sberbank cz - annual report 2014

Annual Report

2014

Ann

ual R

epor

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14

Sberbank CZ, a.s.

1

Table of contents

Introduction 2

About Sberbank and Sberbank Europe 4

Key figures in summary 5

Governing bodies 6

Organisation chart 8

General economic background 9

Business activities 11

Risk management 16

Other information 20

Corporate social responsibility 27

Statement of comprehensive income for the year ended 31 December 2014 31

Statement of financial position as at 31 December 2014 32

Statement of changes in equity for the year ended 31 December 2014 33

Statement of cash flow for the year ended 31 December 2014 34

Notes to the financial statements 36

Quantitative indices 119

Report on relations 120

Independent auditor’s report 123

Report of the Supervisory Board 125

Our network 126

2 SBERBANK CZ | ANNUAL REPORT 2014 | INTRODUCTION

Ladies and Gentlemen, Dear Clients, Business Partners and Stakeholders

The year of 2014 was the first complete year in which we operated under the Sberbank brand since the acquisition of Volksbank and subsequent rebranding. It was a year of continuing changes taken in relation to our commitment to build a progressive bank – we adjusted our banking processes, introduced new attractive products and completed the replacement of top management. Despite the ongoing transformations, we achieved significantly better business results and experienced a very successful year in terms of net income.

A number of implemented changes contributed to a record net profit of CZK 383 million compared to CZK 230 million achieved in 2013 – an increase of over 66% largely helped by the interest income increased by almost 16% and the costs of risky loans reduced by 18.45%.

In the past year, the volume of non-performing loans dropped significantly by almost one fourth from 7.93% to 5.95% mainly due to the prudent risk management approach pursued by our bank. In April, we raised our Tier 1 capital by CZK 2.1 billion to CZK 8.065 billion. At the end of the year, the Tier 1 capital adequacy ratio reached 16.18% – well above the ratio of 11.80% required by the regulator. With sufficient capital on hand, we can invest in further development of our activities in the following years.

In 2014, the number of active clients grew by 28.5% to 76 137 in total – we aim to continue this trend and have 100,000 clients in our portfolio by the end of 2015. In 2014, the total volume of client loans increased by 5.31% from CZK 51.42 billion to CZK 54.15 billion and the total volume of client deposits witnessed a drop of 7.56% from CZK 48.01 billion to CZK 44.38 billion mainly due to the restructuring of our deposit base in accordance with the Basel III methodology and higher stability. The average deposit term thus increased from 2.3 to 3.7 years.

Our Corporate Banking Division acted as the lead arranger for financing several major transactions – such as Slovenské elektrárne, SGH and Renova. As the volume of loans grew by 26%, the Corporate Banking Division contributed greatly to the business results achieved.

We continued strengthening our sales channels and expanded our branch network. We opened five new branches (Pardubice, Teplice, Frýdek-Místek, Praha I. P. Pavlova, Praha Centrum Černý Most), relocated two branches to more attractive premises (Hradec Králové and Praha Strossmayerovo náměstí) and completely redesigned one branch (Olomouc) – we are now present in every region of the Czech Republic with reinforced presence in Prague. In April 2014, we launched a new sales channel – an on-line eShop – with the help of which we achieved fantastic results. With a share of approximately 10% in the sale of consumer loans and savings accounts, this channel enables our clients to enjoy our services and products anywhere in the Czech Republic without the need to visit our branches. In 2015, we plan to further expand our branch network and strengthen our digital sales channels.

In the course of the year, we welcomed a new Board Member responsible for Corporate Banking – Miroslav Lukáč with vast experience in corporate and investment banking who took over this position from Frank Guthan leaving Sberbank CZ after six years in the office; and saw major changes also in our senior and middle management.

In 2014, we were named the second most client-oriented bank in the Czech Republic and received the Zlatý měšec award (Golden Sack) as the best financial institution in the category of banks and credit unions. Our FAIR Savings was named the best financial product of the year in the category of savings products. Honoured and proud, we perceive these awards as recognition of our efforts and confirmation that we are on the right track.

On behalf of our management and our team, thank you for your continued trust and confidence.

Introduction

Vladimír ŠolcChairman of the Management Board

SBERBANK CZ | ANNUAL REPORT 2014 | INTRODUCTION 3

In 2014, Sberbank CZ was named the second Most Client-Oriented Bank of 2014 and received the Zlatý měšec award (Golden Sack) as the best financial institution in the category of banks and credit unions. Our FAIR Savings was named by the financial server Finparada.cz the Best Financial Product of 2014 in the category of savings products.

Management Board, Sberbank CZfrom left: Miroslav Lukáč , Karel Soukeník, Vladimír Šolc, Martin Muránsky, Jiří Antoš

SBERBANK CZ | ANNUAL REPORT 2014 | ABOUT SBERBANK AND SBERBANK EUROPE4

About Sberbank and Sberbank Europe

Sberbank Europe Group (Sberbank Europe AG), headquartered in Vienna, Austria, is a banking group that is 100% owned by Sberbank Russia. Sberbank Europe Group is present in 11 markets in Europe: Austria, Bosnia and Herzegovina (Sarajevo and Banja Luka), Croatia, Czech Republic, Hungary, Slovakia, Slovenia, Serbia, the Ukraine and Germany. In total the bank operates 294 branches and has 5,157 employees (as at 31.12.2014).

Due to the crisis in the Ukraine, the year 2014 was characterized by a challenging political and economic environment. While our mother company, Sberbank Russia, was put under sanctions, Sberbank Europe and its subsidiaries in the EU countries were not subject to any EU sanctions and accordingly not restricted in their access to the EU capital markets. In March 2014, some of the most renowned international banks have provided a debut syndicated term loan facility for Sberbank Europe AG for EUR 350 million equivalent, to serve new business, especially Large Corporates.

Leveraging the Austrian banking license, Sberbank Direct, a 100% subsidiary of Sberbank Europe AG, was launched as a branch of Sberbank Europe AG in Germany in summer 2014. The German subsidiary operates as

a flexible, fast and effective funding tool for Sberbank Europe AG, offering deposit products at attractive conditions. It is established as a purely online bank and offers online consumer deposits exclusively for private individuals via direct sales channels.

In addition, Sberbank Europe has started its journey on creating a new common Corporate Culture – what Sberbank Europe stands for – following the three Sberbank principles:

“All for the customer – We are a team – I am a leader”. In everything we do we are striving to exceed the expectations of our customers. We are committed to instill confidence, we make people’s lives better, helping them to fulfill their dreams and aspirations.

Despite all our achievements, the challenges will continue in 2015 and for Sberbank Europe this means that is has to continuously adapt to a changing environment. Therefore the business model of Sberbank Europe Group will be further enhanced, aimed at building a sustainable, profitable, self-funded and modern banking group in Europe.

Czech RepublicUkraine

HungaryAustria

Slovenia

Germany

Croatia

Bosnia and Herzegovina

Serbia

Slovakia

SBERBANK CZ | ANNUAL REPORT 2014 | KEY FIGURES IN SUMMARY 5

Key figures in summary

CZK million 2014 2013 2012 2011 2010Total assets 66 860 70 472 61 312 51 790 49 334

Capital adequacy 16,18% 15,77% 11,78% 13,22% 14,20%

Liabilities to clients, including debt securities in issue 50 417 57 408 48 135 36 816 34 779

Receivables from clients 54 147 51 421 45 944 41 611 39 147

Income on financial transactions before provisions and allowances

2 133 1 830 1 699 1 678 1 595

Operating expenses 1 274 1 088 930 890 847

Profit on ordinary activities before tax 481 286 270 443 345

Profit for the year 383 230 209 346 271

Number of clients 76 137 59 246 53 608 55 529 56 572

Number of employees* 825 719 668 637 622

Number of points of sale 27 22 24 24 45

NPL (non-performing loans) 5,95% 7,94% 8,16% 10,31% 11,32%

* including employees on maternity leave

201220112010

2013201220112010

201220112010 2013

2013201220112010

Total assetsCZK billion

Number of clientsThousands

Income on financial transactionsCZK billion

NPL developmentPercent

56,6 59,255,5 53,6

61,3

49,3 51,8 1,831,70

1,601,68

11,32

7,94

10,318,16

2013

70,5

2014

2014

2014

76,1

2,13

5,95

2014

66,9

SBERBANK CZ | ANNUAL REPORT 2014 | GOVERNING BODIES6

Governing bodies

Supervisory BoardChairman

Axel HUMMELAppointed on: 16 December 2014Experience: 21 years of banking experience, 14 years of management experience

Membership on other companies’ bodies:Sberbank Europe AG, Austria: Chairman of the Management Board; Sberbank SK, Slovakia: Chairman of the Supervisory Board

Vice-chairman

Igor STREHLAppointed on: 30 April 2014Experience: 22 years of banking experience, 17 years of management experience Membership on other companies’ bodies:Sberbank Europe AG, Austria: Member of the Management Board

Members

Ian Lloyd GLOVERAppointed on: 18 April 2014Experience: 10 years of banking experience, 10 years of management experience

No membership on other companies’ bodies.

Reinhard KAUFMANNAppointed on: 14 June 2013Experience: 12 years of banking experience, 10 years of management experience


Irina KREMLEVAAppointed on: 28 March 2012Experience: 22 years of banking experience, 8 years of management experience

Membership on other companies’ bodies:United Credit Bureau, Russia: Chairman of the Management Board; Cetelem Bank LLC, Russia: Member of the Management Board; Sberbank of Russia, Russia: Vice-Chairman of the Management Board

Birgit ROHRHOFERAppointed on: 18 April 2014Experience: 11 years of banking experience, 8 years of management experience

Membership on other companies’ bodies:Sberbank Serbia a.d., Serbia: Member of the Supervisory Board

SBERBANK CZ | ANNUAL REPORT 2014 | GOVERNING BODIES 7

Management BoardChairman

Vladimír ŠOLCAppointed on: 1 August 2013Experience: 16 years of banking experience, 13 years of management experience


Members

Jiří ANTOŠAppointed on: 11 July 2013Experience: 16 years of banking experience, 16 years of management experience


Miroslav LUKÁČAppointed on: 1 November 2014Experience: 19 years of banking experience, 14 years of management experience


Martin MURÁNSKYAppointed on: 1 October 2013Experience: 18 years of banking experience, 13 years of management experience


Karel SOUKENÍKAppointed on: 1 October 2013Experience: 10 years of banking experience, 10 years of management experience


SBERBANK CZ | ANNUAL REPORT 2014 | ORGANISATION CHART8

Organisation chart

153Security Office

101Administration Office

110Translation Office

001Section 001

057Partnership and Bancassurance

070Integrated Risk

Management

027Transaction Services

026ALM / Treasury

058Segment

Management

071Market Risk

028Corporate Banking

055Operations,

Facility Management and Procurement

160HR Management

090Distribution

072Operational Risk

030SME

080Accounting Division

140Marketing

073Credit Risk

045Business & Product

Support

082Data & Analytics

155Retail products

120Controlling

002Section 002

003Section 003

004Section 004

005Section 005 (CEO)

056Alternative & Digital

Channels

036Underwriting

Division

020Global Markets

015IT

014Communication

Management Board130

Audit / Revision

175Compliance & AML

037Work out andRestructuring

025ALM Controlling

Competence Center

170Legal

150Project Management,

Organisation

SBERBANK CZ | ANNUAL REPORT 2014 | GENERAL ECONOMIC BACKGROUND 9

General economic background

The year 2014 was marked by the continuous recovery of Czech economy commenced in the second half of 2013. Although witnessing a year-on-year moderate drop as compared to the previous year, the real Czech GDP growth beat the rest of the European Union.

In 2014, the Czech economy with the year-on-year economic growth of 2% was underpinned by more or less the same industries as in 2013. As per the data published by the Czech Statistical Office, the Czech economy was driven for the most part by the manufacturing industry depending mostly on the external demand followed by the agriculture, forestry and fisheries industry with a positive, yet moderate contribution to the economic growth. For the first time since 2010, the Czech economic growth was positively influenced also by the construction industry having had overcome a series of difficult years. As in the previous year, the Czech economy was further underpinned – this time more intensely – by the service sector.

The year 2014 was also a year of record breaking results and historic milestones achieved by the Czech economy with the retail sales and industrial production breaking their conjectural record of 2008, the construction production achieving a year-on-year growth after five pessimistic years and the consumer confidence index turning positive for the first time since 2008.

The ongoing recovery of the Czech economy as seen in 2014 was characterised also by a relatively well-balanced structure. Besides the industrial production driven mostly by the external demand, the Czech economy was underpinned by all components of domestic demand (except for changes in inventories). In 2014, the Czech GDP was boosted by the 18-month-long recovery in investment growth as much as by the final household consumption expenditure.

With the continuously improved situation in the labour market, the contribution of the final consumption expenditure of households to the economic growth was higher – as opposed to the lower contribution of the final consumption expenditure of government (as compared to the previous year) facilitated by the Europe-wide pressure to consolidate the public finances.

The domestic industrial production was driven by export demand that increased by almost 9%. However, with the higher import demand and hence higher import volumes, the net export made a slightly negative contribution to the economic growth. This situation – where the real export dynamics was exceeded by the real pace of imports and the net export thus did not contribute to the economic growth – occurred in the Czech Republic for the first time since 2007.

The year 2014 was a successful year for the Czech economy also as regards other – more sensitive to ordinary people – economic development variables. In the past year, the unemployment rate fell significantly, the total employment and the job vacancies grew year-on-year and so did the average nominal wage that – following the stagnation seen in 2013 – grew year-on-year by 2.4% in line with the improved situation in the labour market.

In 2014, the Czech Republic – as well as other European countries – saw its consumer price inflation to drop significantly with the imported inflation and the slide in energy commodities prices (represented in particular by a slump in global oil prices) not being overweighed even by the recovered domestic demand. The annual inflation rate thus dropped from 1.4% in 2013 by one percentage point to 0.4% in 2014 and the Czech Republic thus witnessed the slowest year-long erosion of the buying power of wages and savings since 1993. With the inflation at the record low, the average wages thus grew in figures year-on-year after two years of a year-on-year drop.

.

SBERBANK CZ | ANNUAL REPORT 2014 | GENERAL ECONOMIC BACKGROUND10

Development of Interest Rates and Czech Koruna

With the consumer price inflation slowed down even further from the inflation target set by the Czech National Bank, the key interest rate remained at the record low of 0.05% for the second consecutive year. Throughout the entire past year, the ongoing extremely relaxed monetary policy thus continued to put the money market rates under further pressure and caused them to drop to the new record lows with the one-month money market rates closing the year at 0.25% and the 12-month money market rates being down to 0.51%.

Yields to maturity on Czech government bonds were under a negative pressure already in the preceding year. In 2014, the yields to maturity on bonds with a maturity up to five years thus started below 1%. With the slowing inflation and extremely relaxed monetary policy, the market yields to maturity continued to drop also in 2014. Given the already relatively low starting position, the major drop of 140 to almost 200 basis points (two percentage points) was seen in the yields on bonds with maturity beyond five years. Whereas the yields on bonds with maturity up to six years closed the year 2014 below 0.20 of a percentage point, the yields on bonds with maturity up to ten years dropped below 0.73 of a percentage point.

In 2014, the koruna’s exchange rate developed much more calmly than in 2013 when it developed quite turbulently. Especially in the first half of 2014, the koruna’s exchange rate development was quite calm with the Czech koruna (CZK) being traded in the FX market at around 27.500 per Euro (EUR) by FX traders respecting the credible threat posed by the Czech National Bank (CNB) in the form of another potential direct intervention made in order to maintain the CZK exchange rate at its weakened level if necessary.

In the second half of 2014, the Czech FX market saw a recovery in trading and hence a slightly increased volatility; yet, all this contributing – to the satisfaction of the Czech National Bank – to the weakened CZK. The August “excursion” of the CZK/EUR exchange rate to the level of CZK 28 per EUR was, however, the only short-term deviation seen that year. Until the end of 2014, the CZK was then traded at the stable rate of 27.50 – 27.80 per EUR, closing the year at the level in between these two figures, i.e. slightly weakened, yet at a similar level as around Christmas of 2013.

Historically, the year of 2014 in the Czech FX market will be described not only as calm and stable in terms of the koruna’s exchange rate development but also as a practical illustration of a credible and efficient devaluation of this rate by the central bank. In addition, the aforementioned development of Czech export, especially when compared to that of other Central European countries, confirmed the success of the CNB activities pursued in order to spur the competitiveness of the Czech export industry with the help of the weakened koruna. Given the real development of the consumer demand and inflation, the negative expectations of those criticising the intervention move of the Czech National Bank in November 2013 were not met. In view of the real economy, structure of the economic growth, development in the labour market and pull of domestic demand as well as in view of the situation in the Czech bond and FX market, the year 2014 can thus be evaluated as quite successful.

SBERBANK CZ | ANNUAL REPORT 2014 | BUSINESS ACTIVITIES 11

Business activities

Sberbank CZ – as one of the first banks in the Czech market – introduced a bonus for due repayment of consumer loans and continuously adjusted its mortgage loan interest rates in reaction to the situation in the market in order to maintain the competitive edge of this product.

The savings account offered by Sberbank CZ became the most attractive deposit product in the market followed by FAIR Savings with one of the top savings rates offered in the market and GUARANTEE Savings Account introduced in April 2014 with a unique savings rate guaranteed until the end of 2015. The savings scheme offered by Sberbank CZ was named the Best Financial Product of 2014 in the category of savings products and simultaneously saw a major increase in the number of opened savings accounts (by 150% as compared to the year 2013).

In 2014, Sberbank CZ introduced also three new additional bank insurance products offered in co-operation with BNP Paribas Cardif pojišťovna – payment protection insurance (consumer loans and mortgage loans), travel insurance and insurance of payment cards and personal possession.

SME bankingSME are traditionally one of the key Sberbank CZ segments; in terms of assets, the loans granted to the SME clients represent 32% of the total volume of loan transactions. The important role this segment plays for Sberbank CZ both from the local and group-wide perspective is emphasised by the fact that the SME clients are served by a separate business division split into two specific sub-segments – corporate SME banking (with five regional teams) and real estate financing (with one specialised team). In 2014, the SME division strengthened its structure and regional presence, expanded the regional SME teams with experienced specialists and simultaneously increased the number of relationship managers – all this with the aim to increase the available HR resources, make the client servicing more efficient and hence to further satisfy the customer needs. The banking products and services offered to the SME clients range from payments, deposit products, financing and trade finance instruments to FX and interest rate risk hedging.

Retail bankingDespite strong competition in the market, the year 2014 was a year of record breaking results for the Sberbank CZ retail division. In 2014, Sberbank CZ acquired a significant number of new retail clients, achieved high sales volumes in the key retail product areas (consumer loans, consolidation loans, savings accounts and mortgage loans), expanded the branch network with five new and three re-located and/or redesigned branches and witnessed the amazing launch of the brand new on-line sales channel – eShop – with a current share of almost 10% in the sale of consumer loans.

In terms of business results, the Sberbank CZ retail division reported a growth of 7.5% in the aggregate volume of deposits (from CZK 21.2 billion in 2013 to CZK 22.8 billion in 2014) and over 8% in the aggregate volume of loans (from CZK 18.3 billion to CZK 19.8 billion) with a double digit growth of 19% in the aggregate volume of consumer loans (from CZK 12.5 billion to CZK 14.8 billion); and a growth of 28.5% in the total number of retail clients (76 137) – the highest growth within Sberbank Europe.

In 2014, Sberbank CZ expanded its branch network with five new branches (Pardubice, Teplice, Frýdek-Místek, Praha I. P. Pavlova, Praha Centrum Černý Most), two branches relocated to better premises (Hradec Králové and Praha Strossmayerovo náměstí) and one completely redesigned branch (Olomouc). Operating a network of 27 branches as at the end of 2014, Sberbank CZ is now present in every region of the Czech Republic with reinforced presence in Prague. The branch network expansion will continue also in 2015 with additional three new branches planned to be opened in 2015.

In April 2014, Sberbank CZ launched a new sales channel – an on-line eShop – with the help of which Sberbank CZ achieved fantastic results. With a share of approximately 10% in the sale of consumer loans and savings accounts, this channel enables the clients to enjoy the Sberbank CZ services and products anywhere in the Czech Republic without the need to visit any Sberbank CZ branch.

In 2014, Sberbank CZ continued to adjust its products designed for individuals and micro segment clients. In making its products more attractive to the customers,

SBERBANK CZ | ANNUAL REPORT 2014 | BUSINESS ACTIVITIES12

Corporate bankingIn its second year of independent operation, the corporate banking division served customers in three specific segments – large corporations and enterprises with the annual turnover above CZK 1.2 billion, financial institutions and public sector; the first segment including also entities active in the area of real estate financing, the second segment offering the Sberbank CZ products and services also to non-banking financial institutions and institutional investors and the third segment serving an extensive portfolio of clients ranging from municipalities to non-profit organisations.

Providing its services from the central offices in Prague and Brno (public sector clients), the corporate banking division offers a number of products and services ranging from payments, deposit instruments and products to FX and interest rate risk hedging, operating and investment loans and structured and export finance.

As at 31 December 2014, the corporate banking division held a share of 21.5% in the aggregate volume of Sberbank CZ customer loans and 22.5% in the aggregate volume of Sberbank CZ customer deposits.

The year 2014 was a year of interesting results for the corporate banking division; especially in the area of loans where the corporate banking division witnessed a growth of 26% as compared to 3.6% seen on average in the Czech banking market that year. This growth was achieved almost exclusively by the segment of large corporations and enterprises with a significant share of structured finance and syndication transactions arranged in this segment. As a lead arranger, Sberbank CZ co-financed several acquisition transactions of domestic and foreign investors executed in the Czech Republic within which Sberbank CZ provided, for instance, an acquisition loan to the Russian group Renova. The growth experienced by the corporate banking division in the area of loans was achieved also with the help of refinanced loan transactions and the traditional investment and operating loans alike. In particular in the area of structured finance, Sberbank CZ strengthened its co-operation with the Sberbank group (especially with the Sberbank Europe subsidiaries)

In 2014, the SME division experienced a successful year in the area of loans as well as deposits with the most attractive products being represented by savings accounts, revolving time deposits with guaranteed interest rate and growth time deposits.

In May 2014, the SME division started to co-operate in offering deposit and loan products with the SME Acquisition Call Centre that contributed greatly to the achievement of great business results. The SME Acquisition Call Centre focuses on acquiring new clients through targeted campaigns, or more precisely, by way of adopting an acquisition approach – a combination of direct mailing, outbound telephone calls to potential clients (defined with the use of propensity modelling) and management of business meetings for SME Relationship Managers.

In 2014, the SME division saw major process changes – the most significant being the implementation of a new credit process with efficient and high-quality support provided by OE Credit Analysis. The new regional structure and close relationship established between OE Credit Analysis and OE Distribution (SME) contributed to a faster and sound process of developing and assessing the loan applications; the former having witnessed a significant qualitative move in the structuring and subsequent discussion of loan transactions with OE Risk Management.

Within the adopted process changes, Sberbank CZ additionally focused also on the simplification of non-credit processes and related wider accommodation of client requests and needs raised in this area – in this respect, Sberbank CZ simplified and accelerated the process of opening current accounts, introduced bank statements issued in the Russian language and started to offer savings accounts in EUR and USD.

With the aforementioned enhancements, changes and new products and services forming a solid base, the SME division can expect the next year to be as much as successful as the year 2014.


In 2014, OE Global Markets pursued more activities not only in the area of dealings on own account (including the servicing of bank book needs – namely within the short-term liquidity management) but also in the area of providing Global Markets products to the institutional, public sector, corporate and retail clients. Most of the business activities witnessed a year-on-year growth in terms of the trading volumes, number of active clients enjoying the OE Global Markets Trading services as well as the number of concluded trades.

Global markets salesContinued to be influenced in 2014 by the intervention of the Czech National Bank, the Czech FX market saw a drop in the interest of clients in hedging their FX risks related to the local currency; followed by a major increase in the number of RUB transactions executed in 2HY/2014 with Sberbank confirming its role of a dominant player in the RUB inter-bank market.

In 2014, Sberbank CZ experienced a moderate increase in the interest of clients in its interest rate risk hedging products with the interest rates at the historic low – followed by the development seen in the segment of financial institutions and large corporations and enterprises – and continued to strengthen its position in serving the financial institutions and public sector clients.

In the area of securities transactions, Sberbank CZ saw its clients to focus more on safe investments with guaranteed interest income and small investors to be more interested in obtaining the mortgage bonds sold on a continuous basis.

