national bank of greece s - nbg · national bank of greece consolidated pillar iii report th 3...

Pillar III Disclosures

on a Consolidated Basis

31st December 2013

NATIONAL BANK OF GREECE S.A.

National Bank of Greece

Consolidated Pillar III Report

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TABLE OF CONTENTS 1. INTRODUCTION – GENERAL INFORMATION ........................................................................................................................................... 3 1.1. Capital Adequacy Regulatory Framework in NBG Group .............................................................................................................. 3 1.2. Amendments in Regulatory Framework ....................................................................................................................................... 4 1.3. Regulatory vs. accounting consolidation ....................................................................................................................................... 4 1.4. “Pillar III” disclosure policy ............................................................................................................................................................ 7 2. REGULATORY OWN FUNDS AND CAPITAL ADEQUACY ........................................................................................................................... 8 2.1. Structure of own funds ................................................................................................................................................................. 8

2.1.1. Capital requirements under Pillar I ................................................................................................................................................................ 10 2.1.2. Internal Capital Adequacy Assessment Process (ICAAP) ................................................................................................................................ 11

3. RISK MANAGEMENT FRAMEWORK ...................................................................................................................................................... 13 3.1. Basic Principles and governance structure of the Group risk management ............................................................................... 13 3.2. "Four lines of defense" model in the Group's risk management ................................................................................................ 13 3.3. Structure of the Group Risk Management Unit .......................................................................................................................... 14 3.4. Credit Risk ................................................................................................................................................................................... 14

3.4.1. Credit Policy for Corporate Portfolio.............................................................................................................................................................. 14 3.4.2. Credit Policy for Retail Banking ...................................................................................................................................................................... 14

3.5. Market Risk ................................................................................................................................................................................. 15 3.6. Operational Risk .......................................................................................................................................................................... 15 4. CREDIT RISK .......................................................................................................................................................................................... 17 4.1. Definitions and general information ........................................................................................................................................... 17 4.2. Impairment loss calculation methodology .................................................................................................................................. 17 4.3. Provision analysis ........................................................................................................................................................................ 19 4.4. Portfolios under the Standardized Approach .............................................................................................................................. 20 4.5. Portfolios under the Internal Ratings Based Approach ............................................................................................................... 21

4.5.1. Structure and use of internal ratings systems ................................................................................................................................................ 21 4.5.2. Credit Risk Mitigation .................................................................................................................................................................................... 22 4.5.3. Control mechanisms of Internal Rating Systems ............................................................................................................................................ 22 4.5.4. Models and Internal Rating process of the Corporate Portfolio .................................................................................................................... 22 4.5.5. Models and Internal Rating process of the Mortgage Portfolio ..................................................................................................................... 25 4.5.6. Models and internal rating process of Retail SMEs ........................................................................................................................................ 26 4.5.7. Quantitative information for the portfolio under the IRB approach .............................................................................................................. 26

4.6. Credit Risk Mitigation techniques ............................................................................................................................................... 28 4.7. Analysis and Reporting ................................................................................................................................................................ 29 5. COUNTERPARTY CREDIT RISK ............................................................................................................................................................... 30 6. MARKET RISK ........................................................................................................................................................................................ 31 6.1. Stress Testing .............................................................................................................................................................................. 32 6.2. Back testing ................................................................................................................................................................................. 33 7. OPERATIONAL RISK ............................................................................................................................................................................... 34 8. EQUITY EXPOSURES NOT INCLUDED IN THE TRADING BOOK ............................................................................................................... 35 9. SECURITIZATION ................................................................................................................................................................................... 36 10. INTEREST RATE RISK IN THE BANKING BOOK........................................................................................................................................ 37 11. REMUNERATION POLICIES AND PRACTICES ......................................................................................................................................... 38 11.1. The proportionality principle ...................................................................................................................................................... 38 11.2. Remuneration Policy ................................................................................................................................................................... 38 11.3. Human Resources and Remuneration Committee ...................................................................................................................... 38 11.4. Other relevant stakeholders/ Units ............................................................................................................................................. 39 11.5. Main characteristics of the remuneration system of the Bank according to the Bank’s Remuneration Policy........................... 39

11.5.1. Remuneration structure ........................................................................................................................................................................... 40 11.5.2. Criteria used for determining variable remuneration ............................................................................................................................... 40 11.5.3. Risk alignment of remuneration ............................................................................................................................................................... 40

11.6. Adjustment / deferral / claw back of variable remuneration ...................................................................................................... 40 11.7. Remuneration of senior management ........................................................................................................................................ 40 11.8. Directors’ Remuneration ............................................................................................................................................................. 40 11.9. Aggregate quantitative information on remuneration ............................................................................................................... 41



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1.INTRODUCTION – GENERAL INFORMATION

National Bank of Greece (the “Bank”, or “NBG”) is a financial institution legally operating subject to Greek and EU banking legislation, following the current provisions of Law 2076/92, which incorporates the second EU banking Directive 89/646/EEC in Greek law. It was founded in 1841 and until 1928, when Bank of Greece, the central bank of the country, was established, it served both as a commercial bank and as the official state currency issuer. NBG has been listed on the Athens Stock Exchange since 1880 and on New York Stock Exchange since October 1999.

The Bank focuses on complying fully with the regulatory framework requirements, and ensures that they are strictly and consistently met in all countries where NBG Group (the “Group”) operates. Since listed on the New York Stock Exchange, the Bank is further required to comply with the provisions of the US securities legislation and the respective decisions of the Securities and Exchange Commission.

NBG Group offers a wide range of financial services, including retail and corporate banking, asset management, real estate management and development, financial, investment and insurance services. The Group operates in Greece, Turkey, the UK, South East Europe, Cyprus, Malta, Egypt and South Africa.

The Bank, as an international organization operating in a rapidly growing and changing environment, acknowledges its Group’s exposure to banking risks and the need for these risks to be addressed effectively. Risk management forms an integral part of the Group’s commitment to pursue consistently high returns for its shareholders, maintaining though the right balance between risks and performance both in its day-to-day operations and its balance sheet and Group’s own funds strategic management .

1.1.Capital Adequacy Regulatory Framework in NBG Group

In 2013, NBG Group, for the sixth consecutive year, continued to apply the capital adequacy framework according to Basel II rules following the relevant regulatory governance, which derives from the following:

Greek law 3601/1.8.2007, which incorporates the provisions of the EU Directives 2006/48/EC and 2006/49/EC, known as CRD I, regarding the “taking up and pursuit of the business of credit institutions and the capital adequacy of investment firms and credit institutions”.

BoG Governor’s Acts (“GA/BoG”), which determines the implementation details of the law 3601/1.8.2007 and defines the three Pillars of Basel II framework:

o Pillar I is related to credit institutions minimum capital adequacy, following GA/BoG 2587, 2588, 2589, 2590, 2591, 2593 and 2594 of August 20

th 2007, as well as their amendments or enhancements GA/BoG 2630, 2631 and 2634 of October

29th

2010, 2645 and 2646 of September 9th

2011 and their recent amendment GA/BoG 2661/03.07.2012. During 2013, NBG Group reported to BoG all the required capital adequacy regulatory reports at both solo and group level following GA/BoG 2651/20.01.2012 and the directives 2009/111/EC and 2010/76/EU (known as CRD II and CRD III of the European Parliament and the Council of Europe).

o Pillar II is related to credit institution’s Internal Capital Adequacy Assessment Process (ICAAP) and evaluation of all significant risk types (over and above Pillar I risks), according to GA/BoG 2595/20.8.2007 and BoG’s Circular No.18/26.8.2008. For the year 2013 NBG Group has carried out its internal capital calculations for Pillar II purposes, as it has been doing since 2008.

o Pillar III is related to disclosure requirements for credit institutions under the Basel II framework. Information to be disclosed comprises capital adequacy, risk exposures and risk management procedures according to GA/BoG 2655/16.03.2012.

The Basel II capital adequacy framework for credit institutions and investment firms has been effective since January 1st

, 2008.

NBG uses:

the Foundation Internal Ratings-Based (FIRB) Approach with respect to its exposures to corporate customers, including Specialized Lending exposures

the Internal Ratings Based (IRB) Approach with respect to its Mortgage Portfolio (i.e. “receivables from individual customers, fully covered by real estate”, as defined in GA/BoG 2589/2007, Section Β, §9a)

the Internal Ratings Based (IRB) Approach with respect to its SME Retail Portfolio

NBG has developed a comprehensive and well-documented roll-out plan that enables the Group to gradually implement the Internal Ratings-Based Approach with respect to all of its loan exposures included in the banking book, except those permanently exempted. In the first year of the roll-out plan application, more than 50% of loan exposures was included in the IRB approach and the percentage amount keeps rising. Consistent to that intention, NBG has recently applied for a BoG approval to use the IRB approach for the Retail Portfolio of Finansbank, a financial institution located in Turkey.



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1.2.Amendments in Regulatory Framework

During 2013 and in the beginning of 2014, BoG issued the following Governor’s Acts, relating to Capital Adequacy and Risk Management:

Executive Committee’s Act (BoG) 13/28.03.2013, which sets Core Tier I Capital Ratio for Greek Financial Institutions at 9% while defining the assets that are eligible for Core Tier I Capital. This Act amends GA/BoG 2630/29.10.2010.

Executive Committee’s Act (BoG) 36/23.12.2013, modifying specific issues of Executive Committee’s Act 13/28.03.2013. More specifically it recalled:

the deduction of the Net Deferred Tax Assets from the Bank’s own funds, to the amount that they exceed the 20% of Core Tier I capital on a solo basis

the conditions under which the netting of Deferred Tax Assets to Deferred Tax Liabilities was permitted on a consolidated basis

Draft Executive Committee’s Act (BoG), for the management of loans in delinquency and non-performing status. According to this Act, Financial Institutions that are based in Greece should develop and implement a “Delinquent and Non-Performing loans Management Strategy”. This strategy should meet certain minimum requirements, such as the existence of an appropriate corporate governance structure, development of adequate policies, procedures, tools and methodologies for managing these specific loans, following best practices and the supervisors’ guidelines.

The European Parliament and the European Commission, proceeded on 26/6/2013 to the adoption of Directive 2013/36/EE and Regulation 575/2013 (known as CRD IV), through which the amendments proposed by the Basel Committee (Basel III) were adapted by the European Union. The new rules are in force since 1/1/2014, thus the first calculation of capital adequacy under the new regulatory framework will be made as of 31

st March 2014.

The European Banking Authority (EBA) is responsible for issuing series of Regulatory and Implementation Technical Standards (RTS and ITS), guidelines and recommendations for the purpose of consistent harmonization between all Member States, in specific areas of application of the new regulatory framework. The regulatory technical standards are approved by the European Commission, thus they come immediately into force in all Member States with no need of the local regulatory authorities issuing relative Acts.

1.3.Regulatory vs. accounting consolidation

All Group subsidiaries (companies which the Bank controls either directly or indirectly, regardless of their line of business) are consolidated in accordance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS), while for regulatory purposes, only Group subsidiaries that are classified as banks, financial institutions or supplementary service providers are consolidated.

The NBG Group subsidiaries that are fully consolidated for regulatory purposes are:

Company Line of Business

Banca Romaneasca S.A. Financial Institution

Banka NBG Albania Sh.a. Financial institution

FinansBank A.S. Financial Institution

National Bank of Greece (Cyprus) Ltd Financial Institution

NBG Bank Malta Ltd Financial Institution

Stopanska Banka A.D.-Skopje Financial Institution

The South African Bank of Athens Ltd (S.A.B.A.) Financial Institution

United Bulgarian Bank A.D. - Sofia (UBB) Financial Institution

Vojvodjanska Banka a.d. Novi Sad Financial Institution

Ethniki Kefalaiou S.A. Asset and Liability Management

National Securities S.A. Capital Markets & Investment Services

NBG Securities Romania S.A. Capital Markets & Investment Services

UBB Asset Management Inc. Capital Markets & Investment Services

National Securities Co (Cyprus) Ltd Capital Markets Services

EKTENEPOL Construction Company S.A. Construction Company

Finans Tuketici Finansmani A.S. (Finans Consumer Finance) Consumer Finance

ASTIR Marina Vouliagmenis S.A. Development and exploitation of tourist port (marina) of Vouliagmeni

Ethniki Factors S.A. Factoring Company



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Finans Faktoring Hizmetleri A.S. (Finans Factoring) Factoring Company

NBG Factoring Romania IFN S.A.(1) Factoring Company

UBB Factoring E.O.O.D. Factoring Company

Ethniki Leasing S.A. Financial Leasing

Finans Finansal Kiralama A.S. (Finans Leasing) Financial Leasing

Interlease Auto E.A.D. Financial Leasing

Interlease E.A.D., Sofia Financial Leasing

NBG Leasing d.o.o. – Belgrade Financial Leasing

NBG Leasing IFN S.A. Financial Leasing

Probank Leasing S.A Financial Leasing

NBG Finance (Dollar) Plc Financial Services

NBG Finance (Sterling) Plc Financial Services

NBG Finance Plc. Financial Services

NBG Funding Ltd Financial Services

NBG International Ltd Financial Services

NBG Services d.o.o. – Belgrade Financial Services

Profinance S.A Financial Services

NBG Greek Fund Ltd Fund Management

NBG Asset Management Luxembourg S.A. Holding Company

NBG International Holdings B.V. Holding Company

NBG Malta Holdings Ltd Holding Company

FB Insurance Agency Inc Insurance Brokerage

NBG Bancassurance S.A. Insurance Brokerage and Other Services

UBB Insurance Broker A.D. Insurance Brokerage and Other Services

Probank Insurance Brokers S.A Insurance Brokerage and Other Services

CPT Investments Ltd Investment Company

Finans Yatirim Menkul Degerler A.S. (Finans Invest) Investment Company

Finans Yatirim Ortakligi A.S. (Finans Investment Trust) Investment Company

Ethnodata S.A. IT Services

IBTech Uluslararasi Bilisim Ve Iletisim Teknolojileri A.S. (IB Tech) IT Services

E-Finans Electronik Ticaret Ve Bilisim Hizmetleri A.S. (E-Finance) Management Services

NBG Management Services Ltd Management Services

Finans Portfoy Yonetimi A.S. (Finans Portfolio Management) Mutual Funds Management

Probank M.F.M.C Mutual Funds Management

NBG Asset Management Mutual Funds S.A. Mutual Funds Management

NBGI Private Equity Ltd Private Equity

NBGΙ Private Equity S.A.S. Private Equity

NBG Pangaea Reic (2) Real Estate Investment Company

SEE Real Estate fund Real Estate Investment Company

DIONYSOS S.A. Real Estate Services

Ethniki Ktimatikis Ekmetalefsis S.A. Real Estate Services

Hellenic Touristic Constructions S.A. Real Estate Services

KADMOS S.A. Real Estate Services

Nash SRL Real Estate Services

Mortgage Touristic PROTYPOS S.A. Real Estate Services

NBG Property Services S.A. Real Estate Services

Karela S.A Real Estate Services

Anthos Properties S.A Real Estate Services



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ARC MANAGEMENT ONE SRL Real Estate Services

ARC MANAGEMENT TWO EAD Real Estate Services

Aurokinito Plc (Special Purpose Entity) Special Purpose Entity (Securitization of auto financing loans)

Titlos Plc (Special Purpose Entity) Special Purpose Entity (Securitization of public sector receivables)

Agorazo Plc (Special Purpose Entity) Special Purpose Entity (Securitization of consumer loans)

Revolver 2008 – 1 Plc (Special Purpose Entity) Special Purpose Entity (Securitization of credit cards & loans)

Revolver APC Limited (Special Purpose Entity) Special Purpose Entity (Securitization of credit cards & loans)

Spiti Plc (Special Purpose Entity) Special Purpose Entity (Securitization of mortgages loans)

Innovative Ventures S.A. (I-Ven) Sundry services

Pronomiouchos S.A. Genikon Apothikon Hellados Warehouse activities

(1) The liquidation was completed in December 2013.

