ANNUAL REPORT

2015

Content

1. Address by the Managing Director 4

2. General Information About the Company 6

3. Company Structure 10

4. Main Events 16

5. Corporate Social Responsibility 20

6. Personnel Policy 24

7. Brief Description of the Macroeconomic and Competitive

Environment 28

8. Report on Business Activities and Property Situation in 2015 32

9. Financial statements 36

10. Branch network 122

We are closest to youwherever you need us

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1. Address by the Managing Director

Dear Shareholders, Business Partners, and Colleagues,

Poštová banka has another year full of changes and novelties behind it. We can boast about new savings products, a gift payment card, and several interesting product benefits. In order to make the lives of our clients easier, we introduced a new deposit product, the Gold Deposit [Zlatý vklad] with a three-month notice of withdrawal period, which is possible to establish online. We continued to expand our distribution network, opening three branches and giving two a new facelift. Another important milestone was the bringing of the universal frontend called Venice to life, thanks to which the attending of clients became faster, of higher quality, and more effective.

The past year, too, was largely influenced by massive regulation, which affected the entire banking sector. Banks again had to tackle a bank levy, with the one in Slovakia being among the highest in Europe and reaching amounts that exceeded the European average several times over. Despite these regulations, however, Poštová banka confirmed its stable growth trend and ended the year with an increase in profit by 29.8 %, to 54.3 million euros.

Success goes hand-in-hand with responsibility. Therefore, our bank makes it its obligation to return part of its success to the society in which we are doing business. In the past year, we continued to support art and culture as the general partner of Radošinské naivné divadlo [Naive Theater of Radošiná] and the Slovak National Museum, as well as communities, seniors, socially disadvantaged families, and children‘s sports clubs and talents. The Poštová banka Group distributed a total of 690,000 euros in 2015.

We are happy that our subsidiaries also have a successful year behind them. Prvá penzijná [First Pension Management Company] administered assets amounting to 748 million euros in its funds, reaching a market share of 10.8 %. At the same time, it received an award in the Gold Coin [Zlatá minca] competition, where it took second place in the Real Estate Funds category with the fund NÁŠ PRVÝ REALITNÝ o.p.f. [Our First Real Estate Fund]. In cooperation with Poštová banka, it introduced the Good Saving – Investment [Dobré sporenie Investícia] product as an attractive combination of saving and investing in mutual funds.

Dôchodková správcovská spoločnosť Poštovej banky [Pension Management Company of Poštová banka] was also successful, closing the year with 93,417 savers, despite the fourth reopening of the second (private) pillar of the pension system. The Pension Management Company continues to administer four funds focused on shares, indexes, bonds, and balanced solutions.

Poštová poisťovňa [Postal Insurance Company] generated a profit in the amount of 1.7 million euros, which represented an increase of 10 % year-on-year. During 2015, it strengthened its cooperation with Slovenská pošta [Slovak Post] and introduced tailor-made accident insurance for the postal network. Clients primarily appreciate the processing speed, simplicity, and accessibility of this insurance product. Another success was the intensification of the sale of SIPO [Joint Collection of Utility Payments] insurance at post offices and a marked improvement in the terms and conditions of insurance of loans for clients of Poštová banka and Slovenská pošta.

My thanks for the excellent results of Poštová banka and its subsidiaries primarily goes to all employees who have done a great deal of work in this regard, as well as to shareholders for their support and trust. We have a demanding, but all the more interesting, year ahead of us, and I am convinced that it will be successful.

Ing. Andrej ZaťkoManaging Director and Chairman of the Board of Directors

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c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities,

currencies, interest rates or revenues, which may be settled by delivery or in cash; 3. Trading on own account in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities,

currencies, interest rates or revenues, which may be settled by delivery or in cash; 4. Investment consulting in relation to the following financial instruments: a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with currencies, interest

rates or revenues, which may be settled by delivery or in cash; 5. Subscription and placement of financial instruments on the basis of fixed commitment in

relation to the following financial instruments: a) negotiable securities; b) participating certificates and securities issued by foreign entities of collective investment; 6. Placement of financial instruments without fixed commitment in relation to the following

financial instruments: a) negotiable securities; b) participating certificates and securities issued by foreign entities of collective investment; 7. Custody and administration of financial instruments on the client‘s account, including holder

administration, and related services, particularly administration of cash and financial collateral, in relation to the following financial instruments:

a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; 8. Provision of credits and loans to investors to facilitate the realization of transactions involving

one or several financial instruments, in cases where the credit or loan provider is involved in such transactions.

9. Realization of transactions in foreign exchange assets if these are connected with the provision of investment services.

10. Execution of investment survey and financial analysis, or another form of general recommendation concerning trading in financial instruments;

11. Services related to the subscription of financial instruments.

Share capital: EUR 366,305,193Paid-up share capital: EUR 366,305,193

2. General Information About the Company

Legal name: Poštová banka, a.s.Registered office: Dvořákovo nábrežie 4, 811 02 BratislavaIdentification number [IČO]: 31 340 890Date of incorporation: 31 December 1992Legal form: Joint stock company

Scope of activities:

a) Pursuant to Article 2 (1) and (2) of the Act on Banks:

1. Acceptance of deposits; 2. Provision of loans; 3. Provision of payment services and clearing; 4. Provision of investment services, investment activities and secondary services pursuant to

the Act on Securities, to the extent referred to in Section (b) of this point, and investment into securities in own account;

5. Trading on own account in a) financial money market instruments in euros and foreign currency, including exchange

activities; b) financial capital market instruments in euros and foreign currency; c) precious metal coins, commemorative bank notes and commemorative coins, bank

notes sheets and sets of coins in circulation; 6. Administration of clients‘ receivables in their accounts, including related consulting; 7. Financial leasing; 8. Provision of guarantees, opening and certification of letters of credit; 9. Provision of consulting services in the area of business activities; 10. Issuance of securities, participation in issuance of securities and provision of related services; 11. Factoring; 12. Safekeeping of items; 13. Renting of safe deposit boxes; 14. Provision of bank information; 15. Activities as a depository; 16. handling of bank notes, coins, commemorative bank notes and commemorative coins; 17. Issuance and administration of electronic money; 18. Factoring according to special legislation as an independent financial agent in the sector of

insurance and reinsurance; 19. Factoring according to special legislation as an independent financial agent in the sector of

old-age pension saving.

b) Pursuant to Article 79a (1) in conjunction with Article 6 (1) and (2) of the Act on Securities:

1. Acceptance and forwarding of client‘s instruction concerning one or several financial instruments in relation to the following financial instruments:

a) negotiable securities; b) money market instruments; c) participating certificates and securities issued by foreign entities of collective investment; d) options, futures, swaps, forwards and other derivatives connected with securities,

currencies, interest rates or revenues, which may be settled by delivery or in cash; 2. Execution of client‘s instruction on their account in relation to the following financial instruments: a) negotiable securities; b) money market instruments;

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3. Company Structure

Board of Directors

Supervisory Board

Mario Hoffmann – chairmanIng. Jozef Tkáč – deputy chairmanIng. Mgr. Tomáš Drucker – memberMgr. Jozef Salaj – member, re-elected with the effective date of 19 January 2015Ing. Vladimír Ohlídal, CSc. – member, re-elected by bank employees with the effective date of

15 June 2015

Ing. Andrej Zaťko – Chairman of the Board of Directors since 12 August 2015

Graduated from the Department of Economic Informatics at the University of Economics in Bratislava, where he specialized in information technology. he started his career in mutual funds and later worked in the area of asset management for private clients. In 2006, he established and managed private banking at the Slovak branch of J&T BANKA. From 2011, he was a member of the Board of Directors of J&T BANKA, a.s. (Czech Republic). From November 2012, he held the position of director and head of the J&T BANKA, a.s. branch in the Slovak Republic – J&T BANKA, a.s., branch of a foreign bank. On 12 August 2015, he became Chairman of the Board of Directors and Managing Director of Poštová banka.

Ing. Daniela Pápaiová – member of the Board of Directors since 26 July 2012

Graduated from the Department of Business Management at the University of Economics in Bratislava. In 1997–2009, she was primarily involved in the insurance sector, working for the companies ING Nationale – Nederlanden poisťovňa, a.s., Aegon Životná poisťovňa, a.s., and Aegon, d.s.s., a.s., as well as for Poisťovňa Poštovej banky, a. s. as a member of the Board of Directors. From May 2009 until the end of 2010, she held the position of member of the Board of Directors in the company Credium Slovakia, a.s. She joined Poštová banka in 2011 as director of the Finance Division. She has been a member of the Poštová banka Board of Directors since 26 July 2012, currently responsible for risk management and ALM.

Ing. Slavomír Varcholík – member of the Board of Directors since 12 January 2015

Graduated from the Department of Trade at the University of Economics in Bratislava. In 1995–2012, he worked for the companies Ernst & young Audit, a.s., Schindler výťahy a eskalátory [Elevators and Escalators], a.s., GlobtelNet, a.s., and Orange Slovensko, a.s. he has worked for Poštová banka since 2012. he first held the position of director of the Finance Division and later became deputy managing director for finances. Since 12 January 2015, he has been a member of the Poštová banka Board of Directors responsible for the area of finances. JUDr. Ján Nosko – member of the Board of Directors since

10 April 2014

Graduated from the Department of Law at Matej Bel University in Banská Bystrica. Before joining Poštová banka, he was involved in company restructuring. he has worked for Poštová banka since 2010, when he assumed the position of head of the Department of Credit Claims and later became director of the Division of Legal Services and Compliance. he later became deputy managing director for internal services. he was elected as a member of the Poštová banka Board of Directors on 10 April 2014. he is responsible for the corporate banking area.

Ing. Peter Hajko – member of the Board of Directors since 3 December 2015

Graduated from the Department of Economic Informatics at the University of Economics in Bratislava. he was active in the banking sector in 1997–2000, working for Všeobecná úverová banka, a.s. as a sub-branch head and, in 2000–2015, for Tatra banka, a.s., where he held the positions of branch director, regional branch network director responsible for sales, servicing, and service quality for retail clients, Sales Department director responsible for the management of sales and the quality of services of the branch network of Tatra banka, a.s., and director of the Sales Department – Corporate Centers responsible for the management of sales and the quality of services for small and medium-sized enterprises and clients in the Middle Market segment. The last position that he held at Tatra banka, a.s. was that of director of the regional network of branches in the Nitra region. he joined Poštová banka in October 2015, assuming the position of director of the Retail Banking Division. he was elected as a member of the Poštová banka Board of Directors on 3 December 2015. he is responsible for the retail banking area.

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List of shareholders in Poštová banka, a.s. as of 31 December 2015

Legal name and registered office of the shareholder

Number of shares

Participation in share capital

in %

Participation in share capital in

EUR

J&T FINANCE GROUP SEPobřežní 297/14, 186 00 Prague 8, Czech Republic

213,288 64.46 236,109,816

Ministerstvo dopravy, výstavby a regionálneho rozvoja Slovenskej republiky [Ministry of Transport, Construction, and Regional Development of the Slovak Republic] Námestie slobody 6, 811 05 Bratislava, Slovak Republic

100 0.03 110,700

PBI, a.s.Pobřežní 297/14, Karlín, 186 00 Prague 8, Czech Republic

112,506 34.00 124,544,142

Slovenská pošta, a.s.Partizánska cesta 9, 975 99 Banská Bystrica, Slovak Republic

4,918 1.49 5,444,226

UNIQA Versicherungen AGUntere Donaustrasse 21, 1029 Wien, Austria

87 0.03 96,309

330,899 100.00 366,305,193

Capital participation of Poštová banka in selected business entities

Company nameNumber of

shares

Participation in share capital

in %

Participation in share capital in

EUR

Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s.

36 100 11,949,810.48

PB Finančné služby, a. s. 3 100 99,582.00

PB IT, a. s. 10 100 50,000.00

PB PARTNER, a. s. 28,000 100 2,800,000.00

POBA Servis, a. s. 10 100 50,000.00

Poštová poisťovňa, a. s. 278,640 80 9,248,061.60

PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKy, správ. spol., a. s.

50,000 100 1,700,000.00

SPPS, a. s. 24 40 140,000.00

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June

Gift card was added to the portfolio of payment cards Our supply of payment cards was enhanced by a new product – a gift card with a cheerful universal design. The new gift card can be bought online without having to personally visit the bank or opening an account.

A new branch was opened in Vranov nad TopľouA new branch of Poštová banka in Vranov nad Topľou was opened in June.

July

We carried out the Good Neighbor project to support neighborly relations In cooperation with the Petit Press publishing house, Poštová banka launched a unique project called Good Neighbor during the summer vacation. Through regional newspapers, Slovaks could publicly thank a neighbor who helped his community. Poštová banka rewarded the neighbor for doing so.

New branch in MalackyAnother newly-opened branch of Poštová banka was the branch office in Malacky.

August

We offered a new good savings product We launched the sale of two savings products, dobrésporenie REZERVA [good savings RESERVE] and dobrésporenie ISTOTA [good savings SECURITy]. Prvá penzijná unveiled dobrésporenie INVESTÍCIA [good savings INVESTMENT], which replaced the previous investment savings products Solvent and MINI.

New managing director of Poštová bankaAndrej Zaťko assumed the position of Managing Director and Chairman of the Poštová banka Board of Directors.

September

Another branch of Poštová bankaA new branch office of Poštová banka was opened in Topoľčany.

October

Another product of Poštová banka, also offered onlineFrom October, our clients can establish a deposit product called Gold Deposit [Zlatý vklad] online, without having to visit a branch office.

December

Peter hajko became a new member of the Poštová banka Board of Directors. he is responsible for the Retail Banking Division.

New design for five branch officesFive branch offices were completely redesigned during 2015. Thanks to the new, modern design, we disproved the notion that banking institutions must be austere and severe in appearance.

4. Main Events

January

New member of the Board of DirectorsSlavomír Varcholík became a new member of the Poštová banka Board of Directors; he is responsible for the area of finances.

We received two MasterCard awardsThe company MasterCard awarded the best projects of 2014 concerning payment cards. Poštová banka attracted its attention twice. We received the Issuer 2014 award for the largest increase in the number of MasterCard PayPass contactless cards issued. We won another award, Prepaid Product 2014, for the largest number of newly-issued prepaid cards.

Prvá penzijná celebrated its 20th birthdayIn 2015, the First Pension Management Company of Poštová banka celebrated its 20th anniversary. Over the past 20 years, the company has developed into a stable partner in the world of finance in the Slovak market with a team of top portfolio managers.

February

We opened a uniquely-designed branch in the SKYBOX complexPoštová banka introduced a new concept of a joint operation of a bank, post office and Moja Samoška grocery store in one place, the SKyBOX multifunctional complex in the Petržalka city district of Bratislava. The new branch is dominated by simplicity and functionality, but also modernity, and meets the requirements of the most discerning clients.

Awards for PPSSThe „Krátkodobý dlhopisový o.p.f. KORUNA“ [short-term bond fund] of the First Pension Management Company (PPSS) took third place in the Investment of the year 2014 ranking in the Money Market Funds category. In the TOP FOND SLOVAKIA ranking, PPSS won several awards:Best-selling mutual fund in the Money Funds and Short-Term Investment Funds category:Krátkodobý dlhopisový o.p.f. KORUNA – third place;Best-selling mutual fund in the Real Estate Funds and Alternative Investment Funds category:NÁŠ PRVÝ REALITNÝ [Our First Real Estate Fund] o.p.f. – first place;KAPITÁLOVÝ FOND [Capital Fund] o.p.f. – second place.

April

Gold Deposit was added to the family of deposit productsThe Gold Deposit is in the group of Poštová banka deposit products with attractive interest rates. Its unique feature is that clients may access their savings free of charge as early as after the expiration of the three-month notice period.

May

A new communication concept was launched Within a new concept of communication, the public got to know four main characters with interesting stories about their joys and worries, full of humor, unexpected denouements, and practical solutions.

Change of the legal name of Poisťovňa Poštovej bankyPoisťovňa Poštovej banky [Insurance Company of Poštová banka] changed its legal name to Poštová poisťovňa [Postal Insurance Company]. This step is intended to contribute to an easier recognition of the insurance company and is also related to the arrival of a new shareholder – Slovenská pošta [Slovak Post].

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and their families. We provided funds for the construction of a children‘s playground in the village of Mengusovce, where we also help build cross-country skiing trails on a long-term basis within the Mengusovce Cross-Country Skiing Paradise. We organized collections of clothes for the ROSA Social Services Home, as well as Easter, summer, and Christmas markets. During the year, we did not forget about those who needed our help and, via open grants, helped dozens of the needy.

The area of education was dominated by the Slovak National Museum‘s project School in the Museum aimed at supporting educational activities in museums all over Slovakia. Under the auspices of this program, the Foundation also organized two summer camps for the children of its employees.

Last but not least, our activities in 2015 included projects that would not have worked without the help of our employees – be it the MAJÁK [Lighthouse] employee grant program, thanks to which we supported 14 projects serving the public good, totaling €18,500, or the Christmas activity called the Tree of Fulfilled Wishes. The Tree of Fulfilled Wishes, which was premiered, was an activity that moved the hearts of many. Thanks to the generosity of employees and a contribution from our Foundation, we magically conjured up a lovely Christmas for 55 children from a disadvantaged social background.

The year 2015 was indeed the year during which we built on the quality foundations from the past and supported our long-term projects. however, it was also the year that brought about many new activities and projects, through which the beams of our Foundation lighthouse lit up several places. We thank all those who participated in helping others in any way together with us. Without our fans and supporters, the POŠTOVÁ BANKA FOUNDATION would not have been able to help to such an extent as it is doing at the present time. Thank you for helping together with us!

5. Corporate Social Responsibility

We are aware of the need to participate in projects and activities that could not be carried out without support from commercial partners, which is why Corporate Social Responsibility has become an important part of the Poštová banka Group. Both through our foundation and with direct support, we supported several organizations and events in 2015 as well.

We have been the general partner of the Naive Theater of Radošiná since 2013. We are proud that in 2015, we moved the entire theater to its new premises, which we had remodeled for the needs of a modern and functional theater. Thanks to this, the new premises offer comfort not only to actors, but also the audience, without which the theater could not function.

The Slovak National Museum, too, is among our long-term partners. Thanks to the museum, we contribute to the preservation of cultural heritage, which is important for us as a Slovak bank. In 2015, we contributed to the carrying-out of more than 10 projects, thus facilitating the organization of exhibitions, events, and a camp, as well as the restoration of several artifacts.

Poštová banka is a long-term partner of the Association of Pensioners in Slovakia. This organization brings together more than 1,500 general organizations all over Slovakia and organizes sport, art, and cultural events for its members, but, first and foremost, offers seniors to actively spend their free time.

We are proud of being able to be part of the Christmas Mail project again in 2015, thanks to which Father Christmas could send letters and Christmas presents to more than 100,000 children.

In 2015, we continued to support events such as the Štiavnica Triathlon, the Donovalský drapák mountain bike race, the Slovak Air Fest in Sliač, the Rýchlik Zoška ultra-marathon, relay race and long-distance hiking event, the POSTPOINT conference, and other events.

The POŠTOVÁ BANKA FOUNDATION has eight successful years behind it, during which there was no lack of interesting and meaningful projects. Such was the year 2015 as well. It was full of excellent sports performances, educational projects and activities, which gave people joy and, last but not least, helped out where necessary.

The Summer Swimming Camp of Martina Moravcová, which has been an inseparable part of the Foundation in summer months, took place in 2015 as well. A total of 175 young swimming hopefuls took part in the camp in three groups. The Foundation supported 42 talented children from socially disadvantaged families through a wild card system and enabled them to take part in the camp totally free of charge. A novelty in the camp was a one-day training camp at the Elements Resort in Šamorín and a visit by an immunologist who did spirometry tests to children.

Another of our sports projects that has a successful year behind it is the Sport Family for All. Thanks to the Foundation, for seven years 50 children from socially-disadvantaged families and orphanages have been able to develop their talent in canoeing. In 2015, the two best participants took part in the World and European Junior Championships, where they achieved excellent results. In the Slovak Championships, the Sport Family for All won all 35 medals, including 12 titles.

The Swimming Club SPK Bratislava, which the Foundation supports, has been among the top in Slovakia for a long time. This was also confirmed in 2015, when SPK again managed to defend its first position in the Slovak Team Cup. During the year, swimmers participated in many competitions, from where their brought well-earned medals. In the Slovak Championships alone, they won 97 medals, including 20 gold medals, and broke 207 personal records.

We wish all of our athletes that the year 2016 is as successful or more for them as the previous year.

In addition to sports, we also provided help in other areas in 2015. We supported the project of the To Children for Life civic association, which helps young patients with oncological diseases

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We continued the implementation of the information system that we are using as a systemic instrument for performance management, as well as for the training process. The implementation of the system has done away with administrative steps that burdened managers and employees, with information on the performance of employees being centralized in one place.

We also successfully continued the implementation of the platform to support inspiration and self-development of employees – the Let Us Draw Inspiration forum – where we carried out eight meetings with a very positive response, and will continue this project in 2016 as well.

