contract is recorded in off-balance sheet, and initial positive or negative fair value of the derivative is recorded in the balance sheet as asset or liability. The initial recognition of fair value applies to the cases when there is available market price for the same or a similar derivative on an organised market, and when the price differentiates from the price at which the Bank contracted the derivative. Hence, the derivatives contracted by the Bank with the customers operating in Serbia do not have initially recognised fair value, since there is no active market for similar derivatives in the country. When an active market for such derivatives develops, i.e. when the relevant market information becomes available, the Bank will recognise in the balance sheet (as assets or liabilities) and the income statement (initially positive or negative fair value) the difference between the market value of transactions and initial fair value of derivatives determined using valuation techniques. In accordance with the existing accounting policy of the Bank, adjustments to fair value of financial instruments held for trading are recognised at the end of each month, and the effect of changes in fair value are recognised in the income statement as unrealised foreign exchange gains or losses. Derivatives are recognised as assets or liabilities depending whether their fair value is positive or negative. Derivatives are derecognised at the moment of expiry of contracted rights and obligations arising from derivatives (exchange of cash flows), i.e. at termination date. At that moment, ultimate effect of foreign exchange differences is recorded against realised foreign exchange differences, and all previously recognised changes in fair value (through unrealised foreign exchange differences) are reversed.

Since there is neither an active market for derivatives in Serbia nor a possibility to determine fair value of derivatives by reference to a quoted market price, the Bank uses the methodology of discounting future cash flows arising from derivatives in order to determine fair value. This methodology of calculation is generally accepted by market participants in countries having developed markets with active trading in derivatives and the calculated fair value represents a reliable estimate of the fair value which would be achieved on an active market.





2.7.1. Financial Assets at Fair Value through Profit or Loss (continued)

The methodology incorporates market factors (median exchange rate, interest rates and similar) and it is consistent with generally accepted methodologies for valuation of derivatives.

2.7.2. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

All loans and receivables to banks and customers are recognized in balance sheet when cash is advanced to debtors. Loans and receivables are initially recognized at fair value. After the initial recognition, loans are measured at amortized cost using interest rate method, less allowance for loan impairment and any amounts written off.

Interest income and receivables in respect of these instruments are recorded and presented under interest income and interest, fees and commissions receivable, respectively. Fees which are part of effective yield on these instruments are recognised as deferred income and credited to the income statement as interest income over the life of a financial instrument using the straight-line method, which approximates the effective yield.

The Bank negotiates foreign currency clause with the beneficiaries of the loans. Loans and receivables in dinars, with contracted foreign currency clause, i.e. dinar-eur, dinar-usd and dinar-chf foreign exchange rate, are revalued in accordance with the contract signed for each loan. The difference between the carrying amount of loan and the amount calculated from foreign currency clause applied is disclosed within loans and receivables. Gains and losses resulting from the application of foreign currency clause are recorded in the income statement, as gains/losses from changes in value of assets and liabilities.

Impairment of financial assets and provisions for risks

The Bank, in accordance with internal policy, assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event“) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

For loans and placements with banks and customers, the Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant.

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2. SuMMARy OF SIGNIFICANT ACCOuNTING pOLICIES (continued) 2.7. FINANCIAL INSTRuMENTS (CONTINuED)

2.7.2. Loans and Receivables (continued)

Impairment of financial assets and provisions for risks (continued)

If the Bank identifies that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it is included in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognized, are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account, while impairment losses on loans and advances and other financial assets carried at amortized cost are charged to the income statement (Note 7). Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Bank. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the income statement (Note 7).

The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling that collateral.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s internal credit grading system that considers credit risk characteristics. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist at the balance sheet date. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Direct write-offs for past due loans and receivables, partial or in full, may be performed during the year if inability of their collection is certain, i.e. impairment is recognized and documented. Write off is made based on the court decisions, or based on decisions made by the Bank’s authorities.



2. SuMMARy OF SIGNIFICANT ACCOuNTING pOLICIES (continued) 2.7. FINANCIAL INSTRuMENTS (CONTINuED)

2.7.2. Loans and receivables (continued)

Uncollectable receivables write-off

On 24 November 2010, the Bank has adopted the Procedure on uncollectable receivables write-off. The procedure relates to the write-off of receivables that meet the following requirements: delay in payment of receivable is more than 360 days; the Bank has failed to collect receivables despite the implementation of all activities of collection specified by its policies and procedures; judicial or extrajudicial procedures of settlement of receivables have been initiated; receivables are fully impaired.

Exceptionally, receivables that do not fulfil above mentioned requirements may be written-off if such decision is made by the appropriate authority, Asset Quality Committee, in accordance with the authorities delegated by the Board of Directors.

Written-off receivables are transferred to off balance sheet items and are held for 2 years, after which the Asset Quality Committee issues the decision on their permanent write-off or continuing keeping such receivables in off-balance.

2.7.3. Renegotiated Loans

If the Bank estimates that the clients delay in payment are temporary and that, under adjusted agreed conditions, the client could fulfil obligations toward Bank regularly, the Bank seeks to restructure loans rather than to activate collaterals. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate, before renegotiation.

2.7.4. Securities Held-to-Maturity

Securities held-to-maturity are financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity.

Securities held-to-maturity are subsequently measured at amortized cost using the effective interest rate method, less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity. The amount of impairment loss for investments held to maturity is calculated as the difference between the investments’ carrying amount and the present value of expected future cash flows discounted at the investment’s original effective interest rate.

2.7.5. Securities available for sale

Securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as “available for sale”.

They comprise shares and investments in shares of other banks and companies, as well as treasury bills of the Republic of Serbia with maturity over 3 months.

Upon initial recognition, these instruments are measured at fair value. Investments in shares that are not quoted, and whose value cannot be determined with certainty, are measured at cost. The fair values of quoted investments in active markets are based on current bid prices.

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2.7.5. Securities available for sale (continued)

Unrealised gains and losses are recognised directly in revaluation reserves, in equity, until the security is not sold, collected or otherwise realized, or until the security is not impaired. In the case of disposal or impairment of security, accumulated gains or losses, previously recognised in equity, are recognised in gains or losses from sales of securities in the income statement. For all estimated risks that investments in shares and other securities available for sale will not be collected, the Bank recognizes allowances for impairment.

Interest income on treasury bills of the Republic of Serbia is calculated and recognized monthly.

Dividend income in respect of investments in shares of other legal entities, and income from investments in equity instruments of other legal entities are recognised as income at the moment of their collection.

In case of securities available for sale, the Bank assesses on an individual basis whether there is an objective evidence of impairment, based on the same criteria applied to financial assets carried at amortized cost. Also, impairment already recognized represents cumulative loss valued as difference between amortized cost and current fair value, less any impairment loss previously recognized in the income statement. The Bank records impairment changes on available-for-sale equity investments when there has been a significant of prolonged decline in the fair value below their cost. When there is an evidence of impairment, the cumulative loss, measured as the difference between cost and fair value, decreased for any impairment of investment previously recognized in the income statement, is transferred from equity and recognized in the income statement, while the increase in fair value, after recognition of impairment, is recognized in equity.

2.7.6. Deposits from Banks and customers

All deposits from banks and customers as well as other interest-bearing financial liabilities are initially recognized at the fair value decreased by transaction costs, except for financial liabilities through profit and loss. After initial recognition, interest-bearing deposits and borrowings are subsequently measured at amortized cost using the effective interest method.

2.7.7. Borrowings

Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost.

Borrowings are classified as current liabilities, unless the Bank has unconditional right to postpone the settlement of obligations for at least 12 months after the balance sheet date.

2.7.8. Operating liabilities

Trade payables and other short-term operating liabilities are stated at nominal value.

2.8. OFFSETTING FINANCIAL INSTRuMENTS

Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.




2.9. SpECIAL RESERVES FOR ESTIMATED LOSSES ON BANk BALANCE SHEET ASSETS AND OFF-BALANCE SHEET ITEMS

Special reserves for estimated losses on balance sheet assets and off-balance sheet items are calculated in accordance with the National Bank of Serbia’s “Decision on the Classification of the Bank Balance Sheet Assets and Off-balance Sheet Items” (“Official Gazette of the Republic of Serbia“, no. 94/2011). The new Decision on the Classification of the Bank Balance Sheet Assets and Off-balance Sheet Items is applied from 31. December 2011 and, as the most significant changes comparing to the previous Decision, relates to the following: change of threshold for calculating days of delay for corporate clients (decreased from 2,5% to 1%), introduce the historical default when determining the class of corporate clients, change in the way of treatment of historical delay for individuals, changes in calculation of creditworthiness for corporate clients and individuals, abolition of percentege range for the calculation of reserves for estimated losses and introducing fixed percentages.

All receivables from a single borrower (balance sheet and off-balance sheet exposure) are classified in categories from A to D, in accordance with the assessment of their recoverability. Collectibility of receivables from the single borrower is assessed based on the borrower’s payment record and his financial position, number of days past due, overdue principal and interest as well as based on the quality of collaterals pledged.

In accordance with the classification of receivables and pursuant to the aforementioned Decision, the amount of the special reserves against potential losses is calculated by applying the following percentages: A (0%), B (2%), V (15%), G (30%) i D (100%) (applied percentages for 2010: A (0%), B (5%-10%), V (20%-35%), G (40%-75%) i D (100%)).

Through its internal act, the Bank has defined the criteria and methodology for determining classification of receivables and calculation of special reserves in accordance with the criteria defined in the “Decision on the Classification of the Bank Balance Sheet Assets and Off-balance Sheet Items”. Basic criteria for classification of receivable include the borrower’s timeliness in settlement of obligations, financial position and business performance, adequacy of cash flows as well as adequate collateral.

Calculated special reserves for estimated losses are reduced by allowances for impairment of balance sheet assets and provisions against losses on off-balance sheet items, which are calculated in accordance with the Bank’s accounting policy disclosed in Note 2.7.2. and charged to the income statement.

The amount of special reserves for estimated losses, after reducing by allowances for impairment of balance sheet assets and provisions against losses on off-balance sheet items, is deducted from capital when calculating banks regulatory capital.

2.10. CASH AND CASH EquIVALENTS

Cash and cash equivalents comprise of cash at current account and cash on hand (in Dinars and in foreign currency), gold and other precious metals, cheques and current accounts in foreign currency held with other domestic banks and foreign banks as well as treasury bills of the Republic of Serbia with maturity up to 3 months.

2.11. REVERSE REpuRCHASE AGREEMENTS

Securities acquired under agreements to resell at a specified future date are recognized in the balance sheet.

The corresponding cash paid, including due interest, is recognized in the balance sheet. The difference between the purchase price and the price at resale date is treated as interest income and is accrued over the life of the agreement.

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2.12. EquITy INVESTMENTS

2.12.1. Investments in subsidiaries

Subsidiaries are legal entities in which the Bank has ownership of more than 50 percent, or otherwise holds more than half of voting rights, or the right to manage the financial (business) policy of the subsidiary.

As of 31 December 2011, the Bank owns 100% of capital of Intesa Leasing d.o.o., Beograd. Equity investment in the aforementioned subsidiary is stated at cost, less allowance for impairment (Note 20).

In accordance with IAS 27 “Consolidated and Separate Financial Statements“, the Bank prepares consolidated financial statements. In preparing consolidated financial statements, the Bank combines its financial statements and the financial statements of its subsidiary line by line by adding together same items of assets, liabilities, equity, income and expenses. All intra-group balances and transactions, including income, expenses and unrealized gains, are eliminated in full.

2.12.2. Investments in associates

In accordance with IAS 28 “Investments in Associates“, investments in associates are investments in entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

Investments in associates are classified as financial asset available for sale and are recognized at cost less allowance for impairment. As at 31 December 2011, the Bank has investment in Investment funds Management Company “Intesa Eurizon Asset Management” a.d. Beograd, and is entitled to 40% of total shares of the company.

2.13. INTANGIBLE ASSETS

Intangible assets consist of software, licenses and intangible assets under construction. Intangible assets are carried at cost less any accumulated amortization.

Licenses are initially recognized at cost. They have limited useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method in order to fully write off the cost of these assets over their estimated useful lives (from 5 to 10 years).

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives (from 2 to 5 years).

Costs associated with maintaining computer software programmes are recognized as an expense as incurred.

Amortization of intangible assets is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives, as follows:

- Licenses and similar rights 10%-20%- Software 20%-50%

Intangible assets include unamortized software in progress, since it is still not in use.




2.14. pROpERTy AND EquIpMENT AND INVESTMENT pROpERTy

As of 31 December 2011, property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any.

Cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are recognized in the income statement of the financial period in which they are incurred.

The Bank owns property as investments to generate profits from rents and/or increases in property value on the market. Investment property is stated at cost less accumulated depreciation.

Depreciation is calculated using straight-line method applied to cost of fixed assets, using the following prescribed annual rates in order to write them off over their useful lives:

Buildings 2.5%Computer equipment 20%Furniture and other equipment 7% - 25%Investment property 2.5%

In determining the basis for depreciation, the depreciable values of assets equal their cost or revalued amount, since the Bank assesses the residual values of assets as nil.

Calculation of depreciation of property and equipment commences at the beginning of month following the month when an asset is put into use. Assets under construction are not depreciated. Depreciation charge is recognised as expense for the period when incurred.

The useful lives of the assets are reviewed periodically, and adjusted if necessary at each balance sheet date. Change in the expected useful life of an asset is considered as a change in an accounting estimate.

Gains or losses from the disposal of property and equipment are credited or debited in the income statement, included in Other operating income or Other operating expenses, respectively.

The calculation of the depreciation for tax purposes is determined by the Law on Corporate Income Tax of the Republic of Serbia and the Rules on the Manner of Fixed Assets Classification in Groups and Depreciation for Tax Purposes. Different depreciation methods used for the financial reporting purposes and the tax purposes give raise to deferred taxes (Note 13(c)).

2.15. IMpAIRMENT OF NON-FINANCIAL ASSETS

In accordance with adopted accounting policy, at each balance sheet date, the Bank’s management reviews the carrying amounts of the Bank’s intangible assets, property and equipment. If there is any indication that such assets have been impaired, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its recoverable amount, being the higher of an asset’s fair value less costs to sell and value in use. Impairment losses, representing a difference between the carrying amount and the recoverable amount of tangible and intangible assets, are recognized in the income statement as required by IAS 36 “Impairment of Assets”.

Non-financial assets (other than goodwill) that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

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2.16. FINANCE LEASES

Bank as a Lessee

Finance leases, which transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments and included in property and equipment with the corresponding liability to the lessor included in other liabilities.

Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income in interest expense.

It is regulated by the Agreement on leasing that the Bank can, but it does not have to, obtain ownership of the leased facility after the expiration of the Agreement on leasing.

2.17. OpERATING LEASES

A lease is classified as an operating lease if it does not transfer to the Bank substantially all the risks and rewards incidental to ownership.

The total payments made under operating leases are included in Other operating expenses, when incurred, in the income statement using a straight-line basis over the period of the lease.

2.18. pROVISIONS AND CONTINGENCIES

Provisions are recognized when the Bank has a present obligation, legal or constructive, as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. In order to be maintained, the best possible estimates are considered, determined and, if necessary, adjusted at each balance sheet date. When the outflow of the economic benefits is no longer probable in order to settle legal or constructive liabilities, provisions are derecognised in income. Provisions are taken into account in accordance with their type and they can be used only for the expenses they were recognised initially for. Provisions are not recognised for future operating losses.

Contingent liabilities are not recognized in the financial statements. Contingent liabilities are disclosed in the notes to the financial statements (Note 35), unless the possibility of an outflow of resources embodying economic benefits is remote.

Contingent assets are not recognized in the financial statements. Contingent assets are disclosed in the notes to the financial statements when an inflow of economic benefits is probable.

2.19. EquITy

Equity consists of share capital (ordinary shares), other capital, share premium, reserves from profit and retained earnings.

Dividends on ordinary shares are recognized as a liability and deducted from equity in the period in which they are approved by the Bank’s shareholders. Dividends for the year that are declared after the balance sheet date are disclosed as an event after the balance sheet date.




2.20. EMpLOyEE BENEFITS

(a) Employee taxes and Contributions for Social Security

In accordance with the regulations prevailing in the Republic of Serbia, the Bank is obliged to pay contributions to various state social security funds. These obligations involve the payment of contributions on behalf of the employee, by the employer in an amount calculated by applying the specific, legally-prescribed rates. The Bank is also legally obligated to withhold contributions from gross salaries to employees, and on their behalf to transfer the withheld portions directly to the appropriate government funds. The Bank has no legal obligation to pay further benefits due to its employees by the Pension Fund of the Republic of Serbia upon their retirement.

(b) Termination Benefits arising from Restructuring

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Bank recognizes termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

(c) Other Employee Benefits - Retirement Benefits

In accordance with the Labour Law and article 33 of the General collective agreement, the Bank is obligated to pay retirement benefits in the amount equal to 3 average salaries in the moment of payment, while this amount cannot be lower than 3 salaries of employee, 3 average salaries in the Bank in the moment of payment or 3 average salaries realized in the Republic of Serbia, according to the latest data published by statistical office of the Republic, if that is favourable for the employee. The entitlement to these benefits usually depends on the employee remaining in service up to retirement age and/or the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment.

Provision for retirement benefits and unused days of vacation are calculated by independent actuary and are recognized in the balance sheet at present value of discounted estimated future outflows (Note 29 (c)).

2.21. TAxES AND CONTRIBuTIONS

(A) INCOME TAxES

Current Income Tax

Current income tax represents an amount that is calculated and paid in accordance with the effective Law on Corporate Income Tax of the Republic of Serbia. During the year, the Bank pays income tax in monthly instalments, based on the prior year Tax return. Final tax base used for calculating income tax at the prescribed rate of 10% is disclosed in the Tax return.

In order to determine the amount of the taxable profit, the accounting profit is adjusted for certain permanent differences and reduced for certain investments made during the year, as disclosed in the current year Tax return. Tax return is submitted to Tax authorities 10 days after the submission of the financial statements, i.e. until the 10 March of the following year.

In accordance with the Law on Corporate Income Tax of the Republic of Serbia, when investing in fixed assets tax credit is recognized in the amount equal to 20% of the investment, and this tax credit may not exceed 50% of computed tax for the year in which this investment was made. Unused portion of tax credit may be transferred to the future income tax account, but not more than 10 years.

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2.21. Taxes and contributions

(a) Income Taxes (continued)

Deferred income tax

Deferred tax is provided for using the balance sheet liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Tax rate enacted at the balance sheet date is used to determine the deferred income tax amount.

Deferred tax liabilities are recognised for all taxable temporary differences, except where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

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

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




2.21. TAxES AND CONTRIBuTIONS (CONTINuES)

(A) INCOME TAxES (CONTINuED)

Deferred income tax (continued)

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

Current and deferred taxes are recognized as income or expense and are included in the profit for the period.

Deferred income taxes related to items that are recorded directly in equity are also recorded in equity.

(B) TAxES AND CONTRIBuTIONS NOT RELATED TO OpERATING RESuLT

Taxes and contributions that are not related to the Bank’s operating result include property taxes, VAT, employer contributions on salaries, and various other taxes and contributions paid pursuant to republic and local tax regulations. These taxes and contributions are included within other operating expenses (Note 10).

2.22. FuNDS MANAGED ON BEHALF OF THIRD pARTIES

The funds that the Bank manages on behalf of, and for the account of third parties, are disclosed within off-balance sheet items (Note 32(a)). The Bank is not exposed to any risk in respect of repayment of these placements.