(2) On 30 December 2013, the Bank transferred to Invel Real Estate (Netherlands) II BV, 66% of its participation in NBG Pangaea REIC.

The subsidiaries that are not fully consolidated for regulatory purposes, since their line of business is other than that required, are:

Company Line of Business

Ethniki Hellenic General Insurance S.A. Insurance Services

Ethniki General Insurance (Cyprus) Ltd Insurance Services

Ethniki Insurance (Cyprus) Ltd Insurance Services

S.C. Garanta Asigurari S.A. Insurance – Reinsurance Services

National Insurance Agents & Consultants Ltd Insurance Brokerage

National Insurance Brokers S.A. Insurance Brokerage

Audatex Hellas S.A. Vehicle damages assessment

NBGI Private Equity Funds (except SEE Real Estate Fund) Private Equity Fund

ASTIR Palace Vouliagmenis S.A. Hotel Services

Grand Hotel Summer Palace S.A.

Hotel Services

Hotel Perun – Bankso EOOD

Hotel Services

NBG Training Center S.A Training Services

For regulatory purposes, upon consolidation, the companies listed above are accounted for by applying the equity method.

Associate companies, upon consolidation, are accounted for by applying the same method, both for accounting and regulatory purposes. The Group’s associates are as follows:

Company

Social Securities Funds Management S.A.

Larco S.A.

Eviop Tempo S.A.

Teiresias S.A.

Hellenic Spinning Mills of Pella S.A.

Planet S.A.

Pyrrichos Real Estate S.A.

Aktor Facility Management S.A.

Bantas A.S. (Cash transfers and Security Services)

Finans Emeklilik ve Hayat A.S. (Finans Pension)

UBB AIG Insurance company A.D.

UBB Alico Life Insurance Company A.D.

Drujestvo za Kasovi Uslugi AD (Cash Service Company)

The following associates are deducted from equity:

PLANET S.A.

Social Securities Funds Management S.A.



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Participations exceeding 20% in the share capital or voting rights in insurance and reinsurance companies are deducted from equity based on the application of the “Deduction and aggregation” method

1. These companies are:

Ethniki Hellenic General Insurance S.A. (Group)

Finans Emeklilik ve Hayat A.S. (Finans Pension)

UBB AIG Insurance Company A.D.

UBB AIG Life Insurance Company (associate)

The remaining companies that are not consolidated for regulatory purposes (hotels, training providers and private equity funds investing in companies whose line of business is not included in consolidation for regulatory purposes) are not deducted from equity.

No NBG Group subsidiary or associate is proportionately consolidated for regulatory or accounting purposes.

Based on current regulatory framework there is no substantial, practical or legal incapacity in capital transfers or payment of obligations between parent Bank and its subsidiaries. The time of full repayment of the subordinated loans, which have already been granted by the parent Bank to its subsidiaries, has been notified to the appropriate Supervisory Authorities and abides by the relative regulations of each country. Potential early prepayment of the above mentioned loans requires prior permission from appropriate Regulatory Authorities.

1.4. “Pillar III” disclosure policy

Pillar III complements the minimum capital requirements (Pillar I) and supervisory review and evaluation process (Pillar II). In compliance with the respective requirements, National Bank of Greece S.A. is committed to publicly disclose information as set out in law 3601/2007 and in the GA/BoG 2655/16.3.2012, and to have adequate internal processes and systems in place to meet these disclosure requirements.

Consequently, the Bank has established a disclosure policy that defines the informational content of public disclosures under Pillar III of the Basel II Accord and establishes the conceptual framework within which these public disclosures are met.

Disclosures on a consolidated basis provide information on capital structure, capital adequacy, risk profile, and the processes in place for assessing and managing risks.

The Bank is firmly committed to best practices and recognizes that Pillar III provides an additional layer of market information and transparency and hence contributes to financial stability. Additionally, the Bank is establishing an active channel of communication with the investor community and other stakeholders by supplying key information on capital, policies, procedures and risk assessing strategies. Accordingly, the objectives of the Disclosure Policy are:

To help achieve the Bank’s aim of providing investors and other stakeholders with complete, accurate and timely information that they may reasonably need to make investment decisions and assessment on the companies of the NBG Group;

To foster and facilitate compliance with all applicable legal and regulatory requirements.

Further, The Policy aims at:

Formulating the disclosure framework, including frequency, location, monitoring and verification process for disclosures

Establishing and delegating authorities and responsibilities for the management of the Pillar III process

Articulating the principles for identifying information that is material, confidential and proprietary

Raising awareness of the Bank’s approach to disclosure among the Board of Directors, Senior Management and Employees

1Method 2, in article 25, chapter V of Law 3455/2006 (Bank of Greece Governor’s Act 2630/29.10.2010, Section C, §3)



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2.REGULATORY OWN FUNDS AND CAPITAL ADEQUACY

The current regulatory framework for capital adequacy establishes quantitative standards that require the Group and the Bank to maintain minimum capital adequacy ratio, defined as the ratio of regulatory own funds to risk-weighted assets. At least half of the required own funds must consist of ‘‘Tier I’’ capital (as defined), and the rest of ‘‘Tier II’’ capital (as defined). This framework applicable to Greek banks conforms to EU requirements, in particular the Regulatory Own Funds, Solvency Ratio and Capital Adequacy Directives.

As of 31 March 2013, Act 13/28.3.2013 of the Executive Committee of the Bank of Greece, established new additional limits of 9% and 6% for CT1 and Common Equity, respectively for the Group and the Bank. As of 31 December 2013, Act 36/23.12.2013 of the Executive Committee, removed the cap on the recognition of DTA up to 20% of the CT1.

2.1.Structure of own funds

Regulatory capital, according to BoG rules falls into two categories: Tier I and Tier II capital. Each category is further divided into Upper and Lower (supplementary) capital. Executive Commitee’s Act (BoG) 13/28.03.2013 , established new limits, for Core Tier I Capital Ratio at 9% and Common Equity Tier I Capital Ratio at 6%.

Upper Tier I capital includes the Bank’s ordinary shareholders’ equity, preference shares in accordance with the Law 3723/2008 regarding the Hellenic Republic’s Bank Support Plan (State Aid preference shares), share premium, retained earnings and minority interest.

The following items are deducted from the above: other preference shares, fixed assets revaluation reserve (as at first time adoption of IFRS), positive or negative adjustments in the fair value of financial derivatives used for cash flow hedging, proposed dividends, part of minority interest, if subsidiary’s regulatory capital exceeds significantly its capital requirements, gain or loss from the fair value adjustment of a liability due to updates in the financial institution’s credit rating and the participation in The Athens Stock Exchange Member’s Guarantee Fund.

Core Tier I capital (CT1)

CT1 equals Upper Tier I capital less goodwill, intangible assets, 50% of the participation in the shareholders equity of other banks or financial institutions, where the Group has an investment greater than 10%, and 50% of the amount related to the application of method 2 for insurance and reinsurance companies.

Common Equity Tier I capital (CET1)

CET1 equals Upper Tier I capital less State Aid preference shares, if the difference between the State Aid preference shares and the deductible items referred above is positive.

For NBG Group, CET1 is equal to CT1 as of 31 December 2013.

Lower Tier I capital includes other preference shares and preferred securities.

General information and main characteristics of preference shares and preferred securities

Preference Shares

On 6 June 2008, the Bank issued 25,000,000 non-cumulative, non-voting, redeemable preference shares, of a nominal value of €0.30 each. The shares were offered at a price of USD 25 per preference share in the form of American Depositary Shares (the “ADSs”), in the United States and are evidenced by American Depositary Receipts and listed on the New York Stock Exchange. The annual dividend is set to USD 2.25 per preference share.

On 31 May 2013, the Bank announced an offer to purchase for cash 22,500,000 out of the 25,000,000 outstanding American Depositary Shares at USD 12,50 per ADS upon the terms and subject to the conditions set forth in the Offer to Purchase. As of 28 June 2013, which was the expiration time of the Offer, 12,360,169 ADSs were validly tendered, representing approximately 49.4% of the ADSs outstanding at the expiration time. Based on the results of the Offer, the aggregate purchase cost for the tendered ADSs was USD 155 million. Therefore, following the purchase of the ADSs, 12,639,831 ADSs remain outstanding.

Preferred securities

NBG Funding Ltd (“NBG Funding”), a wholly owned subsidiary of the Bank, has issued the following Non – Cumulative Non Voting Preferred Securities (the “preferred securities”) guaranteed on a subordinated basis by the Bank. All preferred securities are perpetual. However, the preferred securities may be redeemed at par by NBG Funding, in whole but not in part, ten years after their issue or on any dividend payment date falling thereafter, subject to Bank of Greece’s consent.



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Innovative preferred securities:

o €350 million Series A Floating Rate securities issued on 11 July 2003 carrying a preferred dividend rate of three-month Euribor plus 175 bps until 11 July 2013 and three-month Euribor plus 275 bps thereafter, paid quarterly.

o GBP 375 million Series E Fixed/Floating Rate securities issued on 8 November 2006 carrying a preferred dividend rate of 6.29% fixed per annum until 8 November 2016 and thereafter, floating at three month Libor plus 208 bps. The dividends are payable annually in arrears until 8 November 2016 and thereafter quarterly in arrears.

Non – innovative preferred securities:

o €350 million Series B Constant Maturity Swap (“CMS”) Linked securities issued on 3 November 2004 carrying a preferred dividend rate of 6.25% the first year and 10 year EUR CMS mid swap rate plus 12.5 bps, reset every six months and capped at 8%, paid semi-annually.

o USD 180 million Series C CMS Linked securities issued on 3 November 2004 carrying a preferred dividend rate of 6.75% the first year and 10 year USD CMS mid swap rate plus 12.5 bps, thereafter, reset every six months and capped at 8.5%, paid semi-annually.

o €230 million Series D CMS Linked securities issued on 16 February 2005 carrying a preferred dividend rate of 6% until 16 February 2010 and thereafter of the difference of the 10-year EUR CMS mid swap rate and the 2-year mid swap rate multiplied by four subject to a minimum rate of 3.25%, capped at 10% and paid annually.

From 2009 to 2013, the Bank acquired back a significant amount of the above preferred securities. On 31 December 2013, the outstanding amount of preferred securities was €80 million and was included in Lower Tier I capital.

Upper Tier II capital includes:

fixed assets revaluation reserve (as at first time adoption of IFRS).

the excess between the accounting impairment losses on financial assets and the expected losses as calculated by the Internal Ratings Based approach, up to 0.6% of risk weighted exposure amounts.

Lower Tier II capital includes fixed term subordinated loans issued by the Group.

Elements deducted at 50% from CTI and at 50% from Tier II capital, are:

the participation in the shareholders equity of other banks or financial institutions, where the Group has an investment greater than 10%. On 31 December 2013, the outstanding amount was €4 million.

the amount related to the application of method 2 for insurance and reinsurance companies. On 31 December 2013, the

outstanding amount was €158 million.

Group Regulatory Capital Structure € million

Upper Tier I Capital 7,331

Less: Goodwill (1,230)

Less: Other intangible assets (290)

Less: Other items (88)

Common Equity Tier I 5,723

Core Tier I 5,723

Lower Tier I Capital, o/w: 277

Preferred Shares 197

Preferred securities (grandfathered instruments) 80

Total Tier I Capital 6,000

Tier II Capital 250

Total Regulatory Capital 6,250

Total Risk Weighted Assets 55,685

Capital Adequacy Ratios

Common Equity Tier I 10.3%

Core Tier I 10.3%

TOTAL 11.2%



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Total own funds remain the same after the application of the limits of Chapter IV of GA/BoG 2630/29.10.2010.Capital Adequacy

2.1.1.Capital requirements under Pillar I

The table below presents the capital requirements at Group level under Pillar I as of 31.12.2013. Capital requirements under Pillar I are equal to 8% of Risk Weighted Assets.

Capital Requirements € million

Credit & Counterparty Credit Risk (Standardized Approach)

Asset Class

Central Governments and Central Banks 102

Regional Governments, Local Authorities, Administrative Bodies & Public Sector Entities 16

Financial Institutions 82

Retail exposures 723

Secured by Real Estate Property 200

Corporate exposures 607

Past Due Items* 295

Collective Investment Undertakings (CIUs) 3

Equities, Participations and Other Items** 288

High Risk 91

Multilateral Development Banks -

International Organisations -

Total Credit & Counterparty Credit Risk (Standardized Approach) 2,408

*As defined according to the Bank of Greece Governor’s Act 2588/20.08.2007.

**Includes €19 mil. Equity and Participation exposures weighted according to the Standardized Approach, as per §3, section G of the Bank of Greece Governor’s Act 2589/20.08.2007.