At the end of 2015, we expanded our hR team with hR partners and internal instructors who assumed this role for sales channels – the network of post offices and branches. The primary goal of this expansion of the team is to focus on supporting business distribution channels of the Poštová banka Group, which will be in compliance with the new strategy of the bank. We prepared a change in the concept of adaptation and orientation training (in product and sales skills), which supports overall changes in the setup and management of retail operations.

From 2014, Poštová banka, a.s. launched a new system of employee benefits called Cafeteria for its employees. Benefits have been divided into five basic groups: Labor and Social Benefits, Product Advantages, Family, Health, Sport, and Further Education, and Social and Cultural Events. In 2015, too, employees received contributions for drawing benefits in the areas of health, sports, recreation, and relaxation. The health category also includes preventive and above-standard medical examinations. The aim of Poštová banka‘s policy of benefits is to reinforce the perception of the value of benefits as part of total rewards, make it easier to attract qualified and high-performing employees on the market, and build employee pride in their company.

In 2015, too, negotiations were held between the bank management and the trade union organization, which resulted in the successful signing of a new Collective Agreement for 2016.

The end of 2015 was in the spirit of a change in the policy of remuneration of retail employees. We have successfully set up a new remuneration system, which is simple, transparent, competitive, and motivating for our employees.

As of 1 January 2015, a new personnel and payroll system has been introduced, within which services for managers, as well as for employees of the financial group, have been improved and processes have been simplified. The system supports the sending of notifications regarding coming changes in employment relationships of employees.

6. Personnel Policy

Our goal is a professional approach to the selection of high-quality people and a positive perception of the brand. We carry out regular measurements of the satisfaction of candidates and managers with the selection process, and with a high success rate compared to the rest of the market. For candidates, Poštová banka represents professionalism, reliability, and an opportunity for a stable job with good prospects. As of 31 December 2015, the number of employees was 836, of whom 75 % were women and 25 % were men. Poštová banka is an organization with an average age of 37 years and a 60 %-proportion of university graduates. Women account for 50 % of the total number of managers.

Managers are supported in building and leading successful teams by hR business partners, who provide comprehensive consulting to managers and employees on hR issues.

In the area of support for external talent, we continued the fifth year of the very successful Trainee Program for fifth year university students. As in previous years, after the completion of the program, we hired young people who participated in the program to work for the bank and its subsidiaries on a permanent basis. Following the assessment of the fifth year, we launched the sixth run of the program.

We completed our one-year Talent Program and proposed a new design for the program – this time for two years. In this program, we focused on two concurrent priorities – retaining key experts of the bank and training new potential managers. We made the system of nominations to the program more transparent, with participants being given increased individual care both by their supervising managers and the hR Department in the areas of individual career development, rewards, and benefits.

This year, too, we continued to carry out activities resulting from the concept of training and development of bank employees. We continued to use financial resources invested in training in a targeted and effective manner – on the basis of a new model attributing training budgets to work positions according to their importance for the bank in terms of business. We thus introduced the principle of internal justice in the redistribution of finances allocated to development and training.

In the area of development, we linked training activities to an updated model of personality competencies with the aim of focusing on the development of key areas and expected behaviors of employees that lead to the bank‘s success.

We continued the development of both soft skills and managerial skills through internal instructors. By primarily using closed training sessions, we continued to strive for a more targeted and specific focus of training with respect to individual target groups.

A new innovation was a one-year development program for corporate sales people carried out internally, which received very positive feedback.

This year, too, we continued to carry out individual coaching sessions, and again with very positive responses.

In the area of professional training, we continued to use targeted consulting provided by training specialists in selecting external professional activities. We also supported the utilization of professional know-how across the bank via internal professional training sessions provided by internal instructors, as well as via the mentoring system.

We also launched e-learning development platforms – internally, we created e-learning courses in the area of government-mandated education, as well as for the top requested topic of soft skills and managerial development.

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This caused the dollar to become stronger and the euro again moved slightly lower. It ended the last day of the past year at the level of EUR 1.0862 EUR/USD. As is standard, the currencies in our region copy the development of the euro. During the past year, the euro weakened against the hungarian forint, the Polish zloty, and the Czech koruna. The Czech central bank (ČNB) continues intervening against the latter with the aim of weakening it.

As of 31 December 2015, a total of 13 banks having their registered offices in the territory of the Slovak Republic (including two banks without foreign capital participation and 11 banks with foreign capital participation), 14 branches of foreign banks, and one central bank were in operation in the Slovak banking sector. This means that the total number of banks decreased at the end of 2015, compared to 2014, as the number of branches of foreign banks decreased by one. Over the course of the same year, the number of branches and other organizational units in the banking sector increased by 14 to 1,291. By the end of 2015, 19,953 employees were working in the Slovak banking sector, which was 1.4 % more than at the end of 2014. According to preliminary results, total assets recorded in the banking sector amounted to EUR 67.4 billion last year. Deposits from citizens presented at the end of 2015 amounted to EUR 29.2 billion, growing by 8.5 % year-on-year. Loans to citizens increased by 12.7 %, to EUR 24.8 billion, compared to 2014. According to preliminary data, the banking sector generated a net profit of EUR 626 million, which represents an increase of as much as 13.1 % compared to 2014.

7. Brief Description of the Macroeconomic and Competitive Environment

The year 2015 brought about the fastest economic growth to Slovakia since 2010. The performance of the Slovak economy gradually increased during the individual quarters of last year. In the fourth quarter, the growth rate reached a level of 4.3 % year-on-year. The situation in the labor market developed hand-in-hand with the stronger economic growth, with the unemployment rate declining closer to 10%. We witnessed a decrease in consumer prices throughout the year, as the inflation rate went negative in the individual months, thanks to which real wages grew.

The annual growth in Slovakia‘s GDP at the level of 3.6 % was primarily driven by domestic demand last year. The traditional driving force represented by foreign trade did not drive our economy as strongly as we were used to. The formation of gross fixed capital, that is, investments, which grew at a fast pace, largely contributed to an increase in domestic demand. This was related to the utilization of EU funds remaining in the program period that was coming to an end. Foreign demand remains subject to pressure owing to uncertain developments in China, which is among the main trading partners of Germany. Germany, in turn, is the most important trading partner of Slovakia. The largest European economy has been struggling with an enormous refugee crisis since last year, but the „Dieselgate“ affair has caused quite a lot of commotion as well. Foreign trade as such continued to be influenced by continued geopolitical tensions, among others, between Russia and Ukraine.

The inflation rate reached an average level of -0.3 % according to both the national consumer price index (CPI) and the harmonized consumer price index (hICP) in 2015. According to the national CPI index, the largest increase in prices, by 2.3 %, was recorded in the area of education. On the other hand, a drop in prices, by as much as 6.2 % year-on-year, was seen in transport owing to a significant fall in the prices of crude oil. however, foodstuffs and housing are the most expensive items of family budgets of Slovaks. We had a reason to rejoice in this regard. Although the prices of foodstuffs moderately grew year-on-year over several months, they were still cheaper by 0.3 % when calculated for the whole year. We paid 1 percent less for housing in 2015 compared to 2014.

The lines of the unemployed at labor offices became shorter during 2015, with the registered unemployment rate decreasing from 12.39 % in January to 10.63 % in December, which translated at the end of the year into more than 286,000 unemployed ready to immediately take up a job. however, the total number of unemployed was more than 334,000. This means that the revival of economic growth was translated into the creation of new jobs.

In the past, state financial management was better than planned, and the annual deficit of the state budget was lower by as much as 35 % than had been assumed when the budget was drawn up. The state budget closed the year 2015 with a deficit of EUR 1.93 billion, with the annual deficit decreasing by as much as 34 % year-on-year. The state budget income saw an increase by 30 % year-on-year, but expenditures rose as well, by 17.8 %.

The stagnating economy of the euro zone and the failure to meet the inflation target of the European Central Bank (ECB) resulted in the prime interest rate in the euro zone remaining at a technical zero throughout the year. In an effort to move inflation closer to the required limit, just below 2 %, the ECB launched a program of quantitative easing in March, within which it buys selected bonds in the amount of EUR 60 billion per month. The program continues to run at the present time and is likely to be modified soon. An increase in the amount of purchased bonds may also come into consideration.

The euro exchange rate against the dollar fluctuated during the course of 2015, but, in summary, the euro lost more than one-tenth of its value. During the first days of last year, it traded at around EUR 1.2000/USD. however, it plummeted to below EUR 1.0500/USD during the first three months, which resulted in more and more discussions about parity with the dollar. Though, the euro managed to bounce back from these amounts and more or less oscillated around EUR 1.1200 EUR/USD until October. Nevertheless, at the end of the year, the US Federal Reserve System increased its interest rates for the first time after almost a decade, also to demonstrate the strength of the US economy.

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8. Report on Business Activities and Property Situation in 2015

Poštová banka confirmed its stable position in the market last year as well, ending the year with a significant increase in profit. It invested on a regular basis in improving the comfort of its clients and expanded its product portfolio.

Profit after tax rose by 29.8 %, to 54.3 million euros year-on-year. The positive result was primarily driven by a more effective functioning of the bank, in addition to lower overall risk costs of the bank and a reduction in the mandatory special levy.

The bank also recorded a year-on-year growth in net revenue from fees and commissions, namely by 69.3 %, to 12.4 million euros. This positive development was primarily influenced by a reduction in a special levy for selected financial institutions and a decrease in the payment to the Deposit Protection Fund.

The increased effectiveness of the bank functioning and the optimization of its operating expenses were reflected in a decrease in general operating expenses by 9.7 % to 65.1 million euros.

As of the end of last year, the bank provided loans in the amount of 2.2 billion euros, and deposits from clients reached 3.5 billion euros. Owing to continued low interest rates in the market, a strong competitive environment, and pressure on margins, in addition to the development in the amount of loans provided, the net interest income of Poštová banka decreased by 8.7 % to 185.2 million euros year-on-year.

The balance sheet amount of the bank reached 4.2 billion euros at the end of 2015, thus maintaining its stable level from the end of the previous year. A year-on-year increase was recorded in the capital adequacy ratio Tier I, as a percentage of risk-weighted assets, which grew from 15.31 % to 17.04 %.

ASSETS

The largest part of bank assets consisted of loans provided to clients and securities. As of 31 December 2015, interest-bearing assets amounted to 3,807.6 million euros. The share of interest-bearing assets, including the required minimum reserves, in total assets stands at 91.2 %.

Receivables from clients of the bank decreased by 5.8% compared to 2014, reaching a net value of 2,161.6 million euros (after taking the created value adjustments into consideration) and representing 51.8 % of total bank assets. Consumer loans provided (principal) amounted to 654.5 million euros, of which the „Dobrá pôžička“ (Good Loan) product accounted for 144.7 million euros and „Lepšia splátka“ (Better Installment) amounted to 336.7 million euros. The amount of consumer loans rose by 1.5 % year-on-year.

As of 31 December 2015, the bank had in its portfolio investment securities in the amount of 1,312.3 million euros (including coupon and accruals). The share of investment securities in total assets of the bank was 31.4 %. From the total volume of investment securities, government bonds represent 1,026.6 million euros, other bonds 89.7 million euros, and shares, participating certificates and other ownership interests 196.0 million euros.

In 2015, accounts in banks of issue and other banks represented 12.7 % of total assets with a value of 529.8 million euros. According to the IFRS, these assets are primarily presented as part of cash equivalents. Over the course of 2015, the bank deposited the required minimum reserves in the National Bank of Slovakia in compliance with prudent banking rules. By the end of 2015, the volume of the required minimum reserves represented 234.3 million euros. The bank deposited its temporarily available funds in banks of issue in the form of loans and short-term deposits. As of 31 December 2015, term deposits in the Czech National Bank (ČNB) amounted to 207.6 million euros. At the end of 2015, deposits in other banks amounted to 87.9 million euros, including euro deposits in the amount of 83.7 million euros and foreign currency deposits of 4.2 million euros.

Cash assets amounted to 21.9 million euros as of 31 December 2015, including 20.4 million euros in the euro currency and 1.5 million euros in foreign currency.

The share of tangible and intangible assets in total assets represents 0.65 % (26.9 million euros) as of 31 December 2015.

EQUITY AND LIABILITIES

Primary resources from clients amounted to 3,528.4 million euros as of 31 December 2015, accounting for 84.5 % of the balance sheet amount. Balances of term deposits form the largest part of primary resources, amounting to 1,759.2 million euros (principal). The biggest growth was achieved by deposits in passbooks, whose volume increased year-on-year by 111.8 million euros (principal) to 672.2 million euros (principal) at the end of the year, representing a 20 % growth.

The fastest growth was recorded in balances of corporate accounts, whose volume increased year-on-year by 72.6 million euros (principal), representing a 30.2 % growth.

Funds in personal accounts reached the amount of 747.5 million euros (principal), growing year-on-year by 15.8 %. More than 46,000 new personal accounts were established in 2015.

Secondary resources (accounts of banks of issue and other banks) amounted to 3.9 million euros as of 31 December 2015.

As of 31 December 2015, equity amounted to 600.8 million euros, growing by 34.6 million euros compared to the previous year. Share capital of the bank amounts to 366.3 million euros, funds created from profit account for 34.8 million euros, retained earnings from previous years are at 129.5 million euros, and the financial result of the current year totals 54.3 million euros.

SELECTED INDICATORS

The development of selected qualitative indicators is documented in the table below.

IndicatorActual figures as of 31 December 2015

Actual figures as of 31 December 2014

Interest-bearing assets/Assets 91.20 % 92.50 %

Loans and receivables (net)/Assets 51.80 % 54.60 %

Financial institutions + Central banks/Assets 12.70 % 3.90 %

Government bonds/Assets 24.60 % 26.90 %

Interest-bearing liabilities/Liabilities 84.80 % 85.60 %

ROA 1.30 % 1.00 %

ROE 9.04 % 7.39 %

Central banks: NBS – National bank of Slovakia, ČNB – Czech National BankROA – Return on assets (year-end balance)ROE – Return on equity (year-end balance)

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Separate statement of financial position As at 31 December 2015

Assets Notes31.12.2015

€ ‘00031.12.2014

€ ‘000

Cash and balances at the central banks 6 562,245 361,425

Trading assets 7 2,106 1,600

hedging derivatives 7 1,242 –

Loans and advances 9 2,161,578 2,295,039

Investment securities 10 1,312,327 1,402,969

Investments in subsidiaries and jointly controlled entity

11 39,541 42,777

Property and equipment 12 11,717 13,239

Intangible assets 13 15,195 13,796

Deferred tax asset 14 13,705 21,838

Tax receivable 15 3,452 88

Other assets 16 50,870 50,147

4,173,978 4,202,918

Equity Notes31.12.2015

€ ‘00031.12.2014

€ ‘000

Share capital 23 366,305 366,305

Share premium 24 738 738

Reserves and retained earnings 25 233,806 199,228

Equity 600,849 566,271

4,173,978 4,202,918

Liabilities Notes31.12.2015

€ ‘00031.12.2014

€ ‘000

Trading liabilities 7 84 38

hedging derivatives 7 312 –

Deposits by banks 17 3,930 13,475

Customer accounts 18 3,528,357 3,574,641

Provisions for off-balance sheet liabilities 19 1,960 66

Tax liabilities 20 – 15,935

Other liabilities 21 30,473 24,479

Subordinated debt 22 8,013 8,013

3,573,129 3,636,647

These separate financial statements, which include the notes on pages 45 to 120, were approved by the Board of Directors on 24 March 2016.

Chairman of the Board of Directors Member of the Board of Directors Andrej Zaťko Slavomír Varcholík

9. Financial statements

Separate financial statements Prepared in accordance with International Financial Reporting Standards as adopted by the European Union (English Translation) Year ended 31 December 2015

40 41

Notes31.12.2015

€ ‘00031.12.2014

€ ‘000

Interest income 27 229,695 257,785

Interest expense 28 (44,543) (54,996)

Net interest income 185,152 202,789

Fee and commission income 29 49,408 45,832

Fee and commission expense 30 (36,980) (38,493)

Net fee and commission income 12,428 7,339

Dividends received 7,694 5,999

Net trading income 31 12,286 11,140

Net other loss 32 (264) (10,284)

Net non-interest income 32,144 14,194

Operating income 217,296 216,983

Administrative expenses 33 (65,141) (72,106)

Depreciation and amortisation 34 (6,596) (5,840)

Operating expenses (71,737) (77,946)

Operating profit before impairment losses and provisions

145,559 139,037

Impairment losses on receivables 9 (67,784) (79,725)

Impairment losses on investment securities 10 – (5)

Impairment losses on subsidiaries 11 (986) –

Impairment losses on tangible assets 12 (686) –

(Creation)/release of provisions to other assets 16 (327) 33

Creation of provisions for off-balance sheet liabilities 19 (1,894) (14)

Profit before tax 73,882 59,326

Income tax 36 (19,589) (17,496)

Profit after tax 54,293 41,830

Notes31.12.2015

€ ‘00031.12.2014

€ ‘000

Profit for the year 54,293 41,830

Other comprehensive income

Change in fair value of available-for-sale financial assets:

Items that may be reclassified to profit or loss in the future from available-for-sale securities

4,032 13,502

Reclassification of profit and loss from securities available-for-sale to profit or loss

7,670 (10,761)

Change in fair value of hedged financial instruments 1,130 –

Income tax on other comprehensive income 36 (2,823) (603)

10,009 2,138

Translation difference from foreign operations 361 (172)

Other comprehensive income after tax 10,370 1,966

Total comprehensive income for the year 64,663 43,796

Net profit for the accounting period (in € ‘000) 54,293 41,830

Number of issued shares 330,899 330,899

Earnings per share (in EUR) 164 126

Separate income statement Year ended 31 December 2015

Separate statement of profit or loss and other comprehensive income Year ended 31 December 2015

The notes on pages 45 to 120 are an integral part of these separate financial statements.

The notes on pages 45 to 120 are an integral part of these separate financial statements.

42 43

Note

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As at 1 January 2015 366,305 738 30,622 5,801 163,760 (955) 566,271

Total comprehensive income

Profit for the year 25 – – – – 54,293 - 54,293

Other comprehensive income

Net change in fair value of available-for-sale financial assets, net of tax after reclassification to profit or loss

25 – – – 10,009 – – 10,009

Translation difference from foreign operations

25 – – – – – 361 361

Total comprehensive income

– – – 10,009 54,293 361 64,663

Transaction with owners, recorded directly in equity

Transfer to legal reserve fund 25 – – 4,183 – (4,183) – –

Dividends to shareholders 25 – – – – (30,117) – (30,117)

Other 25 – – – – 32 – 32

Total transactions with owners

– – 4,183 – (34,268) – (30,085)

At 31 December 2015 366,305 738 34,805 15,810 183,785 (594) 600,849

Note

s

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capit

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€ ‘000

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As at January 2014 306,305 795 23,805 3,663 128,747 (783) 462,532

Total comprehensive income

Profit for the year 25 – – – – 41,830 – 41,830

Other comprehensive income

Net change in fair value of available-for-sale financial assets, net of tax after reclassification to profit or loss

25 – – – 2,138 – – 2,138

Translation difference from foreign operations

25 – – – – – (172) (172)

Total comprehensive income

– – – 2,138 41,830 (172) 43,796

Transaction with owners, recorded directly in equity

Transfer to legal reserve fund 25 – – 6,817 – (6,817) – –

Increase in share capital 60,000 – – – – – 60,000

Other transactions related to share issue

– (57) – – – – (57)

Total transactions with owners

60,000 (57) 6,817 – (6,817) – 59,943

At 31 December 2014 366,305 738 30,622 5,801 163,760 (955) 566,271

Separate statement of changes in equity Year ended 31 December 2015

Separate statement of changes in equity Year ended 31 December 2014

The notes on pages 45 to 120 are an integral part of these separate financial statements.The notes on pages 45 to 120 are an integral part of these separate financial statements.

44 45

Cash flows from operating activities Notes31.12.2015

€ ‘00031.12.2014

€ ‘000

Profit before changes in operating assets and liabilities 37 165,280 147,565

(Increase)/decrease in trading assets (506) 7,454

Increase in hedging derivatives (930) –

(Increase)/decrease in compulsory minimum reserves (204,163) 193,611

Increase in loans and advances 65,677 (496,598)

Revaluation of investments (12,831) –

(Increase)/decrease in other assets (1,051) 13,569

(Increase)/decrease in trading liabilities 46 (622)

(Decrease)/increase in deposits by banks (9,546) 5,847

(Decrease)/increase in customer accounts (46,283) 290,963

(Increase)/decrease in other liabilities 5,270 (4,390)

Income tax paid (33,438) (1,810)

Net cash flows from/(used in) operating activities (72,475) 155,589

Cash flows from investing activities

Purchase of property and equipment (2,021) (4,133)

Proceeds from sale of property and equipment 67 1,265

Purchase of intangible assets (4,998) (4,642)

Sales of investment securities 103,473 113,374

Sale/(Acquisition) of subsidiary 2,720 (2,109)

Net cash from investing activities 99,241 103,755

Cash flows from financing activities

Dividends paid to shareholders (30,109) –

Repayment of loans – (50,778)

Increase of share capital – 60,000

Other transactions related to share issue – (57)

Net cash from/(used in) financing activities (30,109) 9,165

Net (decrease)/increase in cash and cash equivalents

(3,343) 268,509

Cash and cash equivalents at the beginning of year 331,268 62,759

Cash and cash equivalents at the end of year 6 327,925 331,268

Activity Share %

Dôchodková správcovská spoločnosť Poštovej banky, d. s. s., a. s.