In 4Q/2014, the Global Markets Trading and Global Markets Sales teams were considerably transformed and expanded with experienced top professionals from renowned banks. On 1 November 2014, OE Global Markets was finally relocated from Brno to Prague and a compact team of “old” specialists and newcomers was established with a new income-oriented management concept believed to enhance the already high level of provided services.

in the form of mutual participation in the provided loans – such as in the case of financing provided to Slovenské elektrárne a.s.

The segments of financial institutions and public sector contributed to the results achieved by the corporate banking division in 2014 mainly in the area of deposits. Contrary to the situation in the area of loans, the corporate banking division saw a drop in the volume of deposits as at 31 December 2014 as compared to the previous year due to non-renewed deposits of three clients. The non-renewal, however, contributed to the diversification of the division’s deposit portfolio and hence its future stabilisation. In terms of the aggregate volume of deposits, the shares of the three segments were almost identical – with the public sector being the most stable segment compared to the segment of financial institutions witnessing a major volatility throughout the year with negative impact on the total aggregate of deposits at the end of the year.

In comparison to other divisions serving the Sberbank CZ customers, the corporate banking division reported in 2014 the highest profit per employee.

In 2014, the corporate banking division reinforced and stabilised the staff base of the large corporations and enterprises segment and continued optimising its processes and introducing new products with the aim to increase the quality and availability of the banking products and services.

Global marketsGlobal markets tradingIn 2014, Sberbank continued to establish and expand business co-operation with the financial market players – OE Global Markets Trading entered with a number of major European banks into master agreements governing the trading in the financial markets and hence facilitated access to new products. In 2014, Sberbank CZ significantly strengthened its co-operation with Sberbank CIB (Russia) and other Sberbank Europe subsidiaries.

SBERBANK CZ | ANNUAL REPORT 2014 | BUSINESS ACTIVITIES14

IT servicesThe year 2014 was a year of enhanced IT client services and major infrastructure changes and adjustments.

In 2014, Sberbank CZ launched a brand new online sales channel (eShop), introduced master agreements that significantly reduced the administrative burden and time spent on opening new bank accounts and initiated a weekend IT support and more automated IT supervision and support processes in relation to the continued expansion of the Sberbank CZ branch network and adjustment of branch business hours.

In addition thereto, Sberbank CZ implemented also a major IT infrastructure project (ESB integration platform for future system integration) providing for more flexibility, better control and multiple use of individual integrations for various systems (the first project with the prepared system integration being the new version of the Credit Factory system used within the loan product approval process) and decided to gradually terminate its co-operation with the original group IT provider ARZ seated in Vienna and hence migrate the systems from this provider back to the Sberbank CZ data centres located in the Czech Republic (the first database and application servers being migrated in 2014 and the core banking systems being planned to be migrated in 2015).

Digital bankingIn 2014, Sberbank CZ experienced not only a dynamic growth in terms of its customer base but also an increased demand for its internet banking services (Sberbank Online Banking). At the end of 2014, the number of Sberbank Online Banking users increased by 45% as compared to the same time in 2013.

With the increased demand for the internet banking services, the number of Homebanking and MultiCash users continues to drop – at the end of 2014, the Homebanking and MultiCash services were used by 6.5% and 3%, respectively, of all direct banking users.

The new Smart Banking services introduced at the end of 2013 have been activated so far by 4% of direct banking users.

In 2014, Sberbank CZ focused also on the acquisition of new clients through the internet. In April 2014, Sberbank CZ launched its Sberbank eShop designed for clients who wish to arrange a FAIR Loan and/or FAIR Consolidation on-line without the need to visit a Sberbank CZ branch in person. In May 2014, the option to arrange these two products on-line (FAIR Loan and FAIR Consolidation) was offered also to the external sales agents and intermediaries. In total, the Sberbank eShop was actively used by 217 clients who arranged a FAIR Loan completely on-line without visiting the Sberbank CZ branch and 292 clients who – having had visited the Sberbank eShop website – decided in the end to arrange the FAIR Loan or FAIR Consolidation in person at the Sberbank CZ branch.

HR managementHuman resources management is an important part of the Sberbank CZ overall strategic management as employees are a decisive factor in creating long-term partnerships with the Sberbank CZ clients, fulfilling sales targets, and creating an effective foundation and environment for all banking activities.

In 2014, the priority of OE HR Management was to increase the know-how of Sberbank CZ and hire experienced top managers. In 2014, Sberbank CZ thus welcomed new managers appointed to head OE Global Markets, OE Segment Management (Retail), OE Integrated Risk Management and OE Credit Risk and established several new strategic organisational units.

The new organisational units established at Sberbank CZ in 2014 include OE Legal (supervising the entire legal activities of Sberbank CZ), OE Central Procurement, OE Project Management (involved in central management of Sberbank CZ projects) and OE Data & Analytics (building a data warehouse).

In 2014, OE HR Management successfully implemented several crucial group projects – such as Performance Management under which Sberbank CZ conducts a performance appraisal interview of each employee with their supervisor twice a year and uses the obtained results not only to evaluate the performance of employees but also to remunerate their performance,


develop their skills, plan their substitutes and nominate them to participate in the international projects.

In 2014, Sberbank CZ took part in the second annual group-wide engagement survey within which the Sberbank employees provided answers to questions relating to Sberbank as an employer and evaluated the company from different perspectives. The opportunity to voice one’s opinion was taken up in total by 80% of Sberbank CZ employees who provided a relevant feedback to the top management and whose replies contributed – to our satisfaction – to an increased engagement index (as compared to the previous year) and overall satisfaction with work.

Another key group project implemented at the local level in 2014 was the implementation of corporate values. As we are aware of the fact that the corporate culture cannot be “ordered” top-down, we invited the Sberbank CZ employees to take part in defining the new corporate culture and organised a Corporate Culture Day during which the employees were given the opportunity to discuss what we should behave like in order to achieve our new corporate values: “All for the customer”, “We are a team” and “I am a leader”.

MarketingIn 2014, the Sberbank CZ marketing activities focused primarily on two major areas – sale of key products and increased brand awareness.

In spring and autumn 2014, Sberbank CZ launched a major TV and online marketing campaign to promote the consumer loans accompanied by all-year-long massive on-site print and outdoor advertising in towns and cities with newly opened or relocated Sberbank CZ branches.

The marketing campaigns and activities were successful and met the objectives – the brand awareness doubled. The marketing activities focused on product promotion and increased brand awareness will continue also in 2015.

CommunicationWithin the ongoing changes, OE Communication focused on informing the Sberbank CZ employees, clients and mass media about all Sberbank CZ activities in a timely, regular and transparent manner. With the involvement of the Management Board and top management in the internal and external communication, Sberbank CZ further strengthens its open and interactive communication with all key communication groups.

In 2014, OE Communication assumed the responsibility for event management and sponsoring and on behalf of Sberbank CZ organised or supported two dozens of major business, social, cultural and sport events in order to strengthen the relationships maintained with the current clients and partners as well as to introduce the Sberbank CZ services to potential clients.

In 2014, Sberbank CZ continued its corporate social responsibility activities within which Sberbank CZ provided financial support to selected non-profit organisations, Sberbank CZ employees took part in volunteering and the Sberbank CZ Charity Fund turned into an independent legal entity (Sberbank CZ Endowment Fund). For further details, please refer to pages 27-29 “Corporate Social Responsibility”.

SBERBANK CZ | ANNUAL REPORT 2014 | RISK MANAGEMENT16

Risk management

In order to achieve adequate return at the acceptable level of risk, Sberbank CZ maintains a prudential and balanced approach to risk management that takes as its starting point the applicable legal regulations and risk strategy of the Group. Sberbank CZ uses a system of regulatory and internal limits, the amounts of which and adherence thereto are regularly monitored, and co-operates with its parent company in the gradual development of advance risk management tools.

The overriding general principles in the risk management process include: (i) optimisation of the relationship between the risk and expected return; (ii) functioning internal control system; (iii) proper segregation of duties; (iv) risk identification and analysis; (v) portfolio diversification; and (vi) accurate and complete banking system data. At Sberbank CZ, the top management is regularly informed as to the level of risk undertaken and the risk management system is monitored and evaluated.

The key role in the risk management’s organisational structure is played by the Management Board. The Management Board determines the risk management strategy, approves the key risk management documentation and decides upon the most important risk positions. The risk management is facilitated by the Risk Management division directly subordinated to the Management Board member responsible for risk management. The Risk Management units analyse the Sberbank CZ risk positions, monitor the compliance with established limits, present the results of their findings and (if applicable) approve the risk positions within the scope of assigned authority.

Risk management committees (part of risk management system):

Risk Committee with delegated power from the Management Board to:• approve the risk management principles,

general methods, limits, scenario prerequisites and any other risk management process parameters;

• monitor the credit, market and operational risks

(and compliance with limits) and the approve corrective actions adopted in case of exceeded limits and/or unwanted development tendencies;

• define the principles of internal guidelines and regulations governing the risk management;

• approve the risk management methodology (definition, monitoring and updates of models) and individual risk management models; and

• monitor the adequacy, reliability and efficiency of risk management internal guidelines, regulations, processes and limits.

Assets and Liabilities Committee discussing the current and perspective interest rate risks and exchange risks in the banking book as well as liquidity risks, funding and regulatory capital management with the aim to optimise the risk/return profile.

Credit Committee making a decision to accept a credit risk in relation to individual counterparties (approval of new exposures and regular reviews of interest rate risks of current exposures).

Distressed Assets Committee making a decision to:• o approve the principles of distressed assets

management;• o discuss and approve the internal guidelines

and regulations governing the distressed assets management and related methodological and working procedures;

• o define the principles of increasing the exposure of clients with distressed assets;

• o suggest a solution to address individual major distressed assets within the scope of assigned authority;

• o set the rules for managing the individually insignificant distressed assets;

• o monitor the development of distressed assets and adopt corrective actions in case of unwanted development; and

• o delegate the authority to approve the manner of addressing the distressed assets to the employees of OE Workout and Restructuring, Head of OE Workout and Restructuring and Head of OE CRO.

SBERBANK CZ | ANNUAL REPORT 2014 | RISK MANAGEMENT 17

Development of capital adequacy

The committee members include the Management Board members and the heads of respective risk management units.

Risk management units:

OE Integrated Risk Management – credit risk management, capital adequacy and portfolio monitoring;

OE Market Risk – market risk management and liquidity risk management;

OE Operational Risk – operational risk management and internal control system;

OE Credit Risk – lending process parameters; OE Underwriting – approval process; and OE Work Out and Restructuring – recovery of

claims.

Capital adequacy

At Sberbank CZ, the risks are sufficiently covered by capital as per the regulatory requirements and the principles of standardised approach to credit and operational risks are applied. Given the small trading portfolio, the market risk requirement is not determined.

At the end of 2013, the sole shareholder resolved to promote further growth of Sberbank CZ and to increase the Sberbank CZ capital (through a subordinated loan converted into equity in the first half of 2014).

Sberbank CZ assesses the capital adequacy as per the requirements of Pillar II under the Basel Capital Accord known as Basel II at least once per year with respect to all significant risks (internal capital adequacy assessment system).

8%

10%

12%

14%

16%

18%

20%

Sberbank CZ

Tier 1

Czech banking sector

SBERBANK CZ | ANNUAL REPORT 2014 | RISK MANAGEMENT18

Credit riskLending is one of the major business activities pursued by Sberbank CZ with correspondent emphasis given to the credit risk management. This process includes: risk identification, measurement of risk positions, monitoring of limits and adoption of measures to mitigate the undertaken credit risk. The process is carried out at the level of individual clients and the loan portfolio.

In assessing a client’s credit quality, Sberbank CZ places particular emphasis on analysing the client’s financial situation, ability to repay the provided loan from cash flow and the experience with the client to date.

The credit quality of each client is assessed using an internal rating system corresponding to the type of client being assessed. Within each rating system, a client is classified at one of 26 points on the internal rating scale. Each rating point corresponds to a fixed one-year probability of the client’s default. This probability is used as one of the parameters in the decision-making process. The rating tools are regularly tested and adjusted accordingly to ensure that the estimated probabilities of default are correct.

The quality of the collateral instruments is another criterion taken into account in assessing a loan application. A catalogue of these instruments defines the acceptable types of collateral, methods for establishing their fair values, frequency of revaluation and responsibilities assumed by the individual Sberbank CZ branches.

The loan applications are assessed and approved independently of the business units with the approval authority being delegated by the Management Board and segmented by value into several layers.

The individual exposures are regularly monitored; the loan portfolio quality is continuously checked and the probability of timely identification of future client default is thus increased. Sberbank CZ has in place a system to timely address the distressed assets and hence to reduce the probability of a loan-related loss.

All regulatory limits on investment portfolio exposure are complied with.

The claims against clients are assessed in terms of their lowered value (if any), namely with respect to the lowered rating, default and other breach of original covenants by the respective counterparty. The lowered value of claims is assessed with respect to: collective impairment – applied to specific groups of

assets based upon statistical models and covered by the collective impairment provisions; and

individual impairment – applied to claims with objective evidence of lowered value and covered by the individual impairment provisions.

Market riskThe main market risk management tool is represented by a system of limits on individual types of market risk. Compliance with these limits is regularly monitored; information about any exceeded limits and related corrective actions is reported without delay to the Management Board, Risk Committee and respective business units. The limits are established internally, in co-operation with the parent company or with respect to the relevant CNB regulations and as such are approved by the Assets and Liabilities Committee. Stress testing of market risks is carried out on a regular basis.

The exchange risk is managed by way of closing the Sberbank CZ foreign exchange position through hedging. The foreign exchange position of individual major currencies is monitored on a daily basis and compared to applicable limits.

The exposure to interest rate risk is quantified by simulating the impact of a standardised interest rate shock (shifting the yield curve by 200 percentage points) on the Sberbank CZ capital with this impact being represented by the change in the net present value of the Sberbank CZ interest rate sensitive assets and liabilities. The difference between assets and liabilities with fixed long-term interest rates (the main source of interest rate risk) is balanced using the interest rate swaps and debt issuance. The Sberbank CZ interest rate position is measured on a regular basis and compared to applicable limits.

SBERBANK CZ | ANNUAL REPORT 2014 | RISK MANAGEMENT 19

The exposure to securities market volatility occurs in relation to the bonds portfolio with predominate Czech government bonds. From a regulatory point of view, Sberbank CZ holds a small trading portfolio.

Liquidity riskThe operational liquidity risk is managed on a daily basis by way of monitoring the short-term and long-term liquidity indicators examined both in the individual major currencies and on an aggregate basis for all currencies. The Sberbank CZ liquidity position is continuously managed based on this analysis. Sberbank CZ distinguishes between the contractual maturity of balance items and modelled forecast maturity.

Stress scenarios of the Sberbank CZ liquidity position are prepared on a weekly basis using the data on the existing structure of assets and liabilities with respect to the forecast behaviour thereof in modelled stress situations. Sberbank CZ has in place a contingency liquidity plan that outlines the procedures to follow in case the Sberbank CZ liquidity position is jeopardised by extraordinary circumstances (if any).

Information about the liquidity development and adopted liquidity-related corrective actions is reported without delay to the Management Board and the Assets and Liabilities Committee.

Operational riskThe operational risk, as well as the related information security, continuity of operations, outsourcing and internal control system established for individual processes and units are governed and regulated by the necessary internal guidelines and regulations as per the regulatory requirements.

The basic methods include: risk elimination, mitigation, transfer and acceptance. The operational risk management process includes: risk identification, recording, assessment and valuation and risk mitigation measures. The operational risk management process is carried out at the level of both actual events and hypothetical risks.

The operational risk is managed and identified through: collection, classification and subsequent assessment

of operational risk events; Risk Control Self Assessment; and analysis of scenarios for risks with low frequency

and high impact.

Once identified, the operational risks are addressed by corrective actions adopted in order to minimise efficiently the probability of future occurrence of a similar event and designed with respect to the frequency of occurrence and amount of the realised/anticipated loss/gain and the seriousness and cause of origin.

Sberbank CZ has in place a contingency plan that outlines the procedures to follow in order to facilitate a continuation of business activities within the widest range possible in case of critical incidents as well as a recovery plan to resume the operation of key IT applications.

Concentration riskSufficient diversification of underlying credit risk is ensured by a system of limits on risk concentrations in relation to the groups of connected clients, sectors in which the clients operate and countries. Risks arising from the concentrated exposure to individual products are monitored, too.

In terms of liquidity, Sberbank CZ monitors the level of concentration in relation to providers of short-term liabilities.

SBERBANK CZ | ANNUAL REPORT 2014 | OTHER INFORMATION20

Sberbank CZ is controlled by Sberbank Europe AG (SBEU) constituting a part of the Sberbank group. The group’s structure is depicted in the diagram.

Act No. 90/20012 Sb., the Business Corporations Act, stipulates that any entity that significantly influences the conduct of a business corporation to the detriment of the influenced corporation must compensate this business corporation for the harm induced, unless this entity proves that it acted in good faith and reasonably assuming that it was informed and acted in a defensible interest of the influenced corporation. Measures that should ensure that the controlling entity does not misuse its powers stem from the Business Corporations

Act. The measures include, in particular: (i) the obligation of the Management Board to prepare a report on relations between the controlling and the controlled entities and between the entities controlled by the same controlling entity in the past fiscal year in accordance with Sections 82-88 of the Business Corporations Act (see page 120 “Report on Relations”); (ii) the obligation of the controlling entity to compensate the harm induced to the controlled entity in accordance with Section 71(1) of the Business Corporations Act; and (iii) the liability of the controlled entity.

Other information

Relations

Sberbank of Russia

Sberbank Magyarország Zrt.Hungary

Sberbank BH d.d., SarajevoBosnia and Herzegovina

Sberbank banka d.d.Slovenia

Sberbank CZ, a.s.Czech Republic

Sberbank Slovensko, a.s.Slovakia

Sberbank d.d.Croatia

Sberbank a.d. Banja LukaBosnia and Herzegovina

Sberbank Srbija a.d. BeogradSerbia

VS BankUkraine

Sberbank Europe AG

100%

100%

98.93%

100% 99.98%

100% 99.50%

100% 99.42%

99.92%

SBERBANK CZ | ANNUAL REPORT 2014 | OTHER INFORMATION 21

Treasury shares and securities In 2014, Sberbank CZ did not trade or hold any Sberbank CZ treasury shares; nor did it hold any shares of its controlling entity (SBEU).

The securities issued by Sberbank CZ can be transferred without restriction. The Sberbank CZ shares are not publicly traded.

The voting rights, whether direct or indirect, are assigned only to the shares in business and as such are not restricted otherwise.

To the knowledge of Sberbank CZ, there are no shareholders agreements that could hinder the transferability of shares or voting rights.

The rules for electing and removing the Management Board members and amending the Articles of Association are stipulated only in the Articles of Association.

The Management Board members have no special powers under the law governing the legal regulations of business companies.

Sberbank CZ is a party to no significant agreements/contracts that will become effective or will change or lapse with the change in the control of Sberbank CZ due to a takeover bid and the effects resulting from such agreements/contract.

Sberbank CZ has in place no agreements entered into with the Management Board members or employees under which Sberbank CZ undertakes to compensate the Management Board members or employees for the termination of their offices or employment in relation to a takeover bid.

Sberbank CZ has in place no agreements entered into with the Management Board members other than the ordinary agreements for the performance of office that might be significant to the Annual Report users and beneficial in the case of a terminated legal relation.

Sberbank CZ has in place no schemes under which the Sberbank CZ employees and Management Board members can acquire participating securities of the company, call options on these securities or other rights assigned thereto at favourable terms.

No persons or entities with management authority hold shares or similar securities representing a share in Sberbank CZ.

Neither Sberbank CZ nor the bonds issued by Sberbank CZ have been rated.

Issued securities

Sberbank CZ shares as at 31

December 2014

• Class: ordinary shares• Type: 561,198 registered ordinary shares• Form: dematerialised• Quantity: 561,198 shares in total• Total volume in issue: CZK 2,805,990,000• Nominal value per share: CZK 5,000 • Traded in: not traded in any public market

Sberbank CZ mortgage bonds (HZL)

as at 31 December 2014

HZL VB CZ 5.30% payable in 2017• ISIN: CZ0002001688• Date, type and form of issue: 18 December 2007,

bearer securities, dematerialised • Total volume of issue: CZK 0.8 billion • Nominal value, quantity: CZK 10,000; 80,000• Coupon: fixed annual interest rate of 5.30% paid

annually in arrears• Traded in: ---• Maturity: 18 December 2017 (repaid at the nominal

value)


HZL VB CZ 5.70% payable in 2014 • ISIN: CZ0002002116• Date, type and form of issue: 27 October 2009,

bearer securities, dematerialised• Total volume of issue: CZK 0.5 billion • Nominal value, quantity: CZK 10,000; 50,000 • Coupon: fixed annual interest rate of 5.70% paid

annually in arrears• Traded in: --- • Maturity: the mortgage bonds were repaid at the

nominal value on 27 October 2014

HZL VB CZ 4.10% payable in 2016 • ISIN: CZ0002002199 • Date, type and form of issue: 19 May 2010, bearer

securities, dematerialised• Total volume of issue: CZK 0.5 billion• Nominal value, quantity: CZK 10,000; 50,000• Coupon: fixed annual interest rate of 4.10% paid

annually in arrears• Traded in: ---• Maturity: 19 May 2016 (repaid at the nominal value)

HZL VB CZ VAR1 payable in 2015 • ISIN: CZ0002002298• Date, type and form of issue: 24 March 2011, bearer

securities, dematerialised• Total volume of issue: CZK 0.3 billion • Nominal value, quantity: CZK 10,000; 30,000 • Coupon: floating half-year 6M PRIBOR+1% interest

rate paid semi-annually in arrears• Traded in: --- • Maturity: 24 March 2015 (repaid at the nominal

value)

HZL VB CZ VAR payable in 2017• ISIN: CZ0002002454• Date, type and form of issue: 22 March 2012, bearer

securities, dematerialised• Total volume of issue: CZK 0.5 billion • Nominal value, quantity: CZK 1; 500,000,000• Coupon: floating half-year 6M PRIBOR+2% interest

rate paid semi-annually in arrears• Traded in: Prague Stock Exchange• Maturity: 22 March 2017 (repaid at the nominal

value)

HZL VB CZ 3.20% payable in 2016• ISIN: CZ0002002611• Date, type and form of issue: 11 October 2012, bearer

securities, dematerialised• Total volume of issue: CZK 1 billion • Nominal value, quantity: CZK 1; 1,000,000,000• Coupon: fixed annual interest rate of 3.20% paid

annually in arrears• Traded in: Prague Stock Exchange• Maturity: 11 October 2016 (repaid at the nominal

value)

HZL VB CZ 2.30% payable in 2018• ISIN: CZ0002003254• Date, type and form of issue: 24 October 2013,

bearer securities, dematerialised• Total volume of issue: CZK 1 billion• Nominal value, quantity: CZK 10,000; 100,000• Coupon: fixed interest rate 2.30% paid annually in

arrears• Traded in: Prague Stock Exchange• Maturity: 24 October 2018 (repaid at the nominal

value)

HZL VB CZ 2.00% payable in 2020• ISIN: CZ0002003460• Date, type and form of issue: 26 June 2014, bearer

securities, dematerialised• Total volume of issue: CZK 1.3 billion• Nominal value, quantity: CZK 10,000; 130,000• Coupon: fixed interest rate 2.00% paid annually in

arrears• Traded in: Prague Stock Exchange• Maturity: 26 June 2020 (repaid at the nominal value)

HZL VB CZ 1.10% payable in 2017• ISIN: CZ0002003684• Date, type and form of issue: 5 September 2014,

bearer securities, dematerialised• Total volume of issue: CZK 2 billion• Nominal value, quantity: CZK 10,000; 200,000• Coupon: fixed interest rate 1.10% paid annually in

arrears• Traded in: Prague Stock Exchange• Maturity: 5 September 2017 (repaid at the nominal

value)


in CZK millionErnst & Young KPMG PWC Deloitte Total

Financial statement (including VAT) 6.26 0.00 0.00 0.00 6.26

Auditing services (including VAT) 1.85 0.00 0.00 0.00 1.85

Tax services (including VAT) 0.53 0.00 0.00 0.00 0.53

Other (including VAT) 1.88 0.04 0.07 1.63 3.62

Total 10.52 0.04 0.07 1.63 12.26

FEES charged by auditing companies in 2014

Corporate governanceSberbank CZ has the following governing bodies: (i) General Meeting as the supreme body, respectively the sole shareholder acting in the capacity of the General Meeting; (ii) Management Board; (iii) Supervisory Board; and (iv) Audit Committee. For further details about the members of these bodies, please refer to pages 6–7 “Governing Bodies”. Resolutions of these bodies are usually passed by a simple majority of votes, unless the law or Articles of Association stipulate a different majority.