Credit Risk (Internal Ratings Based Approach)

Asset Class

Residential Mortgages 277

Exposures to Small and Medium sized Entities Retail (SMEs Retail) 42

Exposures to Large Corporate 685

Exposures to Small and Medium sized Entities Corporate (SMEs Corporate) 476

Securitization positions 0.1

Total Credit Risk (Internal Ratings Based Approach) 1,480

Total Credit & Counterparty Credit Risk (Standardized and IRB Approaches) 3,888

Market Risk

Standardized Approach

Traded Debt Instruments 37

Equities 6

Foreign Exchange 37

Other items 0.1

Internal Model Approach (Value at Risk) 102

Total Market Risk 182

Operational Risk 385

Total Capital Requirements 4,455



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2.1.2.Internal Capital Adequacy Assessment Process (ICAAP)

According to Basel II Capital Adequacy Framework, Pillar I sets the rules for measuring risks, especially credit, market and operational risks and aims to align capital requirements with risks undertaken. These rules are complemented by Pillar II, which sets the requirements for internally monitoring, assessing and controlling all material risks to which credit institutions are exposed.

Those requirements are associated with the Internal Capital Adequacy Assessment Process (ICAAP) within the framework of GA/BoG 2595/20.08.2007 and BoG’s Circular No.18/26.08.2008) applied by credit institutions.

ICAAP’s objective is to ensure that the institution has sufficient capital (or, in wider terms, available financial resources) to cover all material risks to which it is exposed during its business activities. NBG Group has developed a large number of resources for the assessment of its capital adequacy, relating to both risk and capital management. These resources are continuously enhanced and formalized so as to also reap business benefits and support the strategic aspirations of NBG Group. In order to primarily meet regulatory requirements, and secondarily to complement its ongoing improvement of risk and capital management approaches with additional elements, NBG Group has designed an analytical ICAAP framework describing in detail ICAAP components at both NBG solo and Group level.

ICAAP objectives are:

the proper identification, measurement, control and overall assessment of all material risks;

the development of appropriate systems to measure and manage those risks;

the evaluation of the “internal capital” required for the mitigation of risks

The term “internal capital” refers to the amount of own funds adequate to cover losses at a specified confidence level set in accordance with the risk-appetite strategy within a certain time horizon.

The NBG Group has created an analytical framework for the implementation of the ICAAP. The framework is formally documented and describes in detail the components of ICAAP at both Group and Solo level. The ICAAP’s framework briefly contains the following:

Group risk profile assessment

Risk measurement and internal capital adequacy assessment

Stress testing development, analysis and evaluation

ICAAP reporting framework

ICAAP documentation

ICAAP has the active participation and support of both the Board of Directors (and the respective Risk Management & Audit Committees) and the NBG Executive Committee. In the ICAAP, several other Committees are also actively involved. Their main roles and responsibilities are explicitly described in the ICAAP Framework document.

ICAAP’s design and implementation Framework concerns the entire Group’s material risks. The parameters taken into account for the implementation of ICAAP are:

Size of the relevant Business Unit/Group’s Subsidiary,

Exposure per risk type, and

Risk methodology and measurement approach for each type of risk

The identification, evaluation and mapping of risks to each relevant Business Unit/Group subsidiary follows. Risks’ materiality assessment is performed on the basis of certain quantitative (e.g. exposure as percentage of the Group RWAs) and qualitative criteria (e.g. established framework of risk management policies, procedures and systems, governance framework and specific roles and responsibilities of relevant units, limits setting and evaluation).

NBG Group has recognised the following risk types as the most significant in the ICAAP:

Credit

Market

Operational

Interest Rate Risk in the Banking Book (IRRBB)

Concentration

Country

Liquidity

Business

Strategic

Reputation

Real estate prices fluctuation (fall)



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The calculation of NBG Group “Total Internal Capital” consists of two stages.

In the first stage, internal capital per risk type is calculated on a Group basis. NBG Group has developed methodologies allowing the calculation of the required internal capital for quantifiable risks. These are reassessed on a regular basis and upgraded, in accordance with the global best practices, if necessary.

In the second stage, internal capital per risk type is summed up to yield the Group’s “Total Internal Capital”.

Capital allocation to the Group’s Business Units and Subsidiaries aims at distributing the “Internal Capital” to the Business Units and Subsidiaries so that ICAAP connects business decisions and performance measurement.

For the year 2013, the Bank proceeded to the implementation of ICAAP by estimating the relevant internal capital for all major risk types at Group level. Calculations were based on the methodologies that have already been developed in the ICAAP Framework. NBG Group’s main objective for the near future is to further improve ICAAP methodologies in order to achieve maximum efficiency and credibility in the estimation of “Internal Capital” and enhance the contribution of ICAAP results in the Group’s business decisions process.



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3.RISK MANAGEMENT FRAMEWORK

3.1. Basic Principles and governance structure of the Group risk management

The management and control of risks is a vital part of the overall strategy of the Group, aiming to both effectively monitor the recognized and potential risks of the organization’s environment, and also to align with the legal and institutional requirements deriving from its activities.

The Group has clearly defined its risk profile and risk appetite, and has designed a risk strategy and management policy. Utterly responsible for the development and application of this general framework of risk management, at a Group level, is the Board of Directors (the Board) and more specifically the Board Risk Committee, directly supported by the Audit Committee.

The general framework established by the Board is set as a guide to develop adequate and appropriate policies, methods and procedures, required for the identification, measurement, monitoring and control of all forms of risk.

The central role in risk management framework, that is to recognize, evaluate, monitor and control risks accepted by the Group, has been assigned to the Risk Management Group Unit. The Unit identifies the risks of different portfolio and activities, and supervises all subsidiaries operating in the financial sector.

The Risk Management Group Unit is supported by the following:

the Risk Management Council (RMC), which is responsible for forming the strategy and the relative risk management Group policies. The RMC supervises the implementation of risk appetite and regularly monitors all risk categories, ensuring that the current risk profile of the Group is in accordance with the risk appetite approved by the Board Committee.

the Asset Liability Committee of the Bank (ALCO), which defines the strategy and policy concerning the structure and management of assets and liabilities, taking into account current market conditions and risk limits that the Bank has set.

the Group Compliance Department, which is responsible for ensuring accordance to internal and external rules . As external rules sources should be mentioned the current Greek legislation, the Basel Committee, the European Central Bank (ECB), the European Banking Authority (EBA), the Bank of Greece (BoG), the Greek Securities Exchange Commission and all competent authorities decisions supervising Group’s subsidiaries. Compliance Department reports directly to the Board Committee, via the Audit Committee.

the Group Internal Audit Division, which reports directly to the Board, via the Audit Committee, is complementary to the main risk management framework, acting as an independent supervisory body that focuses on its effective implementation.

the Credit Units, that supervise the credit departments of the financial institutions across the Group and participate in their approval granting bodies. Credit Units’ independence, ensures the first level operational control for risk undertaken is unbiased. They are also responsible for developing and updating specific Credit Policies.

3.2. "Four lines of defense" model in the Group's risk management

The Group’s risk management is split in four different levels, in order to create four lines of risk defense, traced as follows:

• At first level, the risk taking units (eg. credit departments, Treasury), which are responsible for assessing and minimizing risks for a given level of expected return, by establishing and implementing internal rules to the on-going business.

• At second level, Credit Units, which are independent from the credit granting departments, are involved in the approving procedure by exercising a veto right, when they object, and perform unbiased control to the undertaken risk by applying in practice the “four eyes principle”.

• At third level, the Risk Management Group Unit identifies, monitors, controls and quantifies risks in the Bank and its subsidiaries. Moreover it assists other units undertaking risks (credit departments and other) and it asserts the adoption of appropriate pricing and risk management tools. Finally, it proposes risk mitigation techniques.

Additionally, at this level the contribution of Group Compliance Division is traced, since it acts to ensure accordance with internal and external rules.

• At fourth level, the Group Internal Audit Division adopts the role of the independent audit function for compliance with internal and external rules.

The duties and responsibilities of all lines of risk defense are clearly separated, identified and sufficiently independent.



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3.3.Structure of the Group Risk Management Unit

All risk management Units effectively report to the NBG Group Risk Control and Architecture Division (GRCA) and the NBG Group Market and Operational Risk Management Division (GMORM), to properly measure, analyze and manage the risks entailed in all its business activities. Both divisions are supervised by the Assistant General Manager of NBG Group Risk Management, and himself along with the Chief Credit Officer, report to the Group CRO.

Based on its charter, the mission of Group Risk Control and Architecture Division is to:

Specify and implement credit risk policies emphasizing rating systems, risk assessment models and risk parameters, according to the guidelines set by the Bank’s Board of Directors;

Plan, specify, implement and introduce risk management policies, under the guidelines of the Bank’s Board of Directors;

Assess the adequacy of methods and systems that aim to analyze, measure, monitor, control and report credit risk undertaken by the Bank and other financial institutions of the Group and periodically validate them;

Estimate Regulatory and Economic Capital required in respect to all banking risks and prepare relevant regulatory and MIS reports.

The mission of Group Market and Operational Risk Management Division is to:

Plan, specify, implement and introduce market, counterparty, liquidity and operational risk policies, under the guidelines of the Bank’s Board of Directors

Assess the adequacy of methods and systems that aim to analyze, measure, monitor, control and report the aforementioned risks undertaken by the Bank and other financial institutions of the Group and periodically validate them

Independently evaluate financial products, assets and liabilities of the bank and the Group

Regularly handle issues relevant to market, counterparty, liquidity and operational risks, under the guidelines and specific decisions of the Board Risk Committee and the Asset Liability Committee (ALCO)

Both Divisions report to the Assistant General Manager of Group Risk Management.

3.4.Credit Risk

3.4.1.Credit Policy for Corporate Portfolio

The Credit Policy for the Corporate portfolio supplies the fundamental policies for the management (i.e. identification, measurement, approval, monitoring and reporting) of credit risk related to the Corporate Portfolio. The Credit Policy has been designed to meet the organizational requirements and the regulatory framework in the best possible way, as well as to allow the Group to maintain and enhance its position in the market.

Credit control should always be performed according to the Credit Policy, taking into consideration procedures set out in the Credit Policies, Product Programs and all relevant circulars of the Bank. Necessary procedures ensuring that credit control adheres to the Credit Policy are set out in the Credit Guidelines document. Credit Guidelines are subject to amendments due to changes in the business, legal or institutional environment, in order to facilitate the Bank’s adjustment to these changes.

The Credit Policy is approved and can be amended or revised only by the Risk Management Council following a proposal of the Chief Credit Risk Officer and the Assistant General Manager of Group Risk Management. It is, of course, subject to periodical revision.

Any exception to the Credit Policy is approved by the Chief Credit Risk Officer in co-operation with the Assistant General Manager of NBG Group Risk Management for issues falling under the responsibilities of the latter. All exceptions and their justification are duly recorded and have either an expiry date or a review date.

3.4.2.Credit Policy for Retail Banking

The Credit Policy for the Retail Banking Portfolio sets the credit criteria, policies, procedures and guidelines for managing and controlling credit risks undertaken in Retail Portfolios, both at Solo and Group level. Its main scope is to enhance, guide and regulate the effective and adequate management of credit risk, thus achieving a viable balance between risk and reward. The Policy is made to serve three basic objectives:

Set the framework for basic credit criteria, policies and procedures.

Consolidate Retail Credit policies of the Group.

Establish a common approach for managing Retail Banking risks.

NBG Group Retail Credit Division is responsible for developing and submitting the Credit Policy for the Retail Banking Portfolio for approval to the Risk Management Council of the Bank. The Division reports to the Chief Credit Risk Officer and its main task is to



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evaluate, design and approve the credit policy that governs the retail banking products, both locally and abroad, and monitor the consistent implementation of both credit policy and credit granting procedures.

Through the application of Retail Banking Credit Policy, the evaluation and estimation of credit risk, for new as well as for existing products, are effectively facilitated. Top-level Management is regularly informed on all aspects regarding Credit Policy and remedial action plans, whenever necessary, are put together to resolve the issues, always within the risk appetite and strategic orientation of the Bank. Retail Banking Credit Policy is subject to a regular annual review during which all approved policy changes are incorporated in the Policy Manual. Any deviation from policies requires prior approval from the NBG Group Retail Credit Division.

3.5.Market Risk

In order to ensure the correct estimation and efficient management and monitoring of Market Risk that derives from the Bank’s activities in international and domestic financial markets, NBG’s GMORM Division calculates Value-at-Risk (VaR) on a daily basis. This has been implemented through RiskWatch™ by Algorithmics (acquired by IBM). In particular, the Bank has adopted the variance-covariance (VCV) methodology, with a 99% confidence interval and 1-day holding period (extended to 10-days for regulatory purposes). The VaR is calculated for the Bank’s Trading and Available-for-Sale (“AFS”) portfolios, along with the VaR per risk type (interest rate, equity and foreign exchange risk). For the calculation of capital requirements, the VaR estimates refer only to the Bank’s Trading portfolio, according to the prevailing regulatory framework. The most significant types of Market Risk to which the Bank is exposed are the following:

Interest Rate Risk

Equity Risk

Foreign Exchange (FX) Risk

Interest Rate Risk stems from the Bank’s Trading and AFS bond portfolios, as well as from interest rate derivatives, both exchange traded and Over-The-Counter (“OTC”) transactions.

Equity Risk derives from the Bank’s holdings in stocks and equity derivatives.

Foreign Exchange Risk arises from the Bank’s Open Currency Position (OCP). The OCP is distinguished between Trading and Structural. The latter takes into account all of the Bank’s assets and liabilities in foreign currency (on and off-balance sheet items), whereas the trading OCP derives strictly from the FX transactions performed by the Treasury Division.

Market Risk is mitigated through hedging, either on a portfolio or a position/transaction level. Hedging tools are differentiated based on the type of risk and include appropriate OTC and exchange traded derivatives.

The other significant contributor to market risk in the Group is Finansbank, through its Trading and AFS portfolios. In order to monitor and efficiently manage market risk, Finansbank calculates VaR on a daily basis, for both its Trading and AFS portfolios, as well as the VaR per risk type (interest rate, equity and foreign exchange risk). These calculations are also based on a 99% confidence interval and 1-day holding period. The engine used for all the calculations is the same as that of the Bank (i.e. RiskWatch). Of the three types of market risk, Finansbank is mostly exposed to interest rate risk that arises from the positions it retains in Turkish government bonds. Finally, for the calculation of Finansbank’s capital requirements against Market Risk, the Group applies the Standardized Approach.