Management of pension funds 100

PB Finančné služby, a. s.Financial and operational leasing

and factoring 100

PB IT, a. s. IT services 100

PB PARTNER, a..s. Financial intermediary 100

POBA Servis, a. s. Real estate administration 100

Poštová poisťovňa, a. s. Insurance 80

PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKy, správ. spol., a. s.

Asset management 100

Jointly controlled entity:

SPPS, a. s. Payment services 40

NADÁCIA POŠTOVEJ BANKy Charitable foundation 100 %

1. General information

Poštová banka, a. s. (‘the Bank’) was incorporated in the Commercial Register on 31 December 1992 and commenced activities on 1 January 1993. The registered office of the Bank is Dvořákovo nábrežie 4, 811 02 Bratislava. The Bank’s identification (‘IČO’), tax (‘DIČ’) and value added tax (‘IČ DPh’) numbers are as follows: IČO: 31 340 890 DIČ: 2020294221 IČ DPH: SK7020000680The Bank is registered as VAT member of Poštová banka Group.

Principal activities

The principal activities of the Bank are as follows:• Acceptingandprovidingdepositsineuro(“€”)andinforeigncurrencies;• Providingloansandguaranteesineuroandforeigncurrencies;• Providingbankingservicestothepublic,• Providingservicesonthecapitalmarket.

The Bank operates through 45 branches located in Banská Bystrica, Bánovce nad Bebravou, Bardejov, Bratislava, Brezno, Dubnica nad Váhom, Dunajská Streda, humenné, Komárno, Košice, Levice, Lučenec, Malacky, Martin, Michalovce, Nitra, Nové Mesto nad Váhom, Nové Zámky, Pezinok, Poprad, Prešov, Prievidza, Rožňava, Sečovce, Skalica, Spišská Nová Ves, Topoľčany, Trebišov, Trenčín, Trnava, Vranov nad Topľou, Zvolen, Žiar nad hronom and Žilina. In addition, under an agreement with Slovenská pošta, the Bank sells its products and services through 1,540 post offices and selected bank services through 43 offices of Pošta-Partner, located throughout the country.

The Bank extended its activities to the Czech Republic with the establishment of a branch operation in Prague. Poštová banka, a. s. pobočka Česká republika (‘the Branch’) was registered in the Commercial Register of the Czech Republic on 18 November 2009. The Branch commenced its activities on 1 March 2010.

At 31 December 2015, the Bank had the following subsidiaries and jointly controlled entities:

The Foundation is not included in the consolidated financial statements of Poštová banka, a.s.

All entities are resident in the Slovak Republic.

The Bank acts as a founder of the following non-profit oriented organisation as at 31 December 2015:

Separate statement of cash flows Year ended 31 December 2015

Notes to the separate financial statements Year ended 31 December 2015

The notes on pages 45 to 120 are an integral part of these separate financial statements.

46 47

2. Basis of preparation of the separate financial statements

(a) Statement of compliance

The separate financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union.

These financial statements are prepared as separate financial statements under Section 17 of the Slovak Act on Accounting 431/2002, as amended. Consequently, in these financial statements, the Bank’s investments in subsidiaries are accounted for at cost decreased by impairment losses, if any.

(b) Basis of preparation of financial statements

These separate financial statements have been prepared on the historical cost basis except for the following:• derivativefinancialinstrumentsaremeasuredatfairvalue;• financialinstrumentsatfairvaluethroughprofitorlossaremeasuredatfairvalue;• available-for-salefinancialassetsaremeasuredatfairvalue.

(c) Going concern assumption

The financial statements were prepared using the going concern assumption that the Bank will continue in operation for the foreseeable future.

(d) Functional and presentation currency

These financial statements are presented in euro (€), which is the Bank’s functional currency. Except as otherwise indicated, financial information presented in euro has been rounded to the nearest thousand.

(e) Use of estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is provided in notes 3 and 4.

The accounting policies set out below have been applied consistently in all periods presented in these separate financial statements.

Shareholders of the Bank at 31 December 2015

Name AddressTotal numbers

of sharesShare capital

ownership in %

J&T FINANCE GROUP SEPobřežní 297/14, 186 00 Praha, Česká republika

213,288 64.45

Ministerstvo dopravy, výstavby a regionálneho rozvoja SR

Námestie slobody 6, 810 05 Bratislava

100 0.03

PBI, a.s.Pobřežní 297/14, 186 00 Praha, Česká republika

112,506 34.00

Slovenská pošta, a.s.Partizánska cesta 9, 975 99 Banská Bystrica

4,918 1.49

UNIQA Versicherungen AGUntere Donaustrasse 21, 1029 Wien, Rakúsko

87 0.03

330,899 100.00

Name AddressTotal numbers

of sharesShare capital

ownership in %

ISTROKAPITAL SE41 – 43 Klimentos Street, 1061 Nicosia, Cyprus

27,947 8.45

J&T BANKA, a.s.Pobřežní 297/14, 186 00 Praha, Česká republika

122,979 37.16

J&T FINANCE GROUP SEPobřežní 297/14, 186 00 Praha, Česká republika

174,868 52.84

Ministerstvo dopravy, výstavby a regionálneho rozvoja SR

Námestie slobody 6, 810 05 Bratislava

100 0.03

Slovenská pošta, a.s.Partizánska cesta 9, 975 99 Banská Bystrica

4,918 1.49

UNIQA Versicherungen AGUntere Donaustrasse 21, 1029 Wien, Rakúsko

87 0.03

330,899 100.00

Members of the Board of Directors

Andrej Zaťko chairman (from 12 August 2015)

Marek Tarda chairman (till 12 August 2015)

Daniela Pápaiová board member

Ján Nosko board member

Slavomír Varcholík board member (from 12 January 2015)

Peter hajko board member (from 3 December 2015)

Peter Krištofovič board member (till 19 March 2015)

Members of the Supervisory Board

Mario hoffmann chairman

Jozef Salaj board member

Vladimír Ohlídal board member

Jozef Tkáč board member

Tomáš Drucker board member

All shares are ordinary held in a dematerialized form and are registered. The nominal value of a share is Eur 1,107 (in 2014: Eur 1,107).

Shareholders of the Bank at 31 December 2014

The Bank’s financial statements are included in the consolidated financial statements of J&T FINANCE GROUP SE, Pobřežní 297/14, 186 00 Prague, Czech Republic.

The consolidated financial statements are available at the registered office of J&T FINANCE GROUP SE.

On 27 March 2015, 10,473 shares representing 3.16% of the total amount of shares were transferred between J&T FINANCE GROUP SE and J&T BANKA, a.s. The company ISTROKAPITAL SE sold 27,947 shares which represent of 8.45% of the total amount of shares to J&T FINANCE GROUP SE on 28 December 2015. A transfer of 112,506 shares between J&T BANKA, a.s. and PBI (part of J&T FINANCE GROUP SE), a.s. representing 34% of the total amount of shares was made on 23 December 2015.

48 49

(d) Net trading income

Net trading income comprises gains and losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes and foreign exchange rate differences.

(e) Dividends

Dividend income is recognised when the right to receive income is established.

(f) Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

(g) Income tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except for items recognised directly in equity, or in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(h) Financial assets and liabilities

(i) RecognitionThe Bank initially recognises loans and advances, deposits by banks, customer accounts, loans received and debt securities on the date they are originated. All purchases and sales of securities are recognised on settlement day. Derivative instruments are initially recognised on the trade date, at which the Bank becomes a party to the contractual provisions of the instrument.

A financial asset or financial liability is measured initially at fair value plus transaction costs that are directly attributable to its acquisition or issue (for items that are not valued at fair value through profit or loss).

(ii) DerecognitionThe Bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows from the financial asset

3. Significant accounting policies

These separate financial statements does not include reporting accoring segments due the reason, that the Bank does not fullfil the criteria in accordance of requirements of IFRS 8 – Operating segments for reporting of details of segment reporting.

(a) Foreign currency

(i) Foreign currency transactionsTransactions denominated in foreign currencies are translated into euro at the exchange rates valid on the date of the transaction. Monetary assets and liabilities are translated at the rates of exchange valid at the balance sheet date. All resulting gains and losses are recorded in Net trading income in profit or loss. (ii) Foreign operationsThe assets and liabilities of foreign operations are translated to euro at spot exchange rates at the balance sheet date. The income and expenses of foreign operations are translated to euro at spot exchange rates on the date of the transactions. Exchange rate differences on the translation of foreign operations are recognised in other comprehensive income.

Foreign exchange rate gains or losses arising from monetary items of receivables or payables of foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance are considered to form part of the net investment in the foreign operation, are recognised in other comprehensive income in the translation reserve.

(b) Interest income and expense

Interest income and expense are recognised in profit or loss using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability. The effective interest rate is determined on initial recognition of the financial asset and liability and is not revised subsequently.

The calculation of the effective interest rate includes all fees paid or received, transaction costs and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or retirement of a financial asset or liability. Interest income and expense from financial assets and liabilities through profit or loss are presented as part of Interest income and expense, and changes in the fair values of such instruments are presented at fair value in Net trading income.

Interest income and expense in the separate income statement include:• Interest on financial assets and liabilities at amortised cost calculated on an effective interest basis;• Interestoninvestmentsecurities,tradingsecuritiesandsecuritiesintheLoansandreceivables

portfolio calculated on an effective interest basis;• Interestincomeonreceivableshandedoverforadministrationisrecognisedwhenreceived.

(c) Fees and commissions

Fee and commission income and expenses that are integral to the effective interest rate of a financial asset or liability are included in the calculation of the effective interest rate.

Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised when the related services are performed. Loan commitment fees are recognised on a straight-line basis over the commitment period.

Other fees and commissions relate mainly to transaction costs and service fees, which are recognised as the services are received.

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impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows of the asset that can be reliably estimated.

The Bank considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. Assets that are not individually significant are also collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics.

Objective evidence that financial assets (including investment securities) may be impaired include default or delinquency by a borrower, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as a deterioration in economic conditions or adverse changes in the payment status of borrowers or issuers in that group.

In assessing collective impairment, the Bank uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lower than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly compared to actual outcomes to ensure that they remain appropriate.

Impairment losses on assets carried at amortised cost are calculated as the difference between the book value of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and advances.

When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss.

Impairment losses on available-for-sale investment securities are recognised by transferring the difference between the amortised acquisition cost and current fair value that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. When a subsequent event causes the amount of impairment loss on an available-for-sale debt security to decrease, the impairment loss is reversed through profit or loss. however, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. Changes in impairment losses attributable to time value are reflected as a component of Net interest income.

(i) Cash and cash equivalents

Cash and cash equivalents comprises cash, unrestricted balances held with the National Bank of Slovakia and highly liquid financial assets with original maturities of less than three months, which are subject to an insignificant risk of changes in their fair value and are used by the Bank in the management of short-term commitments.

Cash and cash equivalents are carried at amortised cost in the statement of financial position.

in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability.

The Bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The Bank enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions.

The Bank also derecognises certain assets when it writes off assets deemed to be uncollectible.

(iii) OffsettingFinancial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The right to offset financial assets and financial liabilities is applicable only if it is not contingent on a future event and is enforceable by all counterparties in the normal course of business, as well as in the event of insolvency and bankruptcy. Compensation refers mainly to supplier-customer relations, accounted for only based on supported evidence of offsetting.

Income and expenses are presented on a net basis only when permitted by the reporting standards, or for gains and losses arising from a group of similar transactions such as in the Bank’s trading activity.

(iv) Amortised cost measurementThe amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation, using the effective interest rate method, of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

(v) Fair value measurementIFRS 13 Fair Value Measurement was adopted by the EU on 11 December 2012 (effective for reporting periods starting on or after 1 January 2013). It does not change when an entity should use fair value, but rather prescribes how the entity, under this standard, should use fair value in situations when it is necessary or possible to use fair value. The adoption of this standard had no impact on the financial situation or profit or loss of the Bank. The definition of Fair Value according to IFRS 13 reads as follows: Fair 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 measurement date.

The determination of the fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded on active markets. For all other financial instruments, fair value is determined by using valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market-observable prices exist and valuation models. The Bank uses widely recognised valuation models for determining the fair value of the more common financial instruments like options and interest rate and currency swaps. For these financial instruments, inputs into models are taken from market. The fair value hierarchy is monitored in relation to the valuation of quoted market prices, the valuation models with input data directly from the market, and input data that cannot be observed on the market.

(vi) Identification and measurement of impairmentAt each end of a reporting period, the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are

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Changes in the fair value without interest component (clean price) of hedging instruments are recognizedintheseparateincomestatementlineas“Nettradingincome”.

The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of thehedgeditemandisrecognisedinprofitorlossas“Nettradingincome”.

Interest expense and interest income from the hedging instruments are presented together with interestincomeandexpenseitemsintheseparateincomestatementunder“Netinterestincome”.The positive value of hedging instruments is recognized in the separate statement of financial positionasanasset“Hedgingderivatives”.Negativevalueofhedginginstrumentsisrecognizedasaliability“Hedgingderivatives”.SummaryofhedgingderivativesispresentedinNote7.

If the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for fair value hedge accounting, or the designation is revoked, hedge accounting is discontinued. Any adjustment up to that point to a hedged item for which the effective interest method is used is amortised in profit or loss as part of the recalculated effective interest rate of the item over its remaining life.

(ii) Cash flow hedgeWhen a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. The amount recognised in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same income statement line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.

If the derivative expires or is sold, terminated or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount previously recognised in other comprehensive income and presented in the hedging reserve remains there until the forecast transaction affects profit or loss. If the forecast transaction is no longer expected to occur, then hedge accounting is discontinued and the balance in other comprehensive income is recognised immediately in profit or loss.

(iii) Other non-trading derivativesWhen a derivative is not held for trading and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in profit or loss as a component of net income from financial operations.

(iv) Embedded derivativesDerivatives may be embedded in another contractual arrangement (a ‘host contract’). The Bank accounts for embedded derivatives separately from the host contract when the host contract is not itself carried at fair value through profit or loss and the characteristics of the embedded derivative are not clearly and closely related to the host contract. Separated embedded derivatives are accounted for depending on their classification and are presented in the statement of financial position together with the host contract.

(l) Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Bank does not intend to sell immediately or in the near term.

When the Bank is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of an asset to the lessee, the agreement is presented within receivables.

(j) Trading assets and liabilities

Trading assets and liabilities are those assets and liabilities that the Bank acquired or incurred principally for the purpose of selling or repurchasing in the near term, or held as part of a portfolio that is managed together with achieving short-term profit or maintaining position.

Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position with transaction costs taken directly to profit or loss. All changes in fair value are recognised as part of Net trading income in the income statement.

Trading assets and liabilities are not reclassified subsequent to their initial recognition except that non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition, may be reclassified out of the fair value through profit or loss category if they are no longer held for the purpose of being sold or repurchased in the near term and the following conditions are met:• Ifthefinancialassetwouldhavemetthedefinitionofloansandreceivables,andithadnotbeen

required to be classified as held for trading at initial recognition, then it may be reclassified if the Bank has the intention and ability to hold the financial asset for the foreseeable future or until maturity.

• Ifthefinancialassetwouldnothavemetthedefinitionofloansandreceivables,thenitmaybereclassified out of the trading category only in ‘rare circumstances’.

(k) Derivatives held for risk management purposes

Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value in the statement of financial position. The treatment of changes in their fair value depends on their classification into the following categories:

Hedging derivativesUnder the bank strategy, hedging derivatives are designed to hedge and manage selected risks and fullfil all requirements of IAS 39.

The main Bank criteria for classification of hedging derivatives are as follows: • Therelationshipbetweenhedgingandhedgedinstrument,inmeaningofriskcharacteristics,

function, target and strategy of hedging is formally documented at origination of the transaction, together with method, which is used for assessment of effectiveness of hedging relationship;

• The relationship between hedging and hedged instrument is formally documented at theorigination of the hedging transaction and the Bank expects, that it will decrease the risk of hedged instrument;

• Duringthetermofthehedgingrelationshipthehedgingishighlyeffective.TheBankconsidershedging as highly effective, if the changes in fair value relating to the hedged risk during the period covered, compensate changes in the fair value of the hedging instrument in the range of 80 % to 125 %. The effectiveness of any hedging relationship is assessed prospectively and retrospectively.

(i) Fair value hedgeThe Bank uses financial derivatives to manage the level of risk in relation to interest rate risk. The Bank uses hedging derivatives to hedge the fair value of recognized assets (bonds with fixed income denominated in euros). As the purchase of assets – bonds with fixed income increased the interest rate risk of the Bank, the Bank entered into interest rate swaps to hedge the changes in fair value caused by changes in risk-free interest rates, and pays a fixed and receives a floating rate. The nominal and fair values of the aforementioned hedging derivatives are described in Note 7.

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When the Bank purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (‘reverse repo or stock borrowing’), the agreement is accounted for as a loan or advance, and the underlying asset is not recognised in the Bank’s financial statements.

Loans and advances are initially measured at fair value plus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest rate method.

(m) Debt securities included in portfolio of loans and receivables

Debt securities included in the portfolio of loans and receivables are non-derivative financial assets with fixed or determinables payments that are not listed on an active market other than:• debtsecuritiesheldwithintentiontosellimmediatelyorintheshorttimeanddebtsecuritiesthe

entity defines as valued at fair value through profit or loss at initial recognition;• debtsecuritiestheentityclassifiedasavailableforsaleatinitialrecognition.

Such securities are measured at their amortized cost.

(n) Investment securities

Investment securities are initially measured at fair value plus incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity or available-for-sale. (i) Held-to-maturityheld-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity and which are not designated at fair value through profit or loss or available-for-sale. held-to-maturity investments are carried at amortised cost using the effective interest rate method. Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity, except for sales or reclassifications in accordance with IAS 39.9, would result in the reclassification of all held-to-maturity investments as available-for-sale and prevent the Bank from classifying investments securities as investments held-to-maturity for the current and the following two financial years.

If as a result of changes in intent or ability it is no longer appropriate to classify an investment as held to maturity, such an investment is reclassified to the available for sale category and carried at fair value in accordance with paragraphs 51-55 of IAS 39. Based on an assessment and analysis performed, the Bank will decide whether there are reasons for reclassification of the whole held-to-maturity portfolio to Available-for-sale portfolio.

(ii) Available-for-saleAvailable for sale investments are non derivative investments that are not designated as another category of financial assets. Available for sale investments are carried at fair value.

Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Bank becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss.

Fair value changes are recognised in other comprehensive income and presented in the revaluation reserve in equity until the investment is sold or impaired and the cumulative gain or loss is then recognised in profit or loss.

(o) Investments in subsidiaries and jointly controlled companies

IFRS 12 Disclosure of Interests in Other Entities has been effective since 1 January 2014. The

standard requires additional disclosure about significant judgments and assumptions which are used to define the character of investments in the company or an agreement, investments in subsidiaries, joint-agreements and affiliates and in unconsolidated structured entities.

Subsidiaries are entities controlled by the Bank. The Bank controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Valuation and impairment losses are described in point 3 (h) (iv).

When the Bank loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other component of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

Associates are those entities in which the Bank has significant influence, but not control or joint control, over the financial and operating policies. A jointly controlled entity is an arrangement in which the Bank has joint control, whereby the Bank has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

These financial statements are prepared as separate financial statements under Section 17 of the Slovak Act on Accounting 431/2002, as amended. Consequently, in these financial statements, the Bank’s investments in subsidiaries are accounted for at cost decreased by impairment losses, if any.

(p) Tangible and intangible assets

(i) Recognition and measurementItems of property and equipment are measured at cost less accumulated depreciation and impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of the cost of that equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property.

(ii) Subsequent costsThe cost of replacing part of an item of property is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be reliably measured. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.

(iii) DepreciationDepreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

Buildings 40 years, straight line

Furniture, fittings and equipment 4 to 15 years, straight line

Motor vehicles 4 years, straight line

Software 4 to 7 years, straight line

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Depreciation commences when the asset is put into use.

Depreciation methods, useful lives and residual values are reassessed at each reporting date.

SoftwareSoftware is carried at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight line basis over the estimated useful life of the software, which is reassessed on yearly basis.

(q) Leased assets

Leases under which the Bank assumes substantially all the risks and rewards of ownership, are classified as finance leases. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to the initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

All other leases are operating leases and the assets are not recognised on the Bank’s statement of financial position.

(r) Impairment of non-financial assets

The carrying amounts of the Bank’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups.