77




3. INTEREST INCOME AND INTEREST ExpENSE

a) Interest income and expense by sector structure are presented as follows:

RSD thousand 2011 2010

Interest income – National Bank of Serbia and other banks 3,032,179 2,460,158 – Corporate customers 15,564,957 13,663,832 – Public sector 2,911,577 2,456,332 – Other customers 436,790 176,055 – Foreign entities 72,194 92,697 – Retail customers 9,072,766 7,782,029

Total 31,090,463 26,631,103 Interest expense – National Bank of Serbia and other banks 744,530 500,874 – Corporate customers 3,175,903 2,179,000 – Public sector 520,975 503,128 – Other customers 1,021,329 1,860,601 – Foreign entities 2,082,776 1,666,560 – Retail customers 4,107,195 2,575,546

Total 11,652,708 9,285,709 Net interest income 19,437,755 17,345,394

b) Interest income and expense by type of financial instruments are presented as follows:

RSD thousand2011 2010

Interest incomeLoans 25,656,928 21,843,034Reverse REPO transactions 2,045,821 1,842,245Obligatory reserve 253,197 284,532Deposits 19,152 4,410Securities 2,094,090 2,042,429Other placements 1,021,275 614,453

Total 31,090,463 26,631,103

Interest expensesLoans 1,955,356 1,544,708Deposits 9,682,711 7,734,632Other interest expenses 14,641 6,369

Total 11,652,708 9,285,709

Net interest income 19,437,755 17,345,394


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 FINANCIAL STATEMENT FOR 2011

4. FEE AND COMMISSION INCOME AND ExpENSE


Fee and commission income Fee for banking services: - Domestic payment transaction services 2,185,359 2,053,584 - International payment transaction services 417,888 298,340 - Loan operations 71,591 76,609 - Cards operations 2,250,461 2,246,638

4,925,299 4,675,171 Commissions in respect of issued guaranties and letter of credits 833,885 864,636Other fee and commission 1,618,922 1,410,698

Total 7,378,106 6,950,505

Fee and commission expense Fee for payment transaction services: – Domestic 186,411 166,094 – International 108,914 48,331National Bank of Serbia’s fee and commission 51,559 43,571Credit Bureau’s fees 29,846 37,890Fee for cards operations 1,538,652 1,427,901Other fees and commissions 27,658 62,235

Total 1,943,040 1,786,022

Net fee and commission income 5,435,066 5,164,483

Other fees and commission income during 2011 mostly relate to fees for the maintenance of current accounts in the amount of RSD 1,031,474 thousand (2010: RSD 967,203 thousand) as well as fees for payment slips, EDB and Telekom Srbija in the amount of RSD 189,826 thousand (2010: RSD 156,547 thousand).

5. NET FOREIGN ExCHANGE GAINS/(LOSSES)

RSD thousand 2011 2010 Foreign exchange gains 121,225,609 84,576,542Foreign exchange losses (119,288,336) (98,375,347)

Net foreign exchange gains/(losses) 1,937,273 (13,798,805)

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6. OTHER OpERATING INCOME


Recovery of receivables previously written-off 54,666 157,132Rental income 18,442 18,928Gains on sales of property and equipment and surpluses 43,551 131,549Reimbursed expenses 5,781 5,270Other income 291,808 84,547

Total 414,248 397,426

7. IMpAIRMENT LOSSES ON FINANCIAL ASSETS AND pROVISIONS, NET

(A) IMpAIRMENT LOSSES AND pROVISIONS, NET


Additions to allowances for impairment of financial assets and provisions: Impairment losses for balance-sheet assets 11,482,696 9,267,879

Provisions for off-balance sheet items 591,938 1,978,460Provisions for: – long-term employee benefits 83,018 145,882 – litigations 138,490 82,106 – other liabilities – arising from VAT 45,288 41,844 266,796 269,832

Total 12,341,430 11,516,171 Reversal of impairment losses

Reversal of impairment losses on balance sheet assets 6,835,834 4,697,193Suspended interest 213,400 102,085 7,049,234 4,799,278Release of provision for losses on off-balance sheet Assets 969,934 2,119,114 Release of provisions for: – Long-term employee benefits 32,698 140,992 – Litigations 30,186 92,627 62,884 233,619

Total 8,082,052 7,152,011

Impairment losses and provisions, net 4,259,378 4,364,160



7. IMpAIRMENT LOSSES ON FINANCIAL ASSETS AND pROVISIONS, NET (continued)

B) MOVEMENTS IN THE ALLOWANCE FOR IMpAIRMENT OF FINANCIAL ASSETS AND pROVISIONS

Movements in the allowance for impairment of loans and other financial assets and provisions during the 2011 are presented as follows:

RSD thousand

Cash and cash equivalents

Interest and fee receivable

Loans, advances and deposits

Securities available for

saleEquity

investmentsOther

placements Other assets provisions Total(Note 15) (Note 17) (Note 18) (Note 19) (Note 20) (Note 21) (Note 24) (Note 29)

Balance as at 31 December 2010 1,690 1,559,748 15,264,727 16,148 894 943,760 10,876 2,419,833 20,217,676 Additions 3,811 1,427,912 8,888,345 20,755 20 1,129,076 12,777 858,734 12,341,430 Reversals (1,049) (470,695) (6,107,542) - - (457,475) (12,473) (1,032,818) (8,082,052)FX losses on impairment for financial assets 355 17,408 966,827 - - 49,614 333 105,014 1,139,551 FX gains on impairment of financial assets (303) (20,309) (1,046,398) - - (48,911) (363) (121,741) (1,238,025)Transfer to off-balance (Note 32 (d)) - (699,416) (2,632,533) - - (377,779) - (12) (3,709,740)Other - - - (1,199) (194) - (3,101) - (4,494)

Balance as at 31 December 2011 4,504 1,814,648 15,333,426 35,704 720 1,238,285 8,049 2,229,010 20,664,346

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8. SALARIES, WAGES AND OTHER pERSONAL ExpENSES


Net salaries 3,167,371 2,859,218Tax on employee benefits 486,848 442,722Contributions on employee benefits 680,657 619,000Other personal expenses 99,302 75,356

Total 4,434,178 3,996,296

9. DEpRECIATION AND AMORTIZATION


Amortization of intangible assets (Note 22) 223,716 201,861Depreciation of property, equipment and investment property (Note 23) 641,260 688,830

Total 864,976 890,691

10. OTHER OpERATING ExpENSES


Material, energy and spare parts 383,867 416,713Professional services 807,932 825,078Advertising, marketing and representation 735,776 704,232Mail and telecommunication expenses 366,643 323,374Insurance premiums 812,756 681,952Maintenance of property and equipment 402,756 390,045Rental cost 889,516 828,144Fees and commission 197,873 181,921Taxes and contributions 888,975 774,451Physical-technical security 196,093 161,662General and administrative expenses 208,722 170,510Direct write-off of receivables 267,401 508,680Losses on write-offs, disposals and shortages of property, equipment and intangible assets 10,803 20,941Other expenses 228,862 188,577

Total 6,397,975 6,176,280



11. GAINS FROM CHANGES IN VALuE OF ASSETS AND LIABILITIES


Gains from changes in value of loans and receivables 21,876,125 23,974,236Gains from changes in value of securities 298,009 2,879Gains from changes in value of derivatives 142,477 3,363Gains from changes in value of other financial assets - 265Gains from changes in value of liabilities 1,136,154 300,258

Total 23,452,765 24,281,001

12. LOSSES FROM CHANGES IN VALuE OF ASSETS AND LIABILITIES


Losses from changes in value of loans and receivables 22,203,016 8,708,599Losses from changes in value of securities 534,763 -Losses from changes in value of derivatives 164,916 94,101Losses from changes in value of liabilities 1,128,385 704,471

Total 24,031,080 9,507,171

13. INCOME TAx

A) COMpONENTS OF INCOME TAx

The components of income tax expense are:


Current income tax 1,113,156 871,597Profit from created deferred tax assets and reduction of deferred tax liabilities (23,673) (35,407)Loss from reduction deferred tax assets and creation of deferred tax liabilities 9,410 -

Total income tax 1,098,893 836,190

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13. INCOME TAx (continued)

(B) RECONCILIATION OF TOTAL AMOuNT OF INCOME TAx STATED IN THE INCOME STATEMENT WITH THE AMOuNT OF pROFIT BEFORE TAx MuLTIpLIED By pRESCRIBED TAx RATE is As FOLLOws:


Profit before tax 10,689,733 8,456,120

Income tax at the rate of 10% 1,068,973 845,612Tax effect of non-deductable expenses 60,278 33,323Tax credits on investment in property and equipment (66,114) (49,208)Effects of interest on arm’s length basis 6,049 - Other 29,707 6,463

Income taxes stated in the income statement 1,098,983 836,190

Effective tax rate 10.28% 9.89%

For the purpose of determining income taxes for the year ended 31 December 2011, the Bank increased the tax base by the amounts of provisions charged to the income in the total amount of RSD 266,796 thousand, which includes the following:

- Provision for litigations in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” in the amount of RSD 138,490 thousand;- Provision for restructuring in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” in the amount of RSD 70,237 thousand;- Provisions for retirement benefits in accordance with IAS 19 “Employee Benefits“ in the amount of RSD 12,781 thousand; and- Provisions for tax liabilities RSD 45,288 thousand.

(C) DEFERRED TAx ASSETS

Deferred tax assets relate to taxable temporary differences between carrying amount of tangible and intangible assets and their taxable base, as well as to differences arised from fair value of de-rivatives and their carrying amount.

Movements in deferred tax assets during the year were as follows:


Balance as at 1 January 33,054 -Effects of temporary differences credited to the income statement 14,263 33,054

Balance as at 31 December 47,317 33,054



14. EARNINGS pER SHARE

Pursuant to the Serbian Business Registers Agency Decision no. BD 159633/2006 dated 5 October 2006, the Bank became a closed joint-stock company, and therefore it is not obliged to calculate and disclose the earning per share as required by IAS 33 “Earning per Share”.

15. CASH AND CASH EquIVALENTS


In DinarsGyro account 10,146,499 7,847,530Cash on hand 2,743,000 2,261,201Bonds of Ministry of Finance of Republic of Serbia, with maturity up to 90 days 315,667 7,890,224

13,205,166 17,998,955In foreign currencyCurrent accounts held with foreign banks 541,445 487,608Foreign currency cash on hand 2,383,905 1,484,068Other monetary assets 40,365 34,096

2,965,715 2,005,772

Gold and precious metals 56,184 50,211

Gross balance as at 31 December 16,227,065 20,054,938 Minus: Allowance for impairment (Note 7 (b))- In foreign currency (4,504) (1,690)

(4,504) (1,690)

Balance as at 31 December 16,222,561 20,053,248

Obligatory reserve in dinars is minimal reserve in dinars allocated in accordance with the National Bank of Serbia’s Decision on banks’ obligatory reserve held with the National Bank of Serbia (Official Gazette of Republic of Serbia no. 3/2011).

Bank is required to calculate and allocate the obligatory reserve in dinars by applying 5% on the average daily balance of liabilities in dinars with contractual maturity up to 730 days, while 0% is applied on the average daily balance of liabilities in dinars with contractual maturity over 730 days. These percentages are calculated on the average daily balance of liabilities in local currency during the preceding calendar month and a bank allocates calculated amount to its gyro account with National bank of Serbia. The Bank calculates obligatory reserve in dinars on the deposits in dinars, loans and securities, and other obligations in dinars, excluding dinar deposits received under transactions performed on behalf and for the account of third parties that are not in excess of the amount of the investment made from such deposits as defined by the Decision.

During the maintenance period, the Bank is obliged to maintain average daily balance of obligatory reserve in dinars at the level of calculated obligatory reserve in dinars.

As at 31 December 2011, obligatory reserve in dinars amounted to RSD 11,447,878 thousand and it was in accordance with the aforementioned Decision of the National Bank of Serbia.

The average interest rate on the balance of the obligatory reserve in dinars set aside equalled 2.50% annually during 2011.

85




16. REVOCABLE DEpOSITS AND LOANS


In Dinars Reverse repurchase agreements 33,000,000 7,000,000

33,000,000 7,000,000In foreign currency Obligatory reserve with the National Bank of Serbia 50,162,819 44,409,640

50,162,819 44,409,640 Balance as at 31 December 83,162,819 51,409,640

Obligatory reserve with the National Bank of Serbia in foreign currency

In accordance with the National Bank of Serbia’s Decision on banks’ obligatory reserve held with the National Bank of Serbia (Official Gazette of Republic of Serbia no. 3/2011), the Bank calculates and allocates the obligatory reserves by applying 30% on the average daily balance of foreign currency deposits as well as on the average daily balance of foreign currency clause-indexed dinar liabilities in the preceding calendar month, except for liabilities defined by the Decision, with contractual maturity up to 730 days. The Bank applies 25% on the aforementioned liabilities with contractual maturity over 730 days.

The Bank is obliged to maintain average daily balance of obligatory foreign currency reserve at the level of calculated foreign currency reserve, in the calculation period.

The National Bank of Serbia does not pay interest on obligatory reserve in foreign currency.

As at 31 December 2011, the Bank’s obligatory reserve in foreign currency was in compliance with the aforementioned Decision of the National Bank of Serbia.

In accordance with the Decision on obligatory reserves held at the National Bank of Serbia that leasing companies are obliged to keep on separate account with the bank (Official Gazette of Republic of Serbia no. 12/2010), the Bank is obliged to calculate and allocate obligatory reserve on foreign currency financial assets that leasing companies keep on separate account with the Bank (obligatory leasing reserve) at a rate of 100% on average daily balance of those liabilities during the previous calendar month.

Calculated obligatory leasing reserve the Bank allocates in EUR, on foreign currency accounts with National Bank of Serbia, and exceptionally, when due to allocation of obligatory leasing reserve in EUR the Bank’s foreign exchange risk ratio would not comply with the Decision on Risk Management of National Bank of Serbia, the Bank may allocate obligatory leasing reserve in USD.

Reverse repurchase agreements

Reverse repurchase agreements are recognized as placements or borrowings. They represent purchase and sale of securities where the contractual parties agreed that securities are sold by a seller to a buyer at purchase cost as of the date of transaction, while at the same time the buyer is obligated to resell the same securities to the seller, who is obligated to pay the agreed repurchase price.

Reverse repurchase agreements in the amount of RSD 33,000,000 thousand as at 31 December 2011 relate to purchase of treasury bills from the National Bank of Serbia with maturity period to 14 days, and bearing an interest rate 9.75% per annum (31 December 2010: RSD 7,000,000 thousand).



17. INTEREST AND FEE RECEIVABLES, RECEIVABLES FROM SALES, CHANGES IN FAIR VALuE OF DERIVATIVES AND OTHER RECEIVABLES


In DinarsInterest and fee receivables: – Other banks 152,284 70,321 – National Bank of Serbia 11,158 8,408 – Corporate customers 3,003,268 3,014,935 – Public sector 44,484 34,705 – Retail customers 736,634 537,141 – Foreign entities 605 234 – Other customers 608,063 148,603Receivables from sales 1,063 998Receivables from changes in fair value of derivatives (Note 35 (e)) 142,477 3,363

4,700,036 3,818,708In foreign currencyInterest and fee receivables: – Other banks 63 73 – Corporate customers 59,095 103,664 – Public sector - 27 – Retail customers 14,110 12,640 – Foreign entities 8,679 11,530 – Other customers 18,254 3,404

100,201 131,338 Gross receivables 4,800,237 3,950,046 Minus: Allowance for impairment (Note 7(b)) – in dinars (1,775,715) (1,495,317) – in foreign currency (38,933) (64,431)

(1,814,648) (1,559,748)


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18. LOANS AND ADVANCES

LOANS AND ADVANCES By TypE OF CuSTOMER


Short-term Long-term Total Short-term Long-term Total

In dinarsLoans and placements to: – Other banks 1,043,050 6,665,241 7,708,291 1,304,119 2,803,533 4,107,652 -Corporate customers 54,571,364 94,735,729 149,307,093 64,661,551 80,743,681 145,405,232 – Retail customers 6,188,390 71,762,452 77,950,842 5,613,118 66,693,854 72,306,972 – Public sector 83,675 11,877,220 11,960,895 58,005 8,619,119 8,677,124 – Foreign entities 660 347,633 348,293 519 223,058 223,577 – Other customers 4,418,055 1,572,045 5,990,100 1,686,420 1,540,603 3,227,023

Total in RSD 66,305,194 186,960,320 253,265,514 73,323,732 160,623,848 233,947,580

In foreign currencyLoans and placements to: – Other banks 673 1,260 1,933 1,965 - 1,965 – Corporate customers 1,403,435 4,969,120 6,372,555 1,163,433 6,076,972 7,240,405 – Retail customers 59,287 486,359 545,646 9,184 511,756 520,940 – Public sector 82 4,070,918 4,071,000 1,467 4,103,036 4,104,503 – Foreign entities 209,579 556 210,135 13,451,960 1,073,392 14,525,352 – Other customers 197,789 6,579 204,368 8,433 2,839 11,272

Total in foreign currency 1,870,845 9,534,792 11,405,637 14,636,442 11,767,995 26,404,437

Gross loans and advances 68,176,039 196,495,112 264,671,151 87,960,174 172,391,843 260,352,017Minus: Allowance for impairment (Note 7(b)) (10,501,265) (4,832,161) (15,333,426) (10,460,709) (4,804,018) (15,264,727)

Balance as at 31 December 57,674,774 191,662,951 249,337,725 77,499,465 167,587,825 245,087,290

Short-term loans have been granted to corporate customers for financing business activities in trading, manufacturing, construction, agriculture and food processing industry as well as for other purposes, at the rates ranging from 8.25% to 24% per annum for loans in Dinars, and from 4.4% to 14.18% per annum for loans indexed by a foreign currency clause or indexed in foreign currency.

Long-term loans to corporate customers in dinars bear interest rate ranging from 11.12% to 21.18% per annum, and from 2.78% to 14.98% per annum for long-term loans in dinars indexed by a foreign currency as well as loans in foreign currency.

Short-term retail loans and loans to small Corporate customers bear interest rates ranging from 5% to 20% annually in case of loans indexed by a foreign currency, and from 3.50% to 27.00% for loans that are not indexed by a foreign currency.

Interest rate on retail overdrafts is 2.8% monthly, and on overdrafts for small Corporate customers 2.9% monthly.

Long-term retail loans and loans to small Corporate customers have been granted for purchase of consumer goods, renovating, adaptation and purchase of business and residential space for a period from 18 months u to 30 years, bearing interest at the rates ranging from 4.50% to 20% annually in case of loans indexed by a foreign currency and from 2.71% to 25% annually for loans that are not indexed by a foreign currency.