To better monitor Market Risk at a Group level, the Bank calculates since late 2009, the Group VaR on a daily basis, taking into account both its own portfolios, as well as those of Finansbank.

The Bank has also established a framework of VaR limits in order to control and manage more efficiently the risks to which it is exposed. These limits refer not only to specific types of market risk, such as interest rate, foreign exchange and equity risk, but also to the overall Market Risk of the Bank’s trading and AFS portfolios. The same limit structure is also in place in Finansbank.

Furthermore, NBG’s GMORM Division prepares a set of VaR reports on a daily basis, so as to inform the senior management about the level of Market Risk and the sustainability of respective limits.

All key principles that govern the Bank’s activities in the financial markets, along with the framework for the estimation, monitoring and management of Market Risk are incorporated in the Bank’s Market Risk Policy. The Policy has been approved by the Board Risk Committee and is regularly reviewed. Similarly, Finansbank has also developed a Market Risk Policy to cover its trading activities.

3.6.Operational Risk

The Bank has established a robust Operational Risk Management Framework, in order to effectively address operational risks and meet the requirements of regulatory compliance with the Revised Capital Adequacy Framework (Basel II), the respective EU Capital Requirements Directive (CRD) 2006/48/EU and BoG’s GA 2577/2006 and 2590/2007. This Framework is based on the industry’s best practices guidelines and has been approved by the Board Risk Committee.

The Bank, in order to enhance the Framework as well as integrate the management of operational risks throughout its activities in Greece and in Southeastern Europe, implemented a new software (Algorithmic’s OpVar).



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In 2013 the Framework was implemented in the Bank and its subsidiaries for the seventh consequent year.The basic elements of the Bank’s Framework, supported by OpVar are the following:

Risks and Controls Self-Assessment (RCSA) process, alongside the assessment of the relevant control environment;

Loss Collection process as well as the maintenance of a sound and consistent loss database;

Determination, update and monitoring of Action Plans;

Definition and monitoring of Key Risk Indicators;

Structured Scenario Analysis, as a systematic process of obtaining expert opinions, based on reasoned assessments of likelihood and impact of plausible severe operational losses.

GMORM Division is in charge of managing and coordinating the Framework implementation, setting appropriate standards, methodologies and procedures for operational risk assessment, monitoring and control as well as for loss data collection. Furthermore, it regularly reviews the Group Framework implementation, in order to ensure that all relevant regulatory requirements are met.

It also reviews and monitors NBG’s operational risk profile on an ongoing basis, focusing on the development, implementation and follow-up of the appropriate Action Plans, in order to ensure that all necessary risk mitigation steps and measures are in place. NBG’s Action Plans can be either mitigation measures, including insurance policies, designed to reduce the impact and losses generated by the occurrence of risk events, or proactive measures designed to prevent or reduce the probability of occurrence of risk events, by improving the control environment or any other aspect of the business environment.

Furthermore, during 2013, the Group continued to provide its personnel with a comprehensive training on operational risk, so as to reinforce the risk awareness of the staff in the daily management of operational risk.

GMORM has also set up an operational risk reporting system in order to regularly inform all hierarchical levels about operational risk issues. This operational risk reporting system aims to support the Group’s decision-making process and ensure that all relevant regulatory requirements, as well as the Bank’s objectives are fulfilled.

The key stakeholders of operational risk reporting are:

Bank Units/Subsidiary Entities: They carry into effect the Framework elements. The outcome is distributed to GMORMD and higher hierarchy levels.

GMORM: It collects all type of reporting, analyses and processes the data and presents the main findings to the Operational Risk Committee, as well as the Board Risk Committee.

Senior Management and Operational Risk Committee: They, jointly with GMORM, determine the priorities for corrective actions and take decisions on cases with increased exposure to risk.



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4.CREDIT RISK

4.1.Definitions and general information

For accounting purposes, “past due” exposures are those exposures which are past due for at least 1 day.

For accounting purposes, “impaired” exposures are defined as follows:

Loans that are individually impaired (specific provisions).

Loans that are collectively assessed for impairment with one of the following:

o Loans for which interest, principal, or other amount relating to the loan is past due for more than:

90 days for all loans other than mortgages, and

180 days for mortgage loans.

o Loans to which forbearance measures have been extended, and

o Loans for which the Management believes there is objective evidence of impairment due to other factors.

4.2.Impairment loss calculation methodology

The Group assesses at each reporting date whether there is objective evidence that a loan (or group of loans) is impaired.

A loan (or group of loans) 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 loan (“loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the loan (or group of loans) that can be reliably estimated.

An allowance for impairment is established if there is objective evidence that the Group will be unable to collect all amounts due according to the original contractual terms.

Objective evidence that a loan is impaired includes observable data that comes to the attention of the Group about the following loss events:

(a) significant financial difficulty of the issuer or obligor;

(b) a breach of contract, such as a default or delinquency in interest or principal payments;

(c) the Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that it would not otherwise consider;

(d) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

(e) the disappearance of an active market for that financial asset because of financial difficulties; or

(f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including:

(i) adverse changes in the payment status of borrowers in the group (e.g. an increased number of delayed payments); or (ii) national or local economic conditions that correlate with defaults on the assets in the group.

The impairment loss is reported through the use of an allowance account on the statement of financial position. Additions to impairment losses are made through credit provisions and other impairment charges in the Income statement.

The Group assesses whether objective evidence of impairment exists individually for loans that are considered individually significant and individually or collectively for loans that are not considered individually significant. . Individually significant exposures are those exposures that exceed the lower of 0.1% of the equity of the NBG group entity and €750.000

If there is objective evidence that an impairment loss on loans and advances to customers carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the loans’ carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at a) the loan’s original effective interest rate, if the loan bears a fixed interest rate, or b) current effective interest rate, if the loan bears a variable interest rate.

The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that may result from obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics. Corporate loans are grouped based on days in arrears, product type, economic sector, size of business, collateral type and other relevant credit risk characteristics. Mortgages and retail loans are also grouped based on days in arrears or product type. Those characteristics are relevant



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to the estimation of future cash flows for pools of loans by being indicative of the debtors’ ability to pay all amounts due and together with historical loss experience for loans with credit risk characteristics similar to those in the pool form the basis of the loan loss allowance computation. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects and conditions in the historical period that do not currently exist.

This publication does not present the categorization of provisions in collective and specific.

The following tables present the analysis of the NBG Group loans per portfolio, by geographic region, by economic sector and by remaining maturity.

Net loans and advances per portfolio before credit enhancements at Group level

€ million Average for 2013 31.12.2013

Mortgages 23,094 22,505

Consumer Loans 8,973 8,633

Credit Cards 6,463 5,691

Small Business Lending 5,753 6,360

Retail lending 44,283 43,189

Corporate and Public Sector lending 32,718 32,914

Total before allowance for impairment on loans & advances to customers 77,001 76,103

Less: Allowance for impairment on loans & advances to customers (8,255) (8,853)

Total 68,746 67,250

Geographical concentration of net loans and advances at Group level

€ million 31.12.2013 %

Greece 45,303 68

Turkey 15,548 23

SE Europe 5,454 8

Other countries 945 1

Total 67,250

100

Net loans and advances by economic sector at Group level

€ million 31.12.2013 %

Retail Lending 37,792 56

Mortgages 21,492 32

Consumer loans 6,412 10

Credit cards 4,757 7

Small Business Lending 5,131 7

Corporate Lending 22,433 34

Industry & mining 4,607 7

Small scale industry 1,520 2

Trade and services (excl. tourism) 7,530 11

Construction and real estate development 2,522 4

Energy 1,812 3

Tourism 731 1

Shipping 1,778 3

Transportation and telecommunications 641 1

Other 1,292 2

Public Sector 7,025 10

Public sector Greece 6,773 10

Public sector other countries 252 -

Total 67,250

100



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Maturity Analysis of Financial Assets – Group 31.12.2013

€ million

Up to 1 month

1 to 3 months

3 to 12 months

Over 1 year Total

Cash and balances with central banks

5,883 6 - 21 5,910

Due from banks

2,351 74 10 412 2,847

Financial assets at FV through profit or loss*

3,047 - - - 3,047

Derivative financial instruments

3,671 - - - 3,671

Loans and advances to customers

10,488 3,800 10,394 42,568 67,250

Debt Securities

149 267 2,124 14,428 16,968

Insurance related assets and receivables

40 48 124 470 682

Other assets

351 466 961 529 2,307

Total

25,980 4,661 13,613 58,428 102,682

* Excluding Equity Securities and Mutual Funds

4.3.Provision analysis

The movement in the allowance for impairment for loans and advances, including recoveries, for the year 2013 is as follows:

€ million 2013

Balance on January 1st

7,770 Increase due to acquisitions 759

Impairment charge for credit losses 1,135

Loans written off (239)

Amounts recovered 58

Unwind of the discount (244)

Sale of impaired loans (216)

Loans exchanged through PSI -

Foreign exchange rate differences (170)

Balance on December 31st

8,853

The way the movement in the allowance for impairment for loans and advances is presented, it does not provide any information for the current period’s provision charges due to the netting of the latter with non utilized (released) provisions of previous years.

The following tables present the “past due” and impaired exposures of the Bank by “class and ageing” and “geographic area” (amounts in € million):

Portfolio by class and ageing

Total loans and advances to customers

Past due 0-90 dpd (not

impaired)

Past due over 90 dpd (not impaired)

Impaired exposures

Allowance for impairment

P&L charge

31.12.2013

Mortgage loans 22,505 2,045 406 7,054 (1,013) 101

Consumer loans 8,633 882 40 3,649 (2,221) 473

Credit cards 5,691 549 - 1,421 (934) 265

Small Business loans 6,360 397 7 2,812 (1,229) 269

Corporate loans 32,914 1,453 395 6,830 (3,456) 27

TOTAL 76,103 5,326 848 21,766 (8,853) 1,135

31.12.2012

Mortgage loans 23,471 2,228 531 5,688 (991) 473

Consumer loans 8,984 901 43 3,375 (1,885) 623

Credit cards 6,725 646 - 1,203 (915) 267

Small Business loans 6,275 483 10 2,693 (1,096) 322

Corporate loans 31,450 1,278 600 11,327 (2,883) 859

TOTAL 76,905 5,536 1,184 24,286 (7,770) 2,544



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Impaired exposure by geographic area

Total loans and advances to customers

Past due 0-90 dpd (not

impaired)

Past due over 90 dpd (not impaired)

Impaired exposures

Allowance for impairment

P&L charge

31.12.2013

Greece 52,413 3,123 813 17,711 (7,110) 689

Turkey 16,217 1,133 3 1,590 (669) 336

SE Europe 6,226 781 17 1,712 (772) 92

Other 1,247 289 15 753 (302) 18

TOTAL 76,103 5,326 848 21,766 (8,853) 1,135

31.12.2012

Greece 51,053 2,908 903 20,794 (5,999) 2,037

Turkey 18,062 1,662 8 1,348 (772) 269

SE Europe 6,474 838 166 1,758 (736) 205

Other 1,316 128 106 386 (263) 34

TOTAL 76,905 5,536 1,183 24,286 (7,770) 2,545

4.4.Portfolios under the Standardized Approach

The following External Credit Assessment Institutions (ECAI) are used to risk weight exposures under the Standardized Approach:

Standard & Poor's

Moody's Investors Service Ltd

Fitch Ratings Ltd

The asset classes for which ECAI ratings are used are the following:

Central Governments and Central Banks

Regional Governments and Local Authorities

Financial Institutions

Corporate (Standardized approach)

Multilateral Development Banks

Administrative bodies and non-commercial Undertakings

In case of externally rated positions in banking book, for which the IRB Approach is used, capital requirements for such positions are calculated based on the Bank’s internal ratings.

The table below presents the Exposures (net of accounting provisions), before and after credit risk mitigation, as of 31.12.2013, according to the supervisory risk weights of GA/BoG 2588/20.08.2007 (all amounts are in € million):

Risk Weight Exposure amount before Credit Risk Mitigation Exposure amount after Credit Risk Mitigation

Exposures to Financial Institutions

0% 1,049 1,049 20% 5,510 1,619

50% 1,095 1,069

100% 166 162

150% 81 81

Total 7,901 3,980 Exposures to Central Governments and Central Banks

0% 22,137 20,445 20% - -

50% 663 663

100% 938 938

150% - -

Total 23,738 22,046



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Corporate Exposures 20% 17 17 50% 19 19

100% 11,433 10,217

150% 2 2

Total 11,471 10,255

Exposures to Regional Governments, Local Authorities and Public Sector Entities (PSEs) 0% - -

20% 45 43

50% - -

100% 687 236

150% - -

Total 732 279 Exposures to Multilateral Development Banks

0% 254 254

Total 254 254 Exposures to Collective Investment Undertakings (CIUs)

100% 34 34

Total 34 34 Exposures secured by Real Estate property

35% 3,623 3,623 50% 2,522 2,522

Total 6,145 6,145 Regulatory High Risk Exposures

50% 3 3 100% 503 502

150% 527 524

Total 1,033 1,029 Retail Exposures

75% 22,552 21,020

Total 22,552 21,020 Past Due Items

50% 228 228 100% 2,841 2,841

150% 585 499

Total 3,654 3.568 Other items

0% 3,885 3,885 20% 48 48

100% 3,521 3,521

150% 49 49

Total 7,503 7,503

International Organisations

0% 9,170 9,170

Total 9,170 9,170

4.5.Portfolios under the Internal Ratings Based Approach

4.5.1.Structure and use of internal ratings systems

The Bank has developed Internal Rating Systems for Corporate Exposures (including Specialized Lending Exposures), as well as for Exposures to individuals fully collateralized by residential real estate (Housing Loans) and SME Retail exposures.

As far as Corporate Exposures are concerned, the Rating System distinguishes between the risk characteristics of the obligor and those of the facility, classifying the obligors to the Rating System’s scale. This Obligor Rating Process is explicitly described in the Credit Policy of the Corporate Portfolio. Based on this Rating System, a Probability of Default (PD) is assigned to each obligor.