Impairment losses are recognised directly in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(s) Deposits, customer accounts, loans received and subordinated debt

Deposits, customer accounts, loans received and subordinated debt are the Bank`s sources of debt funding.

Deposits, customer accounts, loans received and subordinated debt are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost, including accrued interest, using the effective interest method.

When the Bank sells a financial asset and simultaneously enters into a ‘repo’ or ‘stock lending’ agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the

arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank’s financial statements.

(t) Provisions

A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Bank from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Bank recognises any impairment loss on the assets associated with that contract.

(u) Employee benefits

(i) Defined contribution plansObligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they are due.

(ii) Termination benefitsTermination benefits are recognised as an expense when the Bank is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date.

(iii) Short-term benefitsShort-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be reliably estimated.

(v) New standards and interpretations not yet adopted

IFRS 9 Financial Instruments(Effective for annual periods beginning on or after 1 January 2018; to be applied retrospectively with some exemptions. The restatement of prior periods is not required, and is permitted only if information is available without the use of hindsight. Early application is permitted.). This standard has not been accpeted by European Union yet.

This Standard replaces IAS 39, Financial Instruments: Recognition and Measurement, except that the IAS 39 exception for a fair value hedge of an interest rate exposure of a portfolio of financial assets or financial liabilities continues to apply, and entities have an accounting policy choice between applying the hedge accounting requirements of IFRS 9 or continuing to apply the existing hedge accounting requirements in IAS 39 for all hedge accounting. A financial asset is measured at amortized cost if the following two conditions are met:• theassetsisheldwithinabusinessmodelwhoseobjectiveistoholdassetsinordertocollect

contractual cash flows; and, • itscontractual termsgive riseonspecifieddates tocashflows thataresolelypaymentsof

principal and interest on the principal outstanding.The impairment model in IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model, which means that a loss event will no longer need to occur before an impairment allowance is recognised.

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IFRS 3 Business combinationsAmendments to IFRS 3 Business Combinations (and Subsequent amendments to other standards) make it clear that if a contingent consideration is a financial instrument and its classification as a liability or equity should be determined under IAS 32 and not under another standard. It also clarifies that contingent consideration that is classified as an asset or liability has to be valued at fair value at each reporting date of the financial statements.

The Bank expects that the amendments will not have a significant impact on the presentation of the financial statements of the Bank when initially applied.

4. Use of estimates and judgements

These disclosures supplement the commentary on financial risk management.

Key sources of estimation uncertainty

Allowances for impairment

Assets accounted for at amortised cost are evaluated for impairment on the basis described in accounting policies and accounting methods 3 (h)(vi).

The specific counterparty component of the total allowances for impairment applies to receivables evaluated individually for impairment and is based on management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about the counterparty’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits and the workout strategy and estimate of cash flows considered recoverable. The head of the Risk Management Division is responsible for the assessment of the extent of impairment of individually assessed receivables and for determining the amount of any impairment loss.

The valuation of collateral that is part of the calculation takes into account the conclusions of the professional evaluation performed by the Bank’s estimate valuators. The baseline for the valuation, according to the current methodology of the Bank, is the actual Bank`s value that reflects the valuation of collateral in case of forced realization achievable on the market (irrespective of the costs relating to acquisition and sale). The Bank also takes into account the depreciation of the movable assets (machinery – technological devices, vehicles) by discounting with a coefficient of 5% p.a. for the period from the calculation of the allowance for impairment until the expected date of realization of the collateral. Subsequently, the Bank estimates the loss percentage from realization of the collateral as well as the expected date of realization.

Collectively assessed impairment allowances cover credit losses inherent in portfolios of receivables with similar economic characteristics when there is objective evidence to suggest that they contain impaired receivables, but the individual impaired items cannot yet be identified. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters based on historical experience and current economic conditions. The accuracy of the allowances depends on how well these estimate future cash flows for specific counterparty allowances and on the model assumptions and parameters used in determining collective allowances.

The Bank creates the collective impairment losses based on the probability of default (‘PD’) and loss given default (‘LGD’). A change of the LGD parameter by +/- 5 % or +/- 10 %, would result in a change in the allowances for impairment by +/- 5.18 % (in absolute numbers +/- € 6,548 thousand), or +/- 10.36 % (in absolute numbers +/- € 13,096 thousand). Back-testing carried out by the Bank in 2015 confirmed the adequacy of LGD settings in loans and debits. ‘PD’ values are recalculated

IFRS 9 includes a new general hedge accounting model, which aligns hedge accounting more closely with risk management. The types of hedging relationships – fair value, cash flow and foreign operation net investment – remain unchanged, but additional judgment will be required.

The Bank expects that the new Standard IFRS 9, when initially applied, will have a significant impact on the financial statements, since the classification and the measurement of the Bank’s financial instruments is expected to change. The application of the new Standard IFRS 9 will also, in case of credit risk, have a significant impact on the financial statements, since the creation of impairment allowances in time and amount will change.

IFRS 15 Revenue from contracts with customers(Effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted.)The new Standard provides a framework that replaces existing revenue recognition guidance in IFRS. Entities will adopt a five-step model to determine when to recognise revenue, and at what amount. The new model specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognised:• overtime,inamannerthatdepictstheentity’sperformance;or• atapointintime,whencontrolofthegoodsorservicesistransferredtothecustomer.

The Bank does not expect that the new Standard, when initially applied, will have a material impact on the financial statements. The timing and measurement of the Entity’s revenues are not expected to change under IFRS 15 because of the nature of the Bank’s operations and the types of revenues it earns.

Amendments to IAS 1(Effective for annual periods beginning on or after 1 January 2016. Early application is permitted.)The Amendments to IAS 1 include the following narrow-focus improvements to the disclosure requirements contained in the standard.

The guidance on materiality in IAS 1 has been amended to clarify that: • Immaterialinformationcandetractfromusefulinformation.• Materialityappliestothewholeofthefinancialstatements.• Materialityappliestoeachdisclosurerequirementinstandard.

The guidance on the order of the notes (including the accounting policies) have been amended, to: • RemovelanguagefromIAS1thathasbeeninterpretedasprescribingtheorderofnotestothe

financial statements.• Clarifythatentitieshaveflexibilityaboutwheretheydiscloseaccountingpoliciesinthefinancial

statements.

The Bank expects that the amendments, when initially applied, will not have a material impact on the presentation of its financial statements.

Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (Effective for annual periods beginning on or after 1 January 2016; to be applied prospectively. Early application is permitted.)

These Amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business.

Business combination accounting also applies to the acquisition of additional interests in a joint operation while the joint operator retains joint control. The additional interest acquired will be measured at fair value. The previously held interests in the joint operation will not be remeasured.

The Bank expects that the Amendments, when initially applied, will not have a material impact on the Bank’s financial statements.

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Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm’s length.

The Bank uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter derivatives like interest rate swaps. The availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. The availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.

For more complex instruments, the Bank uses proprietary valuation models, which are usually developed based on recognised valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions. Example of instruments involving significant unobservable inputs include certain over-the-counter structured derivatives, certain loans and securities for which there is no active market and certain investments in subsidiaries. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. Management judgement and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of the probability of counterparty default and prepayments and selection of appropriate discount rates.

The Bank has an established control framework with respect to the measurement of fair values. This framework includes a control function performed by the Market Risks Department, which is independent from front office management. Specific controls include: verification of observable pricing inputs and reperformance of model valuations; a review and approval process for new models and changes to models; calibration and back-testing of models against observed market transactions; analysis and investigation of significant daily valuation movements; and review of significant unobservable inputs and valuation adjustments.

Basic parameters entering into the valuation model to determine the fair value of equity financial instruments are forecast economic results and equity of the company, market multiples indicators such as EBITDA, sales etc. for comparable companies, which are published by reputable companies for different sectors.

For fair value measurement of debt financial instruments the Bank uses models based on net present value. The key estimation parameter is the discount interest rate. Determination of the discount interest rate is based on the risk free market rate, which corresponds to the incremental maturity of particular financial instruments and on a risk premium. The risk premium is determined to be consistent with regular market practice.

Even though these valuation techniques are considered to be appropriate and in compliance with market practice, still the estimations in discount interest rate and changes of basic assumptions in future cash flows may lead to different fair value of financial instruments.

and recalibrated regularly on monthly basis and they represent changes in impairment losses in particular portfolios.

Determining fair valuesThe determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy 3 (h)(v). For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Determining fair value of such instruments is also influenced by assessment of credit risk of the counterparty in accordance with principles and procedures stated in point 5(b) Management of financial risks – credit risk. Further information about the values of financial instruments at fair value, analyzed according to valuation methodology (broken down into individual valuation levels) are included in this note later.

Critical judgements in applying the Bank’s accounting policies

Critical accounting judgements made in applying the Bank’s accounting policies include:

Financial asset and liability classificationThe Bank’s accounting policies provide scope for assets and liabilities to be designated on inception into different accounting categories in certain circumstances:• Inclassifyingfinancialassetsorliabilitiesas‘atfairvaluethroughprofitorloss’,management

determines if the Bank meets the description of trading assets and liabilities set out in accounting policy 3 (j).

• In classifying financial assets as held-to-maturity,management determines if the Bank hasboth the positive intent and ability to hold the assets until their maturity date as required by accounting policy, note 3 (n)(i).

Impairment of investments in equity securitiesInvestments in equity securities are evaluated for impairment on the basis described in accounting policy 3(h)(vi).

For an investment in an equity security, a significant or prolonged decline in its fair value below its cost is considered to be objective evidence of impairment. The Bank regards a decline in fair value inexcessof20percenttobe“significant”andadeclineinamarketpriceonanactivemarketthatpersist for nine months or longer to be prolonged.

Valuation of financial instrumentsThe Bank’s accounting policies and methods for fair value measurements are discussed under note 3(h)(v).The Bank measures fair values using the following hierarchy:• Quotedmarketpriceinanactivemarketforanidenticalinstrument(Level1).• Valuationtechniquesbasedonobservableinputs.Thiscategoryincludesinstrumentsvalued

using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data (Level 2).

• Valuation techniques using significant unobservable inputs. This category includes allinstruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments (Level 3).

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Bank determines fair values using valuation techniques.Transfers of financial instruments between particular levels can occur only if market activity changed.

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The following table shows a reconciliation of the opening balance to the closing balance of fair values in the category (Level 3): Valuation techniques – unobservable inputs:

Investment securities2015

€ ‘0002014

€ ‘000

At 1 January 126,232 317,381

Total gains or losses:

in profit or loss (31) 7,180 8,971

in other comprehensive income 2,226 3,369

Maturities and sales (97,385) (218,988)

Purchases 15,000 95,511

Transfers into the category – 5,201

Transfers out of the category – (85,213)

Other 4,228 –

At 31 December 57,481 126,232

Financial instrument type

Valuation technique

Fair value as at 31 December

2015

Significant unobservable

input

Range employed

Sensitivity to reported fair value

Debt financial instruments

Discounted cash flow

51,125 (2014: 118,799)

Credit premium2.00 %

(2014: 2.00 %)

Credit premium increase will cause

decrease of fair value and vice versa.

Equity instrumentsComparative

method6,356

(2014: 7,433)Sales multiple

10.00 %(2014: 10 %)

Sales multiple increase will cause

increase of fair value and vice versa.

The following table shows information regarding the investment movements between all categories of valuation methods during 2015:

Level 1 Quoted market prices in

active markets€ ‘000

Level 2Valuation techniques:

observable inputs€ ‘000

Level 3Valuation techniques:

unobservable inputs€ ‘000

Trading assets

Transfers into the category – – –

Transfers from the category – – –

Investment securities

Transfers into the category 50,302 – –

Transfers from the category – (50,302) –

Total 50,302 (50,302) –

31 december 2014

Note Level 1

Quoted market prices in active

markets€ ‘000

Level 2Valuation

techniques: observable

inputs€ ‘000

Level 3Valuation

techniques: unobservable

inputs€ ‘000

Total€ ‘000

Assets

Trading assets 7 1,111 489 – 1,600

Investment securitiesAvailable-for-sale

10 686,792 – 126,233 813,025

687,903 489 126,233 814,625

Liabilities

Trading liabilities 7 – 38 – 38

31 December 2015

Note Level 1

Quoted market prices in active

markets€ ‘000

Level 2Valuation

techniques: observable

inputs€ ‘000

Level 3Valuation

techniques: unobservable

inputs€ ‘000

Total€ ‘000

Assets

Trading assets 7 1,556 550 – 2,106

hedging derivatives 7 – 1,242 – 1,242

Investment securitiesAvailable-for-sale

10 770,190 23,558 57,481 851,229

771,746 25,350 57,481 854,577

Liabilities

Trading liabilities 7 – 84 – 84

hedging derivatives 7 – 312 – 312

– 396 – 396

The reported amounts of financial instruments at fair value analysed according to valuation methodology were as follows:

In regards to the fair value assessment of equity financial instruments the Bank has simulated changes of income multiplicator by +/- 10 % against their expected value. As at 31 December 2015, the change of these parameters would have an unfavourable effect on recognised fair value amounting to € 225 thousand. In the case of an opposite movement, the favourable effect would be € 225 thousand.

In regards to the fair value assessment of debt financial instruments, the Bank has simulated changes of credit risk premiums by +/- 200 bp against their current value. As at 31 December 2015, the change of these parameters would have an unfavourable effect on recognised fair value amounting to € 3,598 thousand. In the case of an opposite movement, the favourable effect would be € 3,982 thousand.

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5. Financial risk management

(a) Introduction

The Bank has exposure to the following main risks:• creditrisk• liquidityrisk• marketrisk• operationalrisk

Information on the exposure to each of the above risks; the objectives, policies and processes for measuring and managing risk; and on the management of the Bank’s capital is set out below.

Risk management framework

The ultimate body responsible for risk management in the Bank is the Board of Directors. The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. Some responsibilities are delegated to special advisory bodies – Assets - Liabilites Committee (ALCO), Credit Committee, Investment Committee, Operational Risk Management Committee (ORCO), Program and Project Committee (PPV), Management of Development requirements and changes APV - BITCO, Product Committee, Compensation Committee (NK), Disposal Committee (VK) and Risk Management Committee.

The Bank’s risk management policies are based on the Risk Management Strategy, which is the primary document for risk management. The Strategy has been approved by the Board of Directors, and is regularly reassessed and updated. The risk management process is a dynamic and constant process of identification, measurement, monitoring, control and reporting of risks within the Bank. The process involves establishing limits and processes to monitor risks and adherence to those limits. Risk management policies and systems are reviewed and amended regularly to reflect changes in legislation, market conditions, products and services offered. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Bank’s Audit Committee rights and responsibilities are assigned to the Supervisory Board, who is responsible for monitoring the effectiveness of the internal control and risk management systems. Its activities cover also a review of the external auditor’s independence and evaluation of the findings from the audit of the financial statements by the external auditor. They monitor bank’s compliance with the financial accounting standards. The Audit Committee is assisted in these functions by Internal Audit.

(b) Credit risk

Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank’s loans and advances to customers, the provisions of guarantees, the issuance of documentary credits, loans and advances to other banks and the purchase of investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of its credit risk exposure (such as individual obligor default risk, management failure, country, sector and concentration risk).

Credit risk management within the Bank is the responsibility of two independent departments within the Risk Management Division (Division of management of retail risk, scoring and collection of retail loans–“ORR”andDivisionofmanagementofcorporatebanking risk–“ORKB”).TheBoardofDirectors has delegated responsibility for the oversight of credit risk to its Credit Committee in compliance with a formal order establishing authorities and responsibilities.

Credit risk management includes:• examinationoftheclients’creditworthiness,• assessing limits for clients, economically connected parties, including monitoring portfolio

concentration,

• assessinglimitsforcounterparties,industries,countries,banks,• mitigationofriskbyvariousformsofcollateral,• continuous monitoring of the loan portfolio development and prompt decision-making to

minimise possible losses.

Several methods of credit risk measurement, monitoring and mitigation are used in the Bank:

In order to mitigate credit risk the Bank assesses the creditworthiness of the client/ deal using a rating tool with parameters specific to each client segment when providing the loan as well as during the life of the credit/ loan trade. The Bank has various rating models depending on the type of business.

When analyzing the client/ deal the Bank uses:• Countryrating• Bankrating• Sectorrating• Clientanddealrating• Projectassessmenttool• Scoringforretailloans

The approval process of active bank transactions includes a review of the individual applicant of the transactions, credit limit of the counterparty and collateral in order to mitigate credit risk. The Bank monitors the development of the portfolio of active bank transactions yearly, or more often if necessary, to ensure that prompt action can be taken to minimize potential risks.

Credit risk limits are generally determined on the basis of economic analysis of the client, sector, region or country. Their design and evaluation is in the responsibility of the Risk Management Division and are approved by the relevant authority. The procedure of determining individual limits is part of the Bank’s internal guidelines.

To mitigate credit risk, the Bank uses the following types of limits:• Financialinvolvementlimitsofclientoreconomicallyconnectedentities(clients)• Countrylimits• Limitsonbanks• Industrylimits

The Bank currently uses three rating systems for the evaluation of clients who prepare financial statements prepared according to Slovak Accounting Standards, Czech Accounting Standards and International Financial Reporting Standards. The rating system evaluates quantitative and qualitative indicators of economic activities (eg. liquidity ratio, profitability, gearing etc.) and compares them to the subjective assessment of the client by the Bank. In addition collateral accepted by the Bank is also reflected in the deal rating. The Bank categorizes clients into rating levels from the best to the worst, the worst level representing the highest probability of default. The Bank has established a process of setting up the ratings and their regular updating and a control process of assigning of the rating and these are defined in the Bank’s internal guidelines. The Bank continuously monitors, assesses and evaluates the compliance with the limits on country maximum exposure, sector group and related parties and translates these into its activities.

For retail loans the Bank uses multiple rating models depending on the segment.

66 67

Loans and advances, excluding debt securities from loans and receivables portfolio, were granted to customers in the following sectors (gross amount):

Loans and advances, excluding debt securities from loans and receivables portfolio, were made to customers in the following countries (gross amount):

Debt securities in the portfolio of loans and receivables by country of issuer (gross):

2015

€ ‘0002014

€ ‘000

Individuals 671,249 663,286

Financial services 515,380 534,140

Other services (accommodation services, real estate investment activities)

407,897 498,477

Manufacturing companies 260,064 110,599

Trading companies 169,828 390,415

Transport and telecommunication 24,910 15,969

Real estate construction 15,587 24,110

Agriculture 962 509

health care and public services 454 586

2,066,331 2,238,091

2015

€ ‘0002014

€ ‘000

Slovak Republic 1,243,190 1,306,579

Other EU countries 823,141 931,512

Out of which: Cyprus 392,356 549,154

Czech Republic 236,799 251,808

Poland 88,433 89,588

Luxembourgh 88,323 –

Netherlands 8,900 11,102

Bulgaria 8,330 9,860

Romania – 20,000

2,066,331 2,238,091

2015

€ ‘0002014

€ ‘000

Slovak Republic 144,179 32,718

Other member countries of EU 85,397 160,737

from which: Cyprus 85,397 85,224

Czech Republic – 75,513

229,576 193,455

2015

€ ‘0002014

€ ‘000

Financial services 85,397 –

Manufacturing companies 64,716 85,660

Other services (accommodation, real estate investment activities)

79,463 –

Trading companies – 107,795

229,576 193,455

Classification of receivables

Individually significant receivables are classified into five categories (standard, standard receivables with a qualification, non-standard, doubtful and loss receivables), which for the purposes of monitoring and reporting, are further classified into the following categories: • non-impaired,• impaired–impairmentnotmorethan20 %, impairment more than 20 %, but not more than 50 %, impairment more than 50 %, but not more than 95 %, impairment more than 95 %, out of which: defaulted.

Receivables that are not individually significant, which are assessed on a portfolio basis, are classified based on the number of overdue days, as follows:Non-impaired – overdue 0 dayImpaired – overdue 1 – 90 daysDefaulted – overdue more than 90 days

The Bank sets the level of significance at € 166 thousand. The loans and advances with a value equal or higher than € 166 thousand are assessed individually.

Loans and receivables to clients – individually assessed – impaired

2015 2014

Brutto€ ‘000

Netto€ ‘000

Brutto€ ‘000

Netto€ ‘000

Impaired receivables:

Impaired not more than 20 % 49,537 49,415 94,291 87,359

Impaired and defaulted:

Impairment more than 20 %, but not more than 50 % 85,681 73,798 124,780 86,139

Impairment more than 50 %, but not more than 95 % – – 32,059 31,597

Impairment more than 95 % 66,347 29,198 46,905 27,513

201,565 152,411 298,035 232,608

The Bank presents a detailed analysis of debt securities from the portfolio of loans and receivables, as well as comparative data for 31 December 2014 in the tables below.