The General Meeting is the company’s supreme body. Within its powers, it passes a resolution to: amend the Articles of Association; increase or reduce the share capital; issue bonds; elect and remove the Supervisory Board members; approve the annual financial statements and profit

distribution or compensation for loss; apply for the admission of company’s shares to

public trading and for delisting the company’s shares from public trading;

transfer the business, dissolve the company with liquidation, or transform, merge, consolidate or de-merge the company;

change the rights assigned to the individual classes or types of shares;

restrict the transferability of registered shares; exclude or restrict the pre-emptive right to acquire

convertible bonds and bonds with warrants and exclude or restrict the pre-emptive right to acquire new shares;

increase the share capital through in-kind contributions; and

change the objects of the company.

The General Meeting is convened at least once per year. The regular General Meeting must be convened by the Management Board annually, however, no later than six months after the end of the fiscal year, unless the legal regulations in force establish an earlier date.

Detailed information about the Management Board meetings and resolutions passed at the Management Board meetings are noted down in the meeting minutes archived as stipulated in the legal regulations in force. The term of office of individual Management Board members commences upon election and terminates after the fourth General Meeting resolving on the annual financial statement for the fourth calendar year following the election has taken place. The calendar year in which the respective Management Board member is elected is not included therein. Re-election is permitted. The Management Board members may be removed by the Supervisory Board during their terms of office. As at 31 December 2014, the Management Board consisted of five members.

Until 13 January 2015, Sberbank CZ had two company secretaries who acted and signed documents on behalf of the company either jointly or each independently together with any Management Board member. In signing the documents on behalf of Sberbank CZ, the company secretaries attached their signature to the company’s corporate name along with the information that they acted as the company’s secretary.


The Supervisory Board supervises the activities of the Management Board and the business activities of the company and represents the interests of the company’s shareholders in between the General Meetings. Unless the General Meeting resolves otherwise, the Supervisory Board members are elected for the term of office terminating after the third General Meeting resolving on the annual financial statement for the third calendar year following the election has taken place. The calendar year in which the respective Supervisory Board member is elected is not included therein.

The Audit Committee monitors the process of compilation and auditing of financial statements and performs tasks in other areas within the powers and responsibilities conferred on the Audit Committee by the Articles of Association or applicable law. The Audit Committee consists of three members elected by the General Meeting. Only individuals (natural persons) can become a member of the Audit Committee. Neither a member of the Management Board nor a person authorised to act on behalf of the company as stipulated in the Commercial Register may become a member of the Audit Committee. Unless the General Meeting resolves otherwise, the Audit Committee members are elected for the term of office terminating after the third General Meeting resolving on the annual financial statement for the third calendar year following the election has taken place. The calendar year in which the Audit Committee members are elected is not included therein. The Rules of Procedure of the Audit Committee are approved by the General Meeting.

The financial reporting process may be exposed to risks of inaccuracies caused by a human error or technical malfunction. At Sberbank CZ, these risks are addressed through:

detailed systematic directives, accounting policies (see pages 37-54) and risk management strategy (see pages 79–110);

regular internal and external audit; and automated processes.

The risk events are monitored and regularly evaluated

within the operational risk management process. Appropriate measures are established based on the analyses of risk events.

Sberbank CZ has in place an internal control system that has been established and the liability for permanent maintenance of its efficiency and functioning has been assumed by the Management Board. Sberbank CZ has established control mechanisms at all management and organisation levels, including corresponding information flows. These control mechanisms are re-evaluated at regular intervals and updated as needed. All the Sberbank CZ employees are involved in the internal control system. The efficiency and functioning of the internal system is regularly evaluated by the Supervisory Board and the Audit Committee. The control system is independently verified by the internal audit along with the risk management system and activities pursued by Sberbank CZ.

Sberbank CZ is a member of the Czech Banking Association and the Czech Capital Market Association and voluntarily adheres to the following codes available at www.czech-ba.cz and www.akatcr.cz:

• Ethical Code of the Czech Banking Association (last update: 2012)

• Ethical Code of the Czech Capital Market Association

• Code of Conduct on Home Loans (CBA Standard No. 18/2005, Principles of Providing Pre-Contractual Information on Home Loans)

• Code of Conduct on Banks and Clients (CBA Standard No. 19/2005, Code of Conduct in Relations between Banks and Clients)

• Code on Client Mobility (CBA Standard No. 22/2009, Client Mobility – Procedure for Changing Banks)

• Compensation Guidelines in Interbank Payments (CBA Standard No. 15/2002, last update: April 2011)

Sberbank CZ has also agreed to and observes other CBA Standards in the area of payment transactions.

http://www.czech-ba.cz

http://www.akatcr.cz


Sberbank CZ has incorporated these codes and standards into its Code of Conduct for Employees and into its internal work processes.

Remuneration of Sberbank CZ managersSberbank CZ is managed by the Management Board and the Supervisory Board.

The management powers are exercised by the members of the Management Board and the Supervisory Board and its members.

Management Board The Management Board consists of five members elected and removed by the Supervisory Board. The Chairman of the Management Board is elected by the Management Board from among its members and removed by the same. for further details about the Management Board members, please refer to pages 6–7 “Governing Bodies”.

The Management Board is the company’s governing body responsible for business management and representation of the company in all matters. The Management Board members act as prudent managers, in good faith, with appropriate diligence and care, and in the best interest of the company and its shareholders. They are experts in managing large corporations with international expertise and experience and team working skills. Their office requires: (i) ongoing development in their fields of expertise and corporate governance; (ii) active approach to fulfilling their obligations; (iii) ability to contribute to the company’s strategy development; and (iv) loyalty to the company. The Management Board members adhere to high ethical standards and are responsible for the company’s compliance with the applicable laws. They are personally liable for any damage that they may cause by violating their legal obligations, and they also are functionally responsible to the company represented by the Supervisory Board and shareholders.

The Management Board Chairman and the Management Board members are remunerated under a respective agreement for the performance of office entered into in accordance with the applicable provisions of the Business Corporations Act. The agreements for the performance of office are approved by the company’s Supervisory Board.

The Management Board Chairman and the Management Board members are paid fixed monthly remuneration for the performance of management and other activities associated with the performance of their office.

The Management Board Chairman and the Management Board members are further remunerated depending on their performance and achievement of key performance indicators (KPIs). Determined in co-operation with SBEU, the KPIs are defined for each calendar year and derived from the financial goals (profit before taxes of SBEU, profit before taxes of Sberbank CZ and net income of the managed organisational unit) and the fulfilment of structural duties. The variable remuneration can be as much as one half of the fixed remuneration.

In 2014, the Management Board Chairman and the Management Board members were paid the following remuneration based on their managerial and professional skills and expertise and their contribution to the company: all monetary earnings belonging to the

Management Board members in the total amount of CZK 31.828 million; and

all non-monetary earnings belonging to the Management Board members in the total amount of CZK 1.028 million.

These earnings were paid based on the performance of the financial, qualitative, development and efficiency criteria.

The Management Board Chairman, Management Board members and their close persons hold no Sberbank CZ shares or call options on these shares. The Sberbank CZ shares are not publicly traded.


Supervisory BoardThe Supervisory Board is the controlling body of the company supervising the activities of the Management Board and that of the company. The Supervisory Board in particular monitors whether the Management Board performs its duties in accordance with legal regulations and the company’s Articles of Association and whether the Management Board members act in accordance with the company’s interests while exercising due managerial care. The Supervisory Board members act as prudential managers with due managerial care.

The Supervisory Board members are liable for any damage that they may cause by violating their legal obligations. The Supervisory Board members are further functionally liable to the company represented by the shareholders.

The Supervisory Board members and their close persons hold no Sberbank CZ shares or call options on these shares. The Sberbank CZ shares are not publicly traded.

In 2014, the Supervisory Board members were paid no remuneration, whether monetary or non-monetary, for their membership in the Supervisory Board.

In 2014, the Supervisory Board members were paid the following remuneration under the employment contracts: monetary earnings belonging to the Supervisory

Board members in the total amount of CZK 0.340 million; and

non-monetary earnings belonging to the Supervisory Board members in the total amount of CZK 0.019 million.

Sberbank CZ warrants and represent that it is not aware of any conflict of interest between the obligations of the Management Board members and/or the Supervisory Board members and their private interests or other obligations.

Market position in relation to Sberbank CZ principal activities (The customer loans and deposits are compared to the banking sector as per the methodology of the Czech National Bank (CNB) for publishing time series in the ARAD database. Within this comparison, the customer loans correspond to the data presented in the monthly report VST (CNB)1-12 free of loan loss provisions and loan-related charges and interest (deferred interest and fees); the customer deposits correspond to the data presented in the monthly report VST (CNB)11-12 free of deposit-related interest (deferred interest).)

Sberbank CZ has successfully operated in the Czech market since 1993. In 2014, the share of Sberbank CZ in the total assets of the Czech banking sector (45 banks including building societies) fell marginally compared to the year 2013 from 1.40% to 1.28%. The Sberbank CZ total assets grew year on year by 5.1% compared to the growth 3.62% in the banking sector in 2014.

The customer deposits fell year on year by 7.43% (compared to the year-on-year growth in the banking sector of 2.85%) and so did the share of Sberbank CZ customer deposits in the banking sector’s total customer deposits from 1.43% to 1.29%.

The customer loans grew year-on-year in line with the development in the banking sector by 4.86% (compared to the year-on-year growth in the banking sector of 4.80%). The share of Sberbank CZ customer loans in the banking sector’s total customer loans remains the same as in the previous year, i.e. 2.10%.

The net income of Sberbank CZ grew year on year by 66.5% compared to the year-on-year growth in the banking sector of 3.36%.

SBERBANK CZ | ANNUAL REPORT 2014 | CORPORATE SOCIAL RESPONSIBILITY 27

Corporate social responsibility

In 2014, Sberbank CZ continued its corporate social responsibility (CSR) activities pursued as part of its long-term CSR strategy introduced in 2012. Back then, Sberbank CZ set up two major projects – Employee Volunteering and Sberbank CZ Charity Fund. Having had received great interest from the Sberbank CZ employees and the general public alike, these two projects were continued and further developed also in the following two years. In 2014, the Sberbank CZ Charity Fund turned into an independent legal entity –Sberbank CZ Endowment Fund; followed by other CSR activities of Sberbank CZ additionally pursued in addition to these two projects.

Employee volunteeringWithin this project, each employee can spend one day a year on volunteering work instead of working in the office. So far, over 170 Sberbank CZ employees took part in this project by participating in one of eight designated volunteering days, including two volunteering days centrally organised in 2014.

Sberbank forest

The first volunteering day of 2014 was held on Friday, 11 April 2014 when a group of Sberbank CZ volunteers gathered in Březová (Podještědí) to plant further trees in our Sberbank forest set up in 2013. In 2014, the Sberbank CZ volunteers planted 250 new (predominantly elm and cherry) trees on a land not far from the first part of our Sberbank CZ forest. This event was organised in co-operation with our long-term partner – the Czech environmental organisation Čmelák.

Barefoot trail

The second volunteering day of 2014 was held on Tuesday, 16 September 2014 – this time at F. D. Roosevelt High School for Students with Disabilities in Brno where the Sberbank CZ volunteers helped build a brand new barefoot walking trail with a number of different textures (including bark, mulch, fir needles and cones, sawdust, gravel, sand and pebbles) and a new palisade. The barefoot walking trail was built in co-operation with the Czech non-profit organisation Bez bot (Bare Feet) having experience in building barefoot walking trails since

2012. Opened a week later on 24 September 2014, the barefoot walking trail is available to the F. D. Roosevelt High School students as well as to the general public. In 2015, the barefoot walking trail will be supplemented with handrails for physically disabled visitors built with the financial support of the Sberbank CZ Endowment Fund.

http://www.cmelak.cz/en/

SBERBANK CZ | ANNUAL REPORT 2014 | CORPORATE SOCIAL RESPONSIBILITY28

Endowment fundIn order to support charity projects, Sberbank CZ established a charity fund in 2012 to which any of its employees could voluntarily contribute. In March 2014, the Sberbank CZ Charity Fund turned into an independent legal entity – Sberbank CZ Endowment Fund open also to the general public. The fund focuses especially on supporting at-risk children and women, education and financial literacy, people with disabilities, senior citizens, and environmental projects. At the end of each year, the Fund’s Board of Trustees elected by the employees distributes the raised amount to the selected charity projects nominated by the employees throughout the year. So far, the Sberbank CZ Charity Fund allocated nearly CZK 300,000 to 21 projects.

The deadline for contributions for 2014 was 31 October. By that date, the Fund’s Board of Trustees received a shortlist of 14 projects of which 7 were selected by the Fund’s Board of Trustees at its meeting held at the beginning of December 2014 and supported by a total amount of CZK 124,000 contributed by the Sberbank

CZ employees and the Sberbank CZ Management Board. In its selection, the Board of Trustees gave preferences to small-scale addressed projects with positive impacts and a mission to “bring joy”.

Christmas gifts for kids For the third year in a row, Sberbank CZ organised an event for children staying in children’s homes over the Christmas – “Christmas Gifts for Kids” – and distributed over 90 Christmas presents to four children’s homes in the Czech Republic (Dagmar Brno, Vranov u Brna, Tuchlov (Teplice) and Pardubice).

The Christmas wishes listed by the children in children’s homes and fulfilled by the Sberbank CZ employees included cosmetics, toys, household articles, floor ball sets (floor hockey sticks, floor hockey goals and floor hockey goalie masks) and many other. Bought and nicely wrapped by the Sberbank CZ employees from all over the Czech Republic participating in this popular event, the Christmas gifts were collected at the Sberbank CZ central offices in Prague and Brno in a few days and then dispatched to the children’s homes well in advance. After Christmas, we received photographs of the children – truly thrilled – unwrapping their Christmas presents after the Christmas supper.

Code of ethics and conductIn pursuing its activities, Sberbank CZ adheres to the Ethical Code of the Czech Banking Association and the Sberbank CZ Code of Conduct of Employees. Sberbank CZ offers equal opportunities to all regardless of sex, employs the underprivileged and assists in improving the financial literacy of the general public. Sberbank CZ sponsors the knowledge contest S Vysočinou do Evropy (To Europe with Vysočina) designed for high school students and the Sberbank CZ representatives take part in workshops organised by universities.

Supported projects

Organisation Allocated amount

Association for Early Intervention at Brno CZK 25,000

Československá rehabilitační společnost dr. Vojty (Vojta Czechoslovak Rehabilitation Society) CZK 20,000

Bez Bot (Bare Feet) CZK 20,000

ADRA CZK 15,000

League of Human Rights CZK 15,000

Jasněnka CZK 15,000

Horní Poustevna – Integrated Disability Centre CZK 14,000

SBERBANK CZ | ANNUAL REPORT 2014 | CORPORATE SOCIAL RESPONSIBILITY 29

Minimisation of environmental impacts related to Sberbank CZ activitiesSberbank CZ branches All Sberbank CZ branches are always constructed and/or refurbished in line with the project documentation. In projecting the new/refurbished branches, we make an effort to use the leased premises as efficiently as possible with minimum changes made to the original room disposition. When constructing/refurbishing the branches, we use the dry method (e.g. plasterboards) as well as ecological and certified materials at all times and install heat pumps to heat and cool the premises and hence minimise the carbon footprint. Moreover, any new and/or refurbished Sberbank CZ branches are equipped with LED lights that significantly reduce our energy usage. When selecting new locations, we pay attention to the minimisation of the solar heat gain in buildings in order to keep our energy usage to a minimum when cooling the premises in summer as well as to the heat insulating characteristics of wall structures and shopping windows in order to minimise the heat loss in winter.

Facility management and maintenanceSberbank CZ aims to recycle and separate the waste produced (although in small quantities) from its activities. Our workplaces, for instance the central office in Prague, are equipped with the waste separation containers (paper

and plastic). In Brno, the waste (plastic) is sorted by an external cleaning company – the separated waste is then collected and subsequently recycled at the designated places and as such is not disposed of together with the mixed waste. In addition, Sberbank CZ uses only ecological and biodegradable detergents.

Sberbank CZ further aims to minimise the use of paper – we use printers with the default double-sided printing function and print out only the most important documents. As stated at the foot of our email letters: We consider the nature before we print the documents.

Business tripsIn 2014, Sberbank CZ successfully introduced the Car Share application designed for the Sberbank CZ employees using the Sberbank CZ fleet cars. Anyone planning a business trip using a Sberbank CZ fleet car enters the trip details in the application and allows other colleagues to join and travel together. In 2014, Sberbank CZ managed to reduce the average fuel consumption per employee and started purchasing only TDI diesel cars with lower emissions.

Sberbank CZ will continue to minimise the environmental impacts also in 2015 by way of educating the employees in this area and taking further steps and measures – such as waste separation at the branches.

Our CSR projects have elicited positive responses from our employees and the general public alike; Sberbank CZ will continue to actively pursue and further develop these activities also in 2015.

30

Financialstatements

SBERBANK CZ, a.s.

INDEPENDENT AUDITOR’S REPORT AND FINANCIAL STATEMENTS (Prepared in accordance with the International Financial Reporting Standards as adopted by the European Union)

FOR THE YEAR ENDED 31 DECEMBER 2014

Sberbank CZ, a.s.Registered office: Na Pankráci 1724/129, 140 00 Praha 4Identification number: 25083325Legal form: joint-stock companyPrimary business: bankingDate of preparation: 8 April 2014

SBERBANK CZ | ANNUAL REPORT 2014 | STATEMENT OF COMPREHENSIVE INCOME 31

Financialstatements

Statement of comprehensive income for the year ended 31 December 2014Prepared in accordance with the International Financial Reporting Standards as adopted by the European Union

Year ended 31 December

in CZK million Note: 2014 2013

Interest and similar income 2,261 2,137

Interest expense and similar charges (592) (698)

Net interest income 3 1,669 1,439

Fee and commission income 510 467

Fee and commission expense (149) (110)

Net fee and commission income 4 361 357

Net trading income 5 48 20

Net income from financial investments 6 54 13

Impairment charge for credit losses 14 (327) (401)

Provisions 26 (6) -

Administrative expenses 7 (1,274) (1,088)

Other operating income 8 24 17

Other operating expenses 9 (68) (71)

Operating profit 481 286

Profit before income tax 481 286

Income tax expense 10 (98) (56)

Profit for the year 383 230

Other comprehensive incomeItems that will never be reclassified to profit or loss Remeasurements of defined benefit lability 28 8 (2)

Items that are or may be reclassified to profit or loss Fair value reserves (available-for-sale financial assets): 28 57 (43)

Other comprehensive income for the period, net of income tax 66 (45)

Total comprehensive income 449 185

Profit attributable to:

- Owners of the Bank 383 230

Profit for the period 383 230

Total comprehensive income attributable to:

- Owners of the Bank 449 185

Total comprehensive income 449 185

SBERBANK CZ | ANNUAL REPORT 2014 | STATEMENT OF FINANCIAL POSITION 32

As at 31 December

in CZK million Note: 2014 2013ASSETSCash and balances with central banks 11 7,310 11,746Loans and advances to banks 12 2,068 3,462Loans and advances to customers 13,14 54,147 51,421Derivative financial instruments 15 383 269Financial assets at fair value through profit or loss 16 32 31Investment securities:- Available for sale 17 2,111 2,997- Loans and receivables 17 60 61- Held to maturity 17 - -Intangible assets 18 100 115Property and equipment 19 297 262Deferred income tax assets 20 49 47Other assets 21 273 39Deferred items 21 30 22Total assets 66,860 70,472LIABILITIESDeposits from banks 22 7,063 4,488Due to customers 23 44,383 48,008Derivative financial instruments 15 414 257Debt securities in issue 24 6,034 9,400Current income tax liabilities 42 2Other liabilities 25 527 356Deferred items 25 3 27Provisions 26 51 39Subordinated debt 27 278 2,400Total liabilities 58,795 64,977EQUITYShare capital 28 2,806 2,005Share premium account 4,015 2,695Statutory reserve 132 120Cumulative gains / (loss) not recognized in the profit for the period 28 29 (37)Retained earnings 1,083 712Total equity 8,065 5,495Total equity and liabilities 66,860 70,472

Statement of financial position as at 31 December 2014Prepared in accordance with the International Financial Reporting Standards as adopted by the European Union

SBERBANK CZ | ANNUAL REPORT 2014 | STATEMENT OF CHANGES IN EQUITY 33

Cumulative gains not recognized in the profit for the period

v mil. KčShare

capital

Share pre-

mium account

Statu-tory

reserveFair value

reserve

Employee benefits

remeasu-rement

Reta-ined

earningsTotal

Equity

As at 1 January 2013 2,005 2,695 110 8 - 492 5,310Remeasurements fo defined benefit liability (asset) - - - - (2) - (2)

Net change in available-for-sale investments, net of tax - - - (43) - - (43)

Other comprehensive income (recognized directly in equity) - - - (43) (2) - (45)

Net profit - - - - - 230 230

Total comprehensive income for 2013 - - - (43) (2) 230 185

Dividends relating to 2012 - - - - - - -

Transfer to statutory reserve - - 10 - - (10) -

As at 31 December 2013 2,005 2,695 120 (35) (2) 712 5,495

As at 1 January 2014 2,005 2,695 120 (35) (2) 712 5,495Remeasurements fo defined benefit liability (asset) - - - - 9 - 9

Net change in available-for-sale investments, net of tax - - - 57 - - 57

Other comprehensive income (recognized directly in equity) - - - 57 9 - 66

Net profit - - - - - 383 383

Total comprehensive income for 2014 - - - 57 9 383 449

Dividends relating to 2013 - - - - - - -

Issue of shares 801 1,320 - - - - 2,121

Transfer to statutory reserve - - 12 - - (12) -

As at 31 December 2014 2,806 4,015 132 22 7 1,083 8,065

Statement of changes in equity for the year ended 31 December 2014Prepared in accordance with the International Financial Reporting Standards as adopted by the European Union

SBERBANK CZ | ANNUAL REPORT 2014 | STATEMENT OF CASH FLOW 34


Cash flow from / (used in) operating activities


Adjustment for:

Impairment losses on loans and advances 14 (327) 354

Provisions 26 12 4

Depreciation of property and equipment 7 97 95

Change in other remeasurements 6 -

(Increase)/ decrease in operating assets:

Due from banks, non-demand, over 3 months 1,543 318

Financial assets at fair value through profit or loss (115) 248

Loans and advances (2,399) (5,832)

Other assets (234) (1)

Prepayments and accrued income (8) 6

Increase / (decrease) in operating liabilities

Due to banks, term (338) (1,062)

Financial liabilities at fair value through profit and loss 157 (19)

Due to customers (3,624) 6,366

Promissory notes and certificates of deposits 24 (4,062) 2,044

Other liabilities 175 11

Accruals and deferred income (24) (2)

Net cash flow from / (used in) operating activities before income tax (8,660) 2,816

Net income tax (76) (47)

Net cash flow from (used in) operating activities (8,736) 2,769

Statement of cash flow for the year ended 31 December 2014Prepared in accordance with the International Financial Reporting Standards as adopted by the European Union

SBERBANK CZ | ANNUAL REPORT 2014 | STATEMENT OF CASH FLOW 35

The accompanying notes are an integral part of these financial statements.

These financial statements were approved for issue by the Management Board on 8 April 2015 and signed on its behalf by:

Signature of the authorised representatives


Cash flow from / (used in) investing activities

Purchase of investment securities 17 (1,012) (3,034)

Proceeds from sale and redemption of securities 17 1,970 2,237

Purchase of property, equipment and intangible assets 18,19 (118) (169)

Net cash flow from (used in) investing activities 840 (966)

Cash flow from / (used in) financing activities

Issue of bonds 24 696 863

Issue of share capital 28 2,122 -

Repayment of subordinated liabilities 27 (2,122) 2,147

Dividends paid 35 - -

Net cash flow from financing activities 696 3,010

Net increase / (decrease) in cash and cash equivalents (7,200) 4,813

Cash and cash equivalents at the beginning of the year 31 11,195 6,382

Net increase / (decrease) in cash and cash equivalents (7,200) 4,813

Cash and cash equivalents at the end of the year 31 3,995 11,195

Operational cash flow from interest

Interest paid 555 708

Interest received 2,361 2,108

Income tax paid 74 47

Vladimír Šolc Karel Soukeník Chairman of the Management Board Member of the Management Board

SBERBANK CZ | ANNUAL REPORT 2014 | NOTES TO THE FINANCIAL STATEMENTS36

1 GENERAL INFORMATIONSberbank CZ, a.s. (hereinafter referred to as “the Bank”) was incorporated on 31 October 1996. The Bank had 27 domestic regional branches in the Czech Republic as at 31 December 2014 (as at 31 December 2013: 22 branches) and employed on average 825 people (as at 31 December 2013: 719 people).