Project Finance and Object Finance facilities, falling under Specialized Lending Exposures, are rated using a Slotting Criteria model, with given specific risk-weighted factors, as outlined in GA/BoG 2589/2007.



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Finally, for Housing Loans, the Bank uses two rating systems reflecting both obligor and facility risk. These systems provide both a PD estimate and a Loss Given Default (LGD) estimate. Both rating systems group loans in pools with common risk characteristics, avoiding large concentration in each pool. For the assignment into pools, obligor and facility risk criteria as well as current delinquency and repayment history criteria are used. Both rating procedures are consistent with the Retail Credit Policy and take into consideration all available up to date information. Internal pools, LGDs and PDs are used in risk management as well as in loan approvals and provision allocation.

4.5.2.Credit Risk Mitigation

The Bank uses a Collateral Management System, where all risk mitigation instruments (collaterals and guarantees) are recorded, monitored and assessed. Exposures can either be secured via pledging of a collateral or contractually guaranteed by a third party (e.g. individuals, corporate entities, financial institutions, Public Sector Entities, the Hellenic Government or the Hellenic Fund for Entrepreneurship and Development – ETEAN SA). Guarantees accepted by the Bank and their risk mitigation impact on underlying credit risk are described in the Credit Policy documents of both Corporate and Retail Portfolios.

Eligible collaterals and guarantees for regulatory Credit Mitigation purposes, as per GA/BoG 2589/2007, are explicitly marked within the Collateral Management System in order to correctly assess their effect on Expected Loss and Regulatory Capital requirements.

4.5.3.Control mechanisms of Internal Rating Systems

NBG Group’s Credit Risk Models’ Development and Validation Policy describes specific rules regarding the control and revision of all credit rating systems and relevant models. Its purpose is to ensure transparency across the Group regarding model development, validation and calibration. All risk systems and models used by the Bank and its Subsidiaries fall under the GRCA Division’s competence, which has access to all data and models across the Group.

The aforementioned rating systems have been approved by BoG for use in Regulatory Capital Calculation and are in accordance with GA/BoG 2589/2007. The systems are validated on a yearly basis, but are also checked monthly by the corporate and retail portfolio quality reports. In case either of a significant discrepancy between observed risk metrics (default frequency, actual losses) and predicted parameters or of a pronounced delinquency tendency, rating systems are reviewed.

An independent Model Validation Unit within the GRCA ensures monitoring, calibration and validation of all models.

4.5.4.Models and Internal Rating process of the Corporate Portfolio

The Obligor Risk Rating methodology is presented in full detail in the Corporate Credit Policy. The Obligors’ Risk Rating (ORR) Scale consists of 22 grades, 19 of which concern performing obligors whereas the remaining three relate to defaulted obligors, “default” being defined as per Basel II rules and the relevant Credit Policy. Every ORR grade is mapped to a single PD.

The rating of an Obligor is conducted by the relevant Business Division and approved either by the responsible Credit Approving Body, through the relevant credit approval process, or by the Head of the Credit Division in case a Credit Facility Framework has not yet been approved. Different credit exposures against the same obligor all receive the same ORR, irrespective of any difference between corresponding facilities (e.g. collateral pledged, type of credit line, etc.). ORRs are reviewed at least annually, or more often upon any release of new information or financial statements regarding the Obligor.

In December 2012 , the Group Risk Control & Architecture adjusted the 19-grade rating scale of the Corporate Rating System (C.R.S.), assigning higher probabilities of default (PDs) at each grade. During the periodic validation of C.R.S., a comparison was made between the actual default rates and the theoretical PDs (produced by the C.R.S.). The exercise covered the period of 2008-2012 and was based on more than 200,000 clients’ evaluation snapshots, whose accounts performance, delinquency status and case of restructuring event was examined over a 12-month period after their evaluation. As expected , due to Greece’s deep recession and macroeconomic crisis, the observed percentages of “regulatory defaults” were higher than those theoretically estimated by the C.R.S. Therefore, assignment of new PDs to each grade, was necessary.

Besides this upward PD recalibration in the C.R.S., the deep economic crisis affected the Bank in terms of its delinquency rates (delays). The economic crisis led to a doubling of non-performing corporate loans’ provisions within 2010 – 2013, while the C.R.S. produced worst ratings which led to higher capital requirements. During the period 2010 - 2012, the capital requirements of NBG Corporate portfolio increased by nearly 10%, a significant percentage considering the subsequent increase of defaults (that do not require capital due to FIRB rules for RWA calculation) by 150%.

It was also observed that the impact of the crisis in 2013 was lower, as the pace of increase in corporate defaults diminished. Large industry sectors (in terms of activity) such as wholesale trade, were not as harshly affected (increase in defaults from 23.4% to 29.2%,respectively), while the default rate of dynamic export-oriented sectors, such as machinery and equipment construction, declined from 29.9% at the end of 2012 to 19.1% in December 2013.

Moreover, the Bank continued its intensive restructuring policy in small and large companies aiming to help them overcome temporary problems arising from the 5-year macroeconomic crisis. By making the necessary credit framework adjustments, so as to offer its clients the requested cash when needed, by strengthening its collateral base and allocating provisions to clients who do not seem to recover, the Bank maximizes the repayment ability of borrowers with temporary problems, enhances entrepreneurship and shields its capital position.

For rating corporate obligors the Bank uses four different models, all of them developed by GRCA. Specifically:



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All firms with full financial statements are rated using the Corporate Rating Model (CRM); any existing rating by an ECAI is not taken into consideration.

Smaller-sized firms, which belong to the Corporate portfolio but do not disclose full financial statements (i.e. they keep Greek GAAP B’ category General Ledger books) are rated using a Limited Financials Scorecard.

Specialized Lending exposures i.e., project finance and object finance (oceangoing shipping) exposures are rated using two (2) Slotting Criteria models, structured like simple scorecards.

Special case obligors, like venture companies with no full year financial statements yet, (i.e. not-for-profit organizations etc.), are rated by an Expert Judgment Model.

The distribution of performing IRB exposures per rating model as of 31.12.2013 is given below.

Rating Model Number % number Amount to be weighted

(€ mil.)

% total

Per obligor

CRM 3,011 79.6% 9,062 92.1%

Limited Financials Scorecard 147 3.9% 49 0.5%

Expert Judgment Model 214 5.6% 607 6.2%

Unrated 412 10.9% 115 1.2%

In default 3,334 3,429

Total 7,118 100.0% 13,262 100.0%

Per exposure

Project Finance 1,104 86.7% 1,167 47.7%

Object Finance 169 13.3% 1,279 52.3%

In default 60 125

Total 1,333 100.0% 2,571 100.0%

Grand Total 8,451 15,833

A further analysis of each rating model used in the Corporate Portfolio is provided below:

I.Corporate Rating Model (CRM) CRM is an “hybrid” rating model, combining statistical analysis to the accumulated credit granting experience of the Bank. Its structure satisfies the minimum requirements put forward by GA/BoG 2589/2007, Section C1. It brings together objective quantitative data with subjective qualitative criteria, the latter aiming to further refine the counterparty’s rating and enhance the counterparty’s critical analysis.

CRM is implemented via the Risk Advisor platform (an upgraded version of Moody’s Risk Advisor™ software) used by the Bank since early 2004. It includes two separate analytical tools: the Financial Component and the Expert Component. In the former, the company’s financial data (balance sheet, income statement, cash flow statements) are input and various levels of analysis follow, for example, short-term and long-term projections, comparison with peer companies, and financial ratio calculations. In the Expert Component, qualitative data, supported by sound, experienced underwriter opinion, are imported in the CRM.

The first level of financial investigation studies several financial variables as calculated by disclosed financial statements. The Financial Component of CRM (a) examines each ratio’s absolute value, (b) weighs its historical trend and volatility, and, finally, (c) compares the financial ratios of the company in question to that of its peers. In the second part of CRM, the Relationship Manager answers qualitative questions about the company and assesses the obligor’s sector, its quality of management, its business environment etc. All these criteria are weighted to produce the final obligor assessment.

The model controls the consistency of answers given and flags any errors, such as outlier ratios or inconsistencies between disclosed data and qualitative assessment by the Relationship Manager. It also produces evaluation reports (for the obligor in general and of its profitability, capital structure and operations). The model also allows the analyst to examine thoroughly the company’s cash flow management and debt coverage. The latter factors are crucial in estimating the obligor’s creditworthiness.

Although CRM is a “hybrid” model, its design was based on standard statistical techniques. These included univariate analysis to assess the predictive power of each variable, multivariate analysis for discovering possible multicollinearities between variables, etc. The final mix of qualitative and quantitative variables was decided empirically, in order to emphasize and hence accordingly weight, the more reliable quantitative criteria.



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The model was quantitatively validated by measuring its discriminatory power between “good” and “bad” obligors, using standard statistical metrics (e.g. accuracy ratios, power curves), benchmarking, stress testing and back testing.

CRM’s final calibration aimed to ensure that the average model-based PD (given the grade assigned to each obligor) is close enough to a long term empirical default frequency for Greek corporates (based on the historical experience of the Bank). This means that, first the Financial Index produced by the quantitative part of the model was mapped to a PD and then, with the addition of the qualitative assessment, the Financial Index was mapped to a Borrower Rating. Its scale was then mapped to the 19-grade NBG ORR.

II.Expert Judgment Model Τhe Expert Judgment Model is used for special cases that cannot be rated by the CRM. These include not-for-profit organizations (e.g. cooperatives, amateur’s sport clubs, etc.), insurance companies, construction conglomerates formed for a specific infrastructure project, corporates that do not (yet) possess financial statements, foreign companies (i.e. established outside Greece), which do not produce financial information on a recurring basis, etc.

Consequently, their rating focuses on qualitative criteria, supplied by Underwriters and Relationship Managers. Examples of such criteria include:

Sector Risk

Competition

Years in Business

Management stability

Risk Alerts

Credit history of owners and/or affiliates

Customer base concentration

Frequency of financing requests

Credit history of the company

Financial status of owners

The model classifies performing obligors in four risk classes (High, Significant, Medium and Low). Its development was based on an earlier rating tool used for sole proprietor, personal businesses and other small firms assessed mainly through variables like those above.

III.Specialized Lending Slotting Criteria Models Following regulatory directives and the relevant BIS Basel II documents, the Bank developed two simplified Slotting Criteria models which are used to rate project and object finance exposures. The group of criteria do not differ much between the two models and include:

Financial Strength of Project

Political and Legal environment

Transaction characteristics

Strength of sponsor

Asset characteristics

Security/Collaterals package

Environmental issues

The Project Finance model is assessed through the Risk Analyst™ platform, , in which the Bank aims to incorporate the model used for Object Finance model as well.

Both models require the answering of a series of questions by the relevant authorized Credit Underwriter. Each one of the seven groups of criteria receives a score, based on the answers given to each criterion subclass. The weighted sum of all scores ranks performing exposures into four categories (Strong, Good, Satisfactory and Weak). Infrastructure financing is usually re-rated, in case a full State Guarantee or a Bank’s Letter of Guarantee by an Export Credit Agency is provided. Both models are validated based on the accumulated experience of the Bank in these sectors.

IV.Limited Financials Scorecard This model was developed based on historical data since 2003 and on, and started operating in June 2008. During the last quarter of 2012 It was successfully validated. It is used for newly founded companies and for companies that have accounting books of categories A and B (according to Greek law) and cannot be analyzed more by the more complicated CRM.

The predictive power of the model was measured by using a series of procedures and common accuracy ratios, both “in-sample” and “out of sample”. The accuracy of its PD predictions was judged to be highly satisfactory.

The assessment criteria of the model are presented below:

Sector Risk

Competition

Years in Business

Management Stability

Credit History

Financial status of owners



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Behavioural Scoring (if it exists)

The use, whenever possible, of a behavioural score as a supplementary independent variable in the model, enhances significantly its efficiency and guarantees a more objective use of all qualitative information stored in the customer databases of the Bank.

4.5.5.Models and Internal Rating process of the Mortgage Portfolio

All mortgages (except those fully and unconditionally guaranteed by the Hellenic Government) are rated on a monthly basis, and ranked in homogeneous groups (pools) for risk estimation purposes. The corresponding PD and LGD models are based on 20 years of historical data and their development reflects the Bank’s long term experience in mortgage lending, taking into account the Greek legal framework as well as the Bank’s policies regarding foreclosure of real estate collateral during the past 5 years.

In order to rank performing mortgage loans into risk categories (namely, those not materially delinquent over 180 days), the following procedure is followed:

1. First, the existence (or not) of an explicit and unconditional Greek Government Guarantee for capital and interest is examined. Claims that satisfy this criterion (usually loans to victims of natural disasters, population minorities, etc.) are treated separately.

2. Then the origination date of the loan is recorded. For loans that have not yet reached 14 Months on book (MoB), step 3 is followed. Otherwise, step 4 is followed.

3. Loans with up to 13 MoB are scored with a separate model. It uses criteria that refer to the facility (loan maturity, product type), the obligor (application score) and repayment patterns (current delinquent amount, patterns of delinquency in the last 12 months, etc.). This score is stored and step 5 follows.

4. Loans with over 13 MoB are scored using a behavioural model specifically developed for them. This one uses criteria referring to the facility (loan amount, product type) and the repayment patterns (current delinquent amount, patterns of delinquency in the last 12 months, etc.) but not the original application score, since it is shown to be no longer relevant. This behavioural score is also stored and step 5 follows.

5. Based on the score calculated from the applicable model, each loan is placed into one of 10 distinct Risk Pools and a PD is assigned to its Pool.

The PD estimate for each pool was estimated by tracking each active loan, within the years 2006-2010 (observation), and its corresponding default event one year later (performance tracked in years 2007-2011).

For Loss Given Default (LGD) estimation, the procedure followed in order to place all mortgage loans in a distinct pool with a common LGD is as follows:

1. First, all facilities are distinguished into “performing” and “in default”, depending on the delinquency they present during the rating date and its materiality. Step number 2 is followed for the former and step number 3 for the latter.

2. Performing loans are further divided into two groups, depending on the existence (or not) of a Greek Government interest rate subsidy.

3. For defaulted loans, except for the existence (or not) of the interest rate subsidy, the time spent in default status is also considered for their placement in a specific LGD pool.