Debt securities in the portfolio of loans and receivables by sector (gross):

68 69

Individually assessed

Loans and advances to customers

Loans and advances to

central banks

Investment debt securities

Bank guarantee and credit lines

2015

€ ‘000

2014

€ ‘000

2015

€ ‘000

2014

€ ‘000

2015

€ ‘000

2014

€ ‘000

2015

€ ‘000

2014

€ ‘000

Not impaired 1,428,107 1,470,731 441,921 158,803 1,116,274 1,251,690 461,402 290,791

Out of whichOverdue, but not impaired

3,146 2,224 – – – – – –

Impaired, out of which 201,565 298,035 – – – – 4,770 879

defaulted 152,028 203,743 – – – – 3,823 477

Out of total amount of individually assessed restructured loans

95,205 164,493 – – – – – –

Book value 1,629,672 1,768,766 441,921 158,803 1,116,274 1,251,690 466,172 291,670

Allowance for impairment

(49,154) (65,427) – – – – – –

Net book value 1,580,518 1,703,339 441,921 158,803 1,116,274 1,251,690 466,172 291,670

Collectively assessed

Book value 666,235 662,780 – – – – 105,696 106,168

Allowance for impairment

(85,175) (71,080) – – – – – –

Net book value 581,060 591,700 – – – – 105,696 106,168

Total net book value

2,161,578 2,295,039 441,921 158,803 1,116,274 1,251,690 571,868 397,838

Individually assessed loans and advances

The Bank uses an internal rating system for providing and monitoring of loans and advance granted to corporate clients. The rating is given based on the assessment of the economical health, prospect and the client market share.

The receivables are reported as not impaired if they do not present any of the following triggers of impairment:a) significant financial difficulty of issuer or debtor,b) breach of contract, e.g. default or delay in repayment of principal or interests,c) lender granting to a borrower a concession due to econimoic or legal reasons that the lender

would not otherwise consider,d) borrower will enter bankruptcy or other financial reorganisation.

Impaired loans and securitiesImpaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s).

Past due but not impaired loansLoans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of accepted collateral or status of repayments of amounts owed to the Bank.

Loans with renegotiated termsLoans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Bank has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring.

The Bank distinguishes between performing and non-performing receivables, where the monitored features are the number of days overdue and the probability of default, without the realization of collateral. To considered receivable as non-performing, it is sufficient to meet at least one of these criteria.

Performing receivables are subsequently divided to performing without relief, performing with relief refinanced and perfroming with relief in the form of conditions modification.

The Bank assesses receivable as performing with relief refinanced when the loan was provided for full or partial repayment of the original loan.

The Bank assessed receivables as performing with relief in the form of conditions modification when there were changes in the contract`s conditions made and the loan is not refinanced. These changes would not be made if the client`s financial position did not deteriorate (while not refinanced receivables).

The loans which do not have any of the characteristics above are assessed by the Bank as performing without relief.

Receivables as at 31 December 2014

Gross receivables€ ‘000

Impairment allowances€ ‘000

Net receivables€ ‘000

Non-performing 299,639 114,970 184,669

Non-performing total 299,639 114,970 184,669

Performing:

Without relief 1,920,427 14,595 1,905,832

With relief refinanced 7,219 127 7,092

With relief in form of conditions modification

204,261 6,815 197,446

Performing total 2,131,907 21,537 2,110,370

Total 2,431,546 136,507 2,295,039

Receivables as at 31 December 2015

Gross receivables€ ‘000

Impairment allowances€ ‘000

Net receivables€ ‘000

Non-performing

Without relief 127,039 78,571 48,468

With relief refinanced 77,871 29,090 48,781

With relief in form of conditions modification

38,508 4,306 34,202

Non-performing total 243,418 111,967 131,451

Performing:

Without relief 1,998,322 19,909 1,978,413

With relief refinanced 47,046 2,368 44,678

With relief in form of conditions modification

7,121 85 7,036

Performing total 2,052,489 22,362 2,030,127

Total 2,295,907 134,329 2,161,578

The gross amounts of individually impaired loans and advances to customers, banks and investment debt securities by risk grade are as follows:

70 71

Allowances for impairmentThe Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loan loss allowances that relate to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.

ProvisionsIn accordance with International Accounting Standard IAS 37 the Bank creates provisions for off balance sheet liabilities (valid credit lines, bank guarantees and letters of credit) if it expects the emergence of potential credit losses. The Bank creates provisions in accordance with materiality levels separately for individual off balance sheet liabilities over € 166 thousand and portfolio off balance sheet liabilities below € 166 thousand. For individually assessed liabilities The Bank sets the percentage of loss to the same level as for undrawn receivables.

Write-off policyThe loan/security balance (and any related allowances for impairment losses) is written off when the Bank discovers that the loans/securities are uncollectible. This decision is reached after considering information such as the occurrence of significant changes in the borrower/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances of standardised loans, the write-off decision is generally based on a number of days past-due specific for a given product.

The exposure according to product types (internal classification) is as follows:

2015 2014

Gross amount€ ‘000

Impairmentallowances

€ ‘000

Carrying amount€ ‘000

Gross amount€ ‘000

Impairmentallowances

€ ‘000

Carrying amount€ ‘000

Retail clients:

Better payment (Lepsia splatka) 340,202 32,217 307,985 224,593 22,597 201,996

housing loans 77,155 11,085 66,070 156,151 11,030 145,121

Good loan (Dobra pozicka) 149,432 8,899 140,533 120,561 3,741 116,820

Available loan (Dostupna pozicka) 65,195 28,754 36,441 119,846 30,150 89,696

Overdrafts at personal accounts 24,239 3,855 20,384 25,437 3,148 22,289

Practical mortgage (Prakticka hypoteka)

10,282 139 10,143 15,785 94 15,691

Other 1,260 135 1,125 5,950 274 5,676

667,765 85,084 582,681 668,323 71,034 597,289

Corporate clients:

Large clients 1,317,371 23,166 1,294,205 1,326,092 35,979 1,290,113

Overdrafts 117,189 9,870 107,319 282,298 28,710 253,588

REPO deals – – – 80,943 – 80,943

Foreign currency loans 143,571 8,306 135,265 49,314 1 49,313

Other receivables 151 88 63 260 40 220

Small clients 87 – 87 147 4 143

Sold receivables 49,773 7,815 41,958 24,169 739 23,430

1,628,142 49,245 1,578,897 1,763,223 65,473 1,697,750

Total 2,295,907 134,329 2,161,578 2,431,546 136,507 2,295,039

Collateral

The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property and other registered securities over assets and guarantees. Estimates of fair values are based on the value of collateral assessed at the time before executing the deal and are reassessed in compliance with the internal methodology of the Bank. Generally, collateral is not held on loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity.

The Bank’s assessment of the net realisable value of the collateral is based on independent expert appraisals, which are reviewed by the Bank specialists, or internal evaluations prepared by the Bank. The net realisable value of collateral is derived from this value using a correction coefficient that is the result of the current market situation and reflects the Bank’s ability to realize the collateral in case of involuntary sale for a price that is possibly lower than the market price. The Bank, at least annually, updates the values of the collateral and the correction coefficient.

72 73

An estimate of the fair value of collateral and other security enhancement held to secure financial assets is shown below:

Loans and advances to customers2015

€ ‘0002014

€ ‘000

Against individually not impaired loans

Real estate 216,716 218,592

Movables 28,663 31,765

Debt securities – 6,737

Equity securities 157,235 398,536

Other 168,080 78,364

570,694 733,994

Against individually impaired loans

Real estate 117,659 148,155

Movables 13,852 27,398

Bank guarantees – 318

Other 4,552 9,231

136,063 185,102

Against collectively assessed loans

Real estate 9,136 16,951

Movables – 66

Other 93 139

9,229 17,156

Spolu 715,986 936,252

Recovery of delinquent receivables

Receivables whose repayment is threatened are administrated by the Legal and Compliance Department. The Legal Department takes the necessary steps to obtain the maximum recovery from default receivables including realisation of collateral and acts as the Bank’s representative in creditor committees when the debtor is in bankruptcy.

The Risk Management Division, Department of Retail Loans Collection (DRLC) is responsible for collection of retail loans. In the retail segment, the recovery process for overdue receivables is defined and centrally operated by workflow systems (the workflow system in the Bank’s environment is a recovery managed by the system provided by the company Loxon. The system provides complex evidence of delinquent receivables, it uses segmented strategy of recovery and it also processes numerous task flows, automated collection tasks, etc.), which initiate activities for early recovery by the Risk Management Division and DRLC. The Bank also uses the outsourcing services of collection companies. The Risk Management Division is responsible for defining the procedures for recovery and measurement, as well as the measurement of their effectiveness.

Settlement risk

The Bank’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed.

For certain types of transactions, the Bank mitigates this risk by conducting settlements through a settlement/clearing agent to ensure that a trade is settled only when both parties have fulfilled their contractual obligations.

Settlement limits form part of the credit approval/limit monitoring process. Acceptance of settlement risk on free settlement trades requires transaction-specific or counterparty-specific approval from the Risk Management Department.

Country risk

The Bank monitors country risk in accordance with internal guidelines and in compliance with national legislation. Detailed information on concentration of portfolio of government securities can be found in Note 10 Investment securities.

(c) Liquidity risk

Liquidity risk arises from the financing of the Bank’s activities and the management of its positions. It includes financing the Bank’s assets with instruments of appropriate maturity and the Bank’s ability to dispose of its assets for acceptable prices within acceptable time periods.

The Bank promotes a conservative and prudent approach to liquidity risk management.

The Bank has a system of limits and indicators consisting of the following elements:• Short-termliquiditymanagementisperformedbytheBank’sDealingDepartmentbymonitoring

the liabilities and receivables due, and fulfilling the compulsory minimum reserves.• Long-termliquidityriskmanagementisbasedonamodelofcoredepositsusingtheValueat

Risk method.• Long-term liquiditymanagement is alsoperformedusingGapAnalysis (theclassificationof

assets and liabilities based on their maturity into different maturity ranges) and evaluation of indicators of the net statement of financial position in euro.

Assets obtained by taking possession of collateral

As at 31 December 2014, the Bank did not disclose for assets obtained by taking possession of collateral pledged in favour of the Bank for loans. As at December 2015 the Bank obtained by taking possession into its assets receivables in amount of € 336 thousand. The receivables were valued by an independent external expert.

As noted above, to mitigate credit risk before providing loans to corporate clients, the Bank generally requires collateral. The following collateral types are accepted:• Cash• Stateguarantees• Securities• First-classreceivables• Bankguarantees• Guaranteesissuedbyareputablethirdparty• Realestate• Machineryandequipment

74 75

Management of liquidity risk

The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.

The Bank finances its assets mostly from primary sources. In addition, the Bank has open credit lines from several financial institutions and is also able to finance its assets from interbank deposits. Due to its structure of assets the Bank has at its disposal sufficient amount of bonds that are, if necessary, acceptable for acquiring additional resources through refinancing operations organised by the European Central Bank. The Finance Division’s specialised ALM Department is responsible for liquidity management.

The Treasury Division receives information from other departments regarding the liquidity profile of their financial assets and liabilities and details about other projected cash flows arising from projected future business. The Treasury Division then maintains a portfolio of short-term liquid assets, made up of loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole.

The daily liquidity position is monitored and monthly liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. The Bank also has an emergency plan and crisis communication plan that describes the principles and procedures of management in extraordinary conditions and secures the availability of financial back-up sources. All liquidity policies and procedures are subject to review and approval by ALCO. Reports on the liquidity position of the Bank are produced daily. A summary report, including any exceptions and remedial action taken, is submitted to ALCO at least once a month.

Exposure to liquidity risk

The key measures used by the Bank for managing liquidity risk are: the liquidity ratio of fixed and illiquid assets, the ratio of liquid assets0F, the ratio of primary liquidity, liquidity coverage ratio, modified liquidity gap ratio and net stable funding ratio.

Cash flows expected by the Bank for certain assets and liabilities may differ significantly from their contractual flows. For example, for deposits from clients (current accounts, term deposits without notice period) the Bank expects that they will remain in the Bank over a longer period, or, more precisely, their value will increase over time as a result of receiving new funds. Receivables from clients may be also prematurely repaid or prolonged.

The amounts of undiscounted cash flows in the tablese below are calculated as follows:

Type of financial instrument Method of undiscounted cash flows calculation

Non-derivative assets and liabilities Undiscounted cash flows which include expected interest payments

Derivatives Undiscounted cash flows in contractual value

Details of the Bank’s liquidity ratios at the reporting date and during the reporting period were:

The liquidity ratio of fixed and non-liquid assets is the ratio of the sum of fixed assets and non-liquid assets to net negative cash flows. The value of the ratio cannot fall below 1.

The ratios are defined in the Provision of the National Bank of Slovakia No. 18/2008 on Bank liquidity. The liquidity coverage ratio was implemented through NBS Decree (Narodnej banky Slovenska) No. 11/2014 with effectiveness as of 1 December 2014, therefore there is no comparable data for 2014. As at 31 December 2014, liquidity coverage ratio was 1.76.

31 December 2015 31 December 2014

The liquidity ratio of fixed and illiquid assets

End of the period 0.61 0.58

Average for the period 0.61 0.67

Maximum for the period 0.66 0.75

Minimum for the period 0.56 0.58

Ratio of liquid assets

End of the period 1.88 –

Average for the period 1.70 –

Maximum for the period 2.58 –

Minimum for the period 1.34 –

76 77

2015

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Liabilities

Derivative intruments trading liabilities

cash in – (63,398) – – – – (63,398)

cash out 84 63,495 – – – – 63,495

hedging derivatives

cash in – (181) (1,452) (5,850) (848) – (8,331)

cash out 312 248 774 6,174 1,447 – 8,643

Deposits by banks 3,930 3,930 – – – – 3,930

Customer accounts 3,528,357 2,573,694 469,037 510,060 4,381 – 3,557,172

Other liabilities 30,473 28,640 1,833 – – – 30,473

Subordinated debt 8,013 107 322 1,711 8,321 – 10,461

3,571,169 2,606,535 470,514 512,095 13,301 – 3,602,445

2014

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Assets

Cash and deposits at central banks

361,425 361,426 – – – – 361,426

Trading assets, out of which:

securities 1,111 – – – – 1,111 1,111

derivative instruments

cash in 489 104,000 – – – – 104,000

cash out – 103,479 – – – – 103,479

Loans and advances to customers

2,295,039 357,983 668,741 1,414,356 736,501 – 3,177,581

Investment securities 1,402,969 70,519 78,939 701,095 695,521 151,279 1,697,353

Investments in subsidiaries and jointly controlled entities

42,777 – – – – 42,777 42,777

Deferred tax asset 21,838 – 657 21,818 – – 22,475

Tax receivables 88 88 – – – – 88

Other assets 50,147 50,147 – – – – 50,147

4,175,883 840,684 748,337 2,137,269 1,432,022 195,167 5,353,479

The Bank monitors the remaining periods to maturity on the basis of estimated withdrawals or expected maturity of each item in asset and liabilities.

The liquidity gap up to 3 months comes essentially from Deposits and loans from customers, which are expected to be prolonged as shown by historical evidence.

2015

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Assets

Cash and deposits at central banks

562,245 562,245 – – – – 562,245

Trading assets, out of which:

securities 1,556 9 26 1,643 – – 1,678

derivative instruments

cash in 550 265,738 – – – – 265,738

cash out – (265,265) – – – – (265,265)

hedging derivatives

cash in 1,242 45 3,583 17,483 5,320 – 26,431

cash out – (57) (2,693) (17,920) (4,511) – (25,181)

Loans and advances 2,161,578 266,041 468,252 1,400,458 903,427 – 3,038,178

Investment securities 1,312,327 78,639 126,287 787,570 239,993 196,054 1,428,543

Investments in subsidiaries and jointly controlled entities

39,541 – – – – 39,541 39,541

Deferred tax asset 13,705 – 2,537 11,168 – – 13,705

Tax receivable 3,452 3,452 – – – – 3,452

Other assets 50,870 34,065 16,805 – – – 50,870

4,147,066 944,912 614,797 2,200,402 1,144,229 235,595 5,139,935

The remaining period to maturity of financial assets and liabilities as at 31 December 2015 and 31 December 2014 are set out in the following table, which shows the undiscounted cash flows on the basis of their earliest contractual maturity in liabilities and the latest in assets. The Bank’s expected cash flows may vary from this analysis.

78 79

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Commitments and contingencies

Guarantees to banks 205,503 205,503 – – – – 205,503

Guarantees to customers 59,298 24,145 11,441 13,294 10,418 – 59,298

Confirmed credit lines 307,067 307,067 – – – – 307,067

571,868 536,715 11,441 13,294 10,418 – 571,868

Notional amount of derivatives

Currency swaps 328,760 328,760 – – – – 328,760

hedging derivatives 203,610 – – 79,500 124,110 – 203,610

532,370 328,760 – 79,500 124,110 – 532,370

2014

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Liabilities

Derivative intruments trading liabilities

cash in – 1,700 – – – – 1,700

cash out 38 1,740 – – – – 1,740

Deposits by banks 13,475 13,475 – – – – 13,475

Customer accounts 3,574,641 2,568,756 560,270 467,154 4,115 13,746 3,614,041

Received loans – –

Tax liabilities 15,935 15,935 – – – – 15,935

Other liabilities 24,479 24,479 – – – – 24,479

Subordinated debt 8,013 107 320 1,705 8,746 – 10,878

3,636,505 2,622,712 560,590 468,859 12,861 13,746 3,678,768

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Commitments and contingencies

Guarantees to banks 121,180 121,180 – – – – 121,180

Guarantees to customers 37,748 11,078 8,200 18,415 55 – 37,748

Confirmed credit lines 238,910 238,910 – – – – 238,910

397,838 371,168 8,200 18,415 55 – 397,838

Notional amount of derivatives

Currency swaps 105,229 105,220 – – – – 105,220

105,229 105,220 – – – – 105,220

The Bank monitors the remaining periods to maturity on the basis of estimated withdrawals or expected maturity of each item in asset and liabilities.

The liquidity gap up to 3 months comes essentially from Deposits and loans from customers, which are expected to be prolonged as shown by historical evidence.

The remaining period to contractual maturity of commitments and contingencies items as at 31 December 2015 is set out in the following table, in which are listed undiscounted cash flows in accordance to their earliest contractual maturity:

The remaining period to contractual maturity of commitments and contingencies items as at 31 December 2014 was as follows:

(d) Market risk

Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will affect the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

The Bank separates its exposure to market risk between the trading and non-trading portfolios. Trading portfolios include proprietary position-taking, together with financial assets and liabilities that are managed on a fair value basis.

Overall authority for market risk is vested in the ALCO. Market Risk Management is responsible for the development of detailed risk management policies.

Management of market risks

The principal tool used to measure and control market risk exposure within the Bank’s trading portfolios is Value at Risk (VaR). The VaR of a trading portfolio is the estimated loss that will arise on the portfolio over a specified period of time (holding period) from an adverse market movement with a specified probability (confidence level). The VaR model used by the Bank is based upon a 99 percent confidence for a 1 day holding period. The VaR model used is based mainly on historical simulations. Taking account of market data from the previous years, and observed relationships between different markets and prices, the model generates a wide range of plausible future scenarios for market price movements.

Although VaR is an important tool for measuring market risk, the assumptions on which the model is based do give rise to some limitations, including the following:• Aholdingperiodassumesthatitispossibletohedgeordisposeofpositionswithinthatperiod.

This is considered to be a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period.

• A99%confidenceleveldoesnotreflectlossesthatmayoccurbeyondthislevel.Evenwithinthe model used there is a one percent probability that losses could exceed the VaR.

• VaRiscalculatedonanend-of-daybasisanddoesnotreflectexposuresthatmayariseonpositions during the trading day.

80 81

200 bp parallel increase

€ ‘000

200 bp parallel decrease

€ ‘000

31 December 2015

As at 31 December (21,267) 4,095

Average for the period (49,084) 15,759

Maximum for the period (68,133) 30,833

Minimum for the period (17,967) 3,659

31 December 2014

As at 31 December (64,414) 27,709

Average for the period (55,461) 39,436

Maximum for the period (65,339) 50,020

Minimum for the period (47,391) 27,709

The Bank’s Economic Value represents the difference between the fair value of the interest rate sensitive assets recorded in the bank book and the fair value of interest rate sensitive liabilities recorded in the bank book. Interest rate sensitive assets and liabilities are assets and liabilities for

• Theuseofhistoricaldataasabasisfordeterminingthepossiblerangeoffutureoutcomesmaynot always cover all possible scenarios, especially those of an exceptional nature.

• TheVaRmeasureisdependentupontheBank’spositionandthevolatilityofmarketprices.TheVaR of an unchanged position reduces if the market price volatility declines and vice versa.

Daily reports of utilisation of VaR limits are submitted to Market Risk Management and regular summaries are submitted to ALCO.

A summary of the VaR position of the Bank’s trading portfolio as at 31 December 2015 is as follows:

A summary of the VaR position of the Bank’s trading portfolio as at 31 December 2014 is as follows:

31 December 2014

€ ‘000

Average€ ‘000

Maximum€ ‘000

Minimum€ ‘000

Foreign exchange risk 10 9 19 2

Share price risk – 13 16 –

31 December 2015

€ ‘000

Average€ ‘000

Maximum€ ‘000

Minimum€ ‘000

VaR position 17 57 236 11

From 1 January 2015 the Bank started to use VaR model covering all market risks in the trading book replacing both individual VaR models for foreign exchange and equity risk. As a result of this change, there is no comparable data summarizing VaR for the year 2014.