As at 31 December 2014 and 31 December 2013, the ultimate holding company was Sberbank, which is incorporated in Russia and whose registered office is located at 117997 Moscow, 19 Vavilova St. (hereinafter referred to as “Sberbank RU”). The financial statements of the Bank were included in the consolidated financial statements of Sberbank RU. The direct holding company was Sberbank Europe AG (hereinafter referred to as “Sberbank EU”), which is incorporated in Austria.

Sberbank CZ, a.s. was using in the beginning of the year 2013 the company name Volksbank CZ, a.s. It was changed on 28 February 2013 in the process of integrating into the Sberbank RU group, after an acquisition of 100 % interest in Sberbank EU (formerly Volksbank International AG) by Sberbank RU was finalized on 15 February 2013. Since 28 February 2013 the Bank uses the company name Sberbank CZ.

The Bank’s operations primarily consist of the following:

• ProvidingCzechandforeigncurrencyloansandguarantees

• AcceptingandplacingdepositsinCzechandforeigncurrencies

• AcceptingcurrentandtermaccountsdenominatedinCzechandforeigncurrencies

• Renderingofgeneralbankingservicesthroughanetworkofbranchesandagencies

• Providingforeignexchangetransactionsontheinter-bankmoneymarket

• Providingforeigntradefinanceandrelatedbankingservices

• Tradinginsecuritiesandportfoliomanagement

• Issuingmortgagebonds

Notes to the financial statements

SBERBANK CZ | ANNUAL REPORT 2014 | NOTES TO THE FINANCIAL STATEMENTS 37

2 ACCOUNTING POLICIES(a) Statement of compliance and basis of preparation of financial statements

The statutory financial statements, comprising a statement of financial position, statements of comprehensive income and of changes in equity, a statement of the cash flow and accompanying notes, of the Bank have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“EU IFRS”). The policies set out below have been consistently applied to all the reporting periods presented.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities held at fair value through profit or loss and all derivative contracts.

The preparation of financial statements to conform with EU IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Bank’s accounting policies.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2 (ab).

The financial statements are rounded to millions of Czech Crowns (“CZK million” or “CZKm”) unless otherwise stated.

(b) Operating segments reporting

The Bank determines and presents operating segments based on the information which is internally presented to the Management Board as the Bank’s chief operating decision maker with regard to resources to be allocated to the segment and assesses its performance.

The operating segment is a component of the Bank:

• That engages in business activities fromwhich revenues and expenses may arise (including revenues andexpenses related to transactions with other components of the Bank)

• WhoseoperatingresultsareregularlyreviewedbytheBank’schiefoperatingdecisionmakertomakedecisionsabout resources to be allocated to the segment and to assess its performance

• Forwhichdiscretefinancialinformationisavailable.

(c) Foreign currencies translation

Functional and presentation currencyItems included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the Bank operates (“the functional currency”).

The financial statements are presented in CZK, which is the Bank’s functional and presentation currency.


Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the “net trading income”.

Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of net trading income. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the other comprehensive income in the fair value reserve in equity.

(d) Financial assets and liabilities and their valuation

The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets.

The Bank classifies its financial liabilities in the following categories: financial liabilities at fair value through profit or loss and other financial liabilities. The classification of financial assets and liabilities is based on management’s intention at initial recognition and the relevant criteria for classification have to be met.

(i) Financial assets and liabilities at fair value through profit or loss

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

A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also categorized as held for trading unless they are designated as hedging instruments.

Financial assets and financial liabilities are designated at initial recognition at fair value through profit or loss when:

• Doingsosignificantly reducesmeasurement inconsistencies thatwouldarise if the relatedderivativesweretreated as held for trading and the underlying financial instruments were carried at amortized cost for loans and advances to customers or banks and debt securities in issue

• Thegroupoffinancialassetsandfinancialliabilities,suchasdebtsecurities,aremanagedandevaluatedonafairvalue basis in accordance with a documented risk management or investment strategy and reported to key management personnel, and on that basis are designated at fair value through profit and loss

• Financialinstruments,suchasdebtsecuritiesheld,containingoneormoreembeddedderivativessignificantlymodifying the cash flows, are designated at fair value through profit and loss.

Gains and losses arising from sale and changes in the fair value of financial instruments held for trading, including trading derivatives that are managed in conjunction with designated financial assets or financial liabilities, are recorded in the “net trading income”.

Gains and losses arising from sale and changes in the fair value of financial assets and financial liabilities designated at fair value through profit or loss at inception are recorded in the “net income from financial investments”.


(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those that the Bank intends to sell immediately or in the short term, which are classified as held for trading, and those that the Bank upon initial recognition designates as fair value through profit or loss; (b) those that the Bank upon initial recognition designates as available for sale; or (c) those for which the Bank may not recover substantially all of its initial investment, other than because of credit deterioration. These assets are carried at the amortized cost.

(iii) Held-to-maturity financial assetsHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Bank’s management has the positive intention and ability to hold to maturity. These assets are carried at the amortized cost.

If the Bank has sold other than an insignificant amount of held-to-maturity assets before maturity (other than in certain specific circumstances), the entire category has to be reclassified as available for sale. Furthermore, the Bank would be prohibited from classifying any financial assets as held-to-maturity during the following two years.

(iv) Available-for-sale financial assetsAvailable-for-sale investments are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. These assets are carried at fair value.

(v) Financial liabilities at fair value through profit or loss For financial liabilities, the classification and rules referred to in paragraph (i) are applied.

(vi) Other financial liabilitiesThe Bank classifies all financial liabilities in this category, except for those classified in the category of financial liabilities at fair value through profit or loss in accordance with those rules for classification in that category. Other financial liabilities are carried at the amortized cost.

The Bank issues mortgage bonds. Bought-back mortgage bonds directly decrease the liabilities from issued securities.

(vii) Recognition and derecognition of financial assetsRegular-way purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for sale are recognized on the trade date – the date on which the Bank commits to purchasing or selling the asset.

Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are recognized in the statement of comprehensive income under “fee and commission expense”. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or when the Bank has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when they are extinguished − that is, when the obligation is discharged, cancelled or expires.


Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at the amortized cost using the effective interest method. Gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category -are included in the profit for the period in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognized directly in equity, until the financial asset is derecognized or impaired. At this time, the cumulative gain or loss previously recognized in equity is recognized in profit or loss.

However, interest calculated using the effective interest method and foreign currency gains and losses on monetary assets classified as available for sale are recognized in the profit for the period. Dividends on available-for-sale equity instruments are recognized in the profit for the period when the Bank’s right to receive payment is established.

(viii) Determination of fair valueFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurable date in the principal, or in its absence, the most advantageous market to which the Bank has access at that date.

The fair values of quoted investments in active markets are based on current bid prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no active market for a financial asset, the Bank establishes fair value using valuation techniques that maximise the use of relevant observable inputs. These include for example the use of a discounted cash flow analysis and other valuation techniques commonly used by market participants.

The Bank`s accounting methods on fair value are disclosed in the Note 34.

(e) Offsetting financial instruments

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

(f) Derivative financial instruments and hedge accounting

Derivatives including foreign exchange contracts, currency and interest rate swaps are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Sources for fair value measurement of the derivatives are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

The Bank occasionally purchases or issues financial instruments containing embedded derivatives. Certain derivatives embedded in other financial instruments, such as the conversion option in a convertible bond, are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in the profit for the period unless the Bank chooses to designate the hybrid contracts at fair value through profit or loss.


Beginning in 2014 the Bank designates certain derivatives held for interest risk management as hedging instruments in qualifying hedging relationship. On initial designation of the hedge, the Bank formally documents the relationship between the hedging instrument and hedged item, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. The Bank makes and assessment, both at inception and on ongoing basis, of whether the hedging instrument is expected to be highly effective in offsetting the changes in the fair value due to the change of interest rates of the respective hedged item during the period for which the hedge is designated, and whether an actual results of each hedge are within a range of 80-125%.

For interest risk management of certain assets or liabilities, the Bank designates the fair value hedge relationship. The objective of such hedge relationship is to secure the Bank from the effect of the fair value fluctuation of the hedged asset or liability which affects the profit and loss. The changes in the fair value of the hedging derivative are recognized immediately in profit or loss together with changes in the fair value of the hedged item that are attributable to the hedged risk, in the same line item in the statement of profit or loss.

If the derivative expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for fair value hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively.

The Bank designates certain derivatives as the hedging instruments in fair value hedge but does not apply cash flow hedge or net investment hedge accounting.

(g) Recognition of deferred day one profit and loss

The best evidence of fair value at initial recognition is the transaction price (i.e. the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique where the variables of which include only data from observable markets.

When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Bank immediately recognizes the difference between the transaction price and fair value (a Day 1 profit or loss) in Net trading income. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the income statement when the inputs become observable, or when the instrument is derecognized.

(h) Interest income and expense

Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading, are recognized in the statement of comprehensive income under “interest and similar income” and “interest expense and similar charges” using the effective interest method.


The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. The effective interest rate is established when the financial assets or liability is firstly recognized and it is revised at the time of the change of estimated future cash flows arising from the financial instruments with floating interest rate or with non-fixed payments.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

(i) Fee and commission income and fee expense

Fees and commissions are generally recognized on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognized as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognized as revenue when the syndication has been completed and the Bank has retained no part of the loan package for. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses – are recognized on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts, usually on a time-apportionated basis. Asset management fees related to investment funds are recognized rateably over the period in which the service is provided. The same principle is applied for asset management, financial planning and custody services that are continuously provided over an extended period of time. Performance linked fees or fee components are recognized when the performance criteria are fulfilled.

(j) Dividend income

Dividends are recognized in the profit for the period when the Bank’s right to receive payment is established.

(k) Sale and repurchase agreements

Securities sold subject to repurchase agreements (“repos”) are reclassified in the statement of financial position as pledged assets when the transferee has the right by contract or custom to re-sell or re-pledge the collateral to the third party. The counterparty liability is included in “deposits from banks” or “due to customers”, as appropriate. Securities purchased under agreements to resell (“reverse repos”) are recorded as “loans and advances to banks” or “loans and advances to customers”, as appropriate. The difference between the sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements.


(l) Impairment of financial assets

(i) Loans and receivables carried at amortized costsThe Bank assesses as at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Bank mainly uses to determine that there is objective evidence of an impairment loss include the following:• Delinquencyincontractualpaymentsofprincipalorinterest• Cashflowdifficultiesexperiencedbytheborrower• Breachofloancovenantsorconditions• Initiationofbankruptcyorinsolvencyproceedings• Deteriorationoftheborrower’scompetitiveposition• Deteriorationinthevalueofcollateral• Downgradingbelowinvestmentgradelevel

The estimated period between a loss occurring and its identification is determined by local management for each identified portfolio. In general, the periods used vary between one and three months.

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

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the profit for the period. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract and under current market conditions.

As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price.

The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtor s ability to pay all amounts due according to the contractual terms of the assets being evaluated.


Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank.

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

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed either directly or by adjusting the allowance account. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. The amount of the reversal is recognized in the profit for the period in “impairment charge for credit losses”.

When a loan is uncollectible, it is written off against the related allowance for impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. These procedures mainly include (i) cession of a loan (if the debt is ceded at a lower price than the face value), (ii) report from the executor that there is no other property of the debtor that may be punished by execution of the loan, (iii) the final termination of the insolvency proceedings with the debtor.

In the statement of comprehensive income under „impairment charge for credit losses“ proceeds from written-off receivables are also reported.

(ii) Assets classified as available for saleThe Bank assesses as at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the statement of income. Impairment losses recognized in the profit for the period on equity instruments are not reversed through the statement of income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the profit for the period.

(iii) Assets classified as held to maturityBonds classified as held to maturity are regularly tested for impairment. If the Bank concludes that there is objective evidence that a bond is impaired, it is reflected in an allowance account and the impairment loss is recognized in profit or loss. If an event occurring after the impairment was recognized causes the amount of impairment loss to decrease, then the decrease in impairment loss is reversed through profit or loss.


(iv) Restructured and forborne loans and advancesSince the moment of renegotiation, such loans are treated as individually impaired for a period of six months. If a loan performs according to the forbearance schedule, it becomes treated as a watched loan during the subsequent 18 months, and as standard starting the third year since the renegotiation (according to the CNB methodology described in the Note 33 (b)). Impairment of forborne receivables is measured using the original effective interest rate. Management continuously reviews the performance of the agreed conditions of forborne loans and the probability of future installments.

(m) Intangible assets

Depreciation on intangible assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

Software

definite period under the contract, or according to the estimated useful life, or (if there is no agreement for a definite period or estimation of useful life) 36

months

Audiovisual work 18 month

Other 72 months

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring the specific software to use. These costs are amortized on the basis of the expected useful lives.

Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Bank, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads.

Computer software development costs recognized as assets are amortized using the straight-line method over their useful lives.

The cost of depreciation of intangible assets is recognized in the statement of comprehensive income under „Administrative expenses“.

(n) Property, premises and equipment

Land and buildings comprise mainly branches and offices. All property, premises and equipment is stated at historical cost less depreciation. Historical costs of property, premises and equipment and intangible assets include:

• Thecost(expendituresthataredirectlyattributabletotheacquisitionoftheitems)

• Directlyattributablecostsnecessarytobringtheassetintooperation

• Estimatedcostsofdismantlingandremovingtheassetandrestoringtheplacewherethepropertyislocated

• Borrowingcostsincurredfortheperiodofthepreparationoftheassetforitsintendeduseorsale.TheBankiscurrently buying property only from its own financial resources.


Tangible and intangible assets with acquisition costs up to CZK 10,000, furniture and hardware up to CZK 2,000, are expensed as acquired.

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

Land, assets under construction and works of art are not depreciated. Depreciation on other long-term assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows (in years):

Buildings and construction (including Administrative buildings) 30

Hardware and equipment 4

Fixtures and fittings 6

Safes 12

Motor vehicles 4

The leasehold improvements are depreciated over the term of the lease.

When classifying new assets into depreciation groups, the Bank uses the component approach, i.e. the major components of assets with different useful lives are depreciated separately.

The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, as at each balance sheet date.

The cost of depreciation of property, premises and equipment are recognized in the statement of comprehensive income under „Administrative expenses“. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in “other operating income“ or “other operating expenses” in the profit for the period.

The Bank does not hold any assets for which it would use the revaluation model. All property under paragraphs (m) and (n) is depreciated using the cost model. The Bank currently does not own the building, to which IAS 40 Investment property would be applied, i.e. property held primarily to earn rental income or for capital appreciation.

(o) Impairment of non-financial assets

Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indicators of impairment can be external (drop in market prices) or internal (information obtained from a review of useful lives and residual book values) carried out once a year. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.


(p) Leases

The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

The leases entered into by the Bank are primarily operating leases. The total payments made under operating leases are charged to “other general administrative expenses” in the profit for the period on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of a penalty is recognized as an expense in the period in which the termination takes place.

The Bank has currently no lease agreements.

.(q) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 3 months maturity from the date of acquisition including: cash and balances with central banks (including Mandatory Minimum Reserves), due from banks and due to banks.

(r) Provisions

Provisions for legal claims, restructuring, financial guarantees issued, promises of loans issued, letters of credit issued and other contingent liabilities are recognized when the Bank has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense.

.(s) Financial guarantee contracts

The Bank gives financial guarantees, i.e. guarantees and letters of credit. Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities.


Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Bank‘s obligations from given guarantees are measured at the higher of the initial measurement, less amortization of revenue from fees amortized on straight basis in „income from fees and commissions“ for the duration of the guarantee and the best estimate of expenses which will be required to settle any financial obligation that existed at the balance sheet date. They are recognized as „provisions“. These estimates are determined based on experience with similar transactions and the history of past losses, supplemented by the judgment of management.

Any change in the amount of „Provisions“ is recognized in „impairment charge for credit losses“ in the statement of comprehensive income.

(t) Staff costs

Staff costs are included in “administrative expenses” and they also include remuneration of the members of the executive and Supervisory Board.

Employee benefitsThe Bank provides its employees with retirement benefit or disability benefit. The employees are entitled to receive retirement or disability benefits if they are employed by the Bank until their retirement age or if they are entitled to receive a disability pension but only if they were employed with the Bank for a minimum defined period.

In 2013 the employees were entitled to receive anniversary benefit if they were employed with the Bank for a minimum defined period and their service was of appropriate quality throughout this period. The anniversary benefit is no longer provided in 2014 to employees by the Bank and the respective provision was derecognized in profit and loss.

The Bank recognized a provision amounting to the present value of defined post-employment and other long-term employee benefits. The defined benefit obligation is calculated in accordance with the projected unit credit method which estimates the present value of defined benefit obligation based on generally recognized actuarial principles. In determining the parameters of the model, the Bank refers to the most recent data (the length of employment with the Bank, age, gender, benefit value and its anticipated growth) and actuarial assumptions (endowment age according to mortality tables, legal retirement age, estimated amount of social security and health insurance contributions and discount rate). Due to the long-term nature of these plans, such estimates are subject to uncertainty.

Remeasurements of the net defined benefit liability, which comprises actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling are recognised immediately in „other comprehensive income“.

Net interest expense related to defined bendit plans are recognised in „personnel expenses” in profit or loss.

These employee benefits are provided by the Bank on a voluntary basis (not on the benefits provided under legal regulations).

.


Pensions The Bank currently contributes to a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

For defined contribution plans, the Bank pays contributions to privately administered pension insurance plans on a contractual or voluntary basis. The Bank has no further payment obligations once the contributions have been paid. The contributions are recognized as an employee benefit expense when they are due.

Social fundThe Bank creates a social fund to finance the social needs of its employees and employee benefit programmes. The allocation to the social fund is recognized in the “administrative expenses”.

(u) Taxation and deferred income tax

Income taxIncome tax payable on profits, based on Czech tax law, is recognized as an expense in the period in which profits arise.

Deferred taxDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

The principal temporary differences arise from the depreciation of property, plant and equipment, revaluation of certain financial assets and liabilities including derivative contracts, provisions and tax losses carried forward. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognized where it is probable that future taxable profit will be available against which the temporary differences can be utilized.

The tax effects of income tax losses available for carry-forward are recognized as an asset when it is probable that future taxable profits will be available against which these losses can be utilized.

Deferred tax related to fair value re-measurement of available-for-sale investments, which is charged or credited directly to equity, is also credited or charged directly to equity and subsequently recognized in the profit for the period together with the deferred gain or loss.


(v) Value added tax

The Bank is registered for value added tax (“VAT”). Intangible and tangible fixed assets are stated at acquisition cost including the appropriate VAT. The Bank does not claim a deduction of input VAT as the ratio of the taxable income to the total income of the Bank is such that it is not economical for the Bank to claim the input VAT.

(w) Borrowings

Borrowings are recognized initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds net of transaction costs and the redemption value is recognized in the profit for the period over the period of the borrowings using the effective interest method.

(x) Share capital and reserves

Share issue costsIncremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

Dividends on sharesDividends on shares are recognized in equity in the period in which they are approved by the Bank’s shareholders.Dividends for the year that are declared after the balance sheet date are dealt with in the subsequent events note.

ReserveIn accordance with the Articles of Incorporation, the Bank is required to set aside a reserve in equity.

The reserve represents accumulated transfers from retained earnings. Minimum of five percent of net profit shall be annually allocated to the reserve until the value of minimum 20 % of share capital is achieved. This reserve is not distributable and can be used exclusively to cover losses.

(y) Fiduciary activities

The Bank acts as a trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, and other institutions. These assets and income arising thereof are excluded from these financial statements, as they do not belong to the Bank.

(z) Collaterals valuation

Fair value of the collaterals is determined using market data, valuation models and independent expert estimations. The dominant type of collateral is residential and non-residential property, where an expert estimation of the market value is conservatively reduced by a factor for the type of collateral. The amounts of reduction factor are based on conservative expert estimations, until the frequency of the realization of collaterals does not allow the determination of these factors on the basis of statistically significant observations. The reported financial effect of collateral is limited up to the carrying amount of the related financial asset.


(aa) IFRS /IAS accounting and reporting

In 2014, the Bank adopted all of the new and revised Standards and Interpretations issued by the IASB and IFRIC as adopted by the EU that are relevant to its operations and effective for accounting periods commencing 1 January 2014:

• Amendments to IAS 32, Financial instruments: Presentations – (issued in December 2011; effective for thereporting periods beginning on or after 1 January 2014). It specifies disclosure of information about recognized financial assets and liabilities that are set off.

• AmendmentstoIFRS10,IFRS12,IAS27(issuedinOctober2012;effectiveforthereportingperiodsbeginningonor after 1 January 2014). The amendments provide an exemption from requirements of the standards for consolidation of entities that meet the definition of an investment entity. Such entities should measure their investments in subsidiaries at fair value through profit and loss instead of the consolidation procedure.

• AmendmentstoIAS39,NovationofderivativesandContinuationofHedgeAccounting–(issuedinJuly2013).Sets the requirements and criteria for the continuation of hedge accounting (effective for the reporting periods beginning on or after 1 January 2014).

• AmendmentstoIAS36,RecoverableAmountDisclosuresforNon-FinancialAssets(issuedinMay2013).Clarifythe disclosures requirements of information about recoverable amount of impaired assets and the discount rates that have been used when the recoverable amount is based on fair value less costs of disposal using present value technique. (effective for the reporting periods beginning on or after 1 January 2014).

The adoption of these new and revised standards and interpretations has not resulted in changes to the Bank s accounting policies to an extent that would have affected the amounts reported for the current year and prior period significantly.

At the preparation date of these financial statements, the following standards, amendments to the existing standards, and interpretations have not yet been endorsed for use in the EU. Endorsement is expected by the time the standards and interpretations become effective:

• AmendmentstoIAS19,EmployeeBenefits:EmployeeContribution–(issuedinNovember2013).Clarifyhowtheemployees or third party contributions should be allocated to periods of service. (effective for the reporting periods beginning on or after 1 January 2014).

• IFRICInterpretation21Levies–(issuedinMay2013).Providesguidanceonwhentorecognizealiabilityforalevyaccording to IAS 37 imposed by a government. (effective for the reporting periods beginning on or after 1 January 2014).

• Annual Improvements to IFRSs (2010-2012) cycle: issued in December 2013, amending the following eightpronouncements

- IFRS 2 Share-based Payment – definition of ‘vesting condition’ (effective for the reporting periods beginning on or after 1 January 2014)

- IFRS 3 Business Combinations – accounting for contingent consideration in a business combination (effective for the reporting periods beginning on or after 1 January 2014).

- IFRS 8 Operating Segments – required the entity to disclose the judgements made by management in applying the aggregation criteria to operating segments. (effective for the reporting periods beginning on or after 1 January 2014).


- IFRS 13 Fair Value Measurement – clarification on measurement of short-term receivables and payables with no stated interest rate (effective for the reporting periods beginning on or after 1 January 2014).

- IAS 16 Property, Plant and Equipment – Clarifies that when an item of property, plant and equipment is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount (effective for the reporting periods beginning on or after 1 January 2014).

- IAS 24 Related Party Disclosures – Clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity (effective for the reporting periods beginning on or after 1 January 2014).

- IAS 38 Intangible Assets – Clarifies that when an intangible asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount. (effective for the reporting periods beginning on or after 1 January 2014).

• Annual Improvements to IFRSs (2011-2013) cycle: issued in December 2013, amending the following fourpronouncements

- IFRS 1 First-time Adoption of IFRS – clarifies the definition of ‘effective standard’ for the first-time IFRS adopters

- IFRS 3 Business Combinations – clarifies the exception from the scope

- IFRS 13 Fair Value Measurement – Clarifies that the scope of the portfolio exception defined in paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 or IFRS 9 (effective for the reporting period when IFRS 13 was first used)

- IAS 40 Investment Property – clarifies the relationship between IFRS 3 and IAS 40 (effective for the reporting periods beginning on or after 1 January 2014).

• IFRS9,Financialinstruments–projectofnewstandardforfinancialinstrumentsthatisbeingimplementedinthree phases: Phase 1 – Classification and measurement, Phase 2 – Impairment, Phase 3 – Hedge Accounting (amended in June 2014, effective for periods beginning on or after 1 January 2018). In July 2014 the IASB completed the standard and issued IFRS 9 including the requirements previously issued and the additional amendments and will replace IAS 39. Compared to amendments to IFRS 9 in 2013, the 2014 amendments introduce some requirements for classification and measurement by introducing the new category “fair value to OCI” for certain simple debt instruments. The new 2014 version of the standard also introduces a new expected loss impairment model that replaces the incurred loss impairment model.