LGD is calculated as the difference between 100% (full recovery, no loss) and the average recovery rate over the exposure at default. Recovery rates are calculated cumulatively for different time horizons, starting from the default date itself. More specifically, the Bank calculates the percentage that can be recovered in 1, 2 or more years after default until, according to the Bank’s experience, potential recovery is minimised (practically, nothing more can be recovered).

All loans that presented material delinquency above 180 days since 1990 and had completed at least one year in default status were used in the development of the LGD model. This increased significantly the robustness and power of results. All relevant cash flows (both revenues and costs) arising after default and until final settlement, were taken into account in recovery estimates. Given the very long time period that elapses between default and future cash flows, the time value of money is definitely of importance. Hence, in order to calculate recovery rates, all cash flows were discounted back to the original default date, and their present value compared to the outstanding debt at the time of default. These calculations were performed on an account basis and not on a customer basis.

As far as the realized losses are concerned, during the last two years (2012 - 2013), it was observed that the recoveries from defaulted mortgages were lower than those that were measured during the calibration process of the mortgages’ LGD (Loss Given Default) model . This was expected, since the 5-year macroeconomic recession of Greek economy affected the income of the Greek households significantly.

It should be stressed however that a large segment of the non-performing mortgages loans was restructured within 2013. Therefore, the impact of the restructuring is not fully depicted in the above measurements, as the data sample has larger concentration of non restructured mortgages. Thus, the “lower” recovery ratios can be seen as a result of a “selection bias” in the sample and they are not suitable for comparison to those made in previous years. T he Bank closely monitors the behavior of mortgage restructured loans and the growth of new defaults is reduced.



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4.5.6.Models and internal rating process of Retail SMEs

The creditworthiness of Retail SME obligors is ranked with respect to the probability of default to fourteen (14) grade rating scale, of which thirteen (13) classify non-defaulted contractors, while the last one concerns obligors in default. Additionally borrowers are ranked in respect to the probability of transfer to Collections Division (in a nine level scale). This ranking is used in the process of estimating loss given default (LGD) factors for SMEs obligors.

The above processes are supported by three (3) statistical models which are shown below. The output of the models I and II are combined to determine the probability of default (PD) for each contractor, while the LGD factor is obtained by applying model III.

I. Application Model The design and development of the model was performed by NBG’s Risk Control & Architecture Division. The model is supported by a software platform, which was implemented by the Bank’s IT Division and supervised by Operations Division. This platform supports credit underwriting process by providing all necessary tools for, registering annual or interim financial statements, inserting qualitative parameters, conducting financial ratio analysis and producing projected financial statements. The underwriting process is triggered by the submission of a credit request application for a new or an existing credit contractual agreement. The produced rating is associated with all credit risk taken by the Bank under this agreement (loans, credit lines, guarantees etc). Application Model is applied only to non defaulted obligors and each obligor is assigned a rating from a 11-grade rating scale.

II. Behavioral Model The design, development and implementation of the model was performed by NBG’s Risk Control & Architecture Division. The operating characteristics are summarized below:

Model’s parameters values are drawn from a predefined data structure. This structure is automatically updated at the end of each month with responsibility of IT Division.

It produces credit assessments with monthly frequency for all SMEs obligors with active funding for at least one semester at the date of assessment. This job is performed by the execution of a software procedure.

Credit assessments are stored in databases owned by IT Division, in order to be available to all relevant Bank Units.

A credit assessment reflects all credit risk taken by the Bank for a specific obligor.

At the end of each month a new behavioural credit assessment is produced for each SME obligor and each obligor is assigned a rating from a 14-grade rating scale.

III. Loss Given Default Model The design, development and implementation of the model was performed by GRCA. The operating characteristics are summarized below:

Model’s parameters values are drawn from a predefined data structure. This structure is automatically updated at the end of each month with responsibility of IT Division.

The model estimates a probability of transfer to default state, a state that marks the beginning of assets liquidation actions. The aforementioned obligor’s probability combined with the observed historicall average recovery rate of SME portfolio during the collection period determines the loss given default (LGD) factor.

LGD factors are stored in databases owned by IT Division, in order to be available to all relevant Bank Units

At the end of each month a new LGD factor is produced for each SME obligor. The whole process is performed at the end of each month using a software procedure hosted in the GRCA Division.

4.5.7.Quantitative information for the portfolio under the IRB approach

The following table presents information regarding the IRB portfolios as per 31.12.2013 (in € million):



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Exposures to Corporates (Foundation IRB) (€ million)

PD Band Amount to be weighted* Weighted Average Risk Weight

0.06% - 1.00% 2,192 59.66%

1.01% - 3.00% 886 96.85%

3.01% - 6.00% 3,584 127.80%

6.01% - 15% 1,155 152.41%

Over 15% 2,017 199.48%

Default** 3,429 0.00%

Total 13,262 94.47%

* Amount to be weighted is the exposure amount after taking into account credit risk mitigation and credit conversion factors according to the GA/BoG 2589/2007. ** Under the IRB Approach the risk weight for assets in default is zero.

Specialized Lending Exposures (Slotting Criteria) (€ million)

Risk Rating Amount to be weighted* Weighted Average Risk Weight

Strong 1,119 68.33%

Good 982 83.59%

Satisfactory 345 115.00%

Weak 0,5 250.00%

In Default** 125 0.00%

Total 2,571 77.13%

* Amount to be weighted is the exposure amount after taking into account credit risk mitigation and credit conversion factors according to the GA/BoG 2589/2007. ** Under the IRB Approach the risk weight for assets in default is zero.

Mortgage Portfolio (Advanced IRB) (€ million)

PD Band Avg. LGD Amount to be weighted* Weighted Average Risk Weight

0.18% - 1.00% 12.41% 6,427 8.01%

1.01% - 4.50% 13.04% 2,749 27.59%

4.51% -13.00% 13.17% 1,243 62.51%

Over 13% 13.19% 1,865 75.46%

In Default** 21.82% 3,674 0.00%

Total 14.83% 15,958 21.67%

* Amount to be weighted is the exposure amount after taking into account credit risk mitigation and credit conversion factors according to the GA/BoG 2589/2007.

** Under the IRB Approach, the risk weight for assets in default is zero.

SME Retail (Advanced IRB) (€ million)

PD Band Avg. LGD Amount to be weighted* Weighted Average Risk Weight

2.00%-4.00% 13.33% 149 19.87%

4.01%-11.00% 14.04% 414 23.92%

11.01%-40.00% 14.60% 727 37.58%

Over 40% 17.79% 271 43.47%

In Default** 51.09% 1,751 0.00%

Total 34.02% 3,312 15.69%

* Amount to be weighted is the exposure amount after taking into account credit risk mitigation and credit conversion factors according to the GA/BoG 2589/2007. ** Under the IRB Approach, the risk weight for assets in default is zero.



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4.6.Credit Risk Mitigation techniques

Since 2007, NBG uses a specialized Collateral Management system, both for corporate and retail exposures. The systems aims to:

Record the Bank’s collaterals

Establish a connection between loan contract and collateral

Assesses qualitatively all collaterals

Monitor collaterals’ market value and estimate their coverage ratio

Provide information to the Branch, the Approval Authority and the Bank in general, regarding each and every obligor’s collaterals

Retrieve necessary data for the estimation of capital requirements per facility

Monitor automatically the obligor’s entire credit risk position

Collateral Management includes registering, searching, altering and deleting information regarding collaterals. Additionally, the system not only provides a large number of control elements, reducing operational risk, but also keeps track of all securities offered to the Bank, both those that are currently active and those that matured. As far as valuation is concerned, the system calculates and/or keeps the following values per collateral:

Value as of input day

Current market value (for traded securities, etc.)

Security/Guarantee value: this is lower than the Current market value by a fixed proportion which, in turn, is based on the easiness of the collateral’s potential liquidation

Market value, Tax value, Forced Sale value, Land and Buildings value and Construction Cost for all real estate collaterals.

In principle, NBG accepts the following credit risk mitigation types (funded and unfunded):

Guarantees from: o Physical and Legal entities, both from the Private and Public Sector o Central governments, Regional governments, local authorities and PSEs o Financial institutions o The Greek Government and the Hellenic Fund for Entrepreneurship and Development (ETEAN SA)

Pledges of o Securities (cheques and bills of exchange) o Deposits o Equity, Mutual funds and Non-tangible securities (bonds, etc.) o Claims against Central Government, Public and Private Sector Entities o Goods, Exported claims and Leases o Letters of Guarantees and Trademarks o Claims on Insurance Contracts o Claims from Credit Cards’ sales

Liens o On Real Estate and Ships

Other o Discounting of Bills of Exchange o Cash o Withholding of ownership

Credit and Counterparty Risk exposures secured by Basel II eligible credit risk mitigation instruments (collateral and guarantees) as of

31.12.2013 (in € million) were as follows:



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4.7.Analysis and Reporting

NBG’s GRCA Division has developed a complete framework of analysis and reporting, in order to provide the Bank’s Board Risk Committee, Senior Management, regulatory authorities, the market and investors with consistent quantitative and qualitative information. To produce the analysis a specialised software application is used, collecting relevant data from the Bank’s and Group’s core systems (such as loans and credit limits systems, trading position-keeping systems, collateral management system etc.). The software is fully configured to calculate Expected Loss and Risk Weighted Assets for the entire Group according to the Regulatory Approach chosen for each relevant portfolio, in accordance with the current “Basel II” framework. GRCA submits regularly and consistently to the Bank of Greece all required reports pursuant to the respective BoG Governor’s Acts.

Among others the following are analysed and reported:

Capital requirements and capital adequacy

Large exposures and large debtors

Cross border exposures

Quality and vintage analysis of the Bank’s and its subsidiaries portfolios

2Repos and Reverse Repos included

Exposures to Eligible financial

collateral2

Other eligible

collateral

Guarantees Secured by Real

Estate Central governments and Central banks 1,699 - - -

Regional governments, local authorities and PSEs 59 - 395 -

Financial institutions 3,960 - - -

Retail banking 254 - 94 -

Secured by real estate property - - - 6,146

Residential Mortgages (Advanced IRB) 3 - 1,232 15,959

Corporate (Standardized Approach) 1,208 - 8 0

Corporate (Foundation IRB) 261 615 479 3,022

SME Retail (Advanced IRB) 46 - 208 1,403

High Risk 3 - 0.4 -

Past due items 22 - 18 905

Equities, participations & other items - - - -

Total 7,514 615 2,434 27,434



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5.COUNTERPARTY CREDIT RISK

For the efficient management of counterparty credit risk, the Bank has established a framework of counterparty limits. The GMORM is responsible for setting and monitoring these limits. Counterparty limits are based on the credit rating of the financial institutions as well as the product type. Credit ratings are provided by internationally recognized rating agencies, in particular Moody’s and Standard & Poor’s. According to the Bank’s policy, if the agencies’ evaluations diverge, the lower (worse) credit rating will be considered. The limits’ framework is annually revised according to the business needs of the Bank and the prevailing conditions in the international and domestic financial markets. A similar limit structure for the management of counterparty credit risk is enforced across all Group’s subsidiaries.

Counterparty limits apply to all financial Instruments in which the Treasury Division is active in the interbank market.

The Bank seeks to reduce counterparty credit risk by standardizing relationships with counterparties through ISDA and GMRA contracts, which encompass all necessary netting and margining clauses. Additionally, for almost all active counterparties that are financial institutions, CSAs have been put into effect, so that net current exposures are managed through margin accounts on a daily basis through the exchange of cash or debt securities used as collateral.

The current Bank’s rating has already activated the contract clauses against downgrading. Therefore a further expansion of the existing margins triggered by the Bank’s rating downgrade is not expected.

The Bank is not using netting for the underlying of the off balance sheet asset items.

For capital requirements calculation purposes, the Group calculates the exposure amount by applying the Mark-to-Market (MtM) methodology. The process followed includes:

Data gathering from various Risk Management systems

Performance of quantitative and qualitative checks

Application of the MtM methodology according to BoG Governor’s Act 2594/20.8.2007 Section B taking into account master netting agreements

The following table presents the OTC derivatives exposures of the Bank subject to counterparty credit risk (€ million):

*The sum of exposures with positive value for the Bank.

**The netting effect is calculated separately for each counterparty.

On the 31st of December 2013 there were no credit derivatives for hedging or trading purposes.

Moreover, wrong way risk (wwr) is the risk deriving from the presence of a positive correlation between the probability of default of a counterparty and the relative exposure.

There are 2 categories of wrong way risk:

General Wrong Way Risk – arises when the likelihood of default by counterparties is positively correlated with general market risk factor.

Specific Wrong Way risk – arises when the exposure to a particular counterparty is positively correlated with the PD of the counterparty due to the nature of the transactions with the counterparty.

The policy of the Bank is to avoid taking positions on derivative contracts where the values of the underlying assets are highly correlated with the credit quality of the counterparty.

Pre-Netting Exposure*

Netting effect** Post-Netting Exposure

Collateral Received (Paid)

Total exposure after netting

and CSA application

Contracts under ISDA and CSA (derivatives)

1,577 2,047 (470) (598) 129

Contracts under ISDA only (derivatives)

25 34 (9) - (9)

Total 1,602 2,081 (479) (598) 120



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6.MARKET RISK

The regulatory framework in Greece permits the use of internal models for the calculation of capital charges against Market Risk of the Trading Book. In this context, the Bank received the initial approval for the use of an internal model by the Bank of Greece in July 2003, after a thorough examination of both the internal model and the results it produced. In 2005, the Bank of Greece re-evaluated the model, due to the replacement of the former risk system by RiskWatch™, created by Algorithmics (currently IBM). The second approval was received in October 2005. Additionally, the Internal Audit Division conducts reassessments of the model on a regular basis. The calculation of the subsidiaries’ capital requirements is performed with the Standardized Approach.

The table below presents the market risk capital requirements as of 31.12.2013 (€ million).

Market Risk Capital Requirements

Issuer specific risk on traded debt instruments 12

General risk on traded debt instruments in relation with maturity 18

Duration based approach for general risk on traded debt instruments -

General risk on equity instruments 3

Issuer specific risk on equity instruments 2

Position risk in CIUs, hedge funds, structured products, Gamma & Vega risks and margin requirements on derivatives 7

Settlement / delivery risk for free delivery exposures -

Settlement / delivery risk for debt securities, equities, foreign currencies and commodities -

Foreign exchange risk 37

Commodity risk - maturity ladder approach -

Commodity risk - extended maturity ladder approach -

Commodity risk - simplified approach 0.1

Large exposure excesses -

General and specific risk, foreign exchange risk and commodity risk calculated with the Internal Model (Value at Risk) 102

Total capital requirements for market risk 182

Since September 22nd

, 2005, following a decision by the Board of Directors, RiskWatch™ has been the official system for the calculation of the Bank’s capital requirements against Market Risk of the Trading Book.