The limitations of the VaR methodology are recognised by supplementing VaR limits with other position and sensitivity limit structures, including limits to address potential concentration risks within each trading portfolio. In addition, the Bank uses a wide range of stress tests to model the financial impact of a variety of exceptional market scenarios on individual trading portfolios and the Bank’s overall position.

Interest rate risk

The main source of the Bank’s interest rate risk results from revaluation risk, which is due to timing differences in maturity dates (fixed rate positions) and in revaluation (variable rate positions) of banking assets and liabilities and positions in commitments, contingencies and derivative financial instruments.

Other sources of interest rate risk are:• Yieldcurverisk–riskofchangesintheyieldcurveduetothefactthatachangein interest

rates on the financial market will occur in different extents at different periods of time for interest-sensitive financial instruments.

• Different interest base risk – reference rates, towhich active and passive transactions areattached, are different and do not move simultaneously.

• Riskfromprovisioningresultingfromthedecreaseofinterestsensitiveexposurewithincreasingvolume of impairment loss allowances. Reducing exposure affects bank interest sensitivity based on a short or long position.

On the assets side of the statement of financial position, the Bank manages its interest rate risk mainly by providing a majority of loans with variable rates and including in its investment securities portfolio mostly fixed rates instruments. The Bank continuously uses asset-liability management in its interest risk management. When purchasing bonds, the current interest position of the Bank is taken into account, which then serves as a basis for purchase of fixed or variable bonds. The Bank uses interest swaps to hedge interest rates in fixed bonds in Available-for-sale portfolio.

The priorities of the Bank for interest rate risk management of liabilities comprise:• Stabilityofdeposits,especiallyoverlongertimeperiods• Fastandflexiblereactionstosignificantchangesininter-bankinterestratesthroughadjustments

to interest rates on deposit products• Continuously evaluating interest rate levels offered to clients compared to competitors and

actual and expected development of interest rates on the local market• Managingthestructureof liabilities incompliancewiththeexpecteddevelopmentofmoney

market rates in order to optimise interest revenues and minimise interest rate risk.

Management of interest rate risk

Limits, indicators and methods of interest rate risk management are defined in accordance with the principles described in the Market Risk Management Strategy.

The Bank identifies, monitors and reports interest rate risk through the following methods:• Stressandbacktesting,• SensitivityoftheeconomicvalueoftheBank,• Gapanalysis,• VaRanalysis,• BasisPointValueanalysis.

The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The ALCO is the monitoring body for compliance with these limits and is assisted by Risk Management in its day-to-day monitoring activities.

ALCO is responsible for setting interest rates for the Bank’s products.

The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that considered influence on change of economic value of the Bank are calculated monthly and includes a 200 basis point increase or decrease.

Sensitivity of economic value of the Bank due to movement in interest rates:

82 83

200 bp parallel increase

€ ‘000

200 bp parallel decrease€ ‘000

31 December 2015

As at 31 December (43,532) 43,532

Average for the period (52,656) 52,656

Maximum for the period (58,655) 58,655

Minimum for the period (43,532) 43,532

31 December 2014

As at 31 December (53,409) 53,409

Average for the period (43,807) 43,807

Maximum for the period (53,755) 53,755

Minimum for the period (31,678) 31,678

which fair value is variable depending on changes in market interest rates. Particular assets and liabilities are divided into re-pricing gaps based on their contractual re-pricing period, volatility of interest margins (for selected liability products) or roll forward (for assets and liabilities where it is not possible to use statistical models). In case the asset or the liability does not bear interest risk, it is assigned a 1 day maturity.

Change in the Bank’s Economic Value reflects the impact of a parallel interest shock on the value of interest sensitive assets and liabilities of the Bank. The table above shows that an increase in the interest curve decreases the Bank’s value and vice versa. It should be emphasized that this measure highlights the effect of a shift in interest curves on the present structure of assets and liabilities, and excludes assumptions on future changes in the structure of the balance sheet.

Sensitivity of reported equity to interest rate movements:

Sensitivity of reported equity to interest rate movements

Interest rate movements affect reported equity in the following ways:• Profitfortheperiodarisingfromincreasesordecreasesinnetinterestincomeandthefairvalue

changes reported in profit or loss• Revaluation reserves arising from increases or decreases in fair values of available-for-sale

financial instruments reported directly in equity.• Hedging reservesarising from increasesordecreases in fair valuesof hedging instruments

designated in qualifying cash flow hedge relationship.

Share price risk

Share price risk is the risk of movements in the prices of equity instruments held in the Bank’s portfolio and financial derivatives derived from these instruments. The main source of the Bank’s share price risk is speculative positions held in shares and positions held for strategic reasons.

When investing in shares, the Bank:• Followsaninvestmentstrategywhichisupdatedonaregularbasis.• Hasapreferenceforpubliclytradedstocks.• Monitors limits tominimise share price risk (stop loss limits, asset concentration and VaR

indicators).• Performs a risk analysis,which usually includes forecasts of the development of the share

price, various models and scenarios for the development of external and internal factors with an impact on the income statement, asset concentration and the adequacy of own resources.

Limits, indicators and methods of share price risk management are defined in accordance with the principles described in the Market Risk Management Strategy.

The Bank uses the following limits and indicators in the management of share price risk:• Creditrisklimitsrelatingtosharepricerisk(limitsforindustries,countries,banksandindividual

issuers),• Stoplosslimitsforshares,• Portfoliolimits,• LimitsforsharesresultingfromtheRegulation(EU)No575/2013oftheEuropeanParliament

and of the Council and from the Provision of the National bank of Slovakia No 23/2014,• VaRindicator.

The Bank identifies, monitors and reports share price risk using the following methods:• OverviewofthecurrentsharepositionsoftheBank,• EquityVaRcalculation(historicalsimulationmethod),• Stressandbacktesting.

Foreign exchange risk

The main source of foreign exchange risk is the difference between assets and liabilities denominated in different currencies. The main source of foreign exchange risk in the banking book is from loans provided in foreign currency, while the Bank obtains the necessary resources from currency derivatives on the inter-bank market. The Bank aims to hedge these positions in the banking book to the maximum extent possible through hedging instruments (for example, currency derivatives), and thereby to minimise the foreign exchange risk. The Bank reduces its foreign exchange risk through limits on unsecured foreign exchange positions and maintains an acceptable level for its size and business activities. The main currencies in which the Bank holds positions are the Czech crown and US dollar.

Limits, indicators and methods of foreign exchange risk management are defined in accordance with principles described in the Market Risk Management Strategy.

The Bank identifies, monitors and reports the Bank’s foreign exchange risk using the following methods:• ReportonunsecuredforeignexchangepositionoftheBank,• Monitoringthestructureofforeigncurrencyassetsandliabilitiesbyparticularcurrencies,• VaRindicator• Stressandbacktesting.

The Bank performs daily stress testing and back testing of foreign exchange risk in VaR models.

Folllowingly the Bank review the impact of results of stress and back testing.The results of stress testing are taken into consideration when setting procedures and limits for risk exposure.

84 85

The Bank had the following assets and liabilities denominated in foreign currencies at 31 December 2015:

The Bank had the following assets and liabilities denominated in foreign currencies at 31 December 2014:

Czech crown

€ ‘000US dollar

€ ‘000Other€ ‘000

Total€ ‘000

Assets

Cash and deposits at central banks

208,875 3,829 1,444 214,148

Loans and advances 127,803 9,181 2 136,986

Investments 8,037 – – 8,037

Tax receivable 740 – – 740

Deferred tax asset 9 – – 9

Other assets 76 7,043 1 7,120

345,540 20,053 1,447 367,040

Liabilities

Deposits by banks 696 372 2 1 070

Customer accounts 73,753 9,834 1,252 84,839

Other liabilities 197 475 1 673

74,646 10,681 1,255 86,582

Czech crown

€ ‘000US dollar

€ ‘000Other€ ‘000

Total€ ‘000

Assets

Cash and deposits at central banks

130,939 2,232 1,820 134,991

Trading assets 113,943 6 2 113,951

Loans and advances 7,800 7,800

Investment securities 88 – – 88

Deferred tax asset 17 – – 17

Other assets 82 6,239 – 6,321

252,869 8,477 1,822 263,168

Liabilities

Deposits by banks 877 87 5 969

Customer accounts 134,929 6,691 1,725 143,345

Tax liability – – – –

Other liabilities 272 – 1 273

136,078 6,778 1,731 144,587

(e) Operational risk

Operational risk is the risk of loss, including the damage caused by the Bank’s processes, to the Bank by inappropriate or incorrect procedures, human factor failure, failure of used systems and from external factors other than credit, market and liquidity risks. A part of the operational risk is legal risk arising from unenforceable contracted receivables, unsuccessful legal cases or verdicts with negative impact on the Bank. Operational risk arises from all of the Bank’s operations and is faced by all business entities.

From 31 December 2014, the Bank uses a standardized approach for measuring and managing operational risk.

The Bank continuously aims to improve implemented process of operational risk identification, usage of KRI indicators, self-evaluation procedures, planning of unforeseeable events and aims to secure business continuity and manage operational risk of the Bank on a consolidated basis.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management in each division. This responsibility is supported by the development of overall standards for the management of operational risk in the following areas:• requirementsforthereconciliationandmonitoringoftransactions• compliancewithregulatoryandotherlegalrequirements• documentationofcontrolsandprocedures• requirements for the periodic assessment of operational risks faced, and the adequacy of

controls and procedures to address the risks identified• requirementsforthereportingofoperationallossesandproposedremedialaction• developmentofcontingencyplans• trainingandprofessionaldevelopment• ethicalandbusinessstandards• riskmitigation,includinginsurancewherethisiseffective.

Compliance with the Bank’s standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the relevant managers, with summaries submitted to the Supervisory Board (also cover the functions of Audit Committee) and the Board of Directors.

Legal risk

Legal risk forms part of operational risk and is the loss arising from unenforceable contracts, threats of unsuccessful legal cases or verdicts with negative impact on the Bank. In the environment of the Bank, it can be also the risk of sanctions from regulators which may be connected with reputational risk.

Legal risk management is the responsibility of the Legal services department.

Risks related to outsourcing

Outsourcing activities present a separate group of operational risks. Outsourcing involves the long-term performance of activities by a third party, which support the Bank’s activities and are carried out on a contractual basis in order to increase the efficiency of the Bank’s activities.

Risk management relating to outsourcing is part of the overall bank risk management. It is in the responsibility of the Board of Directores and include:• managingstrategyfortherisksassociatedwithoutsourcing,whichisapprovedbytheBoard

of Directors, as well as other particular internal directives relating to outsourcing, security crisis plans for individual outsourced activities, or plans of the Bank when ceasing outsourced activities,

86 87

• Examinationofthequalityofserviceprovidersbeforeandduringtheoutsourcing,• Regular inspections of performance of outsourcing companies by Department of Internal

control and internal audit,• minimalizationoftheriskrelatedtooutsourcingwhenextraordinaryeventsoccur.

(f) Capital management

In implementing current capital requirements, the Bank is required to maintain a prescribed ratio of total capital to total risk-weighted assets and a ratio of TIER1 capital to total risk-weighted assets.

The Bank uses the standardized approach to credit risk, standardized method for credit valuation adjustment, the simplified approach to the trading book risks and standardized approach to operational risk in accordance with The Regulation of the European Parliament and the EU Council no. 575/2013 (Capital Requirement Regulation or CRR).

The Bank’s regulatory capital is analysed into two tiers:• Tier1capital includesordinarysharecapital,sharepremium,reservefundsandotherfunds

created from profit, retained profit from previous years after deduction of losses for the current year, intangible assets and other specified deductible items.

• Tier2capitalincludestheapprovedpartofsubordinateddebtwithoriginalmaturityoverfiveyears

Banking operations are categorised in either a banking book or trading book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and contingent liabilities.

The Bank has complied with all externally imposed capital requirements throughout the year.

The Bank‘s position of own funds as at 31 December 2015 according to the Capital Requirement Regulation is displayed in the following table.

2015

€ ‘0002014

€ ‘000

Regulatory capital

Tier I Capital

Share capital and share premium 367,043 367,043

Reserve funds and other funds created from profit 34,805 30,622

Selected components of accumulated other comprehensive income 15,216 (955)

Profit or loss of previous years 129,492 121,930

Intangible assets (15,195) (13,797)

Additional valuation adjustments (1,519) (914)

Total Tier I Capital 529,842 503,929

Tier II Capital

Subordinated debt 8,000 8,000

Total Tier II Capital 8,000 8,000

Regulatory capital total 537,842 511,929

Capital Resources Requirements2015

€ ‘0002014

€ ‘000

Capital required to cover:

Credit risk 217,452 232,525

Risk on value adjustments to receivables 226 –

Risks from debt financial instruments, capital instruments, foreign exchange and commodities

172 139

Operational risk 30,930 30,596

Total capital requirements 248,780 263,259

Capital ratios

Total capital level as a percentage of total risk weighted assets

17.30 % 15.56 %

Tier 1 capital as a percentage of total risk weighted assets 17.04 % 15.31 %

Tier 1 own capital as a percentage of total risk weighted assets

17.04 % 15.31 %

Requirements on own funds as at 31 December 2015 and 31 December 2014 in accordance with the Capital Requirement Regulation are displayed in the following table.

88 89

6. Cash and balances at the central bank

The account Compulsory minimum reserve contains funds from the payment system as well as funds that the Bank is obliged to maintain in average in order to fulfill requirements of the National Bank of Slovakia. Therefore, the account balance of Compulsory minimum reserve may significantly vary depending on the amount of incoming and outgoing payments. Compulsory minimum reserves are maintained at a level set by requirement of the National Bank of Slovakia. The amount of set reserve depends on the amount of deposits accepted by the Bank and is calculated by multiplying particular items of the basis by the valid rate for calculation of the compulsory minimum reserve. The Bank, during the reporting period, fulfilled the set amount of compulsory minimum reserves, which in December represented € 30,766 thousand.

2015

€ ‘0002014

€ ‘000

Cash in hand 21,854 19,977

Balances at the central banks

Compulsory minimum reserves 234,320 30,157

Term deposits 207,601 128,646

Other deposits 10,606 6,527

Loans and advances to banks with contractual maturity of 3 months or less (note 8)

87,864 176,118

562,245 361,425

Cash and cash equivalents are as follows:

Cash in hand 21,854 19,977

Balances at the central banks

Term deposits 207,601 128,646

Other deposits 10,606 6,527

Loans and advances to banks with contractual maturity of 3 months or less (note 8)

87,864 176,118

327,925 331,268

2015

€ ‘0002014

€ ‘000

Trading assets

Securities (a) 1,556 1,111

Derivative instruments (b) 550 489

2,106 1,600

Hedging derivatives

hedging derivatives (c) 1,242 –

Trading liabilities

Derivative instruments (b) 84 38

Hedging derivatives

hedging derivatives (c) 312 –

2015

€ ‘0002014

€ ‘000

European union bonds – 1,111

Equity securities 1,556 –

1,556 1,111

7. Trading assets and liabilities and hedging derivatives

Reclassification of financial assets

In 2008, following the issuance of Reclassification of Financial Assets, the amendments to IAS 39 and IFRS 7 (stated in note 3(j)), the Bank reclassified certain trading assets to available-for-sale investment securities portfolio.

The Bank identified financial assets eligible under the amendments, for which it had changed its intent so that it no longer held these financial assets for the purpose of selling in the short term. For the trading assets identified for reclassification, the Bank determined that the deterioration of the financial markets during 2008 constituted ‘rare circumstances’ that permitted reclassification out of the trading category.

Under the amendment to IAS 39 reclassification was made with effect from 1 July 2008 at fair value at that date. The fair value is equal to the carrying amounts. In 2015 and 2014, both fair values and carrying amounts are zero.

The outstanding part of the reclassified securities was sold during 2013.

During 2009 to 2014 there were no reclassifications of financial assets. In 2015 a reclassification of financial assets from held-to-maturity portfolio to Available-for-Sale portfolio was done, please see note 10.

(a) Securities

90 91

The tables below set out the amounts actually recognised in profit or loss and equity in 2015 and 2014 in respect of financial assets reclassified out of trading assets in 2008:

Reclassification in 2008

Profit or loss 2009

€ ‘000

Other comprehensive

income 2009€ ‘000

Profit or loss 2008

€ ‘000

Other comprehensive

income 2008€ ‘000

Period before reclassification:

Trading assets reclassified to available for-sale investment securities:

Net trading loss – – (6,686) –

Profit or loss 2015

€ ‘000

Profit or loss 2014

€ ‘000

Trading assets reclassified to available-for-sale securities:

Net change in fair value – (6)

Foreign exchange – –

Net trading loss – (6)

Reclassification in 2008

Other comprehensive

income 2014€ ‘000

Profit or loss 2014

€ ‘000

Other comprehensive

income 2014€ ‘000

Period after reclassification:

Trading assets reclassified to available for-sale investment securities:

Dividend income – – –

Net change in fair value – – (6)

Impairment loss – (5) 5

Sale of security – 1 –

Foreign exchange gain – – –

– (4) (1)

The table below sets out the amounts that would have been recognised during 2015 and 2014 if the reclassifications had not been made.

(b) Derivative instruments

Contract/notionalamount

€ ‘000

2015Fair value

Contract/notionalamount

€ ‘000

2014Fair value

Assets€ ‘000

Liabilities€ ‘000

Assets€ ‘000

Liabilities€ ‘000

Currency derivatives

Currency swaps 328,760 550 84 105,229 489 38

Contract/notionalamount

€ ‘000

2015Fair value

Contract/notionalamount

€ ‘000

2014Fair value

Assets€ ‘000

Liabilities€ ‘000

Assets€ ‘000

Liabilities€ ‘000

Fair value hedge

Interest rate swaps 203,610 1,242 312 – – –

203,610 1,242 312 – – –

c) Hedging derivatives

hedged items are selected fixed-interest bonds from the Available for sale portfolio and hedging instruments are interest rate swaps for which the Bank pays fixed interest rate and receives floating interest rate. As at 31 December 2015, the hedge was effective in hedging the fair value exposure to interest rate movements. Changes in the fair value of these interest rate swaps due to changes in interest rates substantially offset changes in the fair value of the hedged bonds caused by changes in interest rates.

In 2015, the Bank reported a net loss on the hedging instruments in the amount of € 1,130 thousand (2014: € 0) and a net gain on the hedged items relating to hedged risk of € 1,130 thousand (2014: €0).Bothitemsarepresentedontheline“Netprofitfromfinancialoperations”.

During 2015, interest and similar income from hedged securities from the Available for sale portfolio since the origin date of hedging, amounting to € 181 thousand (2014: € 0) were offset by interest expense from interest rate swaps which represent hedging instruments in the amount of € 102 thousand (2014: € 0).

The contracted or nominal amounts and positive and negative fair values of unpaid positions of hedging derivatives as at 31 December 2015 are shown in the following table. The contracted or nominal amounts represent the volume of unpaid transactions at a certain point in time; they do not represent the potential gain or loss associated with the market risk or credit risk of these transactions.