• IFRS14,Regulatorydeferralaccounts–setsrequirementsforaccountingofdeferralaccountsrelatedtorateregulation (published in January 2014, effective for the reporting periods beginning on or after 1 January 2016)

• IFRS15,RevenuefromContractswithCustomers–willimprovethefinancialreportingofrevenueandimprovecomparability (published in May 2014, effective for the reporting periods beginning on or after 1 January 2017)

• AmendmentstoIFRS10andIAS28,SaleorContributionofAssetsbetweenanInvestoranditsAssociateorJoint Venture – addresses the inconsistency between the requirements in IFRS 10 and those in IAS 28 (published in September 2014, effective for the reporting periods beginning on or after 1 January 2016)

• AmendmentstoIFRS10,IFRS12andIAS28,Investmententities:Applyingtheconsolidationexemption–clarifythe application of the consolidation exception for investment entities and their subsidiaries. (published in December 2014, effective for the reporting periods beginning on or after 1 January 2016)


• AmendmenttoIFRS11,AccountingforAcquisitionsofInterestsinJointOperations–addsnewguidanceonhowto account for the acquisition of an interest in a joint operation that constitutes the business. (published in May 2014, effective for the reporting periods beginning on or after 1 January 2016)

• Amendment to IAS 1, Initiative for thedisclosureof information–an initiative to improvepresentationanddisclosure in financial reports. (published in May 2014, effective for the reporting periods beginning on or after 1 January 2016)

• Amendmentsto IAS 16and IAS38,ClarificationofAcceptableMethodsofDepreciationandAmortization–Amendments to IAS 16 clarify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate. Amendments to IAS 38 also clarify that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. (published in May 2014, effective for the reporting periods beginning on or after 1 January 2016)

• AmendmentstoIAS16andIAS41,BearerPlants–clarifythatbearerplantsshouldbeaccountedforinthesameway as property, plant and equipment according to IAS 16. (published in June 2014, effective for the reporting periods beginning on or after 1 January 2016)

• Amendments to IAS 27, EquityMethod in Separate Financial Statements– allowentities to use the equitymethod to account for investments in subsidiaries, joint ventures and associates in their separate financial statements as is stated in IAS 28. (published in August 2014, effective for the reporting periods beginning on or after 1 January 2016)

• AnnualImprovementstoIFRSs(2012-2014)cycle:collectionofamendmentstofourpublicationsofIFRSduringthe years 2012 - 2014 (issued in September 2014, effective for the reporting periods beginning on or after 1 January 2016), amending the following pronouncements:

- IFRS 5 Non-current assets held for sale and discontinued operations – amendments regarding methods of disposal

- IFRS 7 Financial Instruments: Disclosures (with consequent amendments to IFRS 1) regarding servicing contracts

- IAS 19 Employee Benefits – regarding discount rates

- IAS 34 Interim financial statements – regarding disclosure information

In 2014 the Bank and Sberbank Group assessed the impact of IFRS 9 Financial on financial statements. A detailed analysis of the adoption of IFRS 9 Financial instruments is in process during the year 2014 and will be continued in 2015.

The Bank anticipates that adopting other standards, amendments to the existing standards, and interpretations in future periods will have no material impact on the financial statements of the Bank (except of the impact of IFRS 9 as described previously) in the period of the first application of the rules.

The Bank monitors the process of creating as yet unpublished standards, particularly IFRS 9 Financial Instruments, proposals for new standards Leases and Revenue from contracts with customers, and annual Improvements to IFRSs.

.(ab) Critical accounting estimates and judgments

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.


Impairment losses on loans and advancesThe Bank reviews its loan portfolios to assess impairment at least on a monthly basis.

The amount of impairment loss reflects the decrease in expected future cash flows (payments) from the portfolio of loans.

For receivables that are not past due, the amount of impairment was estimated based on historical observations of credit losses of homogenous portfolio of clients with similar credit characteristics.

For receivables that are past due, the amount of impairment is calculated as the change in present value of estimated future cash flows. The expected cash flows are estimated based on the financial conditions of individual clients and the realizable value of collateral, using historical observations of the loss portfolio and profitability of each type of collateral.

Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. To the extent that the net present value of estimated cash flows differs by +/-5%, the provision would be estimated at CZK 37 million lower or CZK 101 million higher (2013: the provision would be estimated at CZK 59 million lower or CZK 123 million higher).

Impairment of available-for-sale equity investmentsThe Bank determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates, among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows.

Fair value of financial instrumentsThe fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. The valuation techniques include the net present value and discounted cash flow models, a comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free rates, credit spreads, and other premiums used in estimating discount rates, bond prices and foreign currency exchange rates. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them.

All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data; however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Deferred taxSignificant estimates are required in determining deferred income tax. There are many transactions for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of temporary differences is different from the amounts that were initially recorded, such differences will impact the current income tax provision and deferred tax in the period in which such a determination is made.


3 Net interest incomeInterest and similar income

(CZKm) 2014 2013

Loans and advances to customers 2,184 1,997

Due from banks 55 117

Loans and advances to banks 2,239 2,114

Investment securities available for sale 19 23

Interests from hedge accounting 3 -

2,261 2,137

Total interest and similar income 2,261 2,137

Interest income from loans and advances to customers

(CZKm) 2014 2013

Receivables from companies and individuals including consumer loans 2,176 1,985

Receivables from municipalities 4 6

Receivables from governmental bodies 1 1

Other receivables from customers 3 5

2,184 1,997

There was CZK 99 million in interest income recognized on impaired receivables in 2014 (2013: CZK 109 million).

There was CZK 24 million in interest income recognized on loans and receivables with forbearance measures in 2014.

Net interest income comprise the net interest income of CZK 7 million recognized on hedging instrument and CZK 10 million on hedged item.

Interest and similar expense

(CZKm) 2014 2013

Due to customers 337 478

Due to banks 74 59

Debt securities in issue 181 157

592 694

Due to customers designated at fair value at initial recognition - 4

592 698


4 Net fee and commission income(CZKm) 2014 2013

Fee and commission income 510 467

Fee and commission expense (149) (110)

361 357

Fee and commission income

(CZKm) 2014 2013

International payment transactions 162 157

Domestic payment transactions 76 106

Lending business (those which are not regarded as part of the effective interest rate) 102 90

Foreign exchange, foreign notes and coins transactions 117 85

Securities and custody business 13 21

Other 40 8

510 467

Fee and commission income from securities and custody business includes CZK 2 million in fee income from custody activities (2013: CZK 2 million).

5 Net trading income(CZKm) 2014 2013

Fixed-income securities and money market (5) 1

Net foreign exchange gains 52 17

Interest rate contracts 6 9

Foreign exchange (5) (7)

48 20

Net foreign exchange gains include results arising from both customer and proprietary activities in foreign exchange cash, spot, forward, swap and option operations.

Net trading income comprises of net loss of CZK 35 million recognized on fluctuation of fair value of interest swap which is designated as hedging instrument and net profit of CZK 40 million on fair value change of hedged item.


6 Net income from financial investments(CZKm) 2014 2013Net income from revaluation of financial assets at fair value through profit and loss (designated financial instruments) - (2)

Net income from revaluation of financial liabilities at fair value through profit and loss (designated financial instruments) - 2

Net income from sale of securities available for sale 57 13

Net income from assigned receivables (3) -

54 13

7 Administrative expenses(CZKm) 2014 2013

Personnel expenses 721 583

Depreciation of property and equipment and amortization of intangible assets 97 95

Other general administrative expenses 456 410

1,274 1,088

Personnel expenses

(CZKm) 2014 2013

Salaries and bonuses of Management Board members 38 37

Salaries and bonuses of senior management 59 35

Salaries and bonuses of Supervisory Board members - 2

Salaries and bonuses of the employees 438 359

Social security costs 166 134

Other personnel costs 20 16

721 583

Social security costs also include the contribution to the state pension scheme.

Management bonus schemeSalaries and remuneration of the Members of the Management Board, as well as the remuneration principles and structure, are subject to approval by the Supervisory Board. Key performance indicators of the Annual performance bonus is based on the financial results of the Group (Sberbank Europe AG), Bank (Sberbank CZ, a.s.), profit center / segment and the strategic and individual objectives. The Annual performance bonus is paid if the requirements set out in the Group guidelines on remuneration and in the Bank internal guidelines General principles of the remuneration are fulfilled. The annual bonus can also be reduced or unpaid in relation to the achievement of the performance objectives.


Retirement benefitsThe Bank provides its employees with a defined contribution retirement scheme in accordance with Act No. 42/1994 Coll. Participating employees can contribute a percentage of their salaries to a pension fund. The Bank contributes up to CZK 3,600 a year per person. Total Bank expense for the retirement scheme in 2014 was CZK 1.4 million (2013: CZK 1.4 million). The expenses for the retirement scheme are recognized on the line „Other personnel costs“ in the table „Administrative expenses“.

Other general administrative expenses(CZKm) 2014 2013

Rent and leasing 100 90

Information technology 116 109

Marketing and public relations 75 63

Material consumption 30 40

Audit, tax, legal consultancy 64 31

Tax and fees 2 2

Other 69 75

456 410

8 Other operating income(CZKm) 2014 2013

Gain on disposal of fixed assets - 4

Gain on contractual partners’ expense compensation 18 9

Other 6 4

24 17

9 Other operating expenses(CZKm) 2014 2013

Deposit insurance 64 65

Other 4 6

68 71


10 Income tax expense(CZKm) 2014 2013

Current tax expense 116 79

Deferred tax income/expense relating to the origination and reversal of temporary differences (Note 20) (18) (23)

98 56

The following table shows how the tax on the Bank‘s profit before tax differs from the theoretical amount that would arise using the basic tax rate:

(CZKm) 2014 2013

Profit before taxation 481 286

Applicable rates 19% 19%

Taxation at applicable tax rates 91 54

Tax effect of non-deductible expenses 3 4

Other 4 (2)

98 56

The effective tax rate in 2014 was 20.37% (2013: 19.58%).

11 Cash and balances with central banksThe Bank classifies its cash and balances with central banks, except for cash in hand, in the category of financial assets “loans and receivables”.

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Loans and deposits to central bank 5,700 10,560

Mandatory minimum reserves with central banks 953 823

Cash in hand 623 351

Current accounts with central banks 34 12

7,310 11,746

Mandatory minimum reserves with the Czech National Bank (“CNB”) are generally not available for use in the Bank’s day-to-day operations. These deposits bear interest at the CZK repo rate, which was 0.05% as at 31 December 2014 (31 December 2013: 0.05%).


12 Loans and advances to banksThe Bank classifies its loans and advances to banks in the category of financial assets “loans and receivables”.

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Analyzed by product and bank domicile

Current accounts

Domestic 16 7

Foreign 247 183

Term deposits

Domestic 136 -

Foreign 1,669 3,272

2,068 3,462

Allowances for credit losses - -

Net due from banks 2,068 3,462

Loans and advances to banks amounting to CZK 619 million (2013: CZK 470 million) are included in the item cash and cash equivalents (Note 31).

13 Loans and advances to customersThe Bank classifies its loans and advances to customers in the category of financial assets “loans and receivables”.

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Analyzed by product

Investment loans 35,932 35,762

Working capital financing 4,883 4,948

Mortgages 12,571 11,212

Consumer loans 2,214 1,086

Gross loans and advances 55,600 53,008

Allowance for impairment (Note 14) (1,453) (1,587)

Net loans and advances 54,147 51,421

In 2014, the Bank pledged collateral for the received long-term loan from the other bank to finance housing demands of the customers. The value of the pledged loan collateral at gross amortized cost is CZK 1,400 million (2013: CZK 1,460 million).

For an analysis of individual categories of loans and advances to customers according to their credit quality see Note 33 (b).


14 Impairment charge for credit lossesThe movement in allowance for impairment of loans and advances to customers can be analyzed as follows:

(CZKm) Retail Corporate Total

As at 1 January 2013 450 783 1,233

Allocation to provision for loan impairment 233 284 517

Reversal of provision for loan impairment (73) (38) (111)

Loans written off during the year as uncollectible (45) - (45)

Recoveries received for loans earlier written off (5) - (5)

Net foreign exchange difference - (2) (2)

As at 31 December 2013 560 1,027 1,587

Allocation to provision for loan impairment 318 338 656

Reversal of provision for loan impairment (115) (210) (325)

Loans written off during the year as uncollectible (81) (393) (474)

Recoveries received for loans earlier written off 4 - 4

Net foreign exchange difference - 5 5

As at 31 December 2014 686 767 1,453

Segments Corporate/Retail are determined in accordance with the Basel II standardized approach as opposed to Note 32, where the segments are defined based on the Bank’s organizational structure.

The Bank also realized a loss amounting to CZK 231 million (2013: CZK 10 million) on ceded receivables. The loss is recognized in the “impairment charge for credit losses”.

The Bank received the financial guarantee for the haircut on market values of real estate collaterals from Sberbank Europe AG in 2014. As an effect of this guarantee part of the allowance for impairment was released. (Note 33b).

15 Derivative financial instrumentsThe Bank’s trading activities primarily involve providing various derivative products to its customers and managing positions for its own account. The trading derivatives also include those derivatives which are used for asset and liability management (ALM) purposes to manage the interest rate position and which do not meet the criteria of hedge accounting.

The contract or notional amounts and positive and negative fair values of the Bank’s outstanding derivative trading positions as at 31 December 2014 and 31 December 2013 are set out in the table below. The contract or notional amounts represent the volume of outstanding transactions at a point in time; they do not represent the potential for gain or loss associated with market risk or credit risk of such transactions.


Derivative financial instrumentsTrading derivatives

31/ 12/ 2014 31/ 12/ 2013

Contract/Nominal

Assets

Contract/Nominal

LiabilitiesFair value

positiveFair value negative

Contract/Nominal

Assets

Contract/Nominal


positive Fair value

negative(CZKm)Interest rate derivatives

Swaps 6,707 6,722 333 327 7,266 6,390 217 208

Options 799 764 1 1 1,680 1,643 10 10

7,506 7,486 334 328 8,946 8,033 227 218

Foreign exchange derivatives

Swaps 8,484 8,488 21 25 1,235 1,237 1 2

Options 192 192 7 7 - - - -

Forwards 911 909 21 18 2,521 2,516 41 37

9,587 9,589 49 50 3,756 3,753 42 39

Total 17,093 17,075 383 378 12,702 11,786 269 257

Fair value gains less losses of trading derivatives are recognized in the profit for the period.

Certain derivative transactions, while providing effective economic hedges under the Bank’s risk management positions, do not qualify for hedge accounting, and are therefore presented above as trading derivatives with fair value gains and losses recognized in the profit for the period.

The table below analysis the derivatives held for risk management purposes by type of instrument:

Derivatives held for risk management purposes

31/ 12/ 2014 31/ 12/ 2013

Contract/Nominal


positiveFair value negative

Contract/Nominal


positiveFair value negative(CZKm)

Interest rate derivatives

Swaps 1,000 - 36 - - -

The Bank uses interest rate swaps to hedge its exposure to changes in fair values of its fixed-rate state bonds, which is classified in available for sale portfolio.


16 Financial assets at fair value through profit or lossSecurities held for trading(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Debt securities 32 31

The Bank does not hold securities designated at fair value through profit or loss in 2014 and 2013.

17 Investment securitiesThe Bank classifies its investment securities in the categories of financial assets “available for sale”, “loans and receivables” and “held to maturity”.

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Securities available for sale

Debt securities thereof:

- Listed 2,111 2,997

2,111 2,997

Securities in category loans and receivables


- Unlisted 60 61

60 61

Securities held to maturity


- Listed - -

- -


(CZKm)

Securities available for

sale

Securities in category loans

and receivables

Securities held to

maturity Total

As at 1 January 2013 2,253 61 - 2,314

Additions 3,034 - - 3,034

Disposals (2,237) - - (2,237)

Gains / losses from changes in fair value (53) - - (53)

As at 31 December 2013 2,997 61 - 3,058

Additions 1,012 - - 1,012

Disposals (1,970) (1) - (1,971)

Gains / losses from changes in fair value 72 - - 72

As at 31 December 2014 2,111 60 - 2,171

The Bank pledged securities for loans taken to finance SME and municipalities. The value of the pledged collateral (securities available for sale) at fair value amounts to CZK 471 million in 2014 (2013: CZK 464 million).


18 Intangible assets

(CZKm) SoftwareDevelopment

in progress Other Total

Costs

As at 1 January 2013 375 9 1 385

Additions 33 13 - 46

Transfer 12 (12) - -

Disposal (6) - - (6)

As at 31 December 2013 414 10 1 425

Additions 16 11 - 27

Transfer - - - -

Disposal (2) - - (2)

As at 31 December 2014 428 21 1 450

Accumulated amortization

As at 1 January 2013 (274) - (1) (275)

Amortization charge (41) - - (41)

Disposals (accumulated amortization) 6 - - 6

As at 31 December 2013 (309) - (1) (310)

Amortization charge (42) - - (42)

Disposals (accumulated amortization) 2 - - 2

As at 31 December 2014 (349) - (1) (350)

Net book value

As at 1 January 2013 101 9 - 110

As at 31 December 2013 105 10 - 115

As at 31 December 2014 79 21 - 100

The acquisition amount of fully amortized intangible assets which are still in use was CZK 127 million in 2014 (2013: CZK 116 million).


19 Property and equipment

(CZKm)Land and buildings

Leasehold improvement Equipment Other

Construction in progress Total

Costs

As at 1 January 2013 168 78 265 155 8 674

Additions 10 42 35 35 1 123

Transfer - 5 - 3 (8) -

Disposal - (6) (30) (34) - (70)

As at 31 December 2013 178 119 270 159 1 727

Additions - 29 14 25 23 91

Transfer - - - - - -

Disposal - (5) (15) (9) - (29)

As at 31 December 2014 178 143 269 175 24 789

Accumulated depreciation

As at 1 January 2013 (94) (57) (207) (123) - (481)

Depreciation charge (5) (8) (22) (15) - (50)


Disposals (accumulated depreciation) - 4 29 33 - 66

As at 31 December 2013 (99) (61) (200) (105) - (465)

Depreciation charge (5) (12) (24) (14) - (55)


Disposals (accumulated depreciation) - 4 15 9 - 28

As at 31 December 2014 (104) (69) (209) (110) - (492)

Net book value

As at 1 January 2013 74 21 58 32 8 193

As at 31 December 2013 79 58 70 54 1 262

As at 31 December 2014 74 74 60 65 24 297

The acquisition amount of fully amortized property and equipment assets which are still in use was CZK 228 million in 2014 (2013: CZK 197 million). The amount of received compensation from third parties for items of property and equipment that were given up or lost was CZK 1 million (2013: CZK 1.7 million).


20 Deferred income tax assetsDeferred income taxes in 2014 are calculated on all temporary differences under the liability method using the 19% income tax rate which is supposed to be applicable at recognition (19% for 2013).

The movement on the deferred income tax account is as follows:

(CZKm) 2014 2013

As at 1 January 47 13

Deferred tax income/expense relating to the origination and reversal of temporary diffe-rences (Note 10) 18 23

Available-for-sale securities

Fair value re-measurement (Note 28) (14) 11

Remeasurements of employee benefits (Note 28) (2) -

As at 31 December 49 47

Deferred income tax asset and liability are attributable to the following items:

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Allowance for impairment 48 33

Available-for-sale securities (6) 9

Depreciation of the fixed assets (8) (6)

Provisions 15 10

Other temporary differences - 1

49 47

The deferred tax (debit) / credit in the statement of income comprise the following temporary differences:

(CZKm) 2014 2013

Allowance for impairment 14 20

Depreciation of fixed assets (2) -

Reserves 6 3

Other temporary differences - -

Total (Note 10) 18 23

The Bank‘s management believes it is probable that the Bank will fully realize its gross deferred income tax assets based upon the Bank‘s current and expected future level of taxable profits and the expected offset from gross deferred income tax liabilities.


21 Other assets(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Prepayments and accrued income 30 22

Other debtors, net of provisions 31 25

Anticipated receivables 8 4

Other receivables 234 10

303 61

The increase in other receivables in 2014 is due to receivables from day-to-day operations of the external provider of cash and documents transport between head office and the branches of the Bank.

22 Deposits from banksThe Bank classifies its deposits from banks in the category of financial liabilities “measured at amortized cost”.

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Analyzed by product and bank domicile

Current accounts

Domestic 547 68

Foreign 116 66

Term deposits

Domestic 1,238 892

Foreign 2,608 593

Borrowings

Domestic - -

Foreign 2,388 2,739

Other

Domestic 11 -

Foreign 155 130

7,063 4,488

The Bank provided collaterals for its obligations by pledge of securities (Note 17) and pledge of receivables (Note 13).

Deposits from banks in the amount of CZK 3,934 million (2013: CZK 1,021 million) are included in the item cash and cash equivalents (Note 31).


23 Due to customersThe Bank classifies its due to customers in the category of financial liabilities “measured at amortized cost” or „measured at fair value at initial recognition“.

Due to customers measured at amortized cost

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Analyzed by product

Current accounts 19,386 21,808

Term deposits 13,720 18,880

Savings accounts with notice period 27 32

Savings accounts 11,250 7,288

44,383 48,008

Analyzed by customer type

Private companies 19,942 22,351

Individual – households 14,513 13,048

Individual – entrepreneurs 2,101 3,031

Government bodies 4,056 4,538

Non-profit institutions 386 705

Insurance companies and pension funds 2,048 2,327

Other financial institutions 1,337 2,008

44,383 48,008

The Bank has not given any collateral for its liabilities.


24 Debt securities in issueThe Bank classifies its debt securities in issue in the category of financial liabilities “measured at amortized cost”.

(mil. Kč)Issuedate Currency Maturity date

31/ 12/ 2014CZKm

31/ 12/ 2013CZKm

Issued mortgage bonds

Mortgage bond emission 5.30/17 18/ 12/ 2007 CZK 18/ 12/ 2017 815 825

Mortgage bond emission 5.70/14 27/ 10/ 2009 CZK 27/ 10/ 2014 - 504


Mortgage bond emission VAR1/15 24/ 3/ 2011 CZK 24/ 3/ 2015 249 255

Mortgage bond emission VAR1/17 22/ 3/ 2012 CZK 22/ 3/ 2017 493 506

Mortgage bond emission 3.20/16 11/ 10/ 2012 CZK 11/ 10/ 2016 1 003 1 020


Mortgage bond emission 2.00/20 26/ 6/ 2014 CZK 26/ 6/ 2020 971 -

Mortgage bond emission 1.10/17 5/ 9/ 2014 CZK 5/ 9/ 2017 - -

4,964 4,268

Promissory notes and certificates of deposits

Promissory notes and certificates of deposits short-term 981 5,049

Promissory notes and certificates of deposits long-term 89 83

1,070 5,132

Debt securities in issue 6,034 9,400

The Bank released two mortgage bonds issues in 2014 in the nominal amount of CZK 3,000 million (2013: in the nominal amount of CZK 800 million) and increased the two mortgage bonds issues in the nominal amount of CZK 500 million.

The bank The Bank repaid one mortgage bond issue in 2014 in the nominal amount of CZK 504 million (2013: in the nominal amount of CZK 118 million).

Issued mortgage bonds are collateralized by the Bank’s receivables arising from the granted mortgages in line with Czech regulatory requirements.


25 Other liabilities and accruals and deferred income (CZKm) 31/ 12/ 2014 31/ 12/ 2013

Accruals and deferred income 3 27

Payments in transit 55 49

Other clearing accounts 176 126

Other creditors 187 117

Payables to Deposit insurance fund 16 17

Anticipated payables 37 38

VAT and other tax payables 7 4

Other 49 5

530 383

26 Provisions

(CZKm)

Provision for financial guarantees and other

contingent liabilitiesEmployee benefits

provision

Other operating provision

Total provisions

As at 1 January 2013 8 21 6 35

Release (2) - (3) (5)

Cover of costs - (3) - (3)

Additions 3 8 1 12

As at 31 December 2013 9 26 4 39

Release (2) (6) - (8)

Cover of costs - - - -

Additions 11 - 15 26

Remeasurements - (6) - (6)

As at 31 December 2014 18 14 19 51

Other operating provisions also cover possible losses regarding legal proceedings. The provision of CZK 0.3 million as at 31 December 2014 (31 December 2013: CZK 0.3 million) for litigation is not discounted to its net present value, as the timing of its utilization could not be predicted with sufficient certainty.