The VaR estimates are used both internally as a risk management tool and for regulatory purposes. For risk management purposes, GMORM Division calculates VaR on a daily basis for the Bank’s Trading and AFS portfolios and uses 75 exponentially weighted daily observations taking into account equity specific risk.

For regulatory purposes, the VaR estimates refer only to the Bank’s Trading portfolio, excluding equity specific risk and are based on 252 equally weighted daily observations. The regulatory VaR for 2013 (99% confidence interval, 1-day holding period) is presented in the table below (€ million):

Daily values Total VaR Interest Rate Risk VaR Equity Risk VaR Foreign Exchange Risk VaR

31st

December 2013 4.0 3.0 1.5 1.6

Average 4.9 3.9 1.2 2.1

Maximum 6.4 5.3 1.5 3.5

Minimum 3.8 2.9 0.9 1.6

Capital charges for specific risk are calculated with the Standardized Approach.



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The variance-covariance methodology could be summarized as follows:

1. Collection of transactional data per type of product; 2. Identification of “risk factors” i.e., variables whose price changes could affect the value of the portfolio. Risk factors considered

are interest rates, equity indices and foreign exchange rates; 3. Collection of market data for instruments/positions valuation; 4. Specification of the confidence interval and the holding period for the VaR calculations at 99% and 1-day, respectively; 5. Estimation of the model’s parameters:

the variance of each risk factor, from which respective volatilities are derived;

the covariance of the risk factors, from which respective correlations are derived;

the beta of stocks;

the volatility for the estimation of equity specific risk. 6. Estimation of the VaR per type of risk (interest rate risk, equity risk, foreign exchange risk); 7. Estimation of Total VaR, taking into consideration the correlation matrix among all risk factors.

The calculation of the model’s parameters relies on the following statistical assumptions:

Returns on individual risk factors follow a normal distribution.

Investments payout is considered to be linear.

Moreover, according to the BoG Governor’s Act 2646/9.9.2011, the GMORM Division calculates Stressed VaR (99%, 1-day) on a daily basis for the Bank’s Trading book. Stressed VaR estimates (99%, 1-day) for 2013 are presented in the Table below (€ million):

Daily values Stressed Total VaR Stressed Interest Rate Risk VaR

Stressed Equity Risk VaR

Stressed Foreign Exchange Risk VaR

31st

December 2013 6.4 4.7 1.5 2.2

Average 8.0 6.6 1.2 2.6

Maximum 10.5 9.4 1.5 4.7

Minimum 6.0 4.5 0.9 2.0

Beginning in December 31st

2011, the capital charges for Market Risk are calculated as the sum of the following two amounts:

the maximum of: a) the VaR of the previous day, calculated with a 10-days holding period, b) the average VaR of the last 60-days, using a 10-days holding period and multiplied by a factor(mc), determined by the Bank of Greece and varying between three (3) and four (4),

plus

the maximum of: a) the Stressed VaR of the previous day, calculated with a 10-days holding period, b) the average Stressed VaR of the last 60-days, using a 10-days holding period and multiplied by a factor (ms), determined by the Bank of Greece and varying between three (3) and four (4).

Lastly, for comparative purposes only, the GMORM Division calculates VaR for the Bank’s portfolios by applying the Historical Simulation approach as well.

6.1.Stress Testing

The daily VaR refers to “normal” market conditions. Supplementary analysis is, however, necessary for capturing the potential loss that might incur under extreme and unusual conditions in financial markets. Thus, the GMORM Division conducts stress testing on a weekly basis, through the application of different stress scenarios on the relevant risk factors (interest rates, equity indices, foreign exchange rates). Stress testing is performed on both the Trading and the AFS portfolios, as well as separately on the positions of the Trading Book.

The scenarios used are shown in the following table:



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Scenario Description

Interest Rate Risk

0 - 3 months

3 months –5 years > 5 years

1 Parallel Curve shift +200 bps. +200 bps. +200 bps.

2 Parallel Curve shift -200 bps. -200 bps. -200 bps.

3 Steepening of the curve 0 bps. +100 bps. +200 bps.

4 Flattening of the curve +200 bps. +100 bps 0 bps.

Equity Risk

-30% for all indices

Foreign Exchange Risk

EUR depreciation by 30%

Moreover, stress test analysis is also performed by Finansbank on its Trading and Banking Book, on a monthly basis. The scenarios refer to extreme movements of interest and foreign exchange rates and are based on the latest financial crises which have taken place in Turkey.

6.2.Back testing

In order to verify the predictive power of the VaR model used for the calculation of Market Risk capital requirements, the Bank conducts back-testing on a daily basis. The aim of back-testing is to examine whether the hypothetical change in the value of the portfolio, due to the actual movements in the prices of the underlying risk factors, is captured by the VaR estimate for that day.

In accordance with the guidelines set out by BoG, the calculations only refer to the Bank’s Trading portfolio and involve the comparison of “hypothetical” daily gains/losses with the respective estimates of the VaR model used for regulatory purposes. The back-testing procedure can be summarized as follows:

Calculation of unrealized (theoretical) gains / losses on the Bank’s Trading portfolio between days t and t+1

Comparison of these unrealized (theoretical) gains / losses with the Total VaR calculated for these positions as of the close of business on day t.

Any excess of theoretical losses over the VAR estimate is reported to the Bank of Greece within five (5) business days. Back testing is applied on the Bank’s end-of-day positions and does not take into account intra-day transactions.

During 2013, there were no cases in which the back-testing result exceeded the respective VaR calculation.

Finansbank also performs back testing on a daily basis, on its Trading and Available for Sale portfolios, following a procedure similar to the one established by the Bank. During 2013, there were nine (9) cases where the back-testing result (loss) exceeded the respective VaR calculation.



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7.OPERATIONAL RISK

For the calculation of operational risk regulatory capital requirements, both on a solo as well as on a consolidated basis, the Bank has adopted the Standardized Approach (SA), where Gross income is allocated to the eight (8) regulatory business lines. Revenues accrued from activities that cannot be readily mapped into a particular business line (Unallocated), are classified to the business line yielding the highest capital risk weight (18%).

Since 2012, the Standardised Approach has been rolled out to Group entities that, albeit consolidated for regulatory purposes, had not established an appropriate Operational Risk Management Framework so far, and their income amounted to less than 2% of the total Group Gross Income.

The Group, targeting the prospective adoption of an Advanced Measurement Approach for calculating operational risk capital charges for both NBG and Finansbank, developed an internal model. Since this internal model assesses operational risk deriving from Group-wide operations in a more accurate way, is being already used for assessing the 'internal capital’ required to cover operational risk under the Internal Capital Adequacy Assessment Process (ICAAP).



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8.EQUITY EXPOSURES NOT INCLUDED IN THE TRADING BOOK

Investments in shares of stock not included in the trading portfolio are included in the Available for Sale (AFS) portfolio. These investments are held with the intention of achieving capital gains. The AFS investments in shares are initially recognized and subsequently measured at fair value. Initial measurement includes transaction costs. The fair value of AFS investments in shares that are quoted in active markets is determined on the basis of the quoted prices. For those not quoted in an active market, fair value is determined, where possible, using valuation techniques and taking into consideration the particular facts and circumstances of the shares’ issuers. The carrying amount of AFS equity instruments listed on a Stock Exchange Market equals their market value. The carrying amount as of 31.12.2013 is split between listed and not listed securities as follows:

€ million

Listed 127

Not Listed 108

Total 235

The total amount of realized gains from the disposal of AFS equity instruments for the year 2013 was €42 million. The net amount of unrealized gains in the Group’s equity as at 31 December 2013 was €83 million after tax.



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9.SECURITIZATION

During 2008 and 2009, the Bank securitized part of its Greek State loans and receivables, consumer loans and credit cards portfolios in order to derive liquidity from the European Central Bank (ECB) and the Bank of Greece (BoG). The Bank also securitized part of its corporate loans, but this transaction was unwound in 2010 and the related notes cancelled. During 2011, the Bank securitized part of its residential mortgage portfolio and term consumer loan portfolio in order to derive liquidity from the Bank of Greece (BoG).

The balances of assets securitized by the Bank (using traditional securitization schemes) are presented below:

€ million

Revolving Consumer Loans 800 Term Consumer Loans 975 Credit Cards 5,959 Automobile Loans 1,391 Residential Mortgages 155 Receivables from Public Sector 1,132

Total 10,412

The Bank has not proceeded with any synthetic securitization.

Securitized assets (Greek State loans and receivables, and consumer loans, credit cards and mortgage portfolio) as well as their associated credit risk have been transferred to Special Purpose Entities (SPE), namely “Titlos Plc”, “Revolver APC Limited”, “Agorazo plc”, “Autokinito plc” and “Spiti plc”. The transfer of assets by the Bank was performed at book value and therefore no P&L effect was recorded. The Bank, apart from taking the Servicer and Custodian role in the securitisation process, has further purchased all notes issued by the SPEs and therefore the securities issued by the SPEs are not included in the Bank’s liabilities. In case an investor purchases such a security, he/she will hold assets against the original obligors i.e., those whose obligations (loans) were transferred to the SPEs. The Bank uses the securities issued by the SPEs as collateral for its borrowing from the ECB and the BoG. By purchasing the notes from the SPEs, the Bank retains the related credit risk and hence continues to present them on its Balance sheet as “Loans and advances to Customers (net)”. Due to the aforementioned treatment there are no vested interests relating to the securitisations.

The role of the Bank within the securitization process is summarized below:

Seller

Servicer and custodian

Swap provider

The Bank is also involved in the securitization process as the:

Subordinated loan provider

Owner of the securitization notes

The securitization portfolios have been rated by the following rating agencies :

Receivables from Public Sector:Moody’s Investors Service Ltd

Credit Cards and Consumer Loans: Standard & Poors

The whole securitised portfolio has been retained and there have been no redemptions. Since there has been no material transfer of credit risk, risk weights were not calculated pursuant to BoG GA 2645/9.9.2011, but pursuant to BoG GA 2588/20.08.2007 and BoG GA 2589/20.08.2007 respectively.

Whenever the Bank invests in securitization positions, it uses the Ratings Based Method of GA/BoG 2645/9.9.2011 for capital calculation purposes. For the Ratings Based Method, the Bank uses ratings provided by the rating agency Standard & Poor's.

On December 31st

, 2012 the total exposure after credit risk mitigation to securitized positions for investment purposes amounted to 0.1 million.



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10.INTEREST RATE RISK IN THE BANKING BOOK

The Bank uses the IPS-Sendero SVAL™ system to calculate the interest rate risk in the banking book for the Bank’s activities in Greece and London, on a quarterly basis. The system applies a sensitivity analysis to all assets and liabilities.

The interest rate risk is calculated on the basis of the contractual repricing terms, i.e. the next repricing date, if the instrument’s interest rate is floating, or its maturity, if the instrument’s rate is fixed.

The main assumptions made for the calculation of the interest rate risk in the banking book are the following:

Accounts with ambiguous maturity reprice in the first gap period, i.e. 1st

month;

Accounts priced with NBG determined rates reprice in the first gap period, i.e. 1st

month

No early prepayment assumptions are made;

The Bank estimates the interest rate risk by applying various shocks on all interest rates (market and bank determined) in Euro and in the major currencies and by calculating the effect on Net Interest Income and on the Economic Value of Equity.

The sensitivity analysis of Net Interest Income for the banking book as of 31.12.2013 is presented below, where the base scenario (run on on-balance sheet items with rates held constant at their 31.12.2013 level) is compared to the shocks of 50 b.p. At the analysis shown below, the bank determined rates of ambiguous maturity deposits are not shifted.

Change in interest rates Net Interest Income Sensitivity

(change from base scenario)

± € million %

+50 bps -4 -0.3%

-50 bps -24 -2%



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11.REMUNERATION POLICIES AND PRACTICES

The Bank aspires towards an integrated Human Resources Management Policy and hence, has introduced procedures and has taken necessary measures in order to describe the general framework and basic principles for determining the remuneration of all employees working in the Bank and the Group.

11.1.The proportionality principle

The Bank applies the provisions of the current regulatory remuneration framework in a way and to the extent that is appropriate to its size, internal organization, nature, scope and complexity of its activities. In particular, the Bank aims to match the Remuneration Policy and practices with the individual risk profile, risk appetite and strategy of the Bank and its Group.

In order to apply the proportionality principle, the following criteria are taken into consideration:

1.the size of the Bank, namely the value of assets, liabilities or risk exposures, the level of capital, as well as the number of staff and branches of the Bank.

2.the internal organization of the Bank, its listing on regulated markets, the authorization to use internal methods for the measurement of capital requirements and its corporate goals; and

3.the nature, scope and complexity of its business activities and in particular, the type of its business activities, the international nature of the business activities of the Group (active in more than one jurisdictions), the variety of the type of clients (retail, corporate, small businesses), the portion of High Risk clients and/or activities on the total of clients and/or activities, the relative risks, the complexity of its products and contracts, etc.

11.2.Remuneration Policy

The Bank’s Remuneration Policy was adopted by the Board on September 30th

, 2010, following the recommendation of the Board’s Human Resources and Remuneration Committee (the “HRRC”), in accordance with the Management Act No 7/09.06.2010 of the Department for Supervision of Credit and Financial Institutions of BoG.

The Policy has been updated by the Board in June 2012, following the recommendation of the HRRC in order to be fully compliant with the BoG GA 2650/19.01.2012, which superseded the above mentioned Management Act No 7/09.06.2010. The remuneration policy should be consistent with the Bank's business strategy, risk profile and risk appetite and does not encourage excessive and short-term risk taking. The Policy is also in accordance with the recommendations of European statutory bodies and international best practices. Furthermore, it is noted that following the adoption of Directive 2013/36/EE and Regulation (EU) No 575/2013 of the European Parliament and of the Council (CRD IV), during 2014 the Bank shall take all necessary adjustment actions if required.