92 93

2015

Possible effect of „master netting agreements“, which do not fulfill requirements for offsetting in balance sheet (€ ‘000)

Fin

ancia

l ass

ets

/gro

ss

Off

set

gro

ss

valu

es

Pre

sente

d

net

valu

es

of

financia

l ass

ets

Fin

ancia

l in

stru

ments

Accepte

d

cash

colla

tera

l

Accepte

d

non-c

ash

fi

nancia

l colla

tera

l

Net

valu

es

aft

er

poss

ible

off

sett

ing

Currency swaps 550 – 550 – 484 – 66

hedging derivatives

1,242 – 1,242 – 1,242 – –

Total 1,792 – 1,792 – 1,726 – 66

2014

Possible effect of „master netting agreements“, which do not fulfill requirements for offsetting in balance sheet (€ ‘000)

Fin

ancia

l ass

ets

/gro

ss

Off

set

gro

ss

valu

es

Pre

sente

d

net

valu

es

of

financia

l ass

ets

Fin

ancia

l in

stru

ments

Accepte

d

cash

colla

tera

l

Accepte

d

non-c

ash

fi

nancia

l colla

tera

l

Net

valu

es

aft

er

poss

ible

off

sett

ing

Currency derivatives

489 – 489 – – – –

Total 489 – 489 – – – –

2015

Possible effect of „master netting agreements“, which do not fulfill requirements for offsetting in balance sheet (€ ‘000)

Fin

an

cia

l ass

ets

/gro

ss

Off

set

gro

ss

valu

es

Pre

sen

ted

n

et

valu

es

of

fin

an

cia

l ass

ets

Fin

an

cia

l in

stru

men

ts

Accep

ted

cash

colla

tera

l

Accep

ted

n

on

-cash

fi

nan

cia

l colla

tera

l

Net

valu

es

aft

er

poss

ible

off

sett

ing

Currency swaps 84 – 84 – 17 – 67

hedging derivatives

312 – 312 – – – –

Total 396 – 396 – 17 – 67

2014

Possible effect of „master netting agreements“, which do not fulfill requirements for offsetting in balance sheet (€ ‘000)

Fin

ancia

l ass

ets

/gro

ss

Off

set

gro

ss

valu

es

Pre

sente

d

net

valu

es

of

financia

l ass

ets

Fin

ancia

l in

stru

ments

Accepte

d

cash

colla

tera

l

Accepte

d

non-c

ash

fi

nancia

l colla

tera

l

Net

valu

es

aft

er

poss

ible

off

sett

ing

Currency derivatives

38 – 38 – – – –

Total 38 – 38 – – – –

Offsetting of financial assets and liabilities

The following table shows the financial assets which could be offset under „master netting agreements“ or similar agreements (legally enforceable):

The following table shows the financial liabilities which could be offset under „master netting agreements“ or similar agreements (legally enforceable):

The following table shows the financial liabilities which could be offset under „master netting agreements“ or similar agreements (legally enforceable):

The following table shows the financial assets which could be offset under „master netting agreements“ or similar agreements (legally enforceable):

8. Loans and advances to banks

2015

€ ‘0002014

€ ‘000

Repayable on demand 84,631 94,747

Other loans and advances to banks by contractual maturity:

- 3 months or less 3,233 81,371

87,864 176,118

Less amounts with original contractual maturity up to 3 months (note 6)

(87,864) (176,118)

Total – –

9. Loans and advances

a) Receivables from customers

2015

€ ‘0002014

€ ‘000

Repayable on demand, up to 3 months 203,639 381,357

Other loans and advances to customers by contractual maturity:

- 1 year or less but over 3 months 67,562 185,605

- 5 years or less but over 1 year 552,866 514,650

- over 5 years 1,242,264 1,156,479

2,066,331 2,238,091

Allowances for impairment (134,329) (136,507)

Debt securities 229,576 193,455

As at 31 December 2,161,578 2,295,039

94 95

2015

€ ‘0002014

€ ‘000

Securities held to maturity (a) 461,098 589,944

Securities available for sale (b) 851,229 813,025

1,312,327 1,402,969

2015

€ ‘0002014

€ ‘000

Slovak government bonds 440,967 489,146

Government bonds of EU member countries 5,141 100,798

Mortgage bonds 14,990 –

461,098 589,944

(a) Securities held to maturity

Securities portfolioValue at initial

recognition€ ‘000

31.12.2014Carrying

value€ ‘000

31.12.2014Market value

€ ‘000

31.12.2014Impairment

loss€ ‘000

Trading securities 1,905 1,111 1,111 n/a

held-to-maturity securities 37,925 49,848 86,091 –

Available for sale securities 87,489 – – –

Total 127,319 50,959 87,202 –

Individual allowances for impairment:2015

€ ‘0002014

€ ‘000

As at 1 January 65,427 29,868

Foreign exchange difference 58 3

Net charge to profit or loss 36,620 54,497

Release of impairment losses on loans written-off (52,951) (18,941)

As at 31 December 49,154 65,427

The movements in impairment losses on loans and advances to customers were as follows:

Collective allowances for impairment:2015

€ ‘0002014

€ ‘000

As at 1 January 71,080 69,737

Movements from changes of FX rates (17) –

Net charge to profit or loss 31,164 25,225

Release of impairment losses on assigned loans (17,052) (23,882)

As at 31 December 85,175 71,080

Impairment allowances total 134,329 136,507

The Bank has assigned receivables to a recovery agency. If the Bank retained substantially the most of the risk and rewards related to ownership of assigned receivables through maintaining the right to participate on the recovery amount after assignment of receivables, the Bank recognize them as assigned receivables up to the amount of ongoing commitment. These receivables, before allowances for impairment, amounted to € 4 thousand (2014: € 1,792 thousand) and impairment losses of € 4 thousand (2014: € 744 thousand) were recognised.

b) Debt securities

2015€ ‘000

2014€ ‘000

Corporate bonds 144,179 85,660

Bills of exchange 85,397 107,795

229,576 193,455

10. Investment securities

As at 31 December 2015, the Bank pledged securities with a carrying value of € 231,105 thousand (2014: € 138,700 thousand) out of which held-to-maturity amounted to € 207,547 thousand (2014: € 138,700 thousand). The Bank did not realize any collateralized transactions with the central bank as at 31 December 2015.

The market price of securities held-to-maturity as at 31 December 2015 amounted to € 517,061 thousand (2014: € 684,892 thousand).

As at 31 December 2015, held-to-maturity investment securities with a carrying value of € 344,707 thousand are expected to be recovered after more than twelve months from the reporting date (2014: € 508,242 thousand).

Greek government bonds

As at 31 December 2015 the bank does not own any Greek government bonds.

The table below summarizes the Bank’s holding of Greek government bonds at the date of initial recognition and as at 31 December 2014 (comparable period):

In 2012, the Greek government performed a restructuring of its debt (Private Sector Involvement or „PSI“) replacing old Greek government bonds issued under Greek legislation by new securities. The replacement was completed on 12 March 2012.

In light of the above, on 12 March 2012 the account of the Group was credited with newly issued Greek and EFSF bonds with a total nominal value of € 246,548 thousand and with so called GDP-linked (derivative instrument that was booked into the trading portfolio at its fair value). The new Greek bonds were booked at their first fair value in the amount of € 127,319 thousand.

96 97

Reclassification of Greek government bonds from held-to-maturity portfolio during 2015

Overview of Greek government bonds after reclassification from held-to-maturity portfolio as at 30 June 2015:

Securities portfolio Carrying

value€ ‘000

Market value€ ‘000

Impairment loss€ ‘000

Trading securities 570 570 –

held-to-maturity securities – – –

Available for sale securities 62,476 62,476 –

Total 63,046 63,046 –

30 June 2015Carrying value

€ ‘000

30 June 2015Fair value

€ ‘000

Reclassified assets from held-to-maturity portfolio to available-for-sale portfolio

50,302 62,476

50,302 62,476

Profit or loss acccount 30 June 2015

€ ‘000

Other comprehensive income 30 June 2015

€ ‘000

Reclassification:

Financial assets reclassified to available-for-sale portfolio:

Revaluation to fair value – 12,174

Securities in the trading portfolio represented the GDP linked (derivative instrument that was booked into the trading portfolio at its fair value). In October 2015 the Bank sold this security.

As at 30 June 2015 the Bank reclassified financial assets, Greek government bonds, from the held-to-maturity portfolio to the available-for-sale portfolio. The reasons for the reclassification were based on a detailed analysis of the extraordinary situation that arose in Greece, characterised by the following:• inability(reluctance)ofGreecetorepayfundstotheIMF,• introductionofcapitalcontrols,• declarationofbankholidaysandrestrictionsofforeigntransactions,• limitationsofcashwithdrawals,• closingdownoftheAthenianstockexchange,• increaseofcreditspreadsonbondsportfolio,• notincreasingtheemergencyliquidassistance(ELA)forGreekbanks,• furtherdecreaseofGreecerating.

All these factors confirmed a significant credit quality deterioration of the issuer of the bonds and substantially increased the probability of default of Greece as a debtor. In accordance with the IAS 39 rules the Bank identified financial assets where the intention changed and which could not be further classified as asset held to maturity. Such financial assets were reclassified to the available-for-sale portfolio and were revalued to fair value.

In accordance with the rules defined in IAS 39 the Bank reached a conclusion that the credit quality of the issuer had been significantly deteriorated, that this happened outside of the Bank’s control and that the Bank could not have reasonably anticipated it and that by reclassification of the Greek government bonds from the held-to-maturity portfolio the tainting rule has not been breached and there was no contamination of the remaining part of the financial assets in the held-to-maturity portfolio.

Reclassification of the Greek government bonds was initially recognized on 30 June 2015 at fair values as at this date. The reclassified financial assets and its carrying and fair values as at the date of reclassification were as follows:

The amounts reported in the statement of profit or loss and other comprehensive income as at 30 June 2015 in relation to the reclassification of financial assets from held-to-maturity portfolio were as follows:

Sale of the reclassified Greek government bonds in 2015

In July 2015 the bank sold all the Greek government bonds which had been reclassified to the available-for-sale portfolio on 30 June 2015. In respect of this sale the bank cumulatively reclassified profit from the sale in amount of € 4,246 thousand before tax from the Revaluation reserve to profit or loss.

Arbitration proceedingsPoštová banka, a.s. entered into international arbitration proceedings (filed motion on 3 May 2013, registered by ICSID on 20 May 2013) against the Greek Republic (ICSID Case No. ARB/13/8) on the basis of an international treaty between the Government of the Czech and Slovak Federal Republic and the Government of the Greek Republic on the Promotion and Reciprocal Protection of Investments from 3 June 1991. International arbitration was conducted at the International Centre for Settlement of Investment Disputes registered in Washington DC, USA. The reason for the litigation brought to international arbitration is the forced exchange of Greek government bonds in March 2012, for which the basis was a change in the Greek national legislation, which unilaterally and retrospectively changed the conditions of government bonds issuance (the CAC clause). On 9 April, the International Centre for Settlement of Investment Disputes (ICSID), set up at the World Bank, decided in the dispute between Poštová banka, a.s., ISTROKAPITAL SE and the Greek Republic. The arbitral tribunal decided that it has no authority to decide on the dispute because, based on the Agreement between the Government of the hellenic Republic and the Government of the Czech and Slovak Federal Republic for the Promotion and Reciprocal Protection (the“Slovakia-GreeceBIT”),Greekbondscannotberegardedasaninvestment.Asaresult,theproceedings were terminated. Poštová banka, a.s. considers this decision to be contrary to the terms of the Slovakia-Greece BIT agreement and prior arbitrary practice, whereby sovereign debt is regarded as an investment. The whole loss of the Bank from the Greek Republic bonds was accounted for in the financial statements for the year ended 31 December 2012 after prior period adjustment.

On 31 July 2015 Poštová banka, a.s. filed a proposal to cancel the decision issued by The International Centre for Settlement of Investment Disputes, established by the World bank from 9 April 2015 under No. ARB/13/8.

98 99

11. Investments in subsidiaries and jointly controlled entities

Investments in subsidiaries and jointly controlled entities at cost:

2015€ ‘000

2014€ ‘000

Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s.

14,500 14,500

PB Finančné služby, a. s. 4,615 4,615

PB IT, a. s. 55 55

PB PARTNER, a. s. 2,803 2,803

POBA Servis, a. s. 55 55

Poisťovňa Poštovej banky, a.s. 9,129 11,411

PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKy, správ. spol., a. s. a dcérske spoločnosti („PPSS“)

9,230 9,230

SPPS, a. s. 140 108

40,527 42,777

Impairment in subsidiary PB Partner, a. s. (986) –

39,541 42,777

The investment in PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKy, správ. spol., a.  s. (‘PPSS’) comprises 100  % share in the shared capital of the company. PPSS is a company incorporated in the Slovak Republic, which is engaged in asset management.

The investment in Poštová poisťovňa, a.s. (previously - Poisťovňa Poštovej banky, a. s., renamed as at 18 May 2015), which the Bank acquired in 2008 with 100 % share in the share capital of the company, provides life and non-life insurance services. Poštová banka, a.s. (seller) and Slovenská pošta, a.s. (buyer) agreed on a transfer of 20% of the ordinary shares of Poisťovňa Poštovej banky, a. s. as at 5 May 2015.

On 17 May 2011, the Bank acquired 100 % share of the share capital of ČSOB d.s.s., (renamed Dôchodková správcovská spoločnosť Poštovej banky, d.s.s, a.  s.). The principal activity of the company is pension fund management.

On 15 June 2011 POBA Servis, a. s. was established and 100 % of the shares are owned by the Bank. The Company provides services relating to real estate management, registry services and supplementary bank services.

In 2009, PPSS established a wholly-owned subsidiary PB Partner a.s., a company incorporated in Slovakia, which is engaged in financial intermediary activities. On 15 July 2010, the Bank purchased 100 % of the share capital of the company PB PARTNER, a. s. from PPSS. The Bank as a 100 % shareholder at 27 May 2014 decided to increase the share capital of the company PB PARTNER, a.s. by € 2,000 thousand. The Bank revalued its share in PB PARTNER and considering the appreciation of the investment and its results it decided on impairment of the share and created allowance for impairment.

On 10 February 2012 Poštová banka, a.s. with a 40 % share of share capital and Slovenská pošta, a.s. with a 60 % share of share capital established a jointly controlled entity SPPS, a.s. The company provides modern payment services. The Bank as at 30 June 2014 decided to increase the share capital of the company SPPS, a.s. by € 54 thousand.

On 17 July 2012, the Bank purchased the remaining 92.16 % share in Auto Leas a.s. and became 100 % shareholder of this company. The principal activity of the company, which was renamed to PB Finančné služby, a.s., is financial and operational leasing.

On 10 December 2013 the Bank founded its subsidiary PB IT, a. s. with 100 % share on its equity. The company was established on 17 January 2014 by registration in the Business Register. PB IT, a.  s. provides mainly services relating to IT maintenance, internal development services and IT project management for Poštová banka, a.s. group.

Equity securities:

Corporate equity securities and mutual funds 191,637 151,161

Other 4,416 123

196,053 151,284

Less allowances for impairment – (5)

196,053 151,279

851,229 813,025

2015€ ‘000

2014€ ‘000

Debt securities:

Slovak government bonds 205,537 272,060

Government bonds of EU member countries 374,956 270,887

Mortgage bonds 23,558 –

Corporate bonds 51,125 118,799

655,176 661,746

b) Securities available for sale

100 101

Software

€ ‘000

Assets not yet in use€ ‘000

Total€ ‘000

Cost

As at 1 January 2015 38,181 2,045 40,226

Additions – 4,998 4,998

Transfers 5,362 (5,362) –

Disposals – – –

As at 31 December 2015 43,543 1,681 45,224

Accumulated amortisation

At 1 January 2015 (26,430) – (26,430)

Amortization (3,599) – (3,599)

Disposals – – –

As at 31 December 2015 (30,029) – (30,029)

Net book value

As at 31 December 2015 13,514 1,681 15,195

Software

€ ‘000

Assets not yet in use€ ‘000

Total€ ‘000

Cost

As at 1 January 2014 30,990 4,761 35,751

Additions – 4,642 4,642

Transfers 7,358 (7,358) –

Disposals (167) – (167)

As at 31 December 2014 38,181 2,045 40,226

Accumulated amortisation

At 1 January 2014 (23,907) – (23,907)

Amortization (2,690) – (2,690)

Disposals 167 – 167

As at 31 December 2014 (26,430) – (26,430)

Net book value

As at 31 December 2014 11,751 2,045 13,796

Land and

buildings€ ‘000

Furniture, fittings andequipment

€ ‘000

Motor vehicles

€ ‘000

Assets not yet in use

€ ‘000

Total€ ‘000

Cost

As at 1 January 2014 18,202 20,348 840 572 39,962

Additions – – – 4,133 4,133

Transfers 177 2,315 – (2,492) –

Disposals (1,122) (1,246) (155) (1,408) (3,931)

As at 31 December 2014 17,257 21,417 685 805 40,164

Accumulated depreciation

As at 1 January 2014 (11,543) (13,895) (654) – (26,092)

Depreciation for the year (569) (2,486) (95) – (3,150)

Disposals 1,031 1,146 140 – 2,317

As at 31 December 2014 (11,081) (15,235) (609) – (26,925)

Net book value

As at 31 December 2014

6,176 6,182 76 805 13,239

The Bank uses fully depreciated tangible assets with acquisition cost of € 10,986 thousand (in 2014: € 13,078 thousand) as at 31 December 2015.

Property and equipment is insured against natural disasters, malicious damage, theft and robbery. Motor vehicles are insured through motor third-party liability and casco insurance.

Property and equipment is insured up to € 11,915 thousand (in 2014: € 14,306 thousand). The Bank’s property is not pledged.

13. Intangible assets

The Bank uses fully depreciated intangible assets with acquisition cost of € 19,221 thousand (in 2014: € 15,453 thousand) as at 31 December 2015.

Land and

buildings€ ‘000

Furniture, fittings andequipment

€ ‘000

Motor vehicles

€ ‘000

Assets not yet in use

€ ‘000

Total€ ‘000

Cost

As at 1 January 2015 17,257 21,417 685 805 40,164

Additions – – – 2,021 2,021

Transfers 120 2,065 9 (2,091) 103

Lost investment – – – (7) (7)

Disposals (5,519) (902) (215) – (6,636)

As at 31 December 2015 11,858 22,580 479 728 35,645

Accumulated depreciation

As at 1 January 2015 (11,081) (15,235) (609) – (26,925)

Depreciation for the year (1,045) (1,897) (55) – (2,997)

Disposals 6,245 237 198 – 6,680

As at 31 December 2015 (5,881) (16,895) (466) – (23,242)

Impairment loss (686) – – – (686)

Net book value

As at 31 December 2015

5,291 5,685 13 728 11,717

12. Property and equipment

102 103

Deferred tax assetAssets/

(liabilities) 2015€ ‘000

Assets/ (liabilities) 2014

€ ‘000

Property and equipment (2) (2)

Bonuses 11 19

As at 31 December 9 17

Movements in deferred tax:2015

€ ‘0002014

€ ‘000

As at 1 January 21,838 21,640

Through profit or loss (note 36) (5 310) 801

Charged to other comprehensive income (note 36) (2 823) (603)

As at 31 December 13,705 21,838

2015€ ‘000

2014€ ‘000

Tax receivable 3,452 88

The deferred tax asset and deferred tax liabilities for the Branch in the Czech Republic (calculated using a corporate income tax rate of 19 %) are as follows:

15. Tax receivable

The part of tax receivable is a tax receivable of the Czech branch in the amount of € 740 thousand.

Items from clearing from post offices comprise deposits and other transactions of the Bank’s customers that have been made in post offices and not received by the Bank at the end of the reporting period. Generally, these items clear within three days.

The movements of allowances for impairment were as follows:

16. Other assets

17. Deposits by banks

2015€ ‘000

2014€ ‘000

Deferred expenses 15,626 17,311

Other debtors 13,671 18,242

Items in the course of clearing from post offices 9,717 14,271

Prepayments 8,130 –

Receivable from transfer of business share 3,345 –

Accrued income 406 139

Inventory 313 281

Other 86 –

51,294 50,244

Allowances for impairment (424) (97)

50,870 50,147

2015€ ‘000

2014€ ‘000

As at 1 January 97 130

Increase/(decrease) 327 (33)

As at 31 December 424 97

2015€ ‘000

2014€ ‘000

Repayable on demand 2,590 13,475

Collateral 1,340 –

As at 31 December 3,930 13,475

14. Deferred tax asset

Recognised deferred tax asset

The deferred tax asset and deferred tax liabilities for the Bank are calculated using a corporate income tax rate of 22% (2014: 22%) and are as follows:

Deferred tax assetAssets/

(liabilities) 2015€ ‘000

Assets/ (liabilities) 2014

€ ‘000

Property and equipment (501) (129)

Bonuses 648 638

Impairment losses on receivables 8,110 11,660

Impairment losses on other receivables 47 –

Impairment losses on investments in subsidiaries 217 –

Discount on assigned receivables 395 390

Discount on rental contracts 50 58

Discount on sale of shares 8 –

Provisions 431 –

Other 1,524 –

Investment securities available for sale (4 460) (1 636)

Tax losses carried forward 7,227 10,841

As at 31 December 13,696 21,821

104 105

22. Subordinated debt

23. Share capital

2015

€ ‘0002014

€ ‘000

As at 1 January 141 20

Creation of social fund 673 405

Usage of social fund (734) (284)

As at 31 December 80 141

2015

€ ‘0002014

€ ‘000

Subordinated debt 8,000 8,000

Accrued interest 13 13

8,013 8,013

2015

€ ‘0002014

€ ‘000

As at 1 January 366,305 306,305

Increase in share capital – 60,000

As at 31 December 366,305 366,305

The Bank entered into a subordinated debt agreement with J&T BANKA, a.s. on 21 September 2011 for € 8,000 thousand. This loan will mature in 2021 and bears interest of 5.34 % p.a. In the event of bankruptcy or liquidation of the Bank, the loan will be subordinated to the claims of all other creditors of the Bank.

24. Share premium

2015

€ ‘0002014

€ ‘000

As at 1 January 738 795

Usage of share premium – (57)

As at 31 December 738 738

20. Tax liabilities

21. Other liabilities

2015

€ ‘0002014

€ ‘000

Income tax payable – 15,935

2015

€ ‘0002014

€ ‘000

Other creditors 22,282 6,918

Liabilities to employees 4,888 4,177

Withholding taxes payable 1,469 1,760

VAT, payroll and other tax liabilities 1,170 1,054

Advances received 221 932

Other 228 45

Accruals 207 9,593

Liabilities to shareholders 8 –

As at 31 December 30,473 24,479

The movements in the social fund account included in Liabilities to employees were as follows:

19. Provisions for off balance sheet liabilities

The movements in provisions were as follows:

2015

€ ‘0002014

€ ‘000

As at 1 January 66 52

Creation of provision 2,038 60

Release of provision (144) (46)

As at 31 December 1,960 66

Provisions were created for off balance sheet financial liabilities.