19. SECuRITIES


Securities at fair value through

profit or lossSecurities available

for sale Total

Securities at fair value through

profit or lossSecurities available

for sale Total

securities and other placements: – Equity investments - 49,223 49,223 - 52,308 52,308– Debt securities issued by the Government of the Republic of Serbia 38,869 17,639,819 17,678,688 49,580 19,422,931 19,472,511

38,869 17,689,042 17,727,911 49,580 19,475,240 19,524,820Fair value adjustments (11,631) 104,011 92,380 (15,677) (112,306) (127,982)

Gross securities 27,238 17,793,053 17,820,291 33,903 19,362,934 19,396,837Less: Allowance for impairment (Note 7(b)) - (35,704) (35,704) - (16,148) (16,148)

Balance as at 31 December 27,238 17,757,349 17,784,587 33,903 19,346,786 19,380,689

20. EquITy INVESTMENTS


Investments in subsidiaries: – Intesa Leasing d.o.o., Beograd – 100.00% of capital 962,496 947,941

Minus: Allowance for impairment (Note 7(b)) - -

962,496 947,941Equity investments in other legal entities: Alma Mons d.o.o.,Novi Sad 30 30Bancor Consulting Group d.o.o., Novi Sad 267 267Pan trgovina d.o.o., Novi Sad 466 466Nikola Tesla d.o.o., Subotica - 161Veeda d.o.o., Vranje 29 29Poslovni Inkubator d.o.o., Beočin - 33Minus: Allowance for impairment (Note 7(b)) (720) (894)

72 92

Balance as at 31 December 962,568 948,033

89




21. OTHER pLACEMENTS


In DinarsPurchased placements - Factoring 4,184,914 2,511,193Receivables for guarantees paid 1,422,151 937,724Placements in respect of assigned receivables 6,862,647 4,028,103Other placements 242,017 2,409,687

12,711,729 9,886,707In foreign currencyOther placements 48,137 1,327,631

48,137 1,327,631

Gross placements 12,759,866 11,214,338 Less: Allowance for impairment (Note 7(b))– in dinars (1,238,285) (943,751)– in foreign currency - (9) (1,238,285) (943,760)




22. INTANGIBLE ASSETS

RSD thousandLicences Software Intangible assets in progress Total

COST

Balance as at 1 January 2010 220,961 605,582 51,154 877,697Additions during the year - - 191,938 191,938Transfers from assets in progress 55,539 163,806 (219,345) -Disposals and write offs - (24,978) - (24,978)

Balance as at 31 December 2010 276,500 744,410 23,747 1,044,657

Additions during the year - - 257,653 257,653Transfers from assets in progress 64 220,337 (220,401) -

Balance as at 31 December 2011 276,564 964,747 60,999 1,302,310

ACCuMuLATED AMORTIZATIONBalance as at 1 January 2010 99,016 207,296 - 306,312Amortization (Note 9) 28,551 173,310 - 201,861

Disposals and write offs - (24,978) - (24,978)

Balance as at 31 December 2010 127,567 355,628 - 483,195

Amortization (Note 9) 33,797 189,919 - 223,716

Balance as at 31 December 2011 161,364 545,547 - 706,911

Net book value as at:

– 31 December 2011 115,200 419,200 60,999 595,399

– 31 December 2010 148,933 388,782 23,747 561,462

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23. pROpERTy, EquIpMENT AND INVESTMENT pROpERTy

RSD thousand

Land and buildings

Equipment and equipment under

finance leaseLeasehold

improvementsConstruction in

progress Total property and

equipmentInvestment

property

COSTBalance as at 1 January 2010 5,606,964 3,573,799 492,572 48,305 9,721,640 20,713 Additions during the year - - - 675,591 675,591 -Transfers from construction in progress 157,087 444,838 54,146 (656,071) - -Disposals and write offs (338,674) (179,748) (21,206) - (539,628) -

Balance as at 31 December 2010 5,425,377 3,838,889 525,512 67,825 9,857,603 20,713 Additions during the year 3,076 - - 853,620 856,696 1,116 Transfers from construction in progress 150,999 481,843 130,803 (763,645) - -Disposals and write offs (14,636) (381,055) (27,440) - (423,131) -

Balance as at 31 December 2011 5,564,816 3,939,677 628,875 157,800 10,291,168 21,829

ACCuMuLATED DEpRECIATIONBalance as at 1 January 2010 661,538 2,197,728 228,624 - 3,087,890 2,902 Depreciation (Note 9) 106,763 482,852 98,698 - 688,313 517 Disposals and write offs (109,524) (166,219) (13,565) - (289,308) -

Balance as at 31 December 2010 658,777 2,514,361 313,757 - 3,486,895 3,419

Depreciation (Note 9) 103,822 446,571 90,198 - 640,591 669 Disposals and write offs (5,199) (374,486) (22,641) - (402,326) - Balance as at 31 December 2011 757,400 2,586,446 381,314 - 3,725,160 4,088

Net book value as at:

– 31 December 2011 4,807,416 1,353,231 247,561 157,800 6,566,008 17,741

– 31 December 2010 4,766,600 1,324,528 211,755 67,825 6,370,708 17,294

As at 31 December 2011, the Bank has title deeds for property it owns and has no buildings pledged as collateral.

As at 31 December 2011, the carrying value of equipment under finance lease amounts to RSD 142,837 thousand (31 December 2011: RSD 158,772 thousand).

Using the external and internal sources of information in accordance with IAS 36 “Impairment of Assets”, The Bank’s management concluded that there were no indications of impairment of the property and equipment in use at the balance sheet date.



24. OTHER ASSETS

RSD thousand 2011 2010 Receivables from employees 8,416 8,367Receivables for taxes paid in advance, except income taxes 2,415 866Advances paid 55,488 123,558Other receivables from operations 876,423 954,211Assets received on foreclosed loans 1,986 18,838Other assets 808,377 386,657Accrued interest income: – in dinars 741,493 271,647 – in foreign currency 52,509 58,938Other accrued income – in foreign currency 10,001 12,753Deferred interest expenses: – in dinars 20,719 27,555 – in foreign currency 38,899 407,838Other deferred expenses: – in dinars 260,537 159,096 – in foreign currency 168,213 130,568Other accruals: – in dinars 21,175 -

Total other assets 3,066,651 2,560,892 Less: Allowance for impairment (Note 7(b)) (8,049) (10,876)

Balance at 31 December 3,058,602 2,550,016

Other receivables from operations as at 31 December 2011 amounting to RSD 876,423 thousand mostly relate to receivables in dinars with respect to payment cards of other card issuers Master Card in the amount of RSD 108,885 thousand and VISA in the amount of RSD 492,820 thousand.

93




25. TRANSACTION DEpOSITS


RSD Foreign currency Total RSD Foreign currency Total Other banks 146,345 65,888 212,233 92,647 62,706 155,353Financial institutions 53,861 9,275 63,136 32,872 36,918 69,790Investment and voluntary pension funds 395,094 17,129 412,223 399,413 21,082 420,495Insurance companies 314,200 102,981 417,181 318,356 237,987 556,343Holding companies 256,131 27,955 284,086 145,838 332,587 478,425Corporate 19,687,227 23,020,195 42,707,422 17,468,120 10,749,674 28,217,794Public sector 12,862 29,361 42,223 16,058 56,020 72,078Retail 9,866,368 27,137,986 37,004,354 7,395,614 24,084,114 31,479,728Foreign banks 18,638 25,824 44,462 2,637 12,800 15,437Other foreign entities 116,718 924,802 1,041,520 99,762 1,262,676 1,362,438Other customers 2,081,121 368,468 2,449,589 1,900,672 350,248 2,250,920Balance as of 31 December 32,948,565 51,729,864 84,678,429 27,871,989 37,206,812 65,078,801

Transaction deposits of corporate clients are placed with the interest ranging from 0.5% to 9.75% per annum, depending on the currency and the amount of deposit.

Transaction deposits of retail clients in dinars are not interest bearing, while a vista deposits bear interest at rate from 4% per annum, and from 0.3% per annum for transaction deposits in EUR and other currencies.

26. OTHER DEpOSITS


Short term Long term Total Short term Long term Total

In RSD Saving deposits: – Retail 1,457,539 3,076 1,460,615 626,463 1,604 628,067 – Foreign entities 10,561 - 10,561 6,339 - 6,339Special purpose deposits 2,845,485 640,631 3,486,116 2,490,331 926,324 3,416,655Other deposits 31,799,614 112,545 31,912,159 28,583,491 120,198 28,703,689Total in RSD 36,113,199 756,252 36,869,451 31,706,624 1,048,126 32,754,750 In foreign currency Savings deposits: – Retail 72,290,151 7,729,468 80,019,619 66,310,611 6,800,459 73,111,070 – Foreign entities 1,441,333 188,688 1,630,021 1,401,460 58,742 1,460,202Special purpose deposits 3,831,802 3,113,224 6,945,026 4,282,550 3,372,642 7,655,192Other deposits 21,963,603 3,258,646 25,222,249 56,171,368 279,503 56,450,871

Total in foreign currency 99,526,889 14,290,026 113,816,915 128,165,989 10,511,346 138,677,335

Balance as of 31 December 135,640,088 15,046,278 150,686,366 159,872,613 11,559,472 171,432,085

Term deposits in dinars and foreign currency bear interest rates ranging from 1.8% to 11.75% per annum, depending on the currency and the period that funds have been deposited for.

Retail short-term deposits in dinars bear interest at rates ranging from 8% to 12% per annum, depending on the period that the funds have been deposited for. The interest rates on the retail short-term deposits in foreign currency range from 1.0% do 6.5% per annum, depending on the period the funds have been deposited for as well as the currency.



26. OTHER DEpOSITS (continued)

Retail long-term deposits in foreign currency bear interest at rates ranging from 4.0% to 7.0% per annum for deposits in EUR, i.e. at rates rangning from 2.3% to 4.0% per annum for other cur-rencies, depending on the period that the funds have been deposited for.

The structure of other deposits by type of customers is as follows:

RSD thousand 2011 2010 Banks 9,253,640 6,433,366Corporate customers 31,123,536 30,483,986Retail customers 363,410 333,774Foreign entities 4,182,103 36,414,691Public sector 3,230,641 2,169,712Other customers 8,981,078 9,319,030

Balance as of 31 December 57,134,408 85,154,559

The structure of special purpose deposits by type of customers is as follows:


Banks 692,726 1,301,741Corporate customers 4,472,984 4,819,885Retail customers 4,844,789 4,355,356Foreign entities 178,558 175,561Public sector 179,312 401,738Other customers 62,773 17,567


95




27. BORROWINGS


Short term Long term Total Short term Long term Total

In RSD Borrowings:- Other banks 800,000 1,483 801,483 - 2,966 2,966- Corporate customers 110,671 - 110,671 189,620 - 189,620Other financial liabilities - - - 1,160,720 - 1,160,720

Total in RSD 910,671 1,483 912,154 1,350,340 2,966 1,353,306

In foreign currencyBorrowings:- Other banks 1,205,796 - 1,205,796 - - -- Public sector - 2,258,207 2,258,207 - 2,357,698 2,357,698- Foreign entities 6,278,454 43,704,563 49,983,017 - 39,362,017 39,362,017Other financial liabilities 2,747,288 - 2,747,288 2,182,221 - 2,182,221Total in foreign currency 10,231,538 45,962,770 56,194,308 2,182,221 41,719,715 43,901,936

Balance as of 31 December 11,142,209 45,964,253 57,106,462 3,532,561 41,722,681 45,255,242

Interest rates on long-term borrowings in dinars range from 0.5% to 5.5% per annum.

Interest rates on long-term borrowings in foreign currency range from EURIBOR 3M – 0.01% to EURIBOR 6M + 6.45%, depending on the date of the loan approval and the currency.



27. BORROWINGS (continued)

As of 31 December 2011, borrowings from foreign banks, which are presented within borrowings from foreign entities, include loans granted to the Bank by the members of Intesa Sanpaolo Group, as follows:

RSD thousandCreditor Currency Amount Maturity Date Interest rate 2011 2010 Intesa Sanpaolo S.p.A., Italy EUR 2,500,000 13.01.2016. 3M Euribor – 1 b.p. 145,335 175,830Intesa Sanpaolo S.p.A., Italy EUR 10,000,000 13.01.2014. 3M Euribor – 1 b.p. 392,403 527,491Intesa Sanpaolo S.p.A., Italy EUR 10,000,000 22.12.2014. 3M Euribor –1 b.p. 392,403 527,491Intesa Sanpaolo S.p.A., Italy EUR 10,000,000 21.12.2016. 3M Euribor –1 b.p. 523,205 632,989Intesa Sanpaolo S.p.A., Italy EUR 10.000.000 03.12.2015. 3M Euribor 523,205 659,364Intesa Sanpaolo S.p.A., Italy EUR 5.000.000 25.07.2018. 3M Euribor + 1 b.p. 366,243 421,993Intesa Sanpaolo S.p.A., Italy EUR 10,000,000 07.11.2016. 3M Euribor 654,006 791,236Intesa Sanpaolo S.p.A., Italy EUR 500,000 19.12.2014. 3M Euribor 26,160 35,166Intesa Sanpaolo S.p.A., Italy EUR 2,000,000 13.01.2016. 3M Euribor – 1 b.p. 116,268 140,664Intesa London EUR 19,500,000 31.12.2015. 6M Euribor +1.00% p.a. 2,040,498 2,057,215Vseobecna Uverova banka A.S., Slovačka EUR 40,000,000 03.05.2016. 3M Euribor +1.3% p.a. 4,185,636 4,219,928Intesa Sanpaolo S.p.A., Italy EUR 15,000,000 20.08.2029. 3M Euribor +0.9% p.a. 1,412,652 1,503,349Intesa Sanpaolo S.p.A., Italy EUR 60,000,000 09.06.2014. 3M Euribor +358 b.p. 6,278,454 6,329,893Intesa Sanpaolo S.p.A., Italy EUR 40,000,000 28.05.2014. 3M Euribor +3.64% 4,185,636 4,219,928Intesa Sanpaolo S.p.A., Italy EUR 500,000 31.05.2017. 3M Euribor +0.18% p.a. 52,320 -Intesa Sanpaolo S.p.A., Italy EUR 15,000,000 10.04.2031. 3M Euribor +0.55% p.a. 1,569,614 -


97




27. BORROWINGS (continued)

Other borrowings from international financial organizations and foreign corporate entities are shown in the following table:

RSD thousandCreditor Currency Amount Maturity Date Interest rate 2011 2010 EIB EUR 1,508,397 20.06.2015 3M Euribor +7.6 b.p. 157,840 159,133EIB EUR 2,633,096 20.06.2017 3M Euribor + 10.6 b.p. 275,530 277,787EIB EUR 1,631,253 20.05.2016 3M Euribor + 9.6 b.p. 170,696 172,094EIB EUR 13,818,410 15.06.2018 3M Euribor + 13.9 b.p. 1,445,971 1,457,817EIB EUR 6,411,464 10.07.2019 3M Euribor + 73.4 b.p. 670,901 676,398EIB EUR 6,215,949 20.11.2017 3M Euribor + 60.4 b.p. 650,442 655,771EIB EUR 7,781,430 24.08.2018 3M Euribor + 46.6 b.p. 814,256 820,927KfW EUR 14,000,000 30.12.2015 6M Euribor + 6.45% p.a. 1,065,435 1,342,704KfW EUR 16,000,000 30.12.2015 1.2%p.a. 1,217,640 1,534,519KfW EUR 13,000,000 31.12.2016 6M Euribor + 4.3% p.a. 1,236,665 1,371,477KfW EUR 17,000,000 30.12.2016 1.5% p.a. 1,617,178 1,793,469KfW EUR 15,000,000 30.06.2018 6M Euribor + 2.3% p.a. 784,807 -KfW EUR 15,000,000 30.06.2018 2.94% p.a. 784,807 -EBRD EUR 10,000,000 14.07.2014 6M Euribor + 2.7 % p.a. 896,922 1,054,982EBRD EUR 30,000,000 08.09.2015 6M Euribor + 2.7 % p.a. 3,139,227 3,164,946EBRD EUR 4,000,000 18.06.2016 6M Euribor + 2.7 % p.a. 418,564 -EBRD EUR 10,000,000 18.09.2016 6M Euribor + 2.5 % p.a. 523,205 -EFSE EUR 25,000,000 22.09.2016 6M Euribor + 3.2 % p.a. 2,616,023 2,637,455EFSE EUR 20,000,000 15.12.2018 6M Euribor + 3.05 % p.a. 1,046,409 -EFSE EUR 5,000,000 15.12.2021 6M Euribor + 3.35 % p.a. 261,602 -APEX EUR 9,487,000 16.07.2022 3M Euribor + 0.74% p.a. 992,728 1,000,861CEB EUR 20,000,000 16.12.2019 3M Euribor + 0.25% p.a. 1,046,409 -

NBS EUR 19,731,8058 years from the date of

withdrawal of tranche 1% p.a. 1,265,475 1,356,838


Short-term loans from banks and foreign entities relates to:

RSD thousandCreditor Currency Amount Maturity Date Interest rate 2011 2010 VOLKSBANK AD BEOGRAD USD 6,500,000 04.01.2012 0.20% 525,630 -CREDY BANKA AD KRAGUJEVAC EUR 2,500,000 04.01.2012 0.80% 261,602 -PIRAEUS BANK AD BEOGRAD EUR 4,000,000 04.01.2012 0.80% 418,564 -Intesa Sanpaolo S.P.A EUR 60,000,000 04.01.2012 1.08% 6,278,454 -

Balance as of 31 December 7,484,250 -



28. LIABILITIES ARISING FROM SECuRITIES, INTEREST, FEE AND CHANGES IN FAIR VALuE OF DERIVATIVES

A) LIABILITIES ARISING FROM SECuRITIES


Short term deposits of other entities in dinars – forward covered within 3 months 2,364,460 108,162Short term deposits of other entities in dinars – forward covered within 6 months 15,450 -Liabilities for short term securities in foreign currency (draft cheques) 5,739 24,628

Balance as of 31 December 2,385,649 132,790

B) INTEREST AND FEE pAyABLES AND DERIVATIVES FAIR VALuE


In RSD Interest and fee payables: – Banks 275 225 – Corporate 700 245 – Public sector - 19 – Other 3 17Negative fair value of derivatives (Note 32 (e)) 164,917 94,101

165,895 94,607

In foreign currency Interest and fee payables: - Foreign entities 42 - 42 - Balance as of 31 December 165,937 94,607

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29. pROVISIONS


Provision for off-balance sheet exposures (a) 1,287,823 1,682,556Provision for employee benefits:– restructuring (b) 70,237 32,698– long-term retirement benefits and unused days of vacation (c) 223,437 210,656Provision for litigations (Note 35 (a)) 383,190 274,887Provision for VAT liabilities 264,323 219,036


a) According to the Bank’s internal policy, provisioning for commitments and other off-balance sheet items exposed to risk is performed in the same manner as for balance sheet assets, i.e. off-balance sheet items are classified into recoverability categories based on the estimation of the recoverable amount of receivables, when it is probable that an outflow of resources will be required to settle the obligation arising from the Bank’s commitment, and when the objective evidence of such probability exists.

b) Project of considering and analyzing efficiency of business processes, which may lead to restructuring and decrease in number of employees (redundancies), which started near 2009 year end is still not finalized completely. Therefore, the Bank made provisions in the same manner as in previous years, based on estimated number of employees that fulfil conditions for retirement or number of employees that potentially could be redundant. For the purpose of estimation, available laws and regulations as well as internal acts have been used (Labour Law and Collective agreement).

c) Long-term provision for retirement benefits has been recognized at year ended on the basis of an independent actuary’s calculation, in the amount of present value of estimated future cash outflows. Present value of defined benefit obligations is calculated at discounted rate of 10% p.a. In the absence of a developed financial market in Serbia, in order to determine discount rate at the balance sheet date, annual yield on Government saving bonds (foreign currency saving bonds) guaranteed by the Republic of Serbia is applied. Considering nominal annual yield from saving bonds, projected inflation in Euro zone countries and assumption that exchange rate is formed based on purchasing power parity, real annual yield of benchmark securities is around 4.5%, i.e. with projected nominal inflation rate in Serbia of 5.5%, nominal annual yield is around 10%. The provision was determined in accordance with the Bank’s Collective agreement as well as in accordance with the assumption on average salary increase rate of 3.2% per annum over the period the provision has been established for.

Provision for unused days of vacation is calculated on the basis of an independent actuary’s report at the balance sheet date. In accordance with article 114 of the Labour Law in Republic of Serbia, during the vacation employee is entitled to compensation in the amount of last three months average salary. In calculating provision for unused vacation days, following is important:

• Average gross salary in Bank paid in October, November and December 2011• Number of unused days of vacation.