27 Subordinated debtThe Bank classifies its subordinated debt in the category of financial liabilities “measured at amortized cost”.

The Bank received a subordinated liability of EUR 10 million from the European Bank for Reconstruction and Development on 24 December 2004, which is payable in one installment on 9 April 2015. As at 31 December 2014 this debt bears 6M EURIBOR interest of 0.179 % plus a margin of 1.5% p.a. (to the fifth year from the date of the agreement plus a margin 0.80% p.a.), which is payable semi-annually. This liability of CZK 278.3 million, including accrued interest, (31 December 2013: CZK 275.5 million) is subordinated to all other liabilities of the Bank and in the amount of CZK 15 million (31 December 2013: CZK 110 million) forms a part of the tier 2 capital of the Bank as defined by the CNB for the purposes of determination of its capital adequacy (Note 33 (g)).

The Bank received a subordinated liability of EUR 77.3 million from Sberbank EU on 15 December 2013, which is payable in one installment on 19 December 2021, which was transformed to share capital on 18 April 2014 in form of capital shares issue and share capital increase (Note 28).

28 EquityThe only share holder decided to increase the equity by issuing new voting shares on 18 April 2014 under ISIN CZ0008040201.

Share capital

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Voting shares 2,806 2,005

Non-voting shares - -

Issued, paid and registered by the Commercial register 2,806 2,005


Issues of shares

ISIN Date of issueNominal value of

share Number of shares Nominal value

CZK CZK m

CZ0008040201 23/ 10/ 1998 5,000 30,000 150

CZ0008040201 23/ 10/ 1998 5,000 100,000 500

CZ0008040201 7/ 8/ 2002 5,000 4,600 23

CZ0008040201 7/ 8/ 2002 5,000 15,400 77

CZ0008040201 23/ 11/ 2005 5,000 3,165 16

CZ0008040201 23/ 11/ 2005 5,000 10,555 53

CZ0008040201 31/ 7/ 2006 5,000 6,565 33

CZ0008040201 31/ 7/ 2006 5,000 21,895 109

CZ0008040201 20/ 12/ 2006 5,000 8,479 42

CZ0008040201 20/ 12/ 2006 5,000 28,281 142

CZ0008040201 16/ 5/ 2007 5,000 8,336 42

CZ0008040201 16/ 5/ 2007 5,000 27,804 139

CZ0008040201 21/ 12/ 2007 5,000 16,488 82

CZ0008040201 21/ 12/ 2007 5,000 54,992 275

CZ0008040201 30/ 7/ 2008 5,000 14,882 74

CZ0008040201 30/ 7/ 2008 5,000 49,634 248

CZ0008040201 18/ 4/ 2014 5,000 160,122 801

561,198 2,806

As at 31 December 2014 the nominal value of ordinary securities is CZK 5,000. As at 31 December 2013 the nominal value of ordinary securities was CZK 5,000.

Cumulative gains not recognized in the profit for the period may be analyzed as follows:

(CZKm) 2014 2013

As at 1 January (37) 8

Net gains/(losses) from changes in fair value of available-for-sale securities 168) (41)

Net gains from the sale of available-for-sale securities (57) 13

Changes in fair value due to hedge accounting (40) -

Changes in provision for employee benefits 11 (2)

Change in deferred income taxes (Note 20) (16) 11

As at 31 December 29 (37)


29 Contingent liabilities and commitmentsCommitments to provide a loan, loan guarantees to third parties and guarantees from acceptance of letters of credit expose the Bank to credit risk and to loss in the event of a client’s inability to meet his obligations. Various commitments and contingent liabilities arise in the normal course of business involving elements of credit, interest rate and liquidity risk.

Contingent liabilities include:

31/ 12/ 2014 31/ 12/ 2013

(CZKm) Contract amount Contract amount

Documentary credits 55 182

Financial guarantees 2,733 1,487

Provision for guarantees (Note 26) (9) (6)

Net financial guarantees 2,724 1,481

Un-drawn formal standby facilities, credit lines 3,237 7,782

Provision for un-drawn credit lines (Note 26) (9) (3)

Net un-drawn formal standby facilities, credit lines 3,228 7,779

Total in gross amount 6,007 9,442

Un-drawn credit lines are irrevocable.

30 Other contingent liabilities(a) Litigation

Apart from litigations for which provisions have already been raised (Note 26), the Bank is not involved in any other litigation with a material impact on its position.

(b) Taxation

Czech tax legislation, interpretation and guidance are still evolving. Consequently, under the current taxation environment, it is difficult to predict the interpretations the respective tax authorities may apply in a number of areas. As a result, the Bank has used its current understanding of the tax legislation in the design of its planning and accounting policies. The effect of the uncertainty cannot be quantified.

Czech tax authorities are authorized to perform tax inspections for three years retrospectively. The last tax inspection was for the year 2007.


(c) Assets under management and custody

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Assets held under custody 1,075 5,155

Assets held under custody are shown at their nominal value.

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Assets held under management 7,915 7,643

Assets held under management are shown at their fair value.

Management considers that no present obligations were associated with these fiduciary duties as at 31 December 2014 and 31 December 2013.

(d) Operating lease commitments (the Bank as lessee)

Future minimum lease payments (cash outflow) under land, building and equipment operating leases are as follows:

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Up to 3 months 28 23

Not later than1 year 80 65

Later than 1 year and not later than 5 years 205 153

Later than 5 years 13 11

326 252

(e) Operating lease receivables (the Bank as lessor)

The Bank does not have any future minimum lease payments (cash inflow) under land, building and equipment operating lease contracts in years 2014 and 2013.


31 Cash and cash equivalentsAnalysis of the balances of cash and cash equivalents as shown in the balance sheets:

(CZKm) 31/ 12/ 2014 31/ 12/ 2013 1/ 1/ 2013

Cash and balances with central banks (Note 11) 7,310 11,746 7,196

Due from banks due up to 3 months (Note 12) 619 470 1,584

Due to banks due up to 3 months (Note 22) (3,934) (1,021) (2,398)

3,995 11,195 6,382

32 Operating segmentsThe Bank has the following four reportable segments in 2014 and 2013. These operating segments are the Bank’s strategic business units which offer different products and services, and are managed separately because they require different technology, product distribution and service rendering methods and marketing strategies. The Management Board reviews the internal management reports for each of these strategic business units on a monthly basis.

• Retail banking: Private individuals and entrepreneurs and companies with a turnover of less than CZK 30 million;

• Corporate banking: Companies with turnover greater than CZK 50 million and non-banking institutions in the financial sector;

• SME banking: Small companies and entrepreneurs with turnover up to CZK 50 million;

• Treasury: Asset and liability management, dealing.

The result of other Bank activities (head office expenses, unallocated expenses and eliminating and reconciling items) is reported within the reconciliation of the reportable segment revenues, profit or loss, assets and liabilities and other material items with corresponding items in the Bank’s financial statements. The methods of reporting the segments’ profit and loss, assets and liabilities is in accordance with the methods of reporting profit and loss, assets and liabilities of the aggregate Bank level. The cost center of Global Markets was withdrawn in 2014 from the segment Treasury and transferred to segment Corporate banking. In 2013 the definition of segments was changed – new SME segment was excluded from the Corporate banking segment. The changes in segmentation were initiated by the parent company throughout the whole Group of Sberbank Europe.

In 2014 and 2013, no client of the Bank (or group of related persons) constituted more than 10 % of the total revenues of the Bank.

The accounting policies of the reportable segments are the same as described in Note 2.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Bank’s Management Board.


Operating segment information for 2014

(CZKm)Retail

BankingCorporate

Banking

SME Treasury Total

Net interest income 474 462 520 218 1,674

Non-interest income 152 51 194 85 482

Total segment revenue 626 513 714 303 2,156

Segment expense (431) (87) (143) (5) (666)

Other material non-cash items:

Allocation to provision for loan impairment (193) (12) (546) - (751)

Reversal of provision for loan impairment 127 11 273 12 423

Loans written off during the year as uncollectible 1 - (1) - -

Provisions and other operating costs (74) (74)

Reportable segment profit before income tax 130 425 297 236 1,088

Reportable segment assets 20,131 14,392 21,628 10,709 66,860

Reportable segment liabilities 22,792 13,262 10,948 11,793 58,795

Capital expenditure 46 7 4 - 57

Depreciation 32 5 4 55 96

Operating segment information for 2013 – segmentation as of 2014 reporting

(CZKm)Retail

BankingCorporate

Banking SME Treasury Total

Net interest income 448 504 487 - 1,439

Non-interest income 132 45 190 (31) 336

Total segment revenue 580 549 677 (31) 1,775

Segment expense (401) (70) (96) 10 (557)

Other material non-cash items:

Allocation to provision for loan impairment (271) (443) (356) - (1,070)

Reversal of provision for loan impairment 177 277 212 - 666

Loans written off during the year as uncollectible - - 4 - 4

Reportable segment profit before income tax 85 313 441 (21) 818

Reportable segment assets 18,456 17,717 17,084 17,215 70,472

Reportable segment liabilities 21,443 19,012 12,779 11,743 64,977

Capital expenditure 82 1 4 2 89

Depreciation 24 1 3 4 32


Reconciliations of reportable segment profit before income tax and assets and liabilities

(CZKm) 2014 2013

Profit before income tax

Total profit before income tax for reportable segments 1,088 818

Unallocated expenses (607) (532)


Assets

Total assets for reportable segments 66,860 70,472

Unallocated assets - -

Total assets 66,860 70,472

Liabilities

Total liabilities for reportable segments 58,795 64,977

Unallocated liabilities - -

Total liabilities 58,795 64,977

Total Bank revenue is generated solely by the reportable segments.

The vast majority of the Bank’s total revenues is generated from customers domiciled in the Czech Republic.

All of the Bank’s Property, plant and equipment and intangible assets are located in the Czech Republic.

.


33 Financial risks(a) Strategy in using financial instruments

The Bank’s activities are principally related to the use of financial instruments. The Bank accepts deposits from customers at both fixed and floating interest rates and for various periods and seeks to earn above-average interest margins by investing these funds in high quality assets. The Bank seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might become due.

The Bank seeks to raise its interest margins by obtaining above-average margins, net of provisions, through lending to commercial and retail borrowers with a range of credit standings. Such exposures involve not just on-balance sheet receivables and advances but the Bank also enters into guarantees and other commitments such as letters of credit and other similar contingent liabilities.

The Bank also, to a limited extent, trades in financial instruments where it takes positions in traded and over-the-counter instruments to take advantage of short-term market movements in the debt securities markets, in currencies and interest rates. The Management Board places trading limits on the level of exposure that can be taken in relation to relevant market positions.

(b) Credit risk

The Bank defines credit risk as the risk that a counterparty will cause a financial loss for the Bank by failing to discharge a contractual obligation.

Credit risk management is performed in close co-operation with the Bank’s parent company, thus reflecting the risk strategy and risk-appetite.

A conservative strategy to credit risk management is applied. Considered within the general context of the overall business relations existing with each respective customer, every transaction for which the Bank knowingly undertakes risk should yield a contribution margin that is commensurate with the specific risk incurred.

The Bank structures the levels of accepted credit risk by regular measurement of the risk exposure, monitoring of the limits and taking appropriate procedures leading to a decrease in the accepted level of credit risk. This process is performed for each individual borrower and the whole loan portfolio. When deciding about the acceptance of a new exposure, an analysis of the customer’s cash flow and overall financial situation is a key factor, as well as the existing experience with the customer together with the quality of received collateral. The decision-making is performed independently from the sales units.

The capital requirement for credit risk in the investment portfolio is calculated using the standardized approach.

The table below summarizes maximum exposure to credit risk before collateral held or other credit enhancements. Included in the table are the Bank’s assets and liabilities at carrying amounts (after impairment).


Maximum exposure to credit risk before collateral held or other credit enhancements(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Credit risk exposures relating to on-balance sheet assets


Loans and advances to customers:

– Corporate loans



Mortgages 132 102

– Retail loans



Mortgages 12,403 11,093

Consumer loans 2,196 1,079

Derivative financial instruments 383 269

Financial assets at fair value through profit or loss


Investment securities

Debt securities 2,171 3,058

Other exposures 303 61

Credit risk exposures relating to off-balance sheet items (nominal amount)


Loan commitments and other credit related liabilities 3,292 7,964

65,129 67,753

Corporate loans include loans and advances to customers with a total exposure above EUR 1 million or with annual turnover of at least EUR 50 million. Segments Corporate/Retail are determined in accordance with the Basel II standardized approach for calculation of the capital requirement for credit risk in investment portfolios as opposed to Note 32, where the segments are defined based on the Bank’s organizational structure.


Financial effect of collateral held and other credit enhancements(CZKm) 31/ 12/ 2014 31/ 12/ 2013


Loans and advances to banks - -


– Corporate loans


Working capital financing 660 734

Mortgages 103 47

– Retail loans


Working capital financing 830 905

Mortgages 10,529 9,830

Consumer loans 987 742

32,438 34,756


Maximum exposure to credit risk after collateral held or other credit enhancements(CZKm) 31/ 12/ 2014 31/ 12/ 2013




– Corporate loans



Mortgages 29 55

– Retail loans



Mortgages 1,874 1,263

Consumer loans 1,209 337

Derivative financial instruments 383 269

Financial assets at fair value through profit or loss


Investment securities

Debt securities 2,171 3,058

Other exposures 303 61

Credit risk exposures relating to off-balance sheet items (nominal amount)


Loan commitments and other credit related liabilities 3,292 7,964

32,691 32,997

Only balance sheet items are subject to collaterals and other credit enhancements received.


Collateral held and other credit enhancementsCollateral held and other credit enhancements may be summarized by the collateral type as follows:

(CZKm)

Financial effect of collateral held and other credit

enhancements

As at 31 December 2014

Bank and similar guarantees 2,666

Mortgage right on real estate 26,373

Financial collateral 731

Other 2,668

Total 32,438


Bank and similar guarantees 3,302

Mortgage right on real estate 27,556

Financial collateral 704

Other 3,194

Total 34,756

Accounting policies for collaterals are presented in the Note 2 (z).

In 2014, the Bank received the financial guarantee for the haircut on market values of real estate collaterals from Sberbank Europe AG in amount of CZK 53.3 million. This guarantee is reported under Financial collaterals. In connection with above mentioned guarantee, the Bank released the allowance for impairment in amount of CZK 44.1 million, which equals to present discounted value of the gap between the estimate of the market value of referred real estate and by the Bank recognized amount for calculation of the allowance for impairment. The guarantee fees will be recognized in profit and loss statement during the duration period of the guarantee.

Loans and advancesThe Bank’s exposure to credit risk from loans and advances is summarized as follows:

31/ 12/ 2014 31/ 12/ 2013

(CZKm)

Loans and advances to

customers


banks


customers


banks

Neither past due nor impaired 52,099 2,068 48,723 3,462

Past due but not impaired 191 - 78 -

Individually impaired 3,310 - 4,207 -

Loans and advances – gross 55,600 2,068 53,008 3,462

Allowances for impairment (Note 14) (1,453) - (1,587) -

Loans and advances – net 54,147 2,068 51,421 3,462


Total loans and advances to customers which are neither past due nor impaired represent CZK 28,194 million (31 December 2013: CZK 26,681 million) Corporate loans and advances and CZK 23,905 million (31 December 2013: CZK 22,042 million) belong to Retail loans and advances.

The total impairment provision for loans and advances as at 31 December 2014 is CZK 1,453 million (31 December 2013: CZK 1,587 million) of which CZK 1,213 million (31 December 2013: CZK 1,413 million) represents the individually impaired loans; the remaining amount of CZK 240 million (31 December 2013: CZK 174 million) represents the portfolio provision.

Internal rating of loans and advances and CNB categorizationThe Bank uses internal rating models for the purposes of managing and monitoring the quality of the loan portfolio.

Each borrower is based on its credit quality rating grade assigned to a specified probability of a failure of the client within one year (Probability of default, PD). The Bank uses two rating scales based on segment analysis and the rating model. First rating scale is used to assess the corporate customers and new customers acquired in 2014, the other rating scale is historical.

The current rating scale consists of 26 rating grades, where the 26th grade is reserved for the customers in default. The historical rating scale consists of 25 grades, divided into five rating classes in five stages. In classes 1 to 4 loans and receivables are without failure, while a Class 5 consists of loans and receivables with a failure (1a – 5e). Receivables without failure are assigned in the Classes 1 – 4, Class 5 represents receivables with failure.

Internal rating has to be periodically updated. Validation and parameter changes are carried out in cooperation with the parent company.

Individually not impaired loans and advances (loans and advances without default) are in accordance with CNB’s regulations classified as follows (rating grades 1-25, or 1a – 4e):

• standard,whentheprincipalandinterestaredulypaidandtheyarenotoverdueformorethen30days,

• watched,whenitisprobableitwillbefullyrepaidandtheyarenotoverdueformorethen90days.

Individually impaired loans and advances (loans and advances in default) are in accordance with CNB’s regulations classified as follows (rating grades 26 and 5a – 5e):

• substandardwhentheirfullrepaymentisuncertainortheyareoverduefor91to180days,

• doubtful,whentheirfullrepaymentishighlyimprobableortheyareoverduefor181to360days,

• loss, when the full repayment is impossible or the receivable is overdue formore than 360 days or underbankruptcy proceedings.


Current rating scale

Rating Grade Risk Min PD Average PD Max PD

1 Low 0.00% 0.01% 0.02%

2 Low 0.02% 0.02% 0.03%

3 Low 0.03% 0.05% 0.07%

4 Low 0.07% 0.09% 0.14%

5 Low 0.14% 0.19% 0.27%

6 Low 0.27% 0.32% 0.38%

7 Low 0.38% 0.43% 0.49%

8 Low 0.49% 0.55% 0.63%

9 Low 0.63% 0.71% 0.81%

10 Low 0.81% 0.92% 1.04%

11 Low 1.04% 1.18% 1.34%

12 Medium 1.34% 1.52% 1.73%

13 Medium 1.73% 1.95% 2.22%

14 Medium 2.22% 2.51% 2.86%

15 Medium 2.86% 3.23% 3.67%

16 Medium 3.67% 4.15% 4.72%

17 High 4.72% 5.34% 6.08%

18 High 6.08% 6.87% 7.82%

19 High 7.82% 8.83% 10.05%

20 High 10.05% 11.36% 12.93%

21 High 12.93% 14.62% 16.64%

22 High 16.64% 18.80% 21.40%

23 High 21.40% 24.18% 27.52%

24 High 27.52% 31.11% 35.40%

25 High 35.40% 40.01% 100.00%

26 Default 100.00% 100.00% 100.00%

The current rating scale is valid for the corporate customers and since 2014 also for newly acquired retail customers.


Historical rating scale:

Rating grade Description

PD (for 1 year)

Rating Moody’s Rating S&P

Rating Fitch

1a best creditwothiness 0.01%Aaa, Aa1,

Aa2 AAA, AA+AAA, AA+,

AA

1b best creditwothiness 0.02% Aa3 AA AA-

1c best creditwothiness 0.03% A1 AA- A+

1d best creditwothiness 0.04% A2 A+ A

1e best creditwothiness 0.05% A3 A A-

2a excellent creditwothiness 0.07% A3 A- A-

2b excellent creditwothiness 0.11% Baa1 BBB+ BBB+

2c very good creditwothiness 0.16% Baa2 BBB BBB+

2d very good creditwothiness 0.24% Baa2 BBB BBB

2e very good creditwothiness 0.35% Baa2 BBB BBB-

3a good creditwothiness 0.53% Baa3 BBB- BBB-

3b good creditwothiness 0.80% Ba1 BB+ BB+

3c good and medium creditwothiness 1.20% Ba2 BB BB+

3d medium creditwothiness 1.79% Ba3 BB- BB

3e acceptable creditwothiness 2.69% Ba3 B+ BB-

4a poor creditwothiness 4.04% B1 B+ B+

4b poor creditwothiness 6.05% B2 B B

4c very poor creditwothiness (Watch List) 9.08% B3 B B-

4d very poor creditwothiness (Watch List) 13.62% B3 B- B-

4e very poor creditwothiness (Watch List) 20.44% Caa, Ca, C CCC, CC, C CCC, CC, C

5a >90 days overduestate of failure default default default

5b impairment due to the financial situationstate of failure default default default

5c renegotiation of the loanstate of failure default default default

5d insolvencystate of failure default default default

5e written off credit debtstate of failure default default default

Historical rating scale was used to assess the customers of segments other than corporate clients with turnover over EUR 30 million until the end of year 2013.


Loans and advances neither past due nor impaired

Loans and advances which are not overdue are allocated to this category. These loans and advances are not individually impaired.

Loans and receivables, individually not impaired – current rating scale:

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Low risk 19,180 8,000

Medium risk 14,637 2,166

High risk 5,450 1,865

Default - -

Loans and receivables, individually not impaired - brutto 39,267 12,031

Portfolio allowance for impairment for credit risks (Note 14) (196) (73)

Net loans and receivables, individually not impaired 39,071 11,958

Loans and receivables, individually not impaired – historical rating scale:

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Class 1 - 34

Class 2 1,350 5,142

Class 3 8,243 24,101

Class 4 3,239 7,416

Class 5 - -

Gross loans and receivables, individually not impaired 12,832 36,693

Portfolio allowance for impairment for credit risks (Note 14) (25) (100)

Net loans and receivables, individually not impaired 12,807 36,593


Loans and advances past due but not impaired Loans and advances from 1 up to 90 days overdue are generally not considered to be impaired by an individual impairment provision.

Loans and receivables, individually not impaired – current rating scale:

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Low risk 33 1

Medium risk 17 -

High risk 120 8

Default - -

Loans and receivables, individually not impaired - brutto 170 9

Portfolio allowance for impairment for credit risks (Note 14) (19) -

Net loans and receivables, individually not impaired 151 9

Loan and receivables past due, individually not impaired - historical rating scale:

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Class 1 - -

Class 2 - -

Class 3 3 40

Class 4 18 29

Class 5 - -

Gross loans and receivables past due, individually not impaired 21 69

Portfolio allowance for impairment for credit risks (Note 14) - (2)

Net loans and receivables past due, individually not impaired 21 67


The table below summarizes the gross amount of loans and advances to customers past due but not impaired by business segment along with the fair value of related collateral held by the Bank as security.

As at 31 December 2014 Total

(CZKm) Retail Corporate

loans and advances to

customers

Loans and advances past due but not impaired 61 130 191

Financial effect of received collaterals 43 30 73


(mil. Kč) Retail Corporate


customers

Loans and advances past due but not impaired 45 33 78

Financial effect of received collaterals 29 32 61

The table below summarizes the term structure of overdue:

Gross loans and receivables past due, individually not impaired

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

1 - 30 days overdue 73 37



Total gross amount 191 78

From the total loans and advances past due but not impaired as at 31 December 2014 38% were overdue by up to 1 month (2013: 48%).

Individually impaired loans and advances The Bank performs an assessment for individual impairment of loans and advances that are above the materiality threshold. Individually impaired loans and advances include exposures corresponding to the sub-categories of substandard, doubtful and loss loans and receivables in accordance with regulatory classifications. Therefore, they also include loans and advances more than 90 days overdue. The remaining loans and advances from financial activities are considered within the collective evaluation of impairment and for calculation of the portfolio provision.

90

Loans and receivables past due, individually impaired

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Class 5 3,310 4,207

Gross loans and receivables past due, individually impaired 3,310 4,207

Individual allowance for impairment for credit risks (1,213) (1,413)

Net loans and receivables past due, individually impaired 2,097 2,794

The table below summarizes the gross amount of individually impaired loans and advances to customers by business segment along with the fair value of related collateral held by the Bank as security.


(CZKm) Retail Corporate


customers

Individually impaired loans and advances 1,799 1,511 3,310

Financial effect of received collaterals 1,081 717 1,798

K 31. prosinci 2013 Total

(mil. Kč) Retail Corporate


customers

Individually impaired loans and advances 1,708 2,499 4,207

Financial effect of received collaterals 1,076 1,299 2,375

Loans and advances under forbearance measuresThe Bank performs the restructuring of loans and advances in cases where according to the assessment of the current legal and financial situation of the client it would probably suffers a loss if the restructuring was not performed. The restructuring mainly includes a modification of the repayment schedule, adjustment of interest rates, forgiveness of past due interests or extending the payment of the principal or accessory amounts or transformation of an overdraft current account to a loan.

The evidence of loans and receivables under forbearance measures is following:

- restructured loan continues to be recognized under original loan number and the continuation of the allowance for impairment is maintained

- restructured loan is derecognized and new asset is recognized. The allowance for impairment is transferred from derecognized loan to newly recognized asset.