18. Customer accounts

2015€ ‘000

2014€ ‘000

Repayable on demand 1,518,311 1,315,887

Other deposits with contractual maturity dates or periods of notice, by original contractual maturity:

– up to 3 months 1,031,521 1,021,239

– 3 months to 1 year 359,953 508,201

out of it deposits as bill of exchange – 1,500

– 1 year to 5 years 617,257 727,953

out of it deposit bills of exchange – 30,134

– above 5 years 1,315 1,361

As at 31 December 3,528,357 3,574,641

106 107

2015

€ ‘0002014

€ ‘000

Contingencies:

Guarantees to customers 59,298 37,748

Guarantees to banks 205,503 121,180

Irrevocable letters of credit 16,800 18,900

Other commitments:

Confirmed credit lines 307,067 238,910

Derivative financial instruments (note 7)

Liabilities from trading derivatives 328,760 105,229

Liabilities from hedging derivatives 203,610 –

1,121,038 521,967

The breakdown of contingencies and commitments by country is as follows:

2015 2014

Guarantees to clients

€ ‘000

Irrevocable letters of

credits€ ‘000

Confirmed credit lines

€ ‘000

Guarantees to clients

€ ‘000

Irrevocable letters of

credits€ ‘000

Confirmed credit lines

€ ‘000

Slovak Republic 252,784 16,800 276,885 151,491 18,900 171,749

Czech Republic 7,206 – 30,162 2,749 – 64,404

European Union countries

4811 – 14 4,688 – 2,757

Other European countries

– – 6 – – –

Total 264,801 16,800 307,067 158,928 18,900 238,910

26. Contingencies, commitments and derivative financial instruments

25. Reserves and retained earnings

Reva

luati

on r

ese

rve

€ ‘000

Legal re

serv

e f

und

€ ‘000

Reta

ined e

arn

ings

€ ‘000

Transl

ati

on r

ese

rve

€ ‘000

Tota

l€ ‘000

As at 1 January 2014 3,663 23,805 128,747 (783) 155,432

Transfer to legal reserve fund – 6,817 (6,817) – –

Revaluation gain on securities Available-for-sale

2,138 – – – 2,138

Translation difference from foreign operations – – – (172) (172)

Profit for the year – – 41,830 – 41,830

As at 31 December 2014 5,801 30,622 163,760 (955) 199,228

As at 1 January 2015 5,801 30,622 163,760 (955) 199,228

Transfer to legal reserve fund – 4,183 (4,183) – –

Revaluation gain on securities available for sale

10,009 – – – 10,009

Dividends paid to shareholders – – (30,117) – (30,117)

Translation difference from foreign operations – – – 361 361

Other – – 32 – 32

Profit for the year – – 54,293 – 54,293

As at 31 December 2015 15,810 34,805 183,785 (594) 233,806

a) Legal reserve fundUnder the Slovak Commercial Code, all companies are required to maintain a legal reserve fund to cover future adverse financial conditions. The Bank is obliged to contribute an amount to the fund each year which is not less than 10 % of its annual net profit until the aggregate amount reaches a minimum level equal to 20 % of the issued share capital. The legal reserve fund is not readily distributable to shareholders.

b) Revaluation reserveThe fair value reserve represents the cumulative net change in the fair value of available-for-sale investment securities net of deferred tax.

c) Translation reserve of foreign operationsThe translation reserve comprises all foreign exchange rate differences arising from the translation of the financial statements of foreign operations.

d) Proposed allocation of the 2015 profit Poštová banka, a.s. achieved a profit of € 54,293 thousand for the year ended 31 December 2015. The Board of Directors will propose the distribution of profit for the year ended 31 December 2015 as allocation to Reserve fund of € 5,429 thousands, dividends and allocation to retained earnings. The amounts of dividends and allocation to returned earnings have not yet been set by the Board. The distribution of profit for the year ended 31 December 2015 is subject to the approval of the shareholders at General meeting.

e) Dividends for 2014The General Meeting of shareholders held on 28 April 2015 decided that dividends will be paid to shareholders in amount of € 30,117 thousand.

108 109

28. Interest expense

29. Fee and commission income

2015

€ ‘0002014

€ ‘000

Deposits by banks – (62)

Customer accounts (43,764) (53,847)

Debt securities and Bills of exchange (302) (618)

Subordinated debt (427) (427)

Other (50) (42)

(44 543) (54 996)

2015

€ ‘0002014

€ ‘000

Administration and custody of securities 1,268 1,001

Loans, credit limits, guarantees and letters of credit 5,248 4,840

Clearing operations – banks 2,971 2,082

Payments and accounts management 29,793 30,639

Other 10,128 7,270

49,408 45,832

27. Interest income

2015

€ ‘0002014

€ ‘000

Deposits at the Central bank 69 182

Deposits at banks 9 84

Loans and advances to customers 185,223 198,391

Financial investments held to maturity 20,242 29,265

Financial investments available for sale 11,276 23,369

Trading assets 330 405

Debt securities 12,610 6,051

hedging derivatives – interest risk (102) –

Other 38 38

229,695 257,785

Accrued interest for impaired loans of € 12,403 thousand for the period ended 31 December 2015 (2014: € 9,713 thousand) is also included in the interest income caption.

30. Fee and commission expense

31. Net trading income

2015

€ ‘0002014

€ ‘000

Administration and custody of securities (210) (226)

Other transaction and settlement fees (27,113) (24,575)

Special levy for banking institutions (7,183) (10,299)

Resolution fund (1,573) –

Deposit protection fund (901) (3,393)

(36,980) (38,493)

2015

€ ‘0002014

€ ‘000

Financial assets held for trading (3,082) 141

Financial assets available for sale and profit from sale of business share

11,361 10,417

Foreign currency transactions 4,030 626

Results from hedging interest rates derivatives (1,130) –

Results from hedged items – financial investments available for sale 1,130 –

Other (23) (44)

12,286 11,140

The breakdown of contingencies and commitments by sector is as follows:

2015 2014

Guarantees to clients

€ ‘000

Irrevocable letters of

credits€ ‘000

Confirmed credit lines

€ ‘000

Guarantees to clients

€ ‘000

Irrevocable letters of

credits€ ‘000

Confirmed credit lines

€ ‘000

Central Bank and banks

205,503 – 1,300 121,180 – –

Energy 5,686 – – 1,857 – –

Telecommunications 15,350 – – 17,520 – –

Wholesale 3,017 – 36,798 1,948 – 2,635

Retail – – 9,526 – – 13,140

Manufacturing – – 12,005 898 – 38,440

Construction 11,664 – 6,339 1,536 – 190

Services and good sale

3,394 16,800 49,802 4,176 18,900 66,685

Financial services 20,162 – 57,724 9,787 – 11,584

healthcare 25 – 79 25 – –

Rent – – 27,856 – – 176

households – – 105,638 – – 106,060

Total 264,801 16,800 307,067 158,928 18,900 238,910

110 111

34. Depreciation and amortisation

2015

€ ‘0002014

€ ‘000

Property and equipment (note 12) (2,997) (3,150)

Intangible assets (note 13) (3,599) (2,690)

(6,596) (5,840)

The costs of services provided by the statutory auditor (including VAT) were as follows:

33. Administrative expenses

35. Impairment losses and creation of provisions

2015

€ ‘0002014

€ ‘000

Audit (including regulatory assurance services) (366) (439)

2015

€ ‘0002014

€ ‘000

Wages and salaries (including bonuses) (21,077) (22,615)

Social expenses (7,417) (7,780)

Personnel costs (28,494) (30,395)

Services (18,613) (16,216)

Operating expenses (636) (2,513)

Marketing expenses (4,524) (5,106)

Rent (7,187) (6,296)

Material expenses (1,544) (1,712)

Other administrative expenses (1,454) (4,932)

Other services (2,689) (4,935)

(65,141) (72,106)

Average number of employees for the period 841 857

of which, management 15 28

2015

€ ‘0002014

€ ‘000

Impairment loss on loans and receivables to clients (note 9) (67,784) (79,725)

Impairment loss on financial investments (note 10) – (5)

Impairment loss on share in subsidiaries (note 11) (986) –

Impairment loss on tangible assets (note 12) (686) –

(Creation)/release of provisions for other assets (note 16) (327) 33

Creation of provisions (note 19) (1,894) (14)

(71,677) (79,711)

36. Income tax

2015

€ ‘0002014

€ ‘000

Available-for-sale financial assets before tax 11,702 2,741

hedging derivatives 1,130 –

Income tax (note 14) (2,823) (603)

Net of tax 10,009 2,138

2015

€ ‘0002014

€ ‘000

Current income tax expense

Current year (14,133) (18,297)

Correction of previous period (146) –

Deferred tax (note 14) (5,310) 801

Total income tax expense (19,589) (17,496)

Taxation is charged on the Bank’s taxable profit for the year at a rate of 22 % (2014: 22 %).

Income tax recognised in other comprehensive income:

32. Net other loss

2015

€ ‘0002014

€ ‘000

Net loss from assigned and written-off receivables (1,979) (14,250)

Rental income 52 105

Reimbursements received 28 45

Net (loss)/profit from disposals of property and equipment 67 (119)

Shortages and damages (126) (74)

Other 1,694 4,009

(264) (10,284)

112 113

Reconciliation of the effective tax rate:

Total income tax

2015 2014

Tax base€ ‘000

Tax at 22 %€ ‘000

Tax base€ ‘000

Tax at 22 %€ ‘000

Profit before taxation 73,882 16,254 59,325 13,052

Tax deductible items:

Dividend income (7,694) (1,693) (5,999) (1,320)

Difference between tax and accounting depreciation

– – (175) (39)

Bonuses and provisions (3,249) (715) (3,789) (834)

Other provisions (144) (32) – –

Income from write-off of receivables (1,047) (230) (528) (116)

Release of impairment loss allowances (48,407) (10,650) (10,998) (2,420)

Other (3,502) (770) (2,325) (512)

(64,043) (14,090) (12,816) (2,821)

Tax non-deductible items:

Impairment losses on loans and advances to clients

54,510 11,992 46,419 10,212

Difference between accounting and tax depreciation

219 48 – –

Bonuses and provisions 3,254 716 3,076 677

Other provisions 8,955 1,970 – –

Other 3,891 856 2,792 614

70,829 15,582 52,287 11,503

Income tax expense before utilizing tax losses

– 17,746 – 21,734

Losses carried forward – use – (3,614) – (3,614)

Correction of previous period – (711) – –

Tax payable – 13,421 – 18,120

Witholding tax – – – 177

Tax paid abroad – 711 – –

Correction of previous period – 147 – –

Deferred tax – 5,310 – (801)

Total income tax 19,589 17,496

Effective tax rate 26.51 % 29.49 %

Many parts of Slovak tax legislation remain untested and there is uncertainty about the interpretation that the tax authorities may apply in a number of areas. The effect of this uncertainty cannot be quantified and will only be resolved as legislative precedents are set or when the official interpretations of the authorities are available.

37. Profit before changes in operating assets and liabilities

2015

€ ‘0002014

€ ‘000

Profit after taxation 54,293 41,830

Adjustments for non-cash items:

Depreciation and amortisation 6,596 5,840

Impairment losses on loans and advances to customers 67,784 79,725

Investment revaluation 12,831 2,741

Impairment losses on investment securities – 5

Impairment losses on share in subsidiary 986 –

Impairment losses on tangible assets 686 –

Creation/(release) of provisions to other assets 327 (33)

Profit/(loss) on disposal of property and equipment (67) 119

Creation of provision 1,894 14

Income tax 14,279 18,297

Change in deferred tax 5,310 (801)

Translation difference on foreign operations 361 (172)

165,280 147,565

2015

€ ‘0002014

€ ‘000

Net cash flow from operating activities includes the following cash flows:

Interest received 258,498 250,849

Interest paid (47,645) (66,200)

Dividends received 7,694 5,999

218,547 190,648

38. Lease commitments

2015

€ ‘0002014

€ ‘000

Present value of future lease payments:

up to 1 year 3,769 3,669

up to 5 years 14 103

3,783 3,772

39. Related party transactions

Parties are considered to be related, if one party has the ability to control the other party, or if it has through its financial and operational decisions significant influence over the other party. Related parties include subsidiaries and jointly controlled entity, as well as key management personnel and their close persons.

114 115

2015

€ ‘0002014

€ ‘000

J&T FINANCE GROUP SE.; PBI, a.s. (J&T BANKA a.s. up to 28 December 2015)

Receivable from trading 468 488

Loans and advances to banks 30,141 32,475

Other assets 8 3,070

Liabilities from trading (17) –

Deposits of banks (110) –

Customer accounts (2,018) (10,022)

Subordinated debt (8,013) (8,013)

Interest income – 179

Other income 67 –

Net trading income 3,419 2,454

Loss from financial operations (4,900) (2,055)

Interest expense (427) (427)

Fee and commission expense (7) (16)

2015

€ ‘0002014

€ ‘000

Companies related to J&T FINANCE GROUP SE.; PBI, a.s. (J&T BANKA a.s. up to 28 December 2015)

Investment securities – 27,482

Loans and advances to customers – 52

Loans and advances to banks 32 –

Customer accounts – (24)

Other liabilities (2) –

Net profit from financial operations – 81

Interest income 2,101 2,043

Interest expense – (83)

Operating expense (13) –

Operating income 8 –

b) Companies related to shareholdersThe following persons or companies meet the definition of related parties:(a) Companies that directly or indirectly through one or more intermediaries control or are controlled,

have significant influence or are under joint control of the reporting company;(b) Affiliated company in which the parent company has significant influence and which is not a

subsidiary, nor a joint venture;(c) Individual owning, directly or indirectly, share in the voting right of the Bank that gives them

significant influence over the Bank and any other individual who may be expected to influence, or be influenced by that person in their dealings with the Bank;

(d) Key management personnel, i.e. persons having authority and responsibility for planning, managingand controlling the activities of the Bank, including directors and managing employees of the Bank and persons related to them;

(e) Companies in which a significant share of voting rights is owned, directly or indirectly, by any person described in point (c) or (d) or over which such party may have a significant influence. This includes companies owned by directors or major shareholders of the Bank and companies that have key member of management common with the Bank.

a) Shareholders

c) Subsidiaries and jointly controlled entity

2015

€ ‘0002014

€ ‘000

PRVÁ PENZIJNÁ SPRÁVCOVSKÁ SPOLOČNOSŤ POŠTOVEJ BANKY, správ. spol., a. s.

Other assets 203 133

Customer accounts (6,303) (5,664)

Fees and commissions income 969 1,426

Interest expense (13) (13)

Poisťovňa Poštovej banky, a. s.

Other assets 14 196

Customer accounts (11,121) (9,952)

Fees and commissions income 2,112 2,896

Interest expense (117) (131)

PB PARTNER, a. s.

Other assets 9,051 7,472

Customer accounts (1,200) (1,080)

Other liabilities (23) (823)

Other income 97 78

Fees and commissions expenses (4,490) (5,833)

Dôchodková správcovská spoločnosť Poštovej banky, d.s.s., a. s.

Other assets 6 7

Other expenses – (54)

Fees and commissions income (54) (1)

116 117

Total remuneration and bonuses paid to members of the Supervisory board and Board of directors in 2015 was € 2,028 thousand (2014: € 3,528 thousand).

d) Key management personnel (KMP) and related parties to KMP

e) Others

2015

€ ‘0002014

€ ‘000

Close persons to KMP

Loans and advances to customers – 29

Customer accounts (247) (316)

Income 1 2

Expense (5) (4)

2015

€ ‘0002014

€ ‘000

Investment securities 1,140 13,547

Loans and advances to customers – 77,462

Customer accounts (2,727) (5,407)

Net profit from fianncial operations – 2

Interest income 4,031 9,672

Fees and commisions income 1,861 –

Net loss from financial operations – (151)

Expense (14) (29)

POBA Servis, a. s.

Loans and advances to customers 6,233 4,970

Other receivables 1,327 1,333

Customer accounts (769) (558)

Other liabilities (452) (445)

Interest income 212 189

Other income 28 27

Rental expense (5,375) (4,552)

PB Finančné služby, a. s.

Loans and advances to customers 44,153 28,495

Customer accounts (1,268) (99)

Interest income 1,048 696

Fees and commissions income 96 –

Other expenses (95) (70)

PB IT, a. s.

Other receivables 11 –

Customer accounts (747) (384)

Other liabilities (284) –

Other income 18 16

Other expenses (5,878) (1,958)

NADÁCIA POŠTOVEJ BANKY

Customer accounts (331) (150)

Jointly controlled entity SPPS, a. s.

Other receivables 449 127

Customer accounts (1,249) (782)

Other income 388 536

Fee and commission expense (1,723) (1,251)

40. Custodial services

The Bank administers assets received into its custody from customers totalling € 218,627 thousand (2014: € 135,638 thousand). The assets comprise securities and other valuables.

41. Fair values

Fair 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 measurement date.

2015

€ ‘0002014

€ ‘000

KMP

Loans and advances to customers – 8

Customer accounts (793) (664)

Income 3 13

Expense (2,294) (3,271)

118 119

The following methods and assumptions were used in estimating the fair values of the Bank’s financial assets and liabilities:

Cash and balances at the central banksCash and balances at the central banks represent short-term assets with maturity less than three months. Fair value of cash and balances at the central banks is identical with accounting value.

Trading assets The fair values of trading assets are calculated using quoted market prices or theoretical prices determined by discounting future cash flows by reference to the relevant interest rate for the term of the instrument.

Hedging derivativesFair value of hedging derivatives is determined using quoted market prices or theoretical prices by discounting future cash flows by reference interbank market interest rate for relevant period of instrument validity.

Loans and advancesLoans and advances are stated net of allowances for impairment. For loans and advances to customers with a remaining maturity of less than three months, it is reasonable to use book value as an approximation of fair value. The fair values of other loans and advances to customers are calculated by discounting the future cash flows using current market rates and an estimate of current risk margins.

Investment securitiesThe fair values of held-to-maturity investment securities are calculated using quoted market prices. When quoted prices are not available, securities are valued by discounting future cash flows using the capital asset pricing model.

Investments in subsidiaries and jointly controlled entitiesThe investments in subsidiaries and jointly controlled entities are valued by discounting future cash flows expected to be generated by the subsidiaries.

Other assets (only financial)Other assets include short-term assets with maturity up to three months. The fair value of other assets is the same as its carrying amount.

Trading liabilitiesTrading liabilities are stated using quoted market prices or theoretical prices determined by discounting future cash flows by reference to the relevant interest rate for the term of the instrument.

Deposits by banksThe fair value of current accounts with other banks approximates to book value. For other amounts owed to banks with a remaining maturity of less than three months, it is also reasonable to use book value as an approximation of fair value. The fair values of other deposits by banks are calculated by discounting the future cash flows using current interbank rates.

Customer accountsThe fair values of current accounts and term deposits with a remaining maturity of less than three months approximate their carrying amounts. The fair values of other customer accounts are calculated by discounting the future cash flows using current deposit rates.

Loans receivedFair values of loans are calculated by discounting future cash flows using effective interbank rates. For received loans with a remaining maturity of less than three months, it is reasonable to regard their book value as approximate fair value.

31 December 2014Carrying

value€ ‘000

Level 1€ ‘000

Level 2€ ‘000

Level 3€ ‘000

Fair value€ ‘000

Financial assets

Cash and balances at central banks 361,425 – 361,425 – 361,425

Trading assets 1,600 1,111 489 – 1,600

Loans and advances to customers 2,295,039 – – 2,561,799 2,561,799

Investment securities 1,402,969 686,792 684,892 126,233 1,497,917

From which: Available for sale 813,025 686,792 – 126,233 813,025

From which: Held to maturity 589,944 – 684,892 – 684,892

Investments in subsidiaries nad jointly controlled entity

42,777 – 42,777 – 42,777

Other assets (only financial) 32,513 – 32,513 – 32,513

Financial liabilities

Trading liabilities 38 – 38 – 38

Deposits by banks 13,475 – 13,475 – 13,475

Customer accounts 3,574,641 – 3,591,320 – 3,591,320

Subordinated debt 8,013 – 8,033 – 8,033

Other liabilities (only financial) 11,095 – 11,095 – 11,095

31 December 2015Carrying

value€ ‘000

Level 1€ ‘000

Level 2€ ‘000

Level 3€ ‘000

Fair value€ ‘000

Financial assets

Cash and balances at central banks 562,245 – 562,245 – 562,245

Trading assets 2,106 1,556 550 – 2,106

hedging derivatives 1,242 – 1,242 – 1,242

Loans and advances to customers 2,161,578 – – 2,312,323 2,312,323

Investment securities 1,312,327 770,190 540,619 57,481 1,368,290

From which: Available for sale 851,229 770,190 23,558 57,481 851,229

From which: Held to maturity 461,098 – 517,061 – 517,061

Investments in subsidiaries