30. OTHER LIABILITIES


Net salaries and compensations 160,075 217,735Taxes, contributions and other duties payable, excluding income tax liability 110,750 150,596Trade payables 882,339 688,294Advances received 364,609 58,708Other liabilities 838,167 923,460

2,355,940 2,038,793Accruals and deferred incomeAccrued interest expenses: – in RSD 439,274 355,768 – in foreign currency 1,496,341 1,123,834Accrued interest – other expenses: – in RSD 3,647 4,353 – in foreign currency 3,189 2,827Deferred interest income in RSD 337,989 739,643Other deferred income in RSD 1,073,358 1,039,380Other deferrals in RSD 112,168 70,009

3,465,966 3,335,814

Subordinated liabilities (a) 8,371,272 11,604,802

Finance lease liabilities (b) 150,970 164,113


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30. OTHER LIABILITIES (continued)

(A) OuTsTANdiNg BALANCE ANd sTRuCTuRE OF suBORdiNATEd LiABiLiTiEs As OF 31 dECEmBER 2011 ANd 31 dECEmBER 2010 ARE As FOLLOws:

RSD thousandCreditor Currency Amount Maturity Date Interest Rate 31 December 2011 31 December 2010 International Finance Corporation (IFC),Washington, USA EUR 60,000,000 15.12.2012

6M Euribor + 2.25% p.a. 3,139,227 6,329,892

Intesa Sanpaolo S.p.A., Torino, Italy EUR 50,000,000 12.03.2012

3M Euribor + 1.8% p.a. 5,232,045 5,274,910

Balance as of 31 December 110,000,000 8,371,272 11,604,802

(B) FiNANCE LiABiLiTiEs FOR LEAsEd EquiPmENT As OF 31 dECEmBER 2011 ANd 2010 ARE As FOLLOws:


Minimal lease payments present value Future value present value Future value

Within 1 year 49,315 60,897 43,539 56,142Between 1 and 5 years 101,655 110,793 120,574 135,526

Balance as of 31 December 150,970 171,690 164,113 191,668



31. EquITy

(A) EquITy STRuCTuRE

Structure of capital is presented in table below:

RSD thousand 2011 2010 Share capital – ordinary shares 21,315,900 18,477,400Other capital 11,158 11,158Share premium 20,432,569 9,957,774Reserves from profit 28,400,323 20,780,393Revaluation reserves and unrealized losses on financial assets available for sale 663,535 442,467Profit for the year 9,590,840 7,619,930


/i/ Share capital

As of 31 December 2010 the total number of the Bank’s registered shares is 184,774 ordinary shares with nominal value of RSD 100 thousand per share.

Shareholder’s Assembly meeting held on 8 December 2011 passed the Decision on issuing 6th emission of ordinary shares without public offer for the purpose of increase in share capital. Total amount of issued shares is RSD 13,313,295 thousand and comprise 28,385 shares with nominal value RSD 100 thousand per share.

Shares were sold at the issue price of RSD 469,025.71, consisting of nominal value of the RSD 100,000 and share premium of RSD 369,025.71.

Following existing shareholders purchased 6th issue of ordinary shares:

Shareholder Number of shares

Intesa Sanpaolo Holding international S.A., Luxemburg 22,080International Finance Corporation ( IFC) Washington, USA 1,987Intesa Sanpaolo S.p.A., Italy 4,318

Total 28,385

The shares were purchased by existing shareholders while shareholder structure remained the same.

103




31. EquITy (continued)

(A) EquITy STRuCTuRE (CONTINuED)

/i/ Share capital (continued)

As of 31 December 2011 the total number of the Bank’s registered shares is 213,159 ordinary shares with nominal value of RSD 100,000 per share.

The shareholders structure of the Bank as of 31 December 2011 is presented as follows:

Shareholder Number of shares In %

Intesa Sanpaolo Holding International S.A., Luxemburg 165,810 77.787International Finance Corporation (IFC) Washington, USA 14,921 7.00Intesa Sanpaolo S.p.A., Italy 32,428 15.213

Total 213,159 100.00

/ii/ Share premium

Share premium in the amount of RSD 20,432,569 thousand as of 31 December 2011 is the result of the Bank’s status change, i.e. the merger of Panonska banka a.d. Novi Sad in the amount of RSD 2,989,941 thousand, as well as the result of the 4th, the 5th and the 6th issues of ordinary shares without public offer for the purpose of increase in share capital.

/iii/ Reserves from profit

Reserves from profit are presented as follows:


Special reserves for estimated losses 38,097,054 32,209,707Shortfall amount of special reserves for estimated losses (9,696,731) (11,429,314)


Special reserve for estimated loan losses is calculated as required by the Decision on Classification of Bank Balance Sheet Assets and Off-Balance Sheet Items (“Official Gazette of the Republic of Serbia“, no. 94/2011). As of 31 December 2011 special reserves for estimated losses for balance sheet assets and off-balance sheet items after deductions of allowance for impairment of balance sheet assets and off-balance sheet items calculated in accordance with above mentioned Decision (Note 2.9.) amounts to RSD 38,097,054 thousand.

Pursuant to the proposal of the Board of Directors, the retained earnings for 2011 in the amount of RSD 9,590,840 thousand is entirely used for coverage of the shortfall amount of the special reserves for estimated losses.

The final Decision on profit distribution, upon the proposal by the Board of Directors, is to be passed by the Shareholders’ Assembly on its ordinary annual session, subsequent to the adoption of the financial statements for the year ended 31 December 2011.

The shortfall amount of the special reserves for estimated losses, subsequent to the transfer of profit for the year 2011, amounts to RSD 105,891 thousand (31 December 2010: RSD 3,809,384 thousand).



31. EquITy (continued)

(A) EquITy STRuCTuRE (CONTINuED)

/iv/ Revaluation Reserves

Revaluation reserves in the amount of RSD 663,535 thousand as of 31 December 2011 (31 December 2010: RSD 442,467 thousand), comprises positive effects of the performed independent appraisal of buildings at 1 January 2004 as well as fair value adjustments of available-for-sale securities.


Effects of buildings’ appraisal 559,125 559,125Revaluation reserve from equity shares 106,490 982Unrealized gains from available-for-sale securities (2,080) (117,640)

Balance as of 31 December 663,535 442,467

(B) pERFORMANCE INDICATORS – COMpLIANCE WITH LEGAL REquIREMENTS

The Bank is obliged to reconcile the scope and the structure of its operations and risky placements with the performance indicators prescribed by the Law on Banks and relevant decisions of National Bank of Serbia passed on the basis of the aforementioned Law.

As of 31 December 2011, the Bank was in compliance with all prescribed performance indicators.

performance indicators prescribed Realized31 December 2011 31 December 2010

1 Capital Minimum EUR 10 million 40,673,797 55,943,8062 Capital adequacy ratio Minimum 12% 16.86% 18.62%3 Permanent investments indicator Maximum 60% 16.33% 11.52%4 Related parties exposure Maximum 20% 5.31% 10.40%5 Indicator of large and the largest permissible loans Maximum 400% 32.86% 17.50%6 Liquidity ratio: Minimum 1 1.68 1.237 Foreign currency risk indicator Maximum 30% 0.60% 1.67%8 Exposure to a group of related parties Maximum 25% 12.47% 17.50%9 Exposure to an entity related to the Bank Maximum 5% 2.97% 1.87%10 Bank's investment in legal entity which is not in the financial sector Maximum 10% 0.0001% 0.0104%

105




32. OFF-BALANCE SHEET ITEMS


Funds managed on behalf of third parties (a) 3,102,844 2,592,166Guarantees and other irrevocable commitments (b) 116,239,684 97,246,421Other off-balance sheet items-derivatives (c) 47,719,376 13,577,254Other off-balance sheet items (d) 77,996,752 43,657,463


(A) FuNDS MANAGED ON BEHALF OF THIRD pARTIES


Funds managed on behalf of third parties: – short-term 52,507 84,957 – long-term 3,050,337 2,507,209


(B) GuARANTEES AND OTHER IRREVOCABLE COMMITMENTS

RSD thousand 2011 2010Payment guarantees: – in dinars 14,773,531 17,912,073 – in foreign currency 10,579,575 10,679,338

Total 25,353,106 28,591,411 Performance guarantees: – in RSD 11,721,200 12,444,212 – in foreign currency 1,917,325 2,518,971

Total 13,638,525 14,963,183

Uncovered letters of credit in foreign currency 927,633 5,455,265Avals and Acceptances 125,994 132,012Sureties 100,985 90,887Irrevocable commitments for undisbursed loans 60,597,817 47,836,388Other irrevocable commitments 15,495,624 177,275

77,248,053 53,691,827Balance as of 31 December 116,239,684 97,246,421



32. OFF-BALANCE SHEET ITEMS (continued)

Irrevocable commitments for undisbursed credit facilities represent unused portions of approved loans that cannot be cancelled unilaterally, such as: overdrafts and unused credit card limits for retail clients.

(C) OTHER OFF-BALANCE SHEET ITEMS - DERIVATIVES

RSD thousand 2011 2010SWAP contract payables (nominal amount) – purchase of EUR 627,872 1,054,982SWAP contract payables (nominal amount) – sale of EUR 20,346,543 5,652,994SWAP contract receivables (nominal amount) – purchase of USD 11,604,300 4,756,812SWAP contract receivables (nominal amount) – purchase of AUD 254,521 209,466SWAP contract receivables (nominal amount) – purchase of CAD 166,260 110,909SWAP contract receivables (nominal amount) – purchase of GBP 498,409 306,040SWAP contract receivables (nominal amount) – purchase of SEK 93,612 35,320SWAP contract receivables (nominal amount) – purchase of NOK 123,786 -SWAP contract receivables (nominal amount) – purchase of JPY - 111,870SWAP contract receivables (nominal amount) – purchase of RSD 7,758,850 42,600SWAP contract receivables (nominal amount) – purchase of CHF 627,159 -SWAP contract receivables (nominal amount) – sale of RSD - 1,080,232Covered currency forward contract payables (nominal amount) – sale of EUR 20,929 97,857Covered currency forward contract receivables nominal amount) – purchase of RSD 2,379,910 108,162Covered currency forward contract payables (nominal amount) – sale of USD 2,459,974 10,010Covered currency forward contract payables (nominal amount) – sale of EUR 370,177 -Covered currency forward contract receivables (nominal amount) – purchase of RSD 387,074 -


107




32. OFF-BALANCE SHEET ITEMS (continued)

D) OTHER OFF-BALANCE SHEET ITEMS


Loro guarantees 24,352,253 20,637,822Treasury bills 33,000,000 7,000,000Foreign currency savings’ bonds 674,252 775,865Suspended interest 3,519,989 2,007,136Transfer from balance sheet 8,237,688 3,897,581Other 8,212,570 9,339,059


Movements in transfer from balance sheet:


Beginning balance 3,897,581 1,805,354Transfer from balance sheet (Note 7 (b)) 3,709,740 3,311,700Other changes 630,367 (1,219,473)


(E) FAIR VALuE OF FINANCIAL DERIVATES


Financial assetsNet positive fair value of covered currency forward contract 2,834 647Net positive fair value of currency forward contract 7,282 -Net positive fair value of currency SWAP contract (far leg) 132,361 2,716

Total (Note 17) 142,477 3,363

Financial liabilities

Net negative fair value of currency SWAP contract (far leg) 66,464 94,079Net negative fair value of covered currency forward contract 98,453 22

Total (Note 28) 164,917 94,101



33. RELATED pARTy DISCLOSuRES

A number of banking transactions with shareholders and other related parties take place in the ordinary course of business.

a) The Bank enters into business relationship with its Parent company – major shareholder Intesa Holding International S.A., Luxembourg and other members of Intesa Sanpaolo Group.

Outstanding balance of receivables and liabilities as of 31 December 2011 and 2010, as well as income and expenses for the years then ended, resulting from transactions with the shareholders and other Bank’s related parties within Intesa Sanpaolo Group are presented as follows:

2011

Intesa Sanpaolo

S.p.A., Italy, England,

uSA

privredna bank d.d.,

Zagreb, Croatia

Intesa Leasing

d.o.o., Belgrade

Vseobecna uverova

banka A.S., Slovakia

Banka koper d.d.,

Sloveniapravex Bank Comm. bank

Intesa Sanpaolo

Banka D.D. Bosnia and

Hercegovina

Intesa Sanpaolo

Card d.o.o., Ljubljana

Intesa Sanpaolo

Card d.o.o., Zagreb

Cib leasing LTD,

Hungary

Banca Infrastrutture Innovazione e

Sviluppo S.p.A., Italy

Fair value - derivatives 130,767 - - - - - - - - - -Total placements 130,141 11,445 1,226,248 - - - - - 65 - -Interest and fees receiv-able 2,771 11 5,408 - - - - - - - -Other receivables 3,394 - 27,228 362 - 118 - - 3,130 - 634

Total receivables 267,073 11,456 1,258,884 362 - 118 - - 3,195 - 634Fair value - derivatives 6,715 - - - - - - - - - -Loans payables 23,910,446 - - 4,185,636 - - - - - - -Deposits payables 6,295,940 1,152 1,531,419 - - - 2,415 - 377 14,672 -Other payables 258,440 15,753 232,422 34,030 - - - 42,108 2,005 - -

Total payables 30,471,541 16,905 1,763,841 4,219,666 - - 2,415 42,108 2,382 14,672 -

Interest income 7,562 27 44,922 - - - - - - - -Fees and commission income 20,544 12,732 531 - 766 - - - 11 - -Other income 230,283 426 12,926 - - - - - 99 101 -

Total income 258,389 13,185 58,379 - 766 - - - 110 101 -Interest expenses 829,279 332 102,080 126,377 - - 10,288 - - - -Fees and commission expense 26,805 1,181 - - - - - 404,599 5,747 - -Other expenses 453,883 9,665 2,589 - - - - 3,077 21,467 - -

Total expenses 1,309,967 11,178 104,669 126,377 - - 10,288 407,676 27,214 - -

109




33. RELATED pARTy DISCLOSuRES (continued)

The aforementioned receivables and payables at the balance sheet date as well as income and expenses are arising from business transactions during the year with related parties of the Intesa Sanpaolo Group as a result of normal business activities.

Bank on its receivables and payables is charged and paid interest calculated by applying the usual rates. Receivables from related parties are not covered by the collateral.

2010

Intesa Holding International,

LuxemburgIntesa Sanpaolo

S.p.A., Italy

privredna bank d.d.,

Zagreb, Croatia

Intesa Leasing d.o.o.,

Belgrade

Vseobecna uverova

banka A.S., Slovakia

Intesa Sanpaolo Banka D.D. Bosnia and

Hercegovina

Intesa Sanpaolo

Card d.o.o., Ljubljana

Intesa Sanpaolo

Card d.o.o., Zagreb

Banca Infrastrutture

Innovazione e Sviluppo

S.p.A., ItalyFair value - derivatives - 2,263 453 - - - - - -Total placements - 13,572,260 4,271 1,044,346 - - - - -Other receivables - 12,700 - 29,987 806 - - - 2,442

Total receivables - 13,587,223 4,724 1,074,333 806 - - - 2,442

Loans and deposits payables - 59,111,430 2 1,749,477 4,239,522 - - - -Fair value - derivatives - 94,079 - - - - - - -Other payables - 110,850 6,594 746 - - 36,426 1,421 -

Total payables - 59,316,359 6,596 1,750,223 4,239,522 - 36,426 1,421 -

Interest income - 89 - 53,657 - - - - -Fees and commission income - 17,082 418 439 - - - - -Other income 2,263 453 6,844 - - - - -

Total income - 19,434 871 60,940 - - - - -

Interest expenses 96,709 769,327 - 81,834 78,486 10,227 - - -Fees and commission expense - 32,559 582 - - - 307,856 4,544 -Other expenses - 596,104 - - - - 2,638 3,253 -

Total expenses 96,709 1,397,990 582 81,834 78,486 10,227 310,494 7,797 -



33. RELATED pARTy DISCLOSuRES (continued)

(b) Gross salaries and other benefits of the Executive Board’s members and other key personnel of the Bank, including the Board of Directors’ members, during 2011 and 2010, are presented as follows:

RSD thousand 2011 2010Remunerations to the members of the Executive Board, Board of Directors and other key management of the Bank 157,315 149,618 Total 157,315 149,618

34. RISk MANAGEMENT

Risk is an inherent in the Bank’s activities and cannot be eliminated completely. It is important to manage the risks in such a way that they can be reduced to limits acceptable for all interested parties: shareholders, creditors, depositors, legislators. Risk management is the process of permanent identifying, assessment, measurement, monitoring and controlling of the Bank’s exposure to risks. An important part of risk management is reporting and mitigating the risk. The adequate system of risk management is critical element in ensuring the Bank’s stability and profitability of its operations.

The Bank is exposed to the following major risks: credit risk, liquidity risk, interest rate risk, foreign currency risk, operational risk, risk of exposure toward single entity or a group of related entities (concentration risk), risk of investments and risk related to the county of origin of the entity to which the Bank is exposed.

The Board of Directors and the Executive Board are responsible for implementation of the adequate risk management system and its consistent application.

The Bank’s Board of Directors determines the procedures for identification, measurement and assessment of risks, and is responsible for implementing a unique risk management system and supervision over that system.

The Bank’s Executive Board is responsible for identifying, assessing and measuring the risks the Bank is exposed to in its operations, and applies the principles of risk management approved by the Bank’s Board of Directors. The Executive Board approves internal acts which define risk management and proposes strategies and policies for risk management to Audit Committee and Board of Directors.

The Committee for monitoring business activities (Audit Committee) analyses and adopts the proposals of policies and procedures with respect to risk management and internal controls, which are submitted to the Board of Directors for consideration and adoption. Furthermore, the Committee analyses and monitors the application and adequate implementation of the adopted policies and procedures for risk management, and recommends new ways for their improvement, if necessary.

Risk Management Department has been established in the Bank in order to implement a special and unique system for risk management as well as to enable a functional and organizational segregation of risk management activities from regular business activities.

The Bank has developed the comprehensive risk management system by introducing the policies and procedures, as well as the limits for the risk levels acceptable for the Bank.

111




34. RISk MANAGEMENT (continued)

The Bank’s organization parts authorized for risk management constantly monitor changes in the legislative provisions, while analyzing its influence on the risks at the entity level of the Bank. They take necessary measures to bring the Bank’s business activities and procedures in accordance with new procedures within the scope of controlled risk. In addition, introduction of new services is followed by necessary market and economic analysis in order to optimize the relation between income and the provision for estimated risks.

34.1. CREDIT RISk

Credit risk is the risk that credit beneficiaries will not be able to fulfil contractual obligations to the Bank, whether fully or partially. By its internal acts, policies and procedures, the Bank has implemented the adequate system of credit risk management, as well as reducing the credit risk to an acceptable level. The Bank manages the credit risk through setting the credit risk limits, establishing acceptable credit limits for individual customers or for the group of customers.

The credit risk is managed by the Bank at a counter-party specific level, group of related parties, and on the total credit portfolio level. For the purpose of implementing the policy of optimal credit risk exposure, the Bank evaluates the credit worthiness of each client both at the moment of application of the loan as well as through a subsequent regular and continuous performance analysis. The analysis of the client’s credit worthiness, timely settlement of liabilities in the past, the value of collateral on the individual level and for each transaction, is performed in the Credit Management Department.

Permanent monitoring of a client’s internal rating, the level of risk with respect to each client, the necessary amount of reserve for covering the risk, concentration risk (large exposures), portfolio credit risk, the level of capital necessary for coverage all credit risks is performed by the Risk Management Department. Credit Management Department and the Risk Management Department are independent in the Bank.

Principles prescribed by the National Bank of Serbia legislation as well as the Bank’s internal procedures are applied in these analysis in order to anticipate potential risks that can arise in terms of a client’s inability to settle its liabilities when they fall due and according to contracted terms.

In that sense, an assessment of the required reserve level for potential losses, both at the moment of approval of certain loan, as well as through a continuous, monthly portfolio analysis, are carried out. The analysis entails measuring the adequacy of provision/reserves according to clients’ types, risk types, sub-portfolios and total portfolio of the Bank.

Decision making on exposure to credit risk is performed based on the proposals provided by the Credit Management Department. The terms for approval of each corporate loan are determined individually depending on the client type, loan’s purpose, estimated creditworthiness and current market position. Type of collateral that accompany each loan are also determined according to a client credit worthiness analysis, type of credit risk exposure, term of the placement as well as the amount of a particular loan. Conditions of loan approvals to retail clients and entrepreneurs are determined through defining standard conditions for different type of products. Risk price for standard types of products is calculated according to the analysis of credit costs of the Bank per each type of product.

Considering the importance of credit risk, dispersion in authorities in respect of decision making process on granting activities has been made. This dispersion is provided with the prescribed limits up to which authorized person or management bodies may decide. Organizational parts passing the decisions with respect to loan approvals, with different levels of authorizations, are: branch managers, regional managers, Credit Management Department, Credit Board, Credit Committee, Executive Board and Board of Directors. For credit exposures exceeding the determined limit, the approval of the parent bank is necessary.