- overdraft current account is transformed to new installment loan and respective allowance for impairment transferred

SBERBANK CZ | ANNUAL REPORT 2014 | NOTES TO THE FINANCIAL STATEMENTS

91

The allowance for impairment of loans under forbearance measures is calculated using the same methodology as for other loans and receivables.

In 2014, loans and advances totaling CZK 754 million (2013: CZK 468 million) were restructured. Out of these, there were CZK 448 million loans to Corporate customers and CZK 306 million loans to Retail customers (2013: Corporate banking CZK 320 million, Retail banking CZK 147 million).

They were especially for the prolonging of bridging loans in real estate, which had a maturity in 2014, and the prolonging of loans based on the requirements of clients in business sectors that were affected by economic conditions deteriorated. Restructuring is associated with a temporary worsening of the grade classification of the client. After the successful completion of restructuring and repayment methods for the clients, and in accordance with the rules of the CNB, they are reclassified back to a more creditworthy category. The client can be reclassified every six month by maximum 2 grades if he fulfils the terms of restructuring and does not delay with the repayments.

The Bank maintains the evidence of loans and advances under forbearance measures and evaluated their status on quarterly bases. Restructured loans and receivables are rated with grade 5c according to historical rating scale or grade 26 according to current rating scale

31/ 12/ 2014 31/ 12/ 2014

(CZKm)

Forborne loans and

receivablesReceived collateral

Loans and receivables

to customer - total

Received collateral

Not impaired 151 102 52,290 30,641

Impaired 603 307 3,310 1,797

Loans and recevables - brutto 754 409 55,600 32,438

Allowance for impairment (Note 14) (263) - (1 453) -

Loans and receivables - netto 491 409 54 147 32 438

31/ 12/ 2013 31/ 12/ 2013

(CZKm)

Forborne loans and

receivablesReceived collateral

Loans and receivables

to customer - total

Received collateral

Not impaired 323 107 48,801 32,381

Impaired 145 68 4,207 2,375

Loans and recevables - brutto 468 175 53,008 34,756

Allowance for impairment (Note 14) (8) - (1 587) -

Loans and receivables - netto 460 175 51,421 34,756

SBERBANK CZ | ANNUAL REPORT 2014 | NOTES TO THE FINANCIAL STATEMENTS


The reconciliation from the opening balances to the closing balances of the forborne loans and receivables during 2014:

(CZKm)Retail

bankingCorporate

banking Total

As at 1 January 2014 147 320 468

Increase in forborne receivables 159 178 337

Healed forborne receivables - (51) (51)

Written off forborne receivables - - -

Revenues from previously written off loans - - -

As at 31 December 2014 306 448 754

Loans and advances to banksThe Bank has a portfolio of only duly repaid loans and advances to banks, neither individually nor portfolio impaired.

For receivables from banks, the internal grade is derived from external ratings provided by recognized rating agencies.

Loans and advances to banks, individually not impaired

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Class 1 228 66

Class 2 111 2,900

Class 3 1,642 496

Class 4 87 -

Total 2,068 3,462

Debt securitiesThe table below presents an analysis of debt securities by rating agency designation as at 31 December 2014 and 31 December 2013, based on Moody’s external ratings.

As at 31 December 2014(CZKm)

Financial assets at fair value through profit or loss Investment securities Total

Aaa to A3 32 2,171 2,203

Baa1 to Baa3 - - -

Unrated - - -

Total 32 2,171 2,203


As at 31 December 2013(CZKm)

Financial assets at fair value through profit or loss Investment securities Total

Aaa to A3 31 3,058 3,089

Baa1 to Baa3 - - -

Unrated - - -

Total 31 3,058 3,089

Concentration of risks of financial assets with credit risk exposureDiversification is one of the key principles in managing credit risk. The Bank fully adheres to regulatory limits for an exposure to single economically-linked groups of customers. Additionally, the Bank places and monitors limits on the amount of risk accepted in relation to both geographical and industry sectors.

Geographical sectors


DomesticEuropean

UnionOther

Europe Other Total(CZKm)

Assets

Loans and advances to banks 152 358 1,486 72 2,068

Loans and advances to customers 46,980 6,824 304 39 54,147

from this forborne loans 486 5 - - 491

Financial assets at fair value through profit or loss 32 - - - 32

Debt investment securities 2,171 - - - 2,171

Other financial assets 369 317 - - 686

Total financial assets 49,704 7,499 1,790 111 59,104


DomesticEuropean

UnionOther

Europe Other Total(CZKm)

Assets

Loans and advances to banks 7 1,833 1,616 6 3,462


from this forborne loans 456 4 - - 460


Debt investment securities 3,058 - - - 3,058

Other financial assets 114 215 1 - 330

Total financial assets 49,423 6,792 2,051 36 58,302


Industry sectors

As at 31 December 2014Real

estate

Trade and

servicesManu-

facturingHouse-

holds

Financial instituti-

onsPublic sector

Other in-dustries Total(CZKm)

Assets

Loans and advances to banks - - - - 2,068 - - 2,068

Loans and advances to custo-mers 12,017 11,787 14,152 14,667 453 968 103 54,147

from this forborne loans 244 75 35 134 - - 3 491

Financial assets at fair value through profit or loss - - - - - 32 - 32

Investment securities - 60 - - - 2,111 - 2,171

Other financial assets 17 22 10 - 637 - - 686

Total financial assets 12,034 11,869 14,162 14,667 3,158 3,111 103 59,104

As at 31 December 2013Real

estate

Trade and

servicesManu-

facturingHouse-

holds

Financial instituti-

onsPublic sector

Other in-dustries Total(CZKm)

Assets

Loans and advances to banks - - - - 3,462 - - 3,462

Loans and advances to custo-mers 15,487 11,316 10,860 12,303 390 945 120 51,421

from this forborne loans 114 145 142 55 - - 4 460

Financial assets at fair value through profit or loss - 1 - - - 30 - 31

Investment securities - 61 - - - 2,997 - 3,058

Other financial assets 16 14 1 - 299 - - 330

Total financial assets 15,503 11,392 10,861 12,303 4,151 3,972 120 58,302


DerivativesThe Bank maintains strict control limits on credit risk from derivative positions, by both amount and term. Credit risk exposure is expressed by a credit equivalent, which in relation to derivatives is only a small fraction of the derivative’s notional amount outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security which is required for credit transactions is obtained for credit risk exposures on these instruments.

Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for each banking counterparty so as to cover the aggregate of all settlement risk arising from the Bank’s market transactions on any single day.

Financial instruments subject to offsetting, enforceable master netting arrangements and similar arrangements. The following table sets out the analysis of possible impact of enforceable master netting agreements to the Bank’s financial position.

31 December 2014Gross amounts – enforceable master

netting agreements

(CZKm)Gross

amount

Gross amount netting

Net amount

reportedFinancial

instrumentFinancial collateral

Net amount

Assets

Derivatives 302 - 302 (141) (141) 20

Total Assets 302 - 302 (141) (141) 20

Liabilities

Derivatives 348 - 348 (141) (194) 13

Total Liabilities 348 - 348 (141) (194) 13

31 December 2013Gross amounts – enforceable master

netting agreements

(CZKm)Gross

amount

Gross amount netting

Net amount

reportedFinancial

instrumentFinancial collateral

Net amount

Assets

Derivatives 192 - 192 (78) (111) 3

Total Assets 192 - 192 (78) (111) 3

Liabilities

Derivatives 208 - 208 (78) (130) -

Total Liabilities 208 - 208 (78) (130) -


Credit-related commitmentsThe primary purpose of these instruments is to ensure that funds are available to a customer as required. Payment guarantees and standby letters of credit with the characteristics of credit substitutes carry the same credit risk as loans. Documents and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitments represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

(c) Currency risk

The tables below summarize the Bank’s exposure to currency risk. It is expressed by the sensitivity analysis showing the effect of change in the CZK foreign exchange rate against significant currencies on the balance sheet, on the Bank’s annual net profit and other movements in equity.

In the year 2014 the effect of appreciation (+) / depreciation (-) in the CZK foreign exchange rate against the EUR by 10% and against USD by 20% was tested (in 2013: against the EUR by 10% and against USD by 20%) on the Bank’s annual net profit and other movements in equity.

In the Bank’s management judgment such an annual change in foreign exchange rates may be reasonably possible based on historical development. Included in the table are the respective changes in the Bank’s annual net profit and other movements in equity from assets and liabilities denominated in the above mentioned currencies.

The Bank has set limits on open currency positions in each currency. Within these limits, the Bank manages currency position so that it is balanced in all currencies (see the table Currency position). The impact of foreign exchange rate changes in net profit in the individual currencies, as well as in the aggregate for all currencies, is immaterial.


As at 31 December 2014 EUR USD

(CZKm) 10% (10%) 20% (20%)

Aktiva

Cash and balances with central banks (10) 10 (6) 6

Loans and advances to banks (182) 182 (17) 17

Loans and advances to customers (815) 815 (130) 130

Other assets (31) 31 - -

Unsettled transactions with currency instruments (1,667) 1,667 (165) 165

(2,705) 2,705 (318) 318

Liabilities

Deposits from banks 406 (406) - -

Due to customers 710 (710) 271 (271)

Debt securities in issue 15 (15) 12 (12)

Subordinated debt 28 (28) - -

Other liabilities 38 (38) 1 (1)

Unsettled transactions with currency instruments 1,506 (1,506) 33 (33)

2,703 (2,703) 317 (317)

Total (annual net profit) (2) 2 (1) 1

Changes in the CZK foreign exchange rate against EUR and USD do not have any effect on the Bank’s movements in equity other than annual net profit.


As at 31 December 2013 EUR USD

(CZKm) 10% (10%) 20% (20%)

Aktiva

Cash and balances with central banks (5) 5 (4) 4

Loans and advances to banks (338) 338 (1) 1

Loans and advances to customers (647) 647 (143) 143

Other assets (21) 21 - -

Unsettled transactions with currency instruments (1,490) 1,490 (152) 152

(2,502) 2,502 (301) 301

Liabilities

Deposits from banks 179 (179) - -

Due to customers 488 (488) 279 (279)

Debt securities in issue 33 (33) 12 (12)

Subordinated debt 240 (240) - -

Other liabilities 27 (27) 1 (1)

Unsettled transactions with currency instruments 1,536 (1,536) 11 (11)

2,503 (2,503) 303 (303)

Total (annual net profit) 1 (1) 3 (3)

Changes in the CZK foreign exchange rate against the EUR and USD do not have any effect on the Bank’s movements in equity other than annual net profit.


Currency positionThe tables below summarize the Bank’s exposure to currency risk expressed by an open currency position. Included in the table are the Bank’s assets, liabilities and equity at carrying amounts, categorized by currency.


CZK EUR USD Other Total(CZKm)

Assets

Cash and balances with central banks 7,141 104 31 34 7,310

Loans and advances to banks 31 1,825 86 126 2,068

Loans and advances to customers 45,347 8,152 648 - 54,147


Investment securities 2,171 - - - 2,171

Other assets 824 308 - - 1,132

55,546 10,389 765 160 66,860

Liabilities and equity

Deposits from banks 2,964 4,056 - 43 7,063

Due to customers 35,017 7,105 1,357 904 44,383

Debt securities in issue 5,711 145 60 118 6,034

Provisions 45 6 - - 51

Subordinated debt - 278 - - 278

Other liabilities 598 380 7 1 986

Equity 8,065 - - - 8,065

52,400 11,970 1,424 1,066 66,860

Net assets/(liabilities and equity) 3,146 (1,581) (659) (906) -Net assets/(liabilities) from unsettled transactions with currency instruments including derivatives (3,193) 1,615 660 917 (1)

Net open currency position (47) 34 1 11 (1)



Off-balance sheet items

Financial guarantees 711 1,992 30 - 2,733

Loan commitments and other credit related liabilities 2,711 581 - - 3,292

Currency position from off-balance sheet items 3,422 2,573 30 - 6,025




Assets

Cash and balances with central banks 11,642 52 20 32 11,746

Loans and advances to banks 12 3,384 7 59 3,462



Investment securities 3,058 - - - 3,058

Other assets 539 215 - - 754

59,479 10,121 742 130 70,472

Liabilities and equity

Deposits from banks 2,698 1,787 - 3 4,488

Due to customers 41,240 4,881 1,396 491 48,008

Debt securities in issue 9,007 334 59 - 9,400

Provisions 34 5 - - 39

Subordinated debt - 2,400 - - 2,400

Other liabilities 360 269 7 - 636

Equity 5,501 - - - 5,501

58,840 9,676 1,462 494 70,472

Net assets/(liabilities and equity) 639 445 (720) (364) -Net assets/(liabilities) from unsettled transactions with currency instruments including derivatives (612) (461) 705 370 2

Net open currency position 27 (16) (15) 6 2



Off-balance sheet items

Financial guarantees 851 600 36 - 1,487

Loan commitments and other credit related liabilities 6,831 1,124 9 - 7,964

Currency position from off-balance sheet items 7,682 1,724 45 - 9,451


(d) Interest rate risk

The Bank defines interest rate risk as the risk of financial loss because of changes in market interest rates.

The Bank takes on exposure resulting from fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Bank exposure to interest rate risk is monitored daily using gap analysis in each foreign currency and is aggregated for all currencies. Sensitivity to changes in the market interest rate is regularly measured via a simulated change of the present value of the interest cash flows from individual interest instruments where the interest rate is increased by a standardized value of interest rate shock of 200 basis points (b.p.). Interest rate swaps or other fixed-rate instruments are used to manage interest rate positions.

Sensitivity analysisThe table below summarizes the Bank’s exposure to interest rate risks. It is expressed by the sensitivity analysis showing the effect of change in market interest rates by 100 b.p. on the Bank’s annual net profit and other movements in equity. The two week repo rate, which is a key interest rate for the CNB’s monetary policy, is usually changed several times a year. Having observed this rate‘s average annual change over the last 5 years, in the Bank’s management judgment a noticeable change in annual market interest rates by 100 b.p. may reasonably be possible. Included in the table is the respective change in the Bank’s annual net profit and other movements in equity from:

• interest-bearingfinancialassetsandliabilitiesatfairvaluethroughprofitorlossandinterest-bearingavailable-for-sale financial assets and

• loansandreceivables,interest-bearingfinancialliabilitiesandheld-to-maturityinvestmentscarriedatamortizedcost.

As at 31 December 2014 100 b.p. (100) b.p.

(CZKm) Annual net profit

Assets

Cash and balances with central banks 64 (64)

Loans and advances to banks 13 (13)

Loans and advances to customers 233 (233)

Financial assets at fair value through profit and loss - -

Investment securities (65) 65

245 (245)

Liabilities

Deposits from banks (61) 61

Due to customers (237) 237

Debt securities in issue (13) 13

Subordinated debt (2) 2

(313) 313

Derivative financial instruments 7 (7)

Total (61) 61


As at 31 December 2013 100 b.p. (100) b.p.

(CZKm) Annual net profit

Assets

Cash and balances with central banks 109 (109)

Loans and advances to banks 16 (16)

Loans and advances to customers 214 (214)

Financial assets at fair value through profit and loss - -

Investment securities (114) 114

225 (225)

Liabilities

Deposits from banks (35) 35

Due to customers (262) 262

Debt securities in issue (40) 40

Subordinated debt (20) 20

(358) 358

Derivative financial instruments - -

Total (132) 132

Changes in the market interest rates do not have material effect on the Bank’s movements in equity other than annual net profit.

(e) Liquidity risk

The Bank defines liquidity risk as the risk that difficulties in meeting obligations associated with financial liabilities are encountered, or the risk of losing the ability to finance assets.

The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from the settlement of derivatives. Liquidity risk management is based on both the planning of the cash inflows and cash outflows based on the remaining maturity of the assets and liabilities, and on the experience gained from progress analysis of the previous years. The Bank prepares a liquidity plan which is approved by the Management Board together with the business plan, and both these plans are closely interconnected.


Cash flows from balance sheet financial instrumentsThe table below presents the contractual undiscounted cash flows from the Bank’s financial liabilities as compared with total financial assets based on the remaining contractual period as at the balance sheet date to the contractual maturity date.


(CZKm)Within

3 months3 – 12

months1 – 5

yearsOver

5 yearsUndiscounted

cash flowsCarrying amount

Financial liabilities

Deposits from banks 4,564 481 1,710 398 7,153 7,063

Due to customers 39,889 3,735 838 17 44,479 44,383

Debt securities in issue 696 636 4,059 961 6,352 6,034

Subordinated debt - 280 - - 280 278

Total financial liabilities

(remaining contractual maturities) 45,149 5,132 6,607 1,376 58,264 57,758

Total financial assets


Net financial assets/(liabilities) (32,674) 1,250 14,908 39,084 22,568 7,970


(CZKm)Within

3 months3 – 12

months1 – 5

yearsOver

5 yearsUndiscounted

cash flowsCarrying amount


Deposits from banks 1,242 880 2,086 402 4,610 4,488

Due to customers 40,189 6,517 1,453 17 48,176 48,008

Debt securities in issue 2,656 2,964 4,248 - 9,868 9,400

Subordinated debt 6 - 281 2,491 2,778 2,400

Total financial liabilities


Total financial assets


Net financial assets/(liabilities) (26,856) (4,469) 11,828 39,120 19,623 5,422

Negative net financial liability with remaining maturity of less than three months is influenced by the fact that customers are strictly divided into maturity time bands according to their remaining contractual maturities (e.g. current accounts are contained within the „Within 3 months“ column). However, as statistical evidence shows it is unlikely that a majority of those customers will actually withdraw their deposits from the Bank on contractual maturity.


Cash flows from derivative financial instruments

Derivatives settled on a net basisThe Bank’s derivatives to be settled on a net basis include interest rate swaps. The table below analyses contractual undiscounted cash flows from the Bank’s derivative financial liabilities settled on a net basis according to the remaining period as at the balance sheet date to the contractual maturity date.


(CZKm)Within

3 months3 – 12

months1 – 5

yearsOver

5 yearsUndiscounted

cash flowsNominal amount

Trading derivatives

- Interest derivatives

Interest rate swaps: assets 16 83 222 9 330 6,707

Interest rate swaps: liabilities 15 82 220 9 327 6,722

Interest options: assets - - 1 1 1 799

Interest options: liabilities - - 1 1 1 764

- Equity derivatives

Equity options: assets - - - - - -

Hedging derivatives


Interest rate swaps: liabilities - 9 28 - 36 1,000

Net financial assets/(liabilities) 1 (8) (26) - (33)


(CZKm)Within

3 months3 – 12

months1 – 5

yearsOver

5 yearsUndiscounted


Trading derivatives


Interest rate swaps: assets 14 72 147 (14) 219 7,266

Interest rate swaps: liabilities 13 70 142 (14) 211 6,390

Interest options: assets - - 5 6 11 1,680

Interest options: liabilities - - 5 5 10 1,643

- Equity derivatives

Equity options: assets - - - - - -

Net financial assets/(liabilities) 1 2 5 1 9


Derivatives settled on a gross basisThe Bank’s derivatives to be settled on a gross basis include foreign exchange forwards, foreign exchange swaps and foreign exchange options. The table below analyses contractual undiscounted cash flows from the Bank’s derivative financial instruments settled on a gross basis according to the remaining period as at the balance sheet date to the contractual maturity date.


(CZKm)Within

3 months3 – 12

months1 – 5

yearsOver

5 yearsUndiscounted


Trading derivatives

- Foreign exchange derivatives

Outflow 8,500 728 169 - 9,397 9,397

Inflow 8,498 728 169 - 9,395 9,395


(CZKm)Within

3 months3 – 12

months1 – 5

yearsOver

5 yearsUndiscounted


Trading derivatives

- Foreign exchange derivatives

Outflow 1,990 1,628 274 - 3,892 3,892

Inflow 1,990 1,626 274 - 3,890 3,890

Off-balance sheet itemsThe table below analyses the off-balance sheet items of the Bank exposed to a liquidity risk into relevant maturity bands based on the remaining period as at the balance sheet date to the contractual maturity date.


(CZKm)Within

3 months3 – 12

months1 – 5

yearsOver

5 years Total

Financial guarantees 778 696 1,176 83 2,733

Loan commitments and other credit related liabilities 3,292 - - - 3,292

Capital commitments - - - - -

Total 4,070 696 1,176 83 6,025



(CZKm)Within

3 months3 – 12

months1 – 5

yearsOver

5 years Total

Financial guarantees 459 472 488 68 1,487

Loan commitments and other credit related liabilities 7,964 - - - 7,964

Capital commitments - - - - -

Total 8,423 472 488 68 9,451

Future minimum lease payments under operating lease commitments are analyzed in Note 30 (d).

(f) Operational risk

The Bank defines operational risk as the risk of a financial loss resulting from inadequate or failed internal processes, people and systems or from external factors including legal risks. In cases of the breakdown of business processes it also includes reputational risk.

In accordance with CNB measures, the Bank has an internal database of requisite regulations for operational risk management, including those for the areas of information security, continuity of operations or internal control systems. The Bank has also established an internal control system of individual processes, which is one of the fundamental elements of operational risk management.

The operational risk management process includes identification, collection and recording of operational risk events, evaluation and valuation, measures and risk minimization, along with controlling the implementation of the designed measures and their effectiveness. Every identified operational risk event is analyzed and considered individually and the measures to be taken are designed not only in accordance with the frequency of occurrence and amount of realized / forecasted / potential loss, but also with respect to its character and reason for occurrence. The aim is to introduce such measures that effectively minimize or eliminate the probability of subsequent occurrence of the risk event. The implementation of suggested measures is periodically reviewed.

The Bank applies the operational risk management process at the levels of both actual events and hypothetical risks.

Operational risk management is performed in close co-operation with the Bank’s parent company. The Bank applies a standardized method for calculating the capital requirement for operational risk.


(g) Capital management

The capital management process is coordinated within Sberbank Group in close communication with the Bank’s shareholder. It is aimed at:

• ensuringtheBank’slong-termstabilityinrelationtoexistingrisks,

• compliancewiththesupervisorycapitalrequirements(capitaladequacy)and

• maintainingastrongcapitalbasetosupportbusinessexpansion.

The Bank fulfils the requirement of CNB Decree No. 163/2014 (“the Decree“), the European Parliament and European Commission Directive No.575/2013 and Act No.21/1992 on banks for ongoing compliance with the capital adequacy limit by daily monitoring of risk-weighted assets. Required regulatory capital adequacy reports are filed with the CNB on a monthly basis. The Bank also informs the parent company on compliance with the regulatory capital requirements with the same frequency.

The methodology for calculation of capital is defined by the Decree. The Bank ensures that the capital level exceeds regulatory capital requirements in coordination with the parent company.

The Bank estimates capital requirements for coverage of individual risks in compliance with the valid regulatory legislation.

Additionally, the Bank’s internal capital adequacy assessment system ensures that internally determined capital resources exceed the internally assessed capital required.

The table below summarizes the composition of the Bank’s capital and risk-weighted assets. During both years, the Bank complied with the regulatory capital adequacy limit of 8% as at 31 December 2013 and 10.5% as at 31 December 2014.