Within a Group context, the Bank oversees the remuneration policies and practices, in order to ensure that irrespective of the type of sector in which it operates, each Group company complies with the principles set at a Group level. The updated Remuneration Policy has been forwarded to the Group companies in order for them to adopt a Remuneration Policy taking the Bank’s Remuneration Policy as a guide and giving consideration to the respective applicable local regulatory framework, as well as the nature, scale and complexity of their activities. Based on the above and in connection with the variety of business models inside the Group, some Group companies apply more sophisticated policies or practices in fulfilling their regulatory requirements, while others meet these requirements in a simpler or less burdensome way.

11.3.Human Resources and Remuneration Committee

The Human Resources and Remuneration Committee was established by a Board decision (meeting no. 1259/5.5.2005).

The main responsibilities of the HRRC include the following:

preparing the Remuneration Policy of employees, Management and Board members of the Bank and Group Companies, as well as calling the Board to review regularly, and at least annually, the Group Remuneration Policy with particular focus on the impact and incentives created by risk, capital and liquidity management. The Committee shall recommend corrective measures on issues that arise during the regular review.

monitoring regularly the implementation of Group Remuneration Policy on the basis of a relevant report by the HR General Manager, and submitting proposals to the Board when necessary. The Committee shall cooperate with other committees of the Board and with the Risk Management, Compliance, Internal Audit–Inspection, HR and Strategic Planning Divisions, as well as with external experts, whenever required;

recommending to the Board the Group’s aggregate level of bonuses, which is then submitted to the General Meeting of Shareholders for final approval;



39

recommending to the Board: a) the remuneration of the CEO and, following the proposal of the CEO, of the executive directors; b) the remuneration of senior executives and highest paid employees of the Bank; Such remuneration should reflect the powers, duties, expertise and responsibilities of the persons indicated under a) and b). In fulfilling the said duty, the Committee should pay particular attention to the impact of its decisions on risk profile and management.

approving the remuneration of the Heads of Internal Audit and Risk Management, after consulting with the Audit Committee and the Risk Management Council, respectively, and the direct supervision of the remuneration of top executives in the Group Risk Management and Compliance Divisions; and

reviewing regularly the remuneration policy for the Board’s non-executive members (including the Board Chairman), and submitting proposals to the Board regarding the annual remuneration determined for the non-executive Board members, which is then submitted for approval to NBG’s Annual General Meeting of Shareholders.

The Committee is governed by a Functioning Regulation (Charter), which has been reviewed by a Board’s decision, in order to align with the provisions of the BoG GA 2650/2012, as well as the Relationship Framework Agreement between the Bank and the HFSF.

The Committee consists of at least three members of the Board, which should not exceed 40% (rounded to the nearest whole number) of total Board members. All members of the Committee are non-executive Directors, while the majority of the members (including the Chairman) are independent Directors, as per the independency definition included in the Corporate Governance Code. Furthermore, pursuant to Greek Law 3864/2010 and the Presubscription Agreement dated 28 May 2012, as amended and restated on 21 December 2012, the HFSF appointed Mr. Charalampos Makkas as its representative on the Bank’s Board. The HFSF representative is entitled to participate in Board Committees, including the Human Resources and Remuneration Committee.

The Committee is comprised of the following members:

Human Resource and Remuneration Committee

Chairperson Alexandra Papalexopoulou - Benopoulou

Member George Zanias

Member Spyridon J. Theodoropoulos

Member Charalampos Makkas

In 2013, the composition of the Committee changed, following the resignation of the H.E. the Metropolitan of Ioannina Theoklitos as member of the Board and its Committees at the meeting held on 9.4.2013.

In 2013, the HRRC convened seven times. Its members receive compensation for their participation.

In 2013, the Committee worked on the implementation of the NBG Group Remuneration Policy, as well as on human resources issues, within its responsibilities.

Detailed information regarding the HRRC of the Bank’s Board is available in the Bank’s website (www.nbg.gr - section: The Group / Corporate Governance / Board of Directors / Committees), as well as in the Group and the Bank’s Annual Financial Reports, as a part of the Board’s Corporate Governance Statement.

11.4.Other relevant stakeholders/ Units

The Remuneration Policy is elaborated with the assistance of the Human Resources, Risk Management and Compliance Units, in accordance with their respective responsibilities. With the assistance of the mentioned Units, the Policy is reassessed and reviewed. The implementation of the Remuneration Policy is subject to central and independent internal control carried out at least on an annual basis by the Internal Audit Division.

The implementation of the Policy is assigned to the Human Resources Unit, while the Group Compliance Unit reassures the compliance of the Policy and the remuneration practices of the Bank and the Group with the relevant regulatory framework and international best practices.

External experts may participate in the development and periodical review of the Remuneration Policy, whenever the Board sees fit. However, during 2013 no such external expert advice was sought.

11.5.Main characteristics of the remuneration system of the Bank according to the Bank’s Remuneration Policy

Even though the Remuneration Policy provides for the Bank’s right to award variable remuneration, during 2013 no variable remuneration was awarded, due to the Bank’s participation in the Hellenic Republic’s Bank Support Plan and according to Law 3723/2008.

Regarding share options in particular, no options were granted in 2013.

Furthermore, pursuant to Laws 3723/2008 (article 1 §3d) and 3864/2010 (article 10 §2b), the representatives of the Greek Government and the HFSF, who participate in the Bank’s Board, have also veto powers on any Board decision relating to the dividend policy and the compensation of the Board’s Chairman, the CEO, other members of the Board, as well as the General Managers and their Deputies.



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The basic principles and the most important design characteristics of the remuneration system of the Bank, aligned with applicable labor legislation, Collective Labor Agreements and Business Collective Labor Agreements, as well as relevant guidelines of the supervisory authorities, are described below.

11.5.1.Remuneration structure

Total remuneration may include fixed (such as salary) as well as variable payments or benefits (such as bonus, share options etc).

In any case, total remuneration is composed primarily of fixed payments, while the fixed and variable components of total remuneration are balanced to an appropriate ratio.

11.5.2.Criteria used for determining variable remuneration

For determining variable remuneration, if awarded, the following are taken into account:

the assessment of the performance (individual and collective), which is set in a multi-year framework sufficient to indicate real performance, not only under financially measurable criteria but also under qualitative criteria, including, but not limited to, knowledge of the field of work, managerial skills, efficiency and general professional conduct, level of interest in and contribution to the work produced, compliance with the Bank’s policies etc.

the risks linked to such performance over a longer time horizon,

the overall financial standing of the Bank and the Group,

the market conditions and the long-term business targets of the Bank and the Group (including risks and the cost of capital).

Any deficiencies or shortcomings as regards a staff member’s failure to comply with the procedures and the Policy of the Bank/Group cannot be offset by achievement of targets.

11.5.3.Risk alignment of remuneration

Members of the Board of Directors and Senior Management, officers participating in decisions related to the assumption of risk, as well as other individuals whose professional activities have a material impact on the risk profile of the Bank and the Group Companies, shall not be provided with any incentive to undertake excessive risk, nor shall they be rewarded for undertaking any risks that may exceed the business decisions of the Bank/Group.

When bonuses are awarded, the Bank places emphasis on effecting payment not by means of a pure up-front cash payment, but rather by alternative means (such as shares) and in installments (Deferred Bonus Pool), considering performance and risks linked to such performance over a longer time horizon.

11.6.Adjustment / deferral / claw back of variable remuneration

The Bank may defer payment from the approved total bonus pool for as long as it sees fit or may suspend, entirely or in part, the payoff of variable remuneration, if specific ratios (such as capital adequacy, liquidity etc.) are not met or if the financial situation of the Bank/Group has deteriorated significantly.

Without prejudice to the provisions of labor law, the Bank shall reclaim any bonus paid if, following such payment, it is discovered that the performance for which the bonus was offered derived from practices that are irregular or inconsistent with the general principles described in the Remuneration Policy.

11.7.Remuneration of senior management

The remuneration of Senior Management is approved by the Board, following the recommendation of the HRRC. In particular, their salaries are determined annually or as provided for under the terms of their relevant contracts, taking into account the salaries of peers in the Greek and international banking and other sectors, as well as the Bank’s financial position, risks undertaken and supervisory indicators.

The remuneration of Senior Management in the Risk, Compliance and Internal Audit Units shall not be related to the performance of the business units controlled. The Committee directly oversees the remuneration of top executives in the Group Risk Management and Compliance Divisions.

11.8.Directors’ Remuneration

The Board develops the proposal to the GM of Shareholders on the remuneration of its members for their board services. This proposal is developed based on the proposal of the Human Resources and Remuneration Committee and according to the Bank’s Remuneration Policy, the regulations of the HRRC and the Corporate Governance and Nomination Committee of the Bank’s Board, as well as industry best practice, in a way that adequately reflects the time and effort they are expected to contribute to the work of the Board, while at the same time promoting efficiency of the Board.



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Remuneration of the Board’s Chairman and the CEO are determined by non-executive members of the Board.

The salaries of the Chairman, the CEO and Board members are determined annually or as provided for under the terms of their relevant contracts, taking into account the salaries of peers in the Greek and international banking and other sectors, as well as the Bank’s financial position, risks undertaken and supervisory indicators.

The remuneration of non-executive members of the Board shall be linked to factors such as their general responsibilities and the time they devote to carrying out their duties, but not to the short-term results of the Bank/Group and shall not include bonuses.

The Annual Ordinary General Meeting of the Bank’s shareholders approves the remuneration of the Chairman of the Board, the CEO, the Deputy CEOs and non-executive Directors, as well as their remuneration in their capacity as members of the Bank’s Audit, Corporate Governance & Nominations, Human Resources & Remuneration, Risk Management, and Strategy Committees for the previous financial year, pursuant to article 24, par. 2 of the Companies Act (Law 2190/1920) and determines their respective remuneration through to the next AGM.

The remuneration received by the Chairman of the Board, the executive and non-executive Directors for the year 2013, due to their relationship with the Bank, and the compensation they received for their participation in the Board and Board Committees’ meetings (as well as the individual attendance of each member of the Board in these meetings) have already been published in the Bank’s Annual Financial Report for the annual period ended December 31

st, 2013, as part of the Board’s Annual Report, which is available in the Bank’s

website (www.nbg.gr - section: The Group / Investor Relations / Financial Information / Annual and interim financial statements ).

During 2013, no variable remuneration has been granted to the Chairman of the Board and the executive Directors, while the remuneration of the non-executive Directors does not include bonuses according to the Bank’s Remuneration Policy.

11.9.Aggregate quantitative information on remuneration

Total remuneration of the Bank’s staff broken down by business area, as well as remuneration of senior management and staff members whose activities have a significant impact on the Bank’s risk profile is depicted in the tables below.

Furthermore, separate tables below depict the remuneration of respective categories of staff in a consolidated basis for the main financial sector companies of the Group.

The following table shows the aggregate quantitative information on remuneration (amounts in € ‘000s), broken down by business area:

TOTAL REMUNERATION OF THE BANK’s STAFF (for the entire Bank staff)

Business areas Total staff number by business area

Total annual fixed remuneration by business area

Total annual variable remuneration by business

area

Investment Banking 836 40 -

Retail Banking 8.248 268 -

Asset Management 61 3 -

Other 3.106 139 -

Total 12.251 450 -

TOTAL REMUNERATION OF NBG GROUP’s STAFF (for the entire Group staff)

Business areas Total staff number by business area

Total annual fixed remuneration by business area

Total annual variable remuneration by business

area

Investment Banking 1.533 63 4

Retail Banking 14.199 316 10

Asset Management 185 10 1

Other 18.263 227 29

Total 34.180 616 44



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The following table shows the aggregate quantitative information on remuneration, broken down by senior management and members of staff whose activity has a material impact on the risk profile of the Bank, in relation to the categories of staff within the scope of BoG Governor’s Act 2650/2012 (amounts in € ‘000s):

TOTAL ANNUAL FIXED AND VARIABLE REMUNERATION & COMPENSATIONS OF THE BANK

Senior management

Risk takers Staff responsible for independent control functions

I. Total staff number within the scope of BoG Governor’s Act 2650/2012

38 48 9

IΙ. Total annual fixed remuneration 6 5 1

IΙI. Total annual variable remuneration - - -

III.1 in cash - - -

III.2 in shares or other equivalent ownership rights - - -

III.3 Other - - -

IV. Total annual deferred variable remuneration - - -

IV.1 in cash - - -

IV.2 in shares or other equivalent ownership rights - - -

IV.3 Other - - -

V. Total amount of adjustment of remuneration during the year based on the ex post performance and concerns remuneration granted in previous years

- - -

VI. Number of staff having received guaranteed variable remuneration

- - -

VII. Total amount of guaranteed variable remuneration - - -

VIII. Number of staff having received compensation for leaving the Bank

- - -

ΙΧ. Total amount of compensation paid to staff for leaving the Bank

- - -

Χα. Number of staff having received optional pension benefits - - -

Χ. Total amount of optional pension benefits - - -



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TOTAL ANNUAL FIXED AND VARIABLE REMUNERATION & COMPENSATIONS OF THE GROUP

Senior management Risk takers Staff responsible

for independent

control functions

I. Total staff number within the scope of BoG Governor’s Act 2650/2012

293 165 63

IΙ. Total annual fixed remuneration 33 11 5

IΙI. Total annual variable remuneration 10 1 0,4

III.1 in cash 10 1 0,4

III.2 in shares or other equivalent ownership rights - - -

III.3 Other - - -

IV. Total annual deferred variable remuneration 4 0,8 0,2

IV.1 in cash 4 0,8 0,2

IV.2 in shares or other equivalent ownership rights - -

IV.3 Other - -

V. Total amount of adjustment of remuneration during the year based on the ex post performance and concerns remuneration granted in previous years

- -

VI. Number of staff having received guaranteed variable remuneration

- -

VII. Total amount of guaranteed variable remuneration - -

VIII. Number of staff having received compensation for leaving the Bank/Company

5 5 1

ΙΧ. Total amount of compensation paid to staff for leaving the Bank/Company

0,2 0,01 0,06

Χα. Number of staff having received optional pension benefits

- -

Χ. Total amount of optional pension benefits - -

It is noted that the relevant information included in the tables above regarding the remuneration granted to the staff of the Group companies during 2013 includes the financial sector companies of the Group.

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