34.1. CREDIT RISk (CONTINuED)

The Bank manages the credit risk by setting up limits with respect to period, amount and results of the individual customer’s credit worthiness, by diversification of loans to a larger number of customers and contracting foreign exchange clause and index-linking to a consumer price index in order to maintain the real value of loans.

Furthermore, the Bank manages the credit risk through assesment and analysis of received collaterals, by providing allowance for impairment of financial assets, provision for off-balance sheet items, as well as by determining the adequate price of a loan which covers the risk of a particular placement.

In addition to clients’ credit worthiness, the risk limits are also determined based on different types of collateral. Risk exposure toward a single debtor, including banks, is limited and includes balance sheet and off-balance sheet items exposures. Total risk exposure to a single customer (or a group of related parties) regarding exposure limits, is considered thoroughly and analyzed before the transaction.

Loan Concentration Risk

The concentration risk is the risk of incurring losses due to an excessive volume of placements into a certain group of debtors. Groups of debtors can be defined by different categories: geographical sectors, industries, countries, related parties or economic groups, etc. The Bank manages and controls the concentration risk by limiting and monitoring the exposure toward certain groups, predominantly by countries and economic groups.

Derivative Financial Instruments

Derivative financial instruments lead to the Bank’s exposure to credit risk in case their fair value is positive for the Bank. Credit exposure arising from derivatives is calculated using current exposure method, i.e. the sum of positive fair value of the contract and nominal value of derivative multiplied by coefficient which depends on the type and maturity of financial derivative, as prescribed by National Bank of Serbia. Credit risk of derivatives is limited by determining the maximum credit exposure arising from derivative for each individual customer.

Risks similar to credit risk

The Banks issues guarantees and letters of credit to its clients, based on which the Bank commits to make payments on behalf of the third parties. In this way the Bank is exposed to risks similar to credit risks, which can be mitigated by the same control processes and policies used for credit risk.

113






Collaterals and other instruments of credit risk protection

The amount and type of the collateral required depends on an assessment of the credit risk of each customer. Terms of collateral with respect to each placement are determined by the analysis of customer’s credit worthiness, type of exposure to the credit risk, placement’s maturity as well as the amount itself.

Contractual authorization as well as bills of exchange are provided by customers as standard collaterals while, depending on the assessment, additional collaterals may be required, such as real estate mortgages, movable property pledges, partial or entire coverage of placements with deposits, guarantees issued by other bank or legal entity, adequate securities, or joint contracting and several debtorship of another legal entity which then becomes the joint and several debtor.

In cases of real estate mortgages or movable property pledges, the Bank always obtains valuations of the assets carried out by the approved appraiser, in order to reduce the potential risk to the lowest rate. Decisions on placements to retail clients and small business (entrepreneurs) are mostly based on appraisal of standardised, previously defined conditions, using the scoring model with the additional analysis of the credit analysts.

ASSESSMENT OF IMpAIRMENT OF FINANCIAL ASSETS

The main factors considered for financial assets impairment assessment include: overdue of payments of principal or interest, identified weakness in the cash flows of customers, internal credit rating downgrades, or breach of original terms of the contract. The Bank performs assessment of impairment at two levels, individual and collective.

Individual assessment of impairment

The Bank performs individual assessment of impairment for each individually significant loan or advance (exceeding EUR 150,000 for corporate clients and EUR 50,000 for retail clients) if it is in the status of default (overdue more than 90 days), i.e. if there is objective evidence that the loan has been impaired.

The level of impairment of loans is determined based on the projection of expected cash flows which shall be collected pursuant to the contract with clients, taking into consideration the assessment of financial position and credit worthiness of the client, the realizable value of collateral, as well as the timing of the expected cash flows from realisation of collaterals, etc. Projected cash flows are discounted using the effective interest rate to their present value. Impairment loss is measured as the difference between the carrying amount of loan and its estimated recoverable amount, being the present value of the expected future cash flows. Individual assessment of the impairment of placements is performed at least semi-annually.

If new information becomes available that, as estimated by credit analysts, have an effect on the client’s credit worthiness and the value of collateral, as well as the certainty of settling the liabilities toward the Bank, an extraordinary assessment of the impairment of a loan is performed.





ASSESSMENT OF IMpAIRMENT OF FINANCIAL ASSETS (CONTINuED)

Collective assessment of impairment

Collective Assessment of impairment is performed for loans and advances that are not individually significant (including credit cards, residential mortgages and unsecured consumer lending) and for individually significant loans and advances where there is no objective evidence of individual impairment. Allowances are evaluated monthly with separate review of each sub-portfolio, which represents a specific group of loans and advances with similar characteristics.

The collective assessment of impairment takes into account impairment that is likely to be present in the Bank’s portfolio even though there is not yet objective evidence of the impairment in an individual assessment. Impairment losses are estimated based on migration matrices and the probability of collection of receivables overdue more than 90 days. Migration matrices and probabilities are determined based on monitoring the multiannual migrations of internal rating of the clients in the Bank’s portfolio.

Special reserves for estimated losses

Both for corporate and retail loans, as per the regulatory requirements of the National Bank of Serbia, the Bank also calculates special reserves for estimated losses as defined by the Decision on the Classification of Banks Balance Sheet Assets and Off Balance Sheet Items. Financial guarantees and letters of credit are assessed and provision is made in the same manner as for loans and advances.

115






(A) MAxIMuM ExpOSuRE TO CREDIT RISk (CONTINuED)

Analysis of the Bank’s exposure to credit risk (other than credit risk exposure to the National Bank of Serbia, as well as securities of the Republic of Serbia), by geographical locations, before taking into account collaterals and other hedging funds, as of 31 December 2011 and 2010 is presented in the table below:

RSD thousandAccounts with

other banks and placements with banks

Loans and advances to customers

Equity investments and securities

Interests, fees and other assets

Guarantees and other commit-ments

Total 2011

Serbia - 276,883,512 963,289 4,795,765 102,428,270 385,070,836Belgrade - 126,410,664 963,230 2,672,863 41,090,463 171,137,220Vojvodina - 89,031,171 30 1,075,272 31,340,326 121,446,799Rest of Serbia - 61,441,677 29 1,047,630 29,997,481 92,486,817 Other countries 541,445 547,505 - 4,471 264,419 1,357,840European Union 527,015 396,346 - 3,044 21,541 947,946Other European Countries 11,929 115,968 - 1,143 235,253 364,293Rest of the world 2,501 35,191 - 284 7,625 45,601 Total 541,445 277,431,017 963,289 4,800,236 102,692,689 386,428,676

RSD thousandAccounts with

other banks and placements with banks

Loans and advances to customers

Equity investments and securities

Interests, fees and other assets

Guarantees and other commit-ments

Total 2010

Serbia 447,774 270,130,136 948,927 3,937,007 97,045,674 372,509,518Belgrade 297,095 158,331,890 948,835 2,204,044 54,004,307 215,786,171Vojvodina 147,011 57,709,986 63 790,163 22,051,891 80,699,114Rest of Serbia 3,668 54,088,260 29 942,800 20,989,476 76,024,233 Other countries 44,601 1,436,220 - 13,039 200,747 1,694,607European Union 39,589 1,297,089 - 12,376 17,163 1,366,217Other European Countries 15 104,024 - 514 179,543 284,096Rest of the world 4,997 35,107 - 149 4,041 44,294 Total 492,375 271,566,356 948,927 3,950,046 97,246,421 374,204,125





(A) MAxIMuM ExpOSuRE TO CREDIT RISk (CONTINuED)

Analysis of Bank’s exposure to credit risk, by industry sectors, before taking into account collaterals and other hedging funds, as of 31 December 2011 and 2010 is presented in the table below:

RSD thousandGross maximum

exposure 2011Net maximum

exposure 2011Gross maximum

exposure 2010Net maximum exposure 2010

Central Bank, foreign and domestic banks and other monetary intermediation 1,234,675 1,203,691 15,500,936 15,454,458Holding companies and other credit and financing services, excluding insurance and pension funds 7,554,548 5,486,952 - -Other legal entities (excluding banks) in bankruptcy 5,968,010 2,138,398 - -Financial leasing 209 36 211 -Retail customers 91,556,624 48,770,810 85,034,784 53,467,063Construction 41,810,378 23,100,089 38,302,438 22,627,237Local government 13,558,910 11,161,554 9,538,607 8,076,417Non-profit legal entities and social services clients that are not financed from the budget 429,547 265,529 - -Insurance 229,838 216,126 165,451 151,907Other 230,977 227,156 5,649,378 5,649,378Agriculture, forestry and fishing 9,893,609 4,738,424 9,949,561 5,990,414Activities supporting financial services, insurance and pension funds 212,918 56,790 5,029,588 4,287,168Real estate, professional, scientific, innovation and technical activities, administrative and supporting service activities, art, entertainment and recreation and other service activities 17,716,005 9,228,197 20,369,042 13,256,830Trust, investment and similar funds 3,781 141 - -Related financial institutions that are not included in consolidation - - - -Related financial institutions that are included in consolidation 2,241,508 2,194,152 2,043,387 1,992,287Corporate clients of social activities that are not financed from budget 2,153,111 925,195 - -Corporate clients of social activities that are financed from budget 154,194 109,025 69,999 40,555Republic bodies and organizations 4,076,182 1,206 46,630 1,445Mining, manufacturing, water supply, wastewater management, waste management control and similar activities 73,493,134 35,593,078 72,005,395 52,565,664Transportation and warehousing, accommodation and food services, information and communication 40,461,212 12,574,066 38,136,978 14,304,123Entrepreneurs 6,678,854 4,296,657 5,879,629 3,920,050Energy, gas and steam supply, air conditioning 2,361,181 1,853,071 3,054,030 2,792,431Foreign legal entities 448,727 445,483 1,320,449 1,316,124Wholesale and retail sale, repair of motor vehicles and motorcycles 63,960,544 38,402,225 62,107,632 45,383,476

Total 386,428,676 202,988,051 374,204,125 251,277,027

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(B) pORTFOLIO quALITy

The Bank manages the quality of its financial assets using the internal classification of placements.

The following table presents the quality of gross portfolio (gross balance exposure and off-balance sheet exposure) as of 31 December 2011, by types of placements and based on the Bank’s rating system:

RSD thousandNeither past due nor impaired

High quality level Standard quality level Due but not impaired Individually impaired Total 2011

Banks 1,225,072 - 7,932 1,671 1,234,675

Customers:Corporate customers 79,563,321 19,618,636 4,410,800 7,297,636 110,890,393Small size and medium size companies 127,935,157 24,062,462 8,341,426 22,370,963 182,710,008Mortgage loans to retail customers 31,063,078 - 4,213,881 962,889 36,239,848Other placements to retail customers 49,678,251 - 3,355,571 2,319,930 55,353,752

Total 289,464,879 43,681,098 20,329,610 32,953,089 386,428,676

According to the Bank’s Internal classification all receivables, in terms of risk, are divided into performing and nonperforming. Performing includes classes A1, A2 and B1 while the nonperforming receivables includes classes B2 (past due), C1 (substandard) and C2 (doubtful).

The following table presents the quality of gross portfolio (gross balance exposure and off-balance sheet exposure) as of 31 December 2010, by types of placements and based on the Bank’s grad-ing system:

RSD thousandNeither past due nor impaired

High quality level Standard quality level Due but not impaired Individually impaired Total 2010

Banks 15,484,919 - 14,332 1,685 15,500,936

Customers:Corporate customers 71,069,422 11,860,923 3,706,117 4,130,186 90,766,648Small size and medium size companies 118,482,725 33,234,489 15,000,338 16,184,203 182,901,755Mortgage loans to retail customers 28,909,181 771,415 790,248 746,902 31,217,746Other placements to retail customers 46,347,728 1,301,861 3,064,797 3,102,654 53,817,040

Total 280,293,975 47,168,688 22,575,832 24,165,630 374,204,125





(B) pORTFOLIO quALITy (CONTINuED)

Ageing analysis of loans and advances to customers past due but not impaired

The ageing analysis of loans and advances to customers past due but not impaired as of 31 December 2011 and 2010 is presented as follows:

RSD thousand2011 up to 30 days From 31 to 60 days From 61 to 90 days Over 91 days Total

Loans to customers:Corporate customers 1,664,353 605,229 2,149,150 - 4,418,732Small business and SME 5,613,497 2,250,546 477,383 - 8,341,426Mortgage loans to retail customers 1,518,764 2,449,394 245,723 - 4,213,881Other placements to retail customers 2,206,540 869,392 279,639 - 3,355,571

Balance as of 31 December 2011 11,003,154 6,174,561 3,151,895 - 20,329,610

RSD thousand

2010 up to 30 days From 31 to 60 days From 61 to 90 days Over 91 days Total

Loans to customers:Corporate customers 1,692,117 - - 2,028,332 3,720,449Small business and SME 9,428,570 2,284,448 539,758 2,747,562 15,000,338Mortgage loans to retail customers 562,557 126,535 46,156 55,000 790,248Other placements to retail customers 2,318,611 530,692 187,875 27,619 3,064,797

Balance as of 31 December 2010 14,001,855 2,941,675 773,789 4,858,513 22,575,832

During 2011, the Bank applied a new methodology for classification, which is harmonized with the members of the group.

In the above tables, the category neither past due nor impaired receivable are performing receivables that are not past due1 and classified in high level of quality (A1 and A2) and a standard level of quality (B1). Due but not impaired receivables are performing receivables with delay in payments between 1 and 90 days (classes A1, A2, and B1). Impaired loans are nonperforming receivables (class B2, C1, and C2).

1 Delay in payment is longer than 1 day

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(B) pORTFOLIO quALITy (CONTINuED)

Assessment of impairment of financial assets

The structure of balance sheet assets and off-balance sheet items as of 31 December 2011 and the related allowance for impairment, i.e. provision, which are determined in accordance with the Bank’s internal methodology disclosed in Note 2.7.2., is presented as follows:

RSD thousandIndividual assessment Collective assessment Total

Classifiedbalance sheet assets

Allowance for impairment





Banks - - 571,866 4,570 571,866 4,570Retail 1,159,634 270,476 73,585,968 2,179,228 74,745,602 2,449,704Corporate 25,443,586 10,541,930 175,732,588 4,864,708 201,176,174 15,406,638Entrepreneurs 102,323 42,691 4,949,481 491,933 5,051,804 534,624

Total (A) 26,705,543 10,855,097 254,839,903 7,540,439 281,545,446 18,395,536

Classified off-balance sheet assets provision



Banks - - 662,809 4 662,809 4Retail - - 16,847,997 104,803 16,847,997 104,803Corporate 2,483,177 375,992 81,071,016 794,627 83,554,193 1,170,619Entrepreneurs 380 - 1,627,310 12,396 1,627,690 12,396Total (B) 2,483,557 375,992 100,209,132 911,830 102,692,689 1,287,822

Total (A+B) 29,189,100 11,231,089 355,049,035 8,452,269 384,238,135 19,683,358

As at 31 December 2011 the aforementioned amounts do not include assets that are not classified in accordance with the Decision on the Classification of Bank Balance Sheet Assets and Off-balance Sheet Items in the amount of RSD 276,014,704 thousand (31 December 2010: RSD 180,502,206 thousand).





(C) DEFAuLT RECEIVABLES

The Bank gives special attention to default receivables (receivables past due more than 90 days) by monitoring their total outstanding balance and the trend of these receivables.

Breakdown of default receivables as of 31 December 2011 is presented as follows:

RSD thousandSegment Total receivables Default receivables

Banks 571,866 -Corporate 74,745,602 22,362,517Entrepreneurs 201,176,173 484,070Retail 5,051,805 2,853,831Total 281,545,446 25,700,418

(d) Restructured loans

Outstanding gross exposure of restructured loans, as defined in accordance with the Decision on classification of balance sheet assets and off balance sheet items of the National Bank of Serbia, as of 31 December 2011 amounted to RSD 6,324,630 thousand (31 December 2010: RSD 5,103,164 thousand).

121





34.2. LIquIDITy RISk AND FINANCIAL ASSETS MANAGEMENT

Liquidity risk relates to the risk that the Bank does not have enough liquidity reserves for settling liabilities when they fall due and for covering the unexpected deposit outflows and non-deposit liabilities. The liquidity issue is presented as the deficit in reserves as well as difficult or impossible acquisition of highly liquid assets at a reasonable market price.

Liquidity risk is measured by permanent monitoring and analysis of the maturity structure of assets and liabilities through appropriate reports and indicators: report on structural maturity mismatch that is analyzed through three scenarios: base scenario, scenario of specific liquidity crises and scenario of systematic crises (maturity mismatch), indicator of structural maturity mismatch and the so called Rules - Rule 1 and Rule 2, short-term liquidity gaps and liquidity indicators prescribed by the National Bank of Serbia.

The Risk Management Department is responsible for measuring and monitoring of the liquidity and for the regular preparation of reports which present the effects of the migration of various Bank’s categories of assets and liabilities to the Bank’s liquid asset position. The Risk Management Department reports on liquidity to the parent bank and ALCO Committee. Furthermore, the Risk Management Department provides support to the Treasury Department within the field of statistical analysis and testing the assumptions on the behaviour of certain assets and liabilities items affecting cash inflows and outflows. Applied assumptions on the behavior are approved and periodically revised by the ALCO Committee.

Objectives of liquidity management comprise:

- Planning of cash inflows and outflows;- Implementation and monitoring of liquidity indicators;- Measurement and monitoring of the Bank’s liquidity;- Measurement of liquidity gaps and the estimation of deposit stability; and- Preparation of the Reports for the management.

Short-term liquidity management is done through monitoring following limits/indicators:

- Limits on cumulative net position in the interbank market in the period up to 7 days;- Limits on short-term liquidity gaps up to a month;- The minimal amount of liquid assets and liquid reserves;- Monitoring of indicators of the concentration of interbank lending and customer deposits.

Structural liquidity management is done through monitoring:

- Reports on structural maturity;- Indicators of structural compliance, so called Rules - Rule 1 and Rule 2- Monitoring of early warning indicators that point to the existence of specific or systematic liquidity crisis. - Preparation of the reports for the management

Liquidity ratio prescribed by the National Bank of Serbia represents the relation between the liquid assets and current liabilities. Liquid assets include all receivables and assets items due within one month. Current liabilities represent all the Bank’s liabilities due within one month.

This liquidity indicator cannot be less than 1 (the average liquidity indicator for all work days in a month), or less than 0.9 for more than three consecutive work days or 0.8 – when calculated for a single work day.




34.2. LIquIDITy RISk AND FINANCIAL ASSETS MANAGEMENT (CONTINuED)

2011 2010

As at 31 December 1.93 1.15Average for the period 1.51 1.34Highest 1.93 1.53Lowest 1.13 1.09

All balance sheet and off-balance sheet items are classified in certain maturity intervals according to the remaining maturity in report on structural maturity mismatch, or if maturity is not defined, according to statistically or expert-defined maturity determined based on analysis of historical inflows and outflows of these balance sheet items, taking into account current market condition.