(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Tier 1

Share capital (net of treasury shares) 2,806 2,005

Share premium account 4,015 2,695

Obligatory reserve funds 132 120

Retained earnings from previous period 700 482

Less: Intangible assets other than goodwill (100) (115)

Other deductible items (2) -

Tier 1 capital 7,551 5,187

Tier 2

Subordinated debt A 15 2,230

Tier 2 capital 15 2,230

Total capital 7,566 7,417

Risk-weighted assets

Credit risk in investment/banking portfolio 43,770 44,320

Credit risk in trading portfolio - -

General interest rate risk - -

Operational risk 2,887 2,712

Total risk-weighted assets 46,657 47,032

Capital adequacy 16.21% 15.77%


(h) Maturity analysis of assets and liabilities

The table below analyses assets and liabilities and summarizes the composition of the Bank’s capital and risk-weighted assets according to when they are expected to be settled or recovered:


(CZKm)Within 12

monthsAfter 12 months Total

ASSETS

Cash and balances with central banks 7,188 122 7,310

Loans and advances to banks 1,780 288 2,068

Loans and advances to customers 8,635 45,512 54,147

Derivative financial instruments 137 246 383

Financial assets at fair value through profit or loss - 32 32

Investment securities:

– Available for sale 61 2,050 2,111

– Loans and receivables - 60 60

Intangible assets - 100 100

Property and equipment - 297 297

Deferred income tax assets 49 - 49

Other assets 273 - 273

Deferred items 30 - 30

Total assets 18,153 48,707 66,860

LIABILITIES

Deposits from banks 5,038 2,025 7,063

Due to customers 43,569 814 44,383


Debt securities in issue 1,327 4,707 6,034

Current income tax liability 42 - 42

Other liabilities 527 - 527


Provisions 25 26 51

Subordinated debt 278 - 278

Total liabilities 50,956 7,839 58,795



(CZKm)Within 12

monthsAfter 12 months Total

ASSETS

Cash and balances with central banks 11,430 316 11,746

Loans and advances to banks 2,206 1,256 3,462

Loans and advances to customers 8,031 43,390 51,421


Financial assets at fair value through profit or loss - 31 31


– Available for sale 2,533 464 2,997

– Loans and receivables - 61 61

Intangible assets - 115 115

Property and equipment - 262 262

Deferred income tax assets 47 - 47

Other assets 39 - 39


Total assets 24,311 46,161 70,472

LIABILITIES

Deposits from banks 2,115 2,373 4,488

Due to customers 46,602 1,406 48,008


Debt securities in issue 5,553 3,847 9,400

2 - 2

Other liabilities 356 - 356


Provisions 29 10 39

Subordinated debt 6 2,394 2,400

Total liabilities 54,693 10,284 64,977


34 Fair value of financial assets and liabilitiesThe following table summarizes the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value:

Fair value of financial assets and liabilitiesAs at 31 December 2014

(CZKm) Level 1 Level 2 Level 3Fair value

totalCarrying amount

Financial assets

Loans and advances to banks - 2,068 - 2,068 2,068

Loans and advances to customers thereof: - - 55,054 55,054 54,147

Retail - - 24,258 24,258 23,617

Corporate - - 30,796 30,796 30,530

Securities in category loans and receivables - - 62 62 60


Deposits from banks - 7,129 7,129 7,063

Due to customers thereof: - 14,379 30,125 44,504 44,383

Retail - 11,766 23,228 34,994 34,898

Corporate - 2,613 6,897 9,510 9,485

Debt securities in issue thereof: - - 6,083 6,083 6,034

Retail - - 771 771 764

Corporate - - 5,312 5,312 5,299

Subordinated Debt - - 298 298 278


Fair value of financial assets and liabilitiesAs at 31 December 2013

(CZKm) Level 1 Level 2 Level 3Fair value

totalCarrying amount

Financial assets

Loans and advances to banks - 3,483 - 3,483 3,462

Loans and advances to customers thereof: - - 52,040 52,040 51,421

Retail - - 21,992 21,992 21,336

Corporate - - 30,048 30,048 30,085

Securities in category loans and receivables - - 63 63 61


Deposits from banks - 2,954 1,457 4,411 4,488

Due to customers thereof: - 21,808 26,429 48,237 48,008

Retail - 460 12,666 13,126 13,048

Corporate - 21,348 13,763 35,111 34,960

Debt securities in issue thereof: - - 9,527 9,527 9,400

Retail - - 92 92 89

Corporate - - 9,435 9,435 9,311

Subordinated Debt - - 2,412 2,412 2,400

The following methods and assumptions were used in estimating the fair values of the Bank’s financial assets and liabilities:

Loans and advances to banksThe carrying amounts of current account balances and loans with maturity less than 1 months are, by definition, equal to their fair values. The fair values of term placements with banks are estimated by discounting their future cash flows using current inter-bank market rates irrespective of credit spread. A majority of the loans and advances re-price within relatively short time spans; therefore, it is assumed their carrying amounts approximate their fair values.

Loans and advances to customersA substantial majority of the loans and advances to customers re-price within relatively short time spans; therefore, it is assumed that their carrying amounts approximate their fair values. The fair values of fixed-rate loans to customers are estimated by discounting their future cash flows using current market rates adjusted for appropriate risk premium that is the actually valid for the respective loan at the date of fair value calculation. Fair value incorporates expected future losses, while amortized cost and related impairment include only incurred losses as at the balance sheet date.


Deposits from banksThe carrying amounts of current account balances and deposits with maturity less than 1 month are, by definition, equal to their fair values. For other amounts due to banks with equal to or less than one year remaining maturity, it is assumed their carrying amounts approximate their fair values. The fair values of other amounts due to banks are estimated by discounting their future cash flows using current inter-bank market rates irrespective of own credit spread.

Due to customersThe fair values of current accounts as well as term deposits with equal to or less than one year remaining maturity approximate their carrying amounts. The fair values of other term deposits are estimated by discounting their future cash flows using rates currently offered for deposits of similar remaining maturities irrespective of own credit spread.

Debt securities in issueMortgage bonds issued are not publicly traded and their fair values are based upon the quoted market prices of the debt securities with similar characteristics. The carrying amounts of promissory notes and certificates of deposit approximate their fair values. The own credit spread is not regarded.

Fair value hierarchyThe table below analyses financial instruments measured at fair value at the end of the reporting period. Information about fair value measurements are disclosed using a hierarchy that reflects the significance of inputs used in measuring the fair values of financial instruments (they are categorized into three levels):

Informace o oceňování reálnou hodnotou jsou prezentovány podle toho, jaké vstupy byly použity pro stanovení reálné hodnoty, a tyto se člení do tří úrovní:

• Level1–fairvaluemeasurementsusingquotedprices(unadjusted)inactivemarketsforidenticalassetsandliabilities.

• Level 2 – fair valuemeasurements using inputs other than quoted prices includedwithin Level 1 that areobservable for the asset or liability either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active, or other valuation techniques in which significant inputs are directly or indirectly observable from market data.

• Level3–fairvaluemeasurementsusinginputsfortheassetorliabilitythatarenotbasedonobservablemarketdata (i.e., unobservable inputs) and these data have significant influence on the measurement. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The Bank has an established control framework with respect to the measurement of fair values of assets and liabilities. These controls include the verification of observable pricing, re-performance of model valuations, a review and approval process for new models and changes to models, quarterly calibration and back-testing of models against observed market transactions, analysis and investigation of significant daily valuation movements and review of significant unobservable inputs, valuation adjustments and significant changes to the fair value measurement of Level 3 instruments.



(CZKm) Level 1 Level 2 Level 3 Total

Financial assets

Derivative financial instruments - 383 - 383

Financial assets at fair value through profit or loss 32 - - 32


– Available for sale 2,111 - - 2,111



Due to customers - - - -

In 2014 there were no transfers of financial assets or liabilities between level 1 and 2.


(CZKm) Level 1 Level 2 Level 3 Total

Financial assets


Financial assets at fair value through profit or loss 31 - - 31


– Available for sale 2,997 - - 2,997



Due to customers - - - -

VIn 2013 there were no transfers of financial assets or liabilities between level 1 and 2.


35 DividendsFinal dividends are not accounted for until they have been ratified at the Annual General Meeting. The dividends for the year 2012, 2013 and 2014 has not been declared yet. At the Annual General Meeting held on 29 April 2014 it was approved to allocate retained earnings without dividend payments and to create reserve funds.

Distribution of the net profit after tax for the year 2012 269

Transfer to reserve funds (10)

Transfer from retained earnings (199)

Dividends to shareholders -

Distribution of the net profit after tax for the year 2013 230

Transfer to reserve funds (11)

Transfer from retained earnings (219)

Dividends to shareholders -

36 ShareholdersThe shareholder structure of the Bank as at 31 December 2013 was as follows:

Voting shareholders

Name and registered office Share in %

Sberbank Europe AG, Schwarzenbergplatz 3, Vienna (formerly Volksbank International AG) 100.00

100.00

The shareholder structure of the Bank as at 31 December 2014 was as follows:

Voting shareholders

Name and registered office Share in %

Sberbank Europe AG, Schwarzenbergplatz 3, Vienna (formerly Volksbank International AG) 100.00

100.00


37 Related partiesThe ultimate parent company is Sberbank RU. The parent company Sberbank Europe AG (formerly Volksbank International AG) and companies within Sberbank Group other than the parent company are part of Other related parties.

The amounts of the income, expense and assets and liabilities balances regarding related parties were as follows:

As at 31 December 2014 and year then ended

NoteUltimate

ParentManage-

ment

Other related parties Total(CZKm)

Interest income 3 27 - 15 42

Commission and fee income 4 - - 1 1

Other operating income 8 - - 19 19

Interest expense 3 - - 8 8

Commission and fee expense 4 1 - 3 4

Administrative expense 7 - - 24 24

Due from banks 12 1,414 - 257 1,671

Loans and advances 13 - 30 - 30

Securities classified as a financial assets from the beginning at fair value through profit or loss 16 - - - -

Other assets 21 - - 1 1

Due to banks 22 81 - 2,050 2,131

Due to customers 23 - 19 - 19

Other liabilities 25 - - - -

Guarantees granted and commitments given 29 1,126 - 426 1,552

Guarantees granted and commitments received - - 1,286 1,286

Assets under custody - 1 2,806 2,807

The Bank has three recorded received guarantees from Sberbank Europe AG in total amount of CZK 842 million, all denominated in EUR in amount of CZK 30.3 million and one guarantee from Sberbank Slovakia, a.s. in total amount of CZK 443.6 million denominated in EUR in total amount of EUR 16 million.


As at 31 December 2013 and year then ended

NoteUltimate

ParentManage-

ment

Other related parties Total(CZKm)

Interest income 3 14 - 93 107

Commission and fee income 4 - - - -

Other operating income 8 - - 7 7

Interest expense 3 - - 15 15

Commission and fee expense 4 - - 17 17

Administrative expense 7 - - 11 11

Due from banks 12 1,284 - 2,066 3,350

Loans and advances 13 - 21 - 21

Securities classified as financial assets from the beginning at fair value through profit or loss 16 - - - -

Other assets 21 - - 1 1

Due to banks 22 24 - 2,167 2,191

Due to customers 23 - 12 - 12

Other liabilities 25 - - - -

Guarantees granted and commitments given 29 410 5 15 430

Guarantees granted and commitments received - - 4,058 4,058

Assets under custody - 2 2,005 2,007

The Bank has three recorded received guarantees from Sberbank Europe AG in total amount of CZK 4,058 million, one denominated in CZK in amount of CZK 2,260 million and two denominated in EUR in total amount of EUR 65.5 million

Loans and advances to customers and individuals include the following receivables from related parties (Note 13):

Receivables from related parties

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

VB Leasing CZ, spol. s r.o. - -

Management of the Bank 24 21

Members of Supervisory Board and Management Board 6 -

Other related parties (companies in the group) - -

Total receivables from related parties 30 21

In the opinion of the management, all receivables from related parties were made in the ordinary course of business on substantially the same terms and conditions, including interest rates, as those prevailing at the same time for comparable transactions with other customers, and did not involve more than the normal credit risk or present other unfavorable features.


Due to customers includes the following position with related parties:

Deposits from related parties

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Management of the Bank 14 9

Members of Supervisory Board and Management Board 5 3

Deposits from related parties 19 12

Due to banks includes the following position with related parties:

Deposits from related parties

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Sberbank Moscow 3 24

Volksbank AG 1,665 2,124

Other related parties (banks in the group) 363 43

Deposits from related parties 2,031 2,191

In the opinion of the management, deposits from related parties were accepted on substantially the same terms and conditions, including interest rates, as those prevailing at the same time for comparable transactions with other customers, and did not involve more than the normal interest rate and liquidity risk or present other unfavorable features (Note 23).

Key management personnel salaries, benefits and contributions paid:

(CZKm) 31/ 12/ 2014 31/ 12/ 2013

Short-term employee benefits 95 70

Termination benefits 2 2

Salaries and bonuses of senior management and Supervisory Board members 97 72

Other personnel expenses are disclosed in Note 7.

38 Subsequent eventsThere were no other important events which have occurred subsequent to the year-end until the date of prepa-ration of the financial statements and which would have a material impact on the financial statements of the Bank as at 31 December 2014 or would have to be presented in the Notes to the financial statements of the Bank as at 31 December 2014.

SBERBANK CZ | ANNUAL REPORT 2014 | QUANTITATIVE INDICES 119

Quantitative indices

CZK thousand 2014 2013 2012 2011 2010

Return on average assets (ROAA) 0.55% 0.35% 0.37% 0.69% 0.56%

Return on own average equity (ROAE) 5.61% 4.48% 4.20% 6.97% 5.37%

Assets per employee 81,043 98,014 91,784 81,303 79,315

Administrative costs per employee 1,427 1,381 1,287 1,269 1,220

Net profit per employee 464 320 313 544 435

Capital structure

Tier 1 7,550,114 5,187,228 4,982,605 4,979,432 4,964,401

Paid-up share capital 2,805,990 2,005,380 2,005,380 2,005,380 2,005,380

Paid up share premium 4,015,635 2,694,628 2,694,628 2,694,628 2,694,628

Legal reserve funds 131,861 120,369 109,902 92,578 79,049

Retained earnings from previous years 699,869 481,523 282,636 299,914 308,188

Tier 2 15,032 2,229,653 150,840 206,400 250,600

Provisions for general risks

Deductible items (103,240) (114,672) (109,941) (113,068) (122,843)

Intangible assets (100,305) (114,672) (109,941) (113,068) (122,843)

Capital 7,565,146 7,416,880 5,133,445 5,185,832 5,215,001

Capital requirementsTotal capital requirements relating to credit risk 3,496,067 3,545,617 3,277,445 2,920,592 2,725,622

Total capital requirements relating to ope-rational risk 230,927 216,979 210,067 217,539 212,567

Capital adequacy 16.18% 15.77% 11.78% 13.22% 14.20%

SBERBANK CZ | ANNUAL REPORT 2014 | REPORT ON RELATIONS120

As at the date of financial statement (31 December 2014), Sberbank CZ, a.s. (“Sberbank CZ“) was a part of the international financial group Sberbank of Russia, 19 Vavilova St., 117997 Moscow, Russian Federation (“Sberbank of Russia“). Sberbank CZ operates in the Czech market as an independent bank under Act No. 21/1992 Sb., governing the banks. As at the date of financial statement, Sberbank CZ was a controlled entity within the meaning of Section 74 of Act No. 90/2012 Sb., governing the business corporations. Sberbank CZ is controlled by its controlling entity, Sberbank of Russia, indirectly through Sberbank Europe AG, Schwarzenbergplatz 3, 1010 Vienna, Austria (“Sberbank Europe“); Sberbank Europe AG is a direct controlling entity of Sberbank CZ.

Sberbank Europe exercises the shareholders’ rights in accordance with the Articles of Association and legal regulations in force.

Valid agreements executed by Sberbank CZ within the group:

Report on relations

Title Party Subject-matter

1 Loan Agreement Sberbank Europe AG Revolving loan facility

2 Master Participation Agreement Sberbank Europe AG Facility for consortium lending

3 Services Agreement Sberbank Europe AG Advisory services

4 Group Audit Agreement Sberbank Europe AG Auditing

5 Services Agreement Sberbank Europe AG Credit risk assessment

6 Guarantee and Indemnity Sberbank Europe AG

Guarantee indemnity for potential unenforceable payment obligations and liabilities under facility agreements

7 IT Services Agreement ALB-EDV GmbH IT services

8 Master Services Agreement Sberbank Technology IT services

9 SW Maintenance Agreement Sberbank Technology SW maintenance

10 Services Agreement Sberbank Slovakia Credit risk assessment (1)



13 Services Agreement Sberbank Hungary Credit risk assessment

14 Services Agreement Sberbank Croatia Credit risk assessment

15 Services Agreement Sberbank Slovenia Credit risk assessment

16 Sub-Licence Agreement Sberbank of Russia SW sub-licence (1)

17 Sub-Licence Agreement Sberbank of Russia SW sub-licence (2)

For part of the year 2014, Sberbank CZ and Sberbank Europe were the parties to the subordinated loan agreement, under which Sberbank Europe provided a long-term loan facility to Sberbank CZ under standard market conditions. The agreement and loan utilisation were approved by the Czech National Bank. .

SBERBANK CZ | ANNUAL REPORT 2014 | REPORT ON RELATIONS 121

Sberbank CZ and Sberbank of Russia entered and/or continuously enter into additional relationships under standard market conditions:

a) relationships regarding interbank deposits for which Sberbank CZ receives / pays interest under standard market conditions;

b) relationships regarding current account maintenance for which Sberbank CZ receives / pays fees and receives / pays interest under standard market conditions;

c) relationships regarding export financing loans for which Sberbank CZ receives fees or interest under standard market conditions; and

d) ISDA master agreement for trading in financial instruments entered into under market conditions.

Sberbank CZ and Sberbank Europe entered and/or continuously enter into additional relationships under standard market conditions:

a) relationships regarding interbank deposits for which Sberbank CZ receives / pays interest under standard market conditions;

b) relationships regarding current account maintenance for which Sberbank CZ receives / pays fees and receives / pays interest under standard market conditions; and

c) relationships regarding corporate financing loans for which Sberbank CZ receives / pays interest under standard market conditions.

Sberbank CZ and Vemex s.r.o. (a part of the Sberbank of Russia group) entered and/or continuously enter into relationships under standard market conditions:

a) relationships regarding current account maintenance for which Sberbank CZ receives fees and pays interest under standard market conditions; and

b) relationships regarding corporate financing loans for which Sberbank CZ receives fees or interest under standard market conditions.

Further, Sberbank CZ and OJSC NGK SLAVNEFT (a part of the Sberbank of Russia group) entered and/or continuously enter into relationships under standard market conditions regarding corporate financing loans for which Sberbank CZ receives fees or interest under standard market conditions.

In 2014 Sberbank CZ made no other legal acts or adopted other measures in the interest of/ initiated by the connected companies regarding the assets in excess of 10% of the Sberbank CZ equity. Sberbank CZ suffered no damage or loss arising from business relations with the aforementioned connected companies or the aforementioned legal acts made by Sberbank CZ in the name of connected companies or in relation to the activities made by Sberbank CZ in the name of/initiated by the connected companies.

Sberbank CZ participates in the Sberbank Europe group projects conducted with the aim to use the business potential of the Central European market in all segments. The business relations maintained by Sberbank CZ with the controlling entities were assessed by the Sberbank CZ Management Board as having a prevailing benefit to Sberbank CZ implied by the incorporation of Sberbank CZ to the Sberbank Europe banking group. The business relations maintained with the controlling entities allow Sberbank CZ to provide better banking services to its clients. These relations are fully comparable to similar contractual relationships entered into by Sberbank CZ in the area of interbank transactions.

SBERBANK CZ | ANNUAL REPORT 2014 | REPORT ON RELATIONS122

Statutory declarationSberbank CZ with its registered office at Na Pankráci 1724/129, 140 00 Praha 4 assumes the responsibility for the data presented in the 2014 Annual Report.

The undersigned hereby declare that, in exercising all reasonable care, the data presented in the 2014 Annual Report is accurate and no substantial circumstances that could change the meaningfulness of the Sberbank CZ Annual Report have been concealed.

Prague, 27 April 2015

In the given fiscal year, the task of Sberbank CZ within the relations maintained with the controlling entities was mainly to act in the Czech market as a universal and independent bank providing banking services in compliance with law. In doing so, Sberbank CZ duly observed and complied with the statutory and regulatory requirements. Sberbank CZ confirms that the influence of the controlling entity was not misused for a forced adoption of a measure or execution of a contract/agreement to the detriment of Sberbank CZ as a controlled entity and that the relations maintained by Sberbank CZ with the controlling entities conformed to the standard market conditions.

Prague, 30 March 2015

Vladimír Šolc Karel Soukeník

SBERBANK CZ | ANNUAL REPORT 2014 | INDEPENDENT AUDITOR’S REPORT 123

Independent auditor’s report

SBERBANK CZ | ANNUAL REPORT 2014 | INDEPENDENT AUDITOR’S REPORT124

SBERBANK CZ | ANNUAL REPORT 2014 | REPORT OF THE SUPERVISORY BOARD 125

Report of the Supervisory BoardIn its two meetings held during the 2014 business year, on 29th April 2014 and 25th November 2014, the Supervisory Board reviewed the correctness, appropriateness and economic efficiency of the management of Sberbank CZ. The Supervisory Board further acknowledged the ongoing reports of the Management Board and issued resolutions as necessary for the 2014 business year.

At its 7th Meeting, held on 28th April 2015, the Supervisory Board reviewed a resolution acknowledging the report presented by the Management Board and approved the financial statements for 2014. These included the balance sheet as at 31 December 2014, as well as the income statement for the year ended 31 December 2014. The Supervisory Board reviewed a proposal for non-distribution of profit as well. The Board also reviewed the Report on Relations in accordance with section 82, paragraph 1 of the Business Corporations Act.

The closing financial statements for the year ended 31 December 2014 were examined by the audit company Ernst & Young Audit s.r.o. The auditor issued an unqualified opinion.

On the basis of the report of the Management Board, the Supervisory Board states its affirmative appraisal to the general Shareholders’ Meeting and recommends appropriate resolutions to be taken.

The Supervisory Board would like to thank the Management Board and all of the Bank’s employees for their excellent cooperation and the efforts that they made throughout 2014.

Axel Hummel Chairman of the Supervisory Board

Vienna, April 2015

SBERBANK CZ | ANNUAL REPORT 2014 | OUR NETWORK126

Praha

Plzeň

České BudějoviceJihlava

Liberec

Hradec Králové

Karlovy Vary

Olomouc

Ostrava

ZlínBrno

Znojmo

Pardubice

Frýdek-Místek

Teplice

Our network

Head office

PrahaNa Pankráci 129140 00 Praha 4Tel.: +420 800 133 444

Regionalhead office

BrnoM-Palác, Heršpická 5658 26 BrnoTel.: +420 800 133 444

Branches and corporate centres

BrnoM-Palác, Heršpická 5658 26 BrnoTel.: +420 543 525 410

BrnoPalackého 38612 00 BrnoTel.: +420 549 122 622

BrnoPanská 2/4602 00 BrnoTel.: +420 542 424 970

BrnoGalerie Vaňkovka, Ve Vaňkovce 1602 00 BrnoTel.: +420 543 552 214

BrnoEden, Purkyňova 35 E612 00 Brnotel.: +420 549 428 966

České Budějovicenám. Přemysla Otakara II. č. 27370 01 České BudějoviceTel.: +420 386 105 810

SBERBANK CZ | ANNUAL REPORT 2014 | OUR NETWORK 127

PlzeňAnglické nábřeží 12301 00 PlzeňTel.: +420 377 350 211

PrahaNa Příkopě 860/24110 00 Praha 1Tel.: +420 267 267 911

PrahaValentinská 20/10110 00 Praha 1Tel.: +420 221 778 720

PrahaLazarská 8120 00 Praha 2Tel.: +420 221 584 285

PrahaNáměstí I. P. Pavlova 3120 00 Praha 2Tel.: +420 221 102 411

PrahaVinohradská 40120 00 Praha 2Tel.: +420 222 922 828

PrahaNa Pankráci 129140 00 Praha 4Tel.: +420 234 706 933

PrahaKarla Engliše 1 (Anděl)150 00 Praha 5Tel.: +420 257 257 301

PrahaDukelských Hrdinů 10170 00 Praha 7Tel.: +420 220 410 620

PrahaCentrum Černý Most Chlumecká 765/6198 19 Praha 9Tel.: +420 221 101 300

TepliceOC Galerie Náměstí Svobody 3316415 01 TepliceTel.: +420 417 543 911

ZlínŠtefánikova 5293760 01 ZlínTel.: +420 577 002 111

ZnojmoMariánské nám. 6669 02 ZnojmoTel.: +420 515 282 511

Frýdek-MístekOC Frýda, Na Příkopě 3727738 01 Frýdek-MístekTel.: +420 558 604 611

Hradec KrálovéGočárova Třída 718/13500 03 Hradec KrálovéTel.: +420 495 000 358 JihlavaBenešova 15586 01 JihlavaTel.: +420 567 584 511

Karlovy VaryT. G. Masaryka 854/25360 01 Karlovy VaryTel.: +420 353 244 713

Liberec1. máje 59/5460 01 LiberecTel.: +420 482 428 354

OlomoucHorní náměstí 17772 00 OlomoucTel.: +420 585 202 711

Ostrava28. října 3138/41702 00 OstravaTel.: +420 595 133 411

Pardubice17. listopadu 408530 02 PardubiceTel.: +420 466 067 712

128© 2015 Sberbank CZ, a.s.

Sberbank CZ, a.s.Na Pankráci 1724/129140 00 Praha 4, Czech RepublicTel.: +420 221 969 911, Fax: +420 221 969 [email protected], www.sberbank.cz

Sberbank Europe AGSchwarzenbergplatz 31010 Vienna, AustriaTel.: +43 1 [email protected], www.sberbank.at

The annual report is published on the Sberbank CZ website (section Annual Reports and Financial Results) at: http://www.sberbankcz.cz/en/annual-reports-and-financial-results/

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