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The following table presents remaining maturity mismatch report as of 31 December 2011:

RSD thousand

up to 1 month

From1 to 3

monthsFrom

3 to 6 months

From 6 to 12

monthsFrom 1 to 5

years Over 5 years

With nondefined

maturity Total

ASSETSCash and cash equivalents 16,222,561 - - - - - - 16,222,561Revocable deposits and loans 83,162,819 - - - - - - 83,162,819Interest and fees receivable, receivables from sales, changes in fair value of derivatives and other receivables - - - - - - 2,985,589 2,985,589Loans and advances to customers 40,425,766 15,998,214 23,191,127 38,558,159 98,817,489 47,680,396 (15,333,426) 249,337,725Securities (excluding treasury shares) 4,066,079 1,720,758 3,258,695 7,851,242 887,813 - - 17,784,587Equity investments - - - - - - 962,568 962,568Other placements 554,635 1,777,807 1,255,668 1,705,204 3,353,181 371,522 2,503,564 11,521,581Intangible assets - - - - - - 595,399 595,399Property, equipment and investment property - - - - - - 6,583,749 6,583,749Fixed assets held for sale and assets from discontinued operations - - - - - - 60,192 60,192Deferred tax assets - - - - - - 47,317 47,317Other assets - - - - - - 3,058,602 3,058,602

TOTAL ASSETS 144,431,860 19,496,779 27,705,490 48,114,605 103,058,483 48,051,918 1,463,554 392,322,689

LIABILITIESTransaction deposits 84,678,429 - - - - - - 84,678,429Other deposits 31,203,023 33,206,551 25,850,684 52,208,819 7,969,448 247,841 - 150,686,366Borrowings 11,474,817 261,603 658,711 3,350,544 32,545,540 8,815,247 - 57,106,462Liabilities arising from securities 5,739 2,364,460 15,450 - - - - 2,385,649Interest and fees payable and changes in fair value of derivatives - - - - - -0 165,937 165,937Provisions 0 0 0 0 0 0 2,229,010 2,229,010Tax liabilities - - - - - -0 43,334 43,334Liabilities from profit - - - - - -0 269,029 269,029Other liabilities 5,939,365 5,233,972 1,579,445 1,585,871 5,495 -0 - 14,344,148TOTAL LIABILITIES 133,301,373 41,066,586 28,104,290 57,145,234 40,520,483 9,063,088 2,707,310 311,908,364

TOTAL EquITy - - - - - - 80,414,325 80,414,325

TOTAL LIABILITIES AND EquITy 133,301,373 41,066,586 28,104,290 57,145,234 40,520,483 9,063,088 83,121,635 392,322,689

MATuRITy MISMATCH 11,130,487 (21,569,807) (398,800) (9,030,629) 62,538,000 38,988,830 (81,658,081) -





The following table presents remaining maturity mismatch report as of 31 December 2010:

RSD thousand

up to 1 monthFrom

1 to 3 monthsFrom

3 to 6 monthsFrom

6 to 12 monthsFrom 1 to 5

years Over 5 years

With nondefined

maturity Total

ASSETSCash and cash equivalents 15,150,177 4,903,071 - - - - - 20,053,248Revocable deposits and loans 51,409,640 - - - - - - 51,409,640Interest and fees receivable, receivables from sales, changes in fair value of deriva-tives and other receivables - - - - - - 2,390,298 2,390,298Loans and advances to customers 35,956,280 17,575,487 28,184,860 34,784,297 84,618,346 42,361,910 1,606,110 245,087,290Securities (excluding treasury shares) 1,256,318 4,606,566 7,400,743 6,117,062 - - - 19,380,689Equity investments - - - - - - 948,033 948,033Other placements 3,366,271 488,062 4,812,717 357,220 1,044,502 - 201,806 10,270,578Intangible assets - - - - - - 561,462 561,462Property, equipment and investment property - - - - - - 6,388,002 6,388,002Deferred tax assets - - - - - - 50,685 50,685Other assets - - - - - - 33,054 33,054

- - - - - - 2,550,016 2,550,016

TOTAL ASSETS 107,138,686 27,573,186 40,398,320 41,258,579 85,662,848 42,361,910 14,729,466 359,122,995

LIABILITIESTransaction deposits 65,078,801 - - - - - - 65,078,801Other deposits 66,173,075 28,917,328 18,599,043 51,439,068 6,006,769 296,802 - 171,432,085Borrowings 374,241 - 4,772,137 5,608,902 24,485,145 6,671,875 3,342,942 45,255,242Liabilities arising from securities - 108,162 - - - - 24,628 132,790Interest and fees payable and changes in fair value of derivatives - - - - - - 94,607 94,607Provisions - - - - - - 2,419,833 2,419,833Tax liabilities - - - - - - 56,962 56,962Liabilities from profit - - - - - - 220,031 220,031Other liabilities 2,933 5,580 1,590,387 1,603,789 8,442,538 - 5,498,295 17,143,522TOTAL LIABILITIES 131,629,050 29,031,070 24,961,567 58,651,759 38,934,452 6,968,677 11,657,298 301,833,873

TOTAL EquITy - - - - - - 57,289,122 57,289,122

TOTAL LIABILITIES AND EquITy 131,629,050 29,031,070 24,961,567 58,651,759 38,934,452 6,968,677 68,946,420 359,122,995

MATuRITy MISMATCH (24,490,364) (1,457,884) 15,436,753 (17,393,180) 46,728,396 35,393,233 (54,216,954) -

125






Ratios of maturity mismatch are calculated based on the data from Maturity mismatch report, so called Rule 1 and Rule 2 indicators. Rule 1 indicates coverage of fixed investments with Bank’s capital; Rule 2 indicates coverage of long-term investments with long-term funds.

For the purpose of the calculation of structural maturity mismatch indicators, the short-term is defined as a period up to 18 months, middle-term as a period between 18 months to 5 years while long-term is defined as a period over 5 years.

Rule 1:Investments in property and equipment + equity investments ≤ Bank’s regulatory equity + Deductable items

Rule 2:Long-term receivables + 0.5*(middle-term receivables) <= Suficit/Deficit from Rule 1 + Non current monetary assets + Long-term liabilities + 0.5*(Middle-term liabilities) + Avista behavior coefficient (current accounts and savings deposits) + 0.25*(liabilities to clients with maturity up to 18 months) + 0.25*(interbank liabilities with maturity from 3 to 18 months)

RSD thousand31 December 2011 31 December 2010

Rule 1 34,097,836 49,527,705

Tangible assets 6,583,749 6,438,687Investments in equity securities 962,568 948,033Equity 40,673,797 55,943,806Deductable items 970,356 970,619

Rule 2 32,546,610 47,000,820

Long-term assets 48,051,918 42,361,9100.5 * Middle-term assets 40,958,541 35,351,294Surplus of equity from Rule 1 34,097,836 49,527,705

Long-term liabilities 9,063,087 6,968,6770.5 * Middle-term liabilities 18,635,498 14,653,8510.25* transaction and a vista deposits 21,169,607 16,269,7000.25* liabilities to clients with maturity up to 18 months 34,087,296 33,376,5150.25* interbank liabilities with maturity from 3 to 18 months 4,503,744 3,917,576

The ratio of aggregate maturity mismatch amounts to minus 25.68%. This ratio indicates the mismatch between receivables and payables due within 3 months in relation to the regulatory capital of the Bank. Furthermore, this ration also implies a cautious assumption that all demand and short-term deposits will flow out within the period of 3 months, which never happens in practice.





The Bank has good maturity match of assets and liabilities which is presented in above mentioned ratios.

All the Bank’s long-term investments are financed through the equity (Rule 1), while all long-term placements are financed through long-term funds (Rule 2).

34.3. MARkET RISk

In its ordinary course of business, the Bank is exposed to the fluctuations in market variables which might affect the Bank’s income in a positive or a negative way. There are following types of market risks:

- Interest rate risk,- Foreign currency risk

34.3.1. Interest rate risk

Interest risk is the risk of the decreasing of profit or net assets value of the Bank due to changes in market interest rates. The Bank’s exposure to the interest rate risk depends on the ratio of the interest-sensible assets and interest-sensible liabilities.

Interest rate risk is calculated separately in the banking book and in the trading book. In the trading book only Value at risk (VaR), duration and convexity are calculated, as the measures of interest rate risk exposure.

In the banking book, interest rate risk is measured and monitored by calculating the gap between interest-sensible assets and interest-sensible liabilities (Repricing Gap). Based on the determined gaps, the profit and equity sensitivity analysis is performed for certain changes in market interest rates.

Acceptable level of interest rate risk is defined through limits for highest possible sensitivity of net assets to changes in yield market rates of 100bps and highest possible value at interest rate risk (IRR VaR) for positions in trading book and securities available for sale.

Value at interest rate risk represents highest possible one day loss on positions of trading book and securities available for sale that the Bank could undertake under usual market movements in interest rates. Considering that the value at interest rate risk is calculated with confidence interval from 99%, realized one day loss may be higher than value at interest rate risk once in 100 days. Value at risk is calculated using the method of hybrid historical simulation.

The sensitivity of net asset value to changes in market interest rates of 100 bps is calculated and monitored monthly, and value at interest rate risk daily. Information on level of interest rate risk is regularly submitted to Alco Committee and to the Parent Bank.

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34.3. MARkET RISk (CONTINuED)

34.3.1. Interest Rate Risk (continued)

The following table represents Reprising Gap report, i.e. the Bank’s exposure to the interest rate risk as of 31 December 2011:

RSD thousand

up to 1 monthFrom

1 to 3 monthsFrom

3 to 6 months

From 6 to 12

monthsFrom 1 to 5

years Over 5 yearsNon-interest

sensitive Total

ASSETSCash and cash equivalents 16,222,561 - - - - - - 16,222,561Revocable deposits and loans 33,000,000 - - - - - 50,162,819 83,162,819Interest and fees receivable, receivables from sales, changes in fair value of derivatives and other receivables - - - - - - 2,985,589 2,985,589Loans and advances 126,169,474 71,702,812 11,665,373 26,765,528 24,969,596 3,398,368 (15,333,426) 249,337,725Securities (excluding treasury shares) 4,066,079 1,720,758 3,258,695 7,851,242 887,813 - - 17,784,587Equity investments - - - - - - 962,568 962,568Other placements 4,296,484 1,777,807 1,255,668 1,705,203 3,353,182 371,522 (1,238,285) 11,521,581Intangible assets - - - - - - 595,399 595,399Property, equipment and investment property - - - - - - 6,583,749 6,583,749Fixed assets held for sale and assets from dis-continued operations - - - - - - 60,192 60,192Deferred tax assets - - - - - - 47,317 47,317Other assets - - - - - - 3,058,602 3,058,602

TOTAL ASSETS 183,754,598 75,201,377 16,179,736 36,321,973 29,210,591 3,769,890 47,884,524 392,322,689






RSD thousand

up to 1 monthFrom

1 to 3 monthsFrom

3 to 6 monthsFrom

6 to 12 months From 1 to 5 years Over 5 yearsNon-interest

sensitive Total

LIABILITIESTransaction deposits 84,678,429 - - - - - - 84,678,429Other deposits 39,672,109 27,819,587 22,899,104 52,078,277 7,969,448 247,841 - 150,686,366Borrowings 11,474,817 27,825,984 13,233,738 1,580,143 2,756,337 235,443 - 57,106,462Liabilities on securities 5,739 2,364,460 15,450 - - - 2,385,649Interest and fees payable and changes in fair value of derivatives - - - - - - 165,937 165,937Provisions - - - - - - 2,229,010 2,229,010Tax liabilities - - - - - - 43,334 43,334Liabilities from profit - - - - - - 269,029 269,029Other liabilities 5,939,365 5,233,971 3,149,059 16,258 5,495 - - 14,344,148

TOTAL LIABILITIES 141,770,459 63,244,002 39,297,351 53,674,678 10,731,280 483,284 2,707,310 311,908,364

TOTAL EquITy - - - - - - 80,414,325 80,414,325

TOTAL LIABILITIES AND EquITy 141,770,459 63,244,002 39,297,351 53,674,678 10,731,280 483,284 83,121,635 392,322,689

pERIODICAL GAp 41,984,139 11,957,375 (23,117,615) (17,352,705) 18,479,311 3,286,606 (35,237,111) -

CuMuLATIVE GAp 41,984,139 53,941,514 30,823,899 13,471,194 31,950,505 35,237,111

129





34.3. Market Risk (continued)


The following table represents Reprising Gap report, i.e. the Bank’s exposure to the interest rate risk as of 31 December 2010:

RSD thousand

up to 1 monthFrom

1 to 3 monthsFrom

3 to 6 monthsFrom

6 to 12 months From 1 to 5 years Over 5 yearsNon-interest

sensitive Total

ASSETSCash and cash equivalents 15,150,177 4,903,071 - - - - - 20,053,248Revocable deposits and loans - - - - - - 51,409,640 51,409,640Interest and fees receivable, receivables from sales, changes in fair value of derivatives and other receivables - - - - - 2,390,298 2,390,298Loans and advances 159,856,066 42,536,676 10,432,347 9,723,418 14,384,244 6,548,430 1,606,109 245,087,290Securities (excluding treasury shares) 1,256,317 4,606,566 7,400,744 6,117,062 - - - 19,380,689Equity investments - - - - - 948,033 948,033Other placements 3,432,018 488,062 4,812,717 357,220 978,755 - 201,806 10,270,578Intangible assets - - - - - 561,462 561,462Property, equipment and investment property - - - - - 6,388,002 6,388,002Fixed assets held for sale and assets from discontinued operations - - - - - 50,685 50,685Deferred tax assets - - - - - 33,054 33,054Other assets - - - - - 2,550,016 2,550,016

TOTAL ASSETS 179,694,578 52,534,375 22,645,808 16,197,700 15,362,999 6,548,430 66,139,105 359,122,995






RSD thousand

up to 1 monthFrom

1 to 3 monthsFrom

3 to 6 monthsFrom

6 to 12 monthsFrom 1 to 5

yearsOver 5

yearsNon-interest

sensitive Total

LIABILITIESTransaction deposits 65,078,801 - - - - - - 65,078,801Other deposits 35,853,616 59,762,780 18,421,550 51,140,568 5,956,769 296,802 - 171,432,085Borrowings 189,620 25,589,707 10,747,971 2,661,346 2,424,744 298,912 3,342,942 45,255,242Liabilities on securities - 108,163 - - - 24,627 132,790Interest and fees payable and changes in fair value of derivatives - - - - - - 94,607 94,607Provisions - - - - - - 2,419,833 2,419,833Tax liabilities - - - - - - 56,962 56,962Liabilities from profit - - - - - - 220,031 220,031Other liabilities 2,933 5,280,490 6,337,806 21,316 2,682 - 5,498,295 17,143,522

TOTAL LIABILITIES 101,124,970 90,741,140 35,507,327 53,823,230 8,384,195 595,714 11,657,297 301,833,873

TOTAL EquITy - - - - - - 57,289,122 57,289,122

TOTAL LIABILITIES AND EquITy 101,124,970 90,741,140 35,507,327 53,823,230 8,384,195 595,714 68,946,419 359,122,995

pERIODICAL GAp 78,569,608 (38,206,765) (12,861,519) (37,625,530) 6,978,804 5,952,716 (2,807,314) -

CuMuLATIVE GAp 78,569,608 40,362,843 27,501,324 (10,124,206) (3,145,402) 2,807,314

131





34.3. Market Risk (continued)


The table below shows the effect of change in interest rates on the Bank’s net income and net assets value:

Scenario interest rate fluctuation Net income effect RSD thousandNet assets effect

RSD thousand

1 1% 134,712 (478,329)2 2% 269,424 (921,817)3 -1% (134,712) 515,8724 -2% (269,424) 1,072,225

The following table represents value at risk for trading book and securities available for sale:

In EuRValue at risk: IRR VaR

Average 231,386Maximum 377,695Minimum 129,946

34.3.2. Foreign Currency Risk

Foreign currency risk is the risk of the occurrence of negative effect to the financial result and equity of the Bank due to changes in foreign exchange rates. The banking operations in different foreign currencies cause the exposure to fluctuation in foreign currencies exchange rates.

In accordance with the internal policy of the Bank, considering potential fluctuations in foreign currency exchange rate, the Board of Directors decides on the limit on the open foreign currency position of the Bank based on the proposal of the Risk Management Department.

The Bank’s Board of Directors has established the limit on the open foreign currency position which is more conservative than the regulatory limit of the foreign currency position and which is monitored on a daily basis, in order to ensure that the Bank’s currency risk exposure is maintained within established limits.

The Bank measures the foreign currency risk daily, in accordance with the methodology of the National Bank of Serbia, through the Report on the foreign currency risk indicator.

The foreign currency risk indicator is the ratio between the total open net foreign currency position and the Bank’s regulatory capital (calculated in accordance with the Decision on Capital Adequacy of Banks), whereby the Bank is obliged to ensure that its total net open position does not exceed the amount of 20% of its capital.

During 2011, the Bank strictly paid attention to reconcile the foreign currency risk indicator with the prescribed limit, where this indicator was always at the level far below the limit.





34.3.2. Foreign Currency Risk (continued)

The following table shows the Bank’s foreign currency risk exposure, i.e. open net foreign currency position as of 31 December 2011:

RSD thousand

EuR uSD CHF Other currenciesTotal in foreign

currency Total in RSD Total

ASSETSCash and cash equivalents 2,344,952 198,951 212,158 265,838 3,021,899 13,200,662 16,222,561Revocable deposits and loans 50,162,819 - - - 50,162,819 33,000,000 83,162,819Interest and fees receivable, receivables from sales, changes in fair value of derivatives and other receivables 490,003 3,727 2,237 33 496,000 2,489,589 2,985,589Loans and advances 179,616,225 660,893 3,872,145 - 184,149,264 65,188,461 249,337,725Securities (excluding treasury shares) 27,238 - - - 27,238 17,757,349 17,784,587Equity investments - - - - - 962,568 962,568Other placements 6,949,513 - - 996 6,950,509 4,571,072 11,521,581Intangible assets - - - - - 595,399 595,399Property, equipment and investment property - - - - - 6,583,749 6,583,749Fixed assets held for sale and assets from discontinued opera-tions - - - - - 60,192 60,192Deferred tax assets - - - - - 47,317 47,317Other assets 492,637 8,187 548 122 501,495 2,557,108 3,058,602

TOTAL ASSETS ( I ) 240,083,387 871,758 4,087,088 266,989 245,309,223 147,013,466 392,322,689

LIABILITIES

Transaction deposits 46,324,742 3,142,759 1,495,730 766,633 51,729,864 32,948,565 84,678,429Other deposits 110,271,642 6,227,651 1,976,317 574,005 119,049,615 31,636,751 150,686,366Borrowings 55,616,132 569,683 2,298 6,194 56,194,307 912,155 57,106,462Liabilities arising from securities - - 42 5,739 5,781 2,379,868 2,385,649Interest and fees payable and changes in fair value of deriva-tives - - - - - 165,937 165,937Provisions - - - - - 2,229,010 2,229,010Tax liabilities - - - - - 43,334 43,334Liabilities from profit - - - - - 269,029 269,029Other liabilities 10,531,206 90,697 12,804 3,513 10,638,220 3,705,928 14,344,148

TOTAL LIABILITIES 222,743,722 10,030,790 3,487,191 1,356,084 237,617,787 74,290,577 311,908,364

TOTAL EquITy - - - - - 80,414,325 80,414,325

TOTAL LIABILITIES AND EquITy (II) 222,743,722 10,030,790 3,487,191 1,356,084 237,617,787 154,704,902 392,322,689

Financial derivatives affecting the foreign currency position, recorded in the off balance sheet (III) (17,200,397) 9,144,326 (627,158) 1,136,588 (7,546,641) - -Open net foreign currency position(I – II+ III) 139,268 (14,706) (27,260) 47,493 144,795 (7,691,436) -

133







The following table shows the Bank’s foreign currency risk exposure, i.e. open net foreign currency position as of 31 December 2010:

RSD thousand

EuR uSD CHFOther curren-

ciesTotal in foreign

currency Total in RSD Total

ASSETSCash and cash equivalents 1,467,061 136,695 158,662 243,354 2,005,772 18,047,476 20,053,248Revocable deposits and loans 44,409,640 - - - 44,409,640 7,000,000 51,409,640Interest and fees receivable, receivables from sales, changes in fair value of derivatives and other receivables 123,692 49 7,572 25 131,338 2,258,960 2,390,298Loans and advances 175,676,308 4,219,895 1,487,751 - 181,383,954 63,703,336 245,087,290Securities (excluding treasury shares) 5,270,692 - - - 5,270,692 14,109,997 19,380,689Equity investments - - - - - 948,033 948,033Other placements 4,857,000 13,342 - 73,396 4,943,738 5,326,840 10,270,578Intangible assets - - - - - 561,462 561,462Property, equipment and investment property - - - - - 6,388,002 6,388,002Fixed assets held for sale and assets from discontinued operations - - - - - 50,685 50,685Deferred tax assets - - - - - 33,054 33,054Other assets 660,092 142 8,229 121 668,584 1,881,432 2,550,016

TOTAL ASSETS ( I ) 232,464,485 4,370,123 1,662,214 316,896 238,813,718 120,309,277 359,122,995

LIABILITIESTransaction deposits 33,078,541 1,080,866 2,481,171 566,234 37,206,812 27,871,989 65,078,801Other deposits 137,642,615 3,269,492 3,640,672 388,489 144,941,267 26,490,818 171,432,085Borrowings 43,863,387 4,609 30,560 3,380 43,901,936 1,353,306 45,255,242Liabilities arising from securities - - - 24,628 24,628 108,162 132,790Interest and fees payable and changes in fair value of derivatives - - - - - 94,607 94,607Provisions - - - - - 2,419,833 2,419,833Tax liabilities - - - - - 56,962 56,962Liabilities from profit - - - - - 220,031 220,031Other liabilities 13,011,819 3,778 19,338 3,978 13,038,913 4,104,609 17,143,522

TOTAL LIABILITIES 227,596,361 4,358,745 6,171,741 986,709 239,113,556 62,720,316 301,833,873

TOTAL EquITy - - - - - 57,289,122 57,289,122

TOTAL LIABILITIES AND EquITy (II) 227,596,361 4,358,745 6,171,741 986,709 239,113,556 120,009,438 359,122,995

Financial derivatives affecting the foreign currency position, recorded in the off balance sheet (III) (4,695,869) - 4,746,801 773,605 824,537 - -Open net foreign currency position(I – II+ III) 172,255 11,378 237,274 103,792 524,699 299,839 -

Balances with F/X clause have been reported under corresponding currencies.






Furthermore, the Bank has developed internal methodology for measuring the foreign currency risk, which implies that VaR is calculated and monitored on a daily basis with 99% confidence interval. VaR is the highest possible loss the Bank could suffer in normal market conditions with the probability of 99%. Foreign currency VaR is calculated and monitored daily and is reported to Director of Treasury, Executive Board member responsible for risks and the Parent bank.

The table below presents the benchmark amounts of the foreign currency VaR in 2011 and 2010:

VaR (in EuR)Foreign currency VaR 2011 2010

Average 59,394 34,182Maximum 643,650 293,717Minimum 1,542 371

The following table presents the impact of changes in foreign exchange rate on Bank’s profit:

RSD thousandScenario impact on the profit

10% depreciation of RSD 14,48020% depreciation of RSD 28,959

34.4. OpERATIONAL RISk

Operational risk is the risk of negative effects on the Bank’s financial result and equity due to failures in performance of operating activities, human mistakes, system errors and external factors influence. This definition includes legal risk, but excludes strategic and reputational risk.

The function of operational risk management process is to identify, assess, control and minimize the possibility of occurrence and effect of net losses. The Bank cannot eliminate all operational risks, but it can, trough the processes of recording and analyzing the operational risks identify the failures in its processes, products and procedures. Hence, the Bank’s improvement of its processes, products and procedures can decrease frequency and negative influence of operational losses on its operations and profitability. An important aspect of the operative risk management is updating the management on significant operative risks in timely manner, as well as permanent education of all employees included in the process of collecting data on operational risks and comprehensive development of the awareness on the importance of identification, measurement, control and mitigation of operational risks.

Data on operational risks are gathered from all organizational parts of the Bank. Data is classified and analyzed, while the methods of risk mitigation and its impact reduction are recommended.

Once per year the Bank performs its own risks assessment. First part of this process is based on a certain number of scenarios, where the members of the Executive Board assess the frequency and possibility of the operative occurrences, and their influence on profits, from the field they are responsible for. In second part members of the Executive Board evaluate risk factors in the business environment, where the importance and impact of some risk factors are estimated, as well as the level of control and management of risk, and suggestions of measures to mitigate the possible impact of certain risk factors are made. By combining the results of the Bank’s risk assessment and statistics of historical cases of operational risks, a clear picture of the Bank’s exposure to operational risks is obtained.

135





34.4. OpERATIONAL RISk (CONTINuED)

The Bank has established and maintains complete and transparent reporting system. The purpose is to analyse and monitor development of the Bank’s exposure to operational risk and to prevent the occurrence of events with high intensity (worst case). Reports developed by the Bank include: monthly and semi-annual report (for Members of the Executive Board, Internal Audit and Director of Risk Management Department), quarterly report on capital requirement for operational risk (for National Bank of Serbia).

For the calculation of capital requirement for operational risk, the Bank applies Basic Indicator Approach. Capital requirement for operational risk calculated using basic indicator approach is equal to three year average exposure indicator multiplied by capital requirement rate of 15%. As of 31 December 2011 capital requirement for operational risk, calculated on basic indicator approach amounts to RSD 3,621,530,552.

34.5. ExpOSuRE RISk

The Risk Management Department monitors, measures and reports to the Bank’s boards on the Bank’s exposure to a single client or a group of clients, risk of investment in other legal entities as well as in fixed assets, country risk to which the Bank is exposed as well as operational risk. In 2011, the Bank maintained compliance of the exposure risk and investment risk indicators and performed appropriate activities defined by the relevant procedures and decisions on credit approval and investments in financial and non-financial assets, that ensured compliance of the Bank’s placements and investments with indicators prescribed by the National bank of Serbia.

The exposure risks include the risk of the Bank’s exposure to a single client or a group of related clients, as well as exposure risk toward related parties of the Bank.

In accordance with the Risk management policy, the Bank’s management defines exposure limits, i.e. the concentration of placements to single client or a group of related clients, and related parties of the Bank.

The Bank’s management and relevant Bank’s authorities strive to ensure the compliance of the Bank’s exposure to the prescribed limits, i.e., exposure to a single client or a group of related clients does not exceed 25% of the Bank’s equity, total amount of all large exposures do not exceed 400% of the Bank’s equity, total exposure to a related party does not exceed 5% of the Bank’s equity and total exposure to all related parties of the Bank does not exceed 20% of the Bank’s equity.

34.6. INVESTMENT RISkS

Investment risks include the risk of investment in other legal entities and investment in fixed assets. In accordance with the National bank of Serbia legislation, the Risk Management Department monitors the Bank’s investments and reports to the Board of Directors. The Department also ensures that the Bank’s investment in a single non-financial sector entity does not exceed 10% of the Bank’s equity and that total Bank’s investments in non-financial entities and fixed assets do not exceed 60% of the Bank’s equity.




34.7. COuNTRy RISk

Country risk relating to the country of origin of the Bank’s client includes negative effects which may influence financial result and equity of the Bank, as the Bank might not be able to collect re-ceivables from such a client, as a result of political, economical or social conditions in the client’s origin country.

The Bank’s exposure to the country risk is low, due to insignificant share of non-residents in the total loan portfolio of the Bank.

34.8. CApITAL MANAGEMENT

The objective of the Bank’s capital management is to maintain the ability of conducting the business in the indefinite period in the foreseeable future, in order to maintain the optimal structure of the capital in order to decrease the costs of capital as well as to ensure dividends for the shareholders.

The Bank permanently manages its capital in order to:

- Ensure compliance with the capital requirements set by the National bank of Serbia;- Ensure adequate level of capital in order to enable conducting the business as a going concern; and- Maintain capital at the level that will ensure future development of the business.

The capital adequacy, as well as the exercise of the Bank’s capital, is monitored on a monthly basis by the Bank’s management. The National bank of Serbia has defined the following capital limits:

- The minimal amount of the capital of EUR 10 million;- Capital adequacy ratio of 12%

The Bank’s total capital comprises Tier 1 and Tier 2, and deductible items:

- Tier 1 capital include: share capital from ordinary shares, share premium, reserves from profit, retained earnings/accumulated losses, capital gains/losses on repurchase of treasury shares as well as intangible assets and repurchased treasury shares (excluding cumulative preference shares) as Tier 1 capital deductible items..

- Tier 2 capital include: share capital from preference shares, share premium on preference shares, revaluation reserves related to fixed assets and equity investments, subordinated liabilities up to 50% of capital and repurchased treasury preference shares as Tier 2 capital deductible item.

- Deductible items are: amount of the required special reserves for potential losses, equity investments in banks or other financial organization exceeding 10% of its capital, and 10% of the investing bank capital, and the amount of the Tier 2 capital of the Bank which exceeds its Tier 1 capital.

Based on the Bank’s strategic plan and assessments of the new regulatory framework effects on the capital adequacy (Basel II), which is in force from 31 December 2011, the Bank issued new shares in the amount of RSD 13,313,295 thousand in 2011.

137





34.8. CApITAL MANAGEMENT (CONTINuED)

The table below summarizes the structure of the Bank’s capital as of 31 December 2011 and 2010:

RSD thousand 2011 2010Regulatory capital Tier 1 capital 79,142,153 56,272,409Tier 2 capital 599,054 4,451,399

79,741,207 60,723,808Shortfall amount of the special reserves for potential losses - (3,809,384)Required reserves for estimated losses on balance sheet assets and off-balance sheet items of banks (Decision on the capital adequacy of the bank 46/2011) 38,097,054 -Equity investment in Intesa Leasing d.o.o. Beograd and Intesa Eurizon Assets Management Beograd (970,356) (970,619)

Total (1) 40,673,797 55,943,805

Risk – weighted assets 2011 2010

Credit risk exposure 211,007,746 299,424,866Market risk exposure - 944,825Operational risk exposure 30,179,425 -

Total (2) 241,187,171 300,369,691

Capital adequacy ratio (1/2 x 100) 16.86% 18.62%

As of 31 December 2011 the total capital for covering risks amounted to RSD 28,942,460 thousand, of which the credit risk, counterparty risk and risk of settlement / delivery on the basis of free delivery amounted to RSD 25,320,929 thousand, while the remaining amount of capital covers operational risks.




34.9. FAIR VALuE OF FINANCIAL ASSETS AND LIABILITIES

The Bank’s policy is to disclose information on the fair value of assets and liabilities for which official market records are available and when the fair value significantly differs from the carrying amount.

Sufficient market experience, or stability and liquidity for the purchase and sale of receivables and other financial assets and liabilities do not exist in the Republic of Serbia, due to the fact that official market information is not always available. Consequently, fair value cannot be reliably determined in the absence of an active market. The Bank’s management estimates its overall risk exposure and provides allowances for losses in case it assess that the carrying amount of asset is not collectable.

The Bank’s financial instruments carried at amortized cost mostly have short maturity terms and/or bear variable interest rates that reflect current market conditions. Consequently, the Bank considers that carrying amount of financial instruments approximates their fair value. The fair value of loans and placements to customers is equal to their carrying value, decreased by related allowance for impairment. Available for sale investments include treasury bills of the Republic of Serbia and equity instruments. Available for sale investments are carried at fair value, except equity instruments that do not have a quoted market price in an active market and whose value cannot be reliable determined that are carried at cost less estimated allowances for impairment. Fair value of quoted securities is based on current offer prices. Fair value of treasury bills is based on discount value that gradually, until maturity, increases by the amount of accrued interest.

The Bank’s management believes that the carrying amounts in the accompanying financial statements reflect the value that is the most valid and the most useful for the reporting purpose.

139





34.9. FAIR VALuE OF FINANCIAL ASSETS AND LIABILITIES (CONTINuED)

Financial instruments at fair value

Financial instruments, such as financial instruments available for sale, are valued at fair value based on available market information, i.e. using quoted market price at the reporting date. In the absence of this information, other valuation techniques are being used.

The Bank uses the following hierarchy in order to determine and disclose fair values of financial instruments:

Level 1: Quoted prices in active market for identical financial instruments;

Level 2: Comparative approach, which uses information on similar financial instruments or other market information, based on which value of financial instruments may be determined;

Level 3: Mark to model approach, which uses information which is not based on the market data, but is derived from theoretical model which is appropriate for identification of the value of financial instrument.

The following table presents values of financial instruments obtained by using of abovementioned techniques:

RSD thousandLevel 1 Level 2 Level 3 Total

Financial assets/(liabilities) held for trading 37,240 (22,440) - 14,800

Financial assets available for sale - 18,060,369 - 18,060,369

35. CONTINGENT LIABILITIES

(A) LEGAL pROCEEDINGS

As of 31 December 2011, the Bank represents the defendant in a certain number of legal proceedings. Total estimated amount of claims is RSD 422,141 thousand (31 December 2010: RSD 320,326 thousand), including penalty interests and fees.

The final outcome of the ongoing legal proceedings is uncertain. As disclosed in Note 29 to the financial statements as of 31 December 2011, the Bank recognized provisions for potential losses that could arise from the aforementioned litigations in total amount of RSD 383,190 thousand (31 December 2010: RSD 274,887 thousand). The Bank’s management considers that no significant losses will arise from the ongoing litigations, other than those provided for.

The Bank is subject to a number of lawsuits as a plaintiff for collection of receivables.

(B) TAx RISkS

Tax system of the Republic of Serbia is in process of continuous review and amendments. Tax period in the Republic of Serbia is considered to be open in five years. In different circumstances, tax authorities could have different approach to some matters, and could determine additional tax liabilities together with related penalty interest and fees. The Bank’s management believes that tax liabilities recognized in the accompanying financial statements are fairly presented.



36. RECONCILIATION OF OuTSTANDING BALANCES WITH COuNTERpARTIES

In accordance with Article 20 of the Law on Accounting and Auditing, the Bank performed reconciliation of liabilities and receivables with its debtors and creditors as at 31 December 2011, and maintained reliable documentation.

From a total of 2,748 submitted open item statements, 46 were disputed.

Most of the unreconciled outstanding balances of receivables are as follows:

- RSD 612,632 thousand refer to receivables from companies in bankruptcy.- RSD 289,000 thousand relates to receivables based on guarantees paid for two clients Termoelektro doo Beograd and Petšped doo Beograd. These clients dispute amounts on open item statements

without grounds. According to the Article no. 8 of Agreement of issue of guarantee , signed by the companies, it is specified that if the Bank pays for guarantee, the paid amount becomes a short-term loan on the date of issuing a payment order, without obligation of contracted parties to conclude a separate Annex to this Agreement. This short-term loan has maturity within 7 days from the date of payment under the guarantee.

- RSD 103,920 thousand refer to receivables from corporate client Irva doo, Beograd. Open item statement is disputed on the grounds that Reorganization plan prepared in advanced has been adopted.

- RSD 81,737 thousand, refers to purchase of short-term receivables - factoring. Legal entities generally do not change in the accounting records the client toward which they have an obligation, regardless of the fact that the client has ceded the receivables to the Banks pursuant to the Sale of Receivables Agreement.

- RSD 70,578 thousand mostly relates to accrued interest.- RSD 2,655 thousand refers to non-compliance arising from receivables under transactions with credit cards. - RSD 926 thousand relates to other receivables.

37. ExCHANGE RATES

The official foreign exchange rates of the National Bank of Serbia determined on the Interbank Foreign Currency Market, used for translation of balance sheet items denominated in foreign currencies as at 31 December 2011 and 2010 into Serbian Dinars (RSD) were as follows:

In RSD2011 2010

EUR 104.6409 105.4982USD 80.8662 79.2802CHF 85.9121 84.4458

141




38. SuBSEquENT EVENTS

There have been no significant events subsequent to the balance sheet date, which would require disclosures in the notes to the accompanying financial statements of the Bank as of and for the year ended 31 December 2011.

ANNUAL REPORT 2011


The Jewish house of prayer built in Apatin in 1885 is one of its kind in the world. This is the only completely preserved old synagogue in Vojvodina . Its uniqueness is related to a ceil-ing mural with Old Testament scenes, which is completely contrary to the manner of interior decoration of synagogues. According to its content, the mural is non-typical of Judaism and contains Hebrew writing written in reverse, so the text can only be read with a mirror. In 1995, the synagogue was sold to the Baptist church when a cross was placed on the slate with Moses’ messages. In the yard of the synagogue there used to be a school that was attended by the children of more affluent Apatin residents of different religions who wanted them to get high quality education. The school was closed in 1920.

SYNAGOGUE, Apatin


ANNUAL REPORT 2011


ANNUAL REPORT 2011ORGANIZATIONAL STRUCTURE

ORGANIZATIONAL STRuCTuRE

RISK MANAGEMENTDEPARTMENT

CREDIT MANAGEMENTDEPARTMEN

DELINQUENCY MANAGEMENTDEPARTMEN

BOARD OF DIRECTORS INTERNAL AUDIT

SECURITY DEPARTMENTLEGAL DEPARTMENT

HUMAN RESOURCESDEPARTMENT

ORGANIZATION AND PROJECTMANAGEMENT DEPARTMENT

ORGANIZATION AND PROJECTMANAGEMENT DEPARTMENT

COMPLIANCE OFFICE

COSTUMER SATISFACTIONMENAGEMENT UNIT

MARKETING ANDCOMMUNICATIONS

DEPARTMENT

EXECUTIVE BOARD

PRESIDENT OF THEEB / CEO

DEPUTY PRESIDENTOF THE EB / COO

CHIEF INFORMATIONOFFICER

RETAIL DIVISION CORPORATE DIVISION FINANCE MANAGEMENTAND TREASURY DIVISION

CRM Office

Collection Office

COMMERCIAL PLANNING AND NETWORK MANAGEMENT

DEPARTMENT

PAYMENT CARDSAND DIRECT CHANNELS

DEPARTMENT

PLANNINGAND CONTROLDEPARTMENT

ICT DEPARTMENT

PAYMENTS AND CASHMONITORINGDEPARTMENT

BACK OFFICEDEPARTMENT

REAL ESTATE ANDPROCUREMENT MANAGEMENT

DEPARTMENT

FINANCEAND ACCOUNTING

DEPARTMENT

TREASURY DEPARTMENT

RETAIL PRODUCT ANDSERVICE MANAGEMENT

DEPARTMENT

SMALL BUSINESS SALESMANAGEMENTDEPARTMENT

INDIVIDUALS SALESMANAGEMENTDEPARTMENT

DEPUTY HEAD OFCORPORATE DIVISION

REGIONALBACK

OFFICE

REGIONS

Branches andMortgage Centers

REGIONS

REGIONALOPERATIONS

EURIZON CAPITAL BELGRADE

INTESA LEASINGBELGRADE

ECONOMIC RESEARCH UNIT

FACTORING DEPARTMENTGUARANTEES AND

DOCUMENTARY OPERATIONSDEPARTMENT

CORPORATE PRODUCTSAND SALES MANAGEMENT

DEPARTMENT

LARGE CORPORATEDEPARTMENT

CHIEF COMMERCIALOFFICER


ANNUAL REPORT 2011 BUSINESS NETWORK

BuSINESS NETWORk

Location Branch name Regional center Address

Ada Ada, Vuka Karadžića 18 Pančevo Vuka Karadžića 18

Aleksandrovac Aleksandrovac, Trg oslobođenja bb Kragujevac Trg oslobođenja bb

Aleksinac Aleksinac, Knjaza Miloša 115 Niš Knjaza Miloša 115

Apatin Apatin, Petefi Šandora 2 Novi Sad Petefi Šandora 2

Arandjelovac Aranđelovac, Knjaza Miloša 192 Kragujevac Knjaza Miloša 192

Arilje Arilje, Stevana Čolovića 2 Užice Stevana Čolovića 2

Bačka Palanka Bačka Palanka, Žarka Zrenjanina 43 Novi Sad Žarka Zrenjanina 43

Bačka Topola Bačka Topola, Glavna 29 Novi Sad Glavna 29

Bačka Topola Bačka Topola, Glavna 22 Novi Sad Glavna 22

Bački Petrovac Bački Petrovac, Maršala Tita 4 Novi Sad Maršala Tita 4

Batajnica Zemun, Batajnica, Majke Jugovića 1 Beograd Majke Jugovića 1

Bajina Bašta Bajina Bašta, Kneza Milana Obrenovića 22 Užice Kneza Milana Obrenovića 22

Bečej Bečej, Novosadska 2 Pančevo Novosadska 2

Beočin Beočin, Trg Cara Lazara 8 Novi Sad Trg Cara Lazara 8

Belgrade New Belgrade, Otona Župančića 1 Beograd 2 Otona Župančića 1

Belgrade Čukarica, Požeška 128 Beograd 2 Požeška 128

Belgrade Čukarica, Požeška 45 Beograd 2 Požeška 45

Belgrade New Belgrade, Tošin bunar 159 Beograd 2 Tošin bunar 159

Belgrade New Belgrade, Bulevar Zorana Đinđića 2a Beograd 2 Bul. Zorana Đinđića 2a

Belgrade New Belgrade, Nedeljka Gvozdenovića 24a Beograd 2 Nedeljka Gvozdenovića 24a

Belgrade New Belgrade, Jurija Gagarina 149 Beograd 2 Jurija Gagarina 149

Belgrade New Belgrade, Bulevar Arsenija Čarnojevića 54 Beograd 2 Bul. Arsenija Čarnojevića 54

Belgrade Zvezdara, Bulevar Kralja Aleksandra 288 Beograd 1 Bulevar Kralja Aleksandra 288

Belgrade Palilula, Marjane Gregoran 60 Beograd 1 Marjane Gregoran 60

Belgrade Voždovac, Ustanička 69 Beograd 1 Ustanička 69

Belgrade Zvezdara, Mirijevski venac 23 Beograd 1 Mirijevski venac 23

Belgrade Voždovac, Kumodraška 174 Beograd 2 Kumodraška 174


Belgrade Vračar, Resavska 1-3 Beograd 1 Resavska 1-3


ANNUAL REPORT 2011BUSINESS NETWORK


Belgrade Stari Grad, Knez Mihailova 30 Beograd 1 Knez Mihailova 30

Belgrade Stari Grad, Kolarčeva 5 Beograd 1 Kolarčeva 5

Belgrade Stari Grad, Studentski trg 7 Beograd 1 Studentski trg 7

Belgrade Stari Grad, Makedonska 42 Beograd 1 Makedonska 42

Belgrade Stari Grad, Karađorđeva 67 Beograd 1 Karađorđeva 67

Belgrade Vračar, Bulevar oslobođenja 3 Beograd 1 Bulevar oslobođenja 3

Belgrade Voždovac, Vojvode Stepe 77 Beograd 2 Vojvode Stepe 77

Belgrade Vračar, Cara Nikolaja 82-84 Beograd 1 Cara Nikolaja 82-84

Belgrade Palilula, Ruzveltova 8 Beograd 1 Ruzveltova 8

Belgrade Rakovica, Vukasovićeva 50a Beograd 2 Vukasovićeva 50a

Belgrade Čukarica, Radnička 55 Beograd 2 Radnička 55

Belgrade Savski Venac, Sarajevska 31 Beograd 1 Sarajevska 31

Belgrade Stari Grad, Svetogorska 47 Beograd 1 Svetogorska 47

Belgrade Savski Venac, Vase Pelagića 48b Beograd 2 Vase Pelagića 48b

Belgrade Rakovica, Vidikovački venac 80b Beograd 2 Vidikovački venac 80b

Belgrade New Belgrade, Goce Delčeva 34 Beograd 2 Goce Delčeva 34

Belgrade New Belgrade, Partizanske avijacije 14 Beograd 2 Partizanske avijacije 14


Belgrade New Belgrade, Milentija Popovića 7v Beograd 2 Milentija Popovića 7v

Belgrade New Belgrade, Omladinskih brigada 90 Beograd 2 Omladinskih brigada 90

Belgrade Stari Grad, Višnjićeva 9 Beograd 1 Višnjićeva 9

Belgrade Palilula, 27. marta 23 Beograd 1 27. marta 23

Belgrade Stari Grad, Cara Uroša 54 Beograd 1 Cara Uroša 54

Belgrade Stari Grad, Takovska 58 Beograd 1 Takovska 58

Belgrade Stari Grad, Džordža Vašingtona 8 Beograd 1 Džordža Vašingtona 8

Belgrade Voždovac, Braće Jerković 137b Beograd 2 Braće Jerković 137b

Belgrade Čukarica, Trgovačka 30 Beograd 2 Trgovačka 30

Belgrade Savski Venac, Nemanjina 4 Beograd 1 Nemanjina 4

Belgrade Sopot, Kosmajski trg 6 Beograd 2 Kosmajski trg 6

Belgrade Surčin, Vojvođanska 85 Beograd 2 Vojvođanska 85


Belgrade Palilula, Borča, Ivana Milutinovića 73 Beograd 1 Ivana Milutinovića 73

Belgrade Stari Grad, Cara Dušana 50 Beograd 1 Cara Dušana 50

Belgrade Čukarica, Sremčica, Beogradska 161 Beograd 2 Beogradska 161




Belgrade Stari Grad, Topličin venac 19-21 Beograd 1 Topličin venac 19-21


Belgrade Vračar, Kralja Milana 18 Beograd 1 Kralja Milana 18

Belgrade Voždovac, Banjica, Crnotravska 7-9 Beograd 2 Crnotravska 7-9

Belgrade Rakovica, Miška Kranjca br. 12 Beograd 2 Miška Kranjca br. 12


Belgrade Savski Venac, Neznanog Junaka 7 Beograd 2 Neznanog Junaka 7

Belgrade Voždovac, Danijelova 32 Beograd 2 Danijelova 32

Belgrade Vračar, Južni Bulevar 84 Beograd 1 Južni Bulevar 84

Belgrade Centar za stambene kredite, New Belgrade, Goce Delčeva 34 Beograd 2 Goce Delčeva 34

Belgrade Centar za stambene kredite, Resavska 1-3 Beograd 1 Resavska 1-3

Belgrade Kancelarija za stambene kredite, Čukarica, Požeška 128 Beograd 2 Požeška 128

Belgrade Kancelarija za stambene kredite, Knez Mihajlova 30 Beograd 1 Knez Mihailova 30

Belgrade Kancelarija za stambene kredite, Studentski Trg 7 Beograd 1 Studentski trg 7

Bezdan Bezdan, Žrtava fašizma 19 Bezdan Žrtava fašizma 19

Bor Bor, Đorđa Vajferta 3 Niš Đorđa Vajferta 3

Bogatić Bogatić, Vojvode Stepe 35 Užice Vojvode Stepe 35

Brus Brus, Kralja Petra I bb Kragujevac Kralja Petra I bb

Bujanovac Bujanovac, Karađorđa Petrovića 111 Niš Karađorđa Petrovića 111

Crvenka Crvenka, Moše Pijade 49 Novi Sad Moše Pijade 49

Čačak Čačak, Kuželjeva 1 Užice Kuželjeva 1

Čajetina Čajetina, Zlatiborska 13 Užice Zlatiborska 13

Čoka Čoka, Potiska 10 Pančevo Potiska 10

Ćićevac Ćićevac, Karađorđeva bb Kragujevac Karađorđeva bb

Ćuprija Ćuprija, Karađorđeva 57 Kragujevac Karadjordjeva 57

Despotovac Despotovac, Despota Stefana Lazarevića 36 Kragujevac Despota Stevana Lazarevića 36

Gornji Milanovac Gornji Milanovac, Karađorđeva 1 Užice Karađorđeva 1

Inđija Inđija, Novosadska 21 Novi Sad Novosadska 21

Ivanjica Ivanjica, Majora Ilića 1 Užice Majora Ilića 1

Jagodina Jagodina, Maksima Gorkog 2 Kragujevac Maksima Gorkog 2

Kanjiža Kanjiža, Glavna 3 Pančevo Glavna 3

Kikinda Kikinda, Braće Tatića 16 Pančevo Braće Tatića 16

Kladovo Kladovo, 22. septembra 9 Niš 22.septembra 9

Knjaževac Knjaževac, Trg Oslobođenja 4 Niš Trg Oslobođenja 4




Kosjerić Kosjerić, Karađorđeva 58 Užice Karađorđeva 58

Kostolac Kostolac, Nikole Tesle 5-7 Pančevo Nikole Tesle 5-7

Kovačica Kovačica, Maršala Tita 31a Pančevo Maršala Tita 31a

Kovin Kovin, Cara Lazara 73 Pančevo Cara Lazara 73

Kragujevac Kragujevac, Save Kovačevića 12 b Kragujevac Save Kovačevića 12 b

Kragujevac Kragujevac, Kralja Petra I 19 Kragujevac Kralja Petra I 19

Kragujevac Kragujevac, Kralja Aleksandra I Karađorđevića 120 Kragujevac Kralja Aleksandra I Karađorđevića 120

Kraljevo Kraljevo, Trg Jovana Sarića 8 Kragujevac Trg Jovana Sarića 8

Kruševac Kruševac, Mirka Tomića 4 Kragujevac Mirka Tomića 4

Kruševac Kruševac, Vece Korčagina 18 Kragujevac Vece Korčagina 18

Kruševac Kruševac, Radomira Jakovljevića bb Kragujevac Radomira Jakovljevića bb

Kučevo Kučevo, Trg Veljka Dugoševića 2 Pančevo Trg Veljka Dugoševića 2

Kula Kula, Maršala Tita 242 Novi Sad Maršala Tita 242

Lajkovac Lajkovac, Kralja Petra I 2 Užice Kralja Petra I 2

Lazarevac Lazarevac, Karađorđeva 41 Užice Karađorđeva 41

Leskovac Leskovac, Trg Revolucije 7 Niš Trg Revolucije 7

Leskovac Leskovac, Bulevar oslobođenja 170 Niš Bulevar Oslobodjenja 170

Loznica Loznica, Trg Vuka Karadžića bb Užice Trg Vuka Karadžića bb

Lučani Lučani, Jugoslovenske armije 1 Užice Jugoslovenske Armije 1

Ljig Ljig, Vojvode Mišića 12 Užice Vojvode Mišića 12

Ljubovija Ljubovija, Vojvode Mišića 44 Užice Vojvode Mišića 44

Mionica Mionica, Dr. Jove Aleksića 21 Užice Dr. Jove Aleksića 21

Mladenovac Mladenovac, Kralja Petra I 217 Kragujevac Kralja Petra I 217

Mokra gora Mokra Gora, Železnička stanica Mokra gora Užice Železnička stanica Mokra gora

Mol Mol, JNA 63 Pančevo JNA 63

Negotin Negotin, Trg Đorđa Stanojevića 70/II Niš Trg Đorđa Stanojevića 70/II

Niš Centar za stambene kredite, Niš, Obrenovićeva 13 Niš Obrenovićeva br.13

Niš Niš, Nade Tomić 8a Niš Nade Tomić 8a

Niš Niš, Sinđelićev trg 18 Niš Sinđelićev trg 18

Niš Niš, Vizantijski bulevar 78 Niš Vizantijski bulevar 78

Niš Niš, Obrenovićeva 82 (Fontana) Niš Obrenovićeva 82 (Fontana)

Niš Niš, Obrenovićeva 13 (Obrenovićeva) Niš Obrenovićeva 13 (Obrenovićeva)

Niš Niš, Bulevar Nemanjića 28-32 Niš Bulevar Nemanjića 28-32

Nova Pazova Nova Pazova, Cara Dušana 4 Novi Sad Cara Dušana 4




Nova Varoš Nova Varoš, Svetog Save 31 Užice Svetog Save 31

Novi Kneževac Novi Kneževac, Kralja Petra I Karađorđevića 29 Pančevo Kralja Petra I Karađorđevića 29

Novi Bečej Novi Bečej, Trg Oslobođenja 5 Pančevo Trg Oslobođenja 5

Novi Pazar Novi Pazar, AVNOJ-a 6 Kragujevac AVNOJ-a 6

Novi Sad Novi Sad, Bulevar Mihajla Pupina 4 Novi Sad Bulevar Mihaila Pupina 4

Novi Sad Novi Sad, Bulevar Oslobođenja 32 Novi Sad Bulevar Oslobođenja 32

Novi Sad Novi Sad, Bulevar Jovana Dučića 1 Novi Sad Bulevar Jovana Dučića 1

Novi Sad Novi Sad, Bulevar Cara Lazara 79a Novi Sad Bulevar cara Lazara 79a

Novi Sad Novi Sad, Bulevar Oslobođenja 76a Novi Sad Bulevar Oslobođenja 76a

Novi Sad Novi Sad, Fruškogorska 10 Novi Sad Fruškogorska 10

Novi Sad Novi Sad, Braće Ribnikar 25a Novi Sad Braće Ribnikar 25a

Novi Sad Novi Sad, Rumenačka 33 Novi Sad Rumenačka 33

Novi Sad Novi Sad, Kisačka 27 Novi Sad Kisačka 27

Novi Sad Novi Sad, Kosovska 1 Novi Sad Kosovska 1

Novi Sad Novi Sad, Zmaj Jovina 12 Novi Sad Zmaj Jovina 12

Novi Sad Novi Sad, Narodnog fronta 34 Novi Sad Narodnog fronta 34

Novi Sad Novi Sad, Radnička 16 Novi Sad Radnička 16

Novi Sad Novi Sad, Franje Štefanovića 1 Novi Sad Franje Štefanovića 1

Novi Sad Novi Sad, Bulevar Oslobođenja 8 Novi Sad Buleva Oslobođenja 8

Novi Sad Centar za stambene kredite,Novi Sad, Bulevar Mihajla Pupina 4 Novi Sad Bulevar Mihajla Pupina 4

Obrenovac Obrenovac, Miloša Obrenovića 133-135 Užice Miloša Obrenovića 133-135

Pančevo Pančevo, Štrosmajerova 1 Pančevo Štrosmajerova 1

Pančevo Pančevo, Karađorđeva 2-4 Pančevo Karađorđeva 2-4

Pančevo Pančevo, Cara Lazara 2 Pančevo Cara Lazara 2

Pančevo Centar za stambene kredite, Pančevo, Cara Lazara 2 Pančevo Cara Lazara 2

Paraćin Paraćin, Kralja Petra I 4 Kragujevac Kralja Petra I 4

Petrovac na Mlavi Petrovac na Mlavi, Bate Bulića 37 Pančevo Bate Bulića 37

Plandište Plandište, Hajduk Veljka 16a Pančevo Hajduk Veljka 16a

Pirot Pirot, Branka Radičevića 18 Niš Branka Radičevića 18

Požarevac Požarevac, Trg Radomira Vujovića 8 Pančevo Trg Radomira Vujovića 8

Požega Požega, Knjaza Miloša 6 Užice Knjaza Miloša 6

Priboj Priboj, Nemanjina 48-50 Užice Nemanjina 48-50

Prijepolje Prijepolje, Sandžačkih brigada 39 Užice Sandžačkih brigada 39

Prokuplje Prokuplje, 9. oktobra 6 Niš 9. oktobra 6




Raška Raška, Miluna Ivanovića 8 Kragujevac Miluna Ivanovića 8

Ruma Ruma, Glavna 170 Novi Sad Glavna 170

Ruma Ruma, 15. maja 143 Novi Sad 15. maja 143

Sjenica Sjenica, Milorada Jovanovića bb Kragujevac Milorada Jovanovića bb

Smederevo Smederevo, Cvijićeva 3 Pančevo Cvijićeva 3

Smederevska Palanka Smederevska Palanka, Svetog Save 19 Kragujevac Svetog Save 19

Sombor Sombor, Venac Stepe Stepanovića 32 Novi Sad Venac Stepe Stepanovića 32

Sremska Mitrovica Sremska Mitrovica, Kralja Petra I 6 Novi Sad Kralja Petra I 6

Sremska Mitrovica Sremska Mitrovica, Svetog Dimitrija 2 Novi Sad Svetog Dimitrija 2

Srbobran Srbobran, Zmaj Jovina 18 Pančevo Zmaj Jovina 18

Sremski Karlovci Sremski Karlovci, Trg karlovačke mitropolije 1 Novi Sad Trg Karlovačke Mitropolije 1

Sremska Kamenica Sremska Kamenica, Trg Jove Jovanovića Zmaja 5 Novi Sad Trg Jove Jovanovića Zmaja 5

Senta Senta, Zlatne grede 6 Pančevo Zladne grede 6

Stara Pazova Stara Pazova, Ćirila i Metodija 2 Novi Sad Ćirila i Metodija 2

Subotica Subotica, Dimitrija Tucovića 2 Novi Sad Dimitrija Tucovića 2

Subotica Subotica, Štrosmajerova 6 Novi Sad Štrosmajerova 6

Subotica Kancelarija za stambene kredite, Subotica, Dimitrija Tucovića 2 Subotica Dimitrija Tucovića 2

Surdulica Surdulica, Ulica Kralja Petra I bb Niš Kralja Petra I bb

Svilajnac Svilajnac, Svetog Save 52 Kragujevac Svetog Save 52

Šabac Šabac, Gospodar Jevremova 44 Užice Gospodar Jevremova 44

Šabac Šabac, Karađorđeva 14 Užice Karađorđeva 14

Šid Šid, Karađorđeva 11-13 Novi Sad Karađorđeva 11-13

Tavankut Tavankut, Jovana Mikića 2 Novi Sad Jovana Mikića 2

Temerin Temerin, Novosadska 403 Pančevo Novosadska 403

Titel Titel, Mihajla Krestića 8a Pančevo Mihaila Krestića 8a

Topola Topola, Tomislava Karađorđevića 3 Kragujevac Tomislava Karađorđevića 3

Trstenik Trstenik, Cara Dušana bb Kragujevac Cara Dušana bb

Tutin Tutin, Pešterska bb Kragujevac Pešterska bb

Ub Ub, Kralja Petra I 60 Užice Kralja Petra I 60

Užice Užice, Dimitrija Tucovića 129 Užice Dimitrija Tucovića 129



Valjevo Valjevo, Karađorđeva 71 Užice Karađorđeva 71

Valjevo Valjevo, Železnička 7 Užice Železnička 7




Velika Plana Velika Plana, Momira Gajića br 2 Kragujevac Momira Gajića br 2

Veliko Gradište Veliko Gradište, Kneza Lazara 35 Pančevo Kneza Lazara 35

Veternik Veternik, Kralja Petra I 7a Novi Sad Kralja Petra I 7a

Vladičin Han Vladičin Han, Svetosavska 16a Niš Svetosavska 16a

Vladimirci Vladimirci, Svetog Save 12 Užice Svetog Save 12

Vlasotince Vlasotince, Nemanjina 2 Niš Nemanjina 2

Vranje Vranje, Lenjinova bb Niš Lenjinova bb

Vrbas Vrbas, Maršala Tita 66 Novi Sad Maršala Tita 66

Vrnjačka Banja Vrnjačka Banja, Kruševačka 1 Kragujevac Kruševačka 1

Vršac Vršac, Sterijina 19a Pančevo Sterijina 19a

Vršac Vršac, Dositejeva 1 Pančevo Dositejeva 1

Zaječar Zaječar, Nikole Pašića 70 Niš Nikole Pašića 70

Zemun Zemun, Glavna 30 Beograd 2 Glavna 30

Zemun Zemun, Gornjogradska 38 Beograd 2 Gornjogradska 38

Zlatibor Zlatibor, Jezero bb Užice Jezero bb

Zrenjanin Zrenjanin, Kralja Aleksandra I Karađorđevića bb Pančevo Kralja Aleksandra I Karađorđevića bb

Zrenjanin Zrenjanin, Bulevar Veljka Vlahovića bb Pančevo Bul. Veljka Vlahovića bb, TC »Bagljaš« lok.12

Žabalj Žabalj, Trg Svetog Save 3 Pančevo Trg Svetog Save 3

Published by: Banca Intesa a.d. BeogradDesign and prepress: LPT

Photos: Banca IntesaPrinted by: Štamparija Stojkov

Circulation: 50

annual report - banca intesa | početna · annual report 2011 belgrade gate, ... on the eve of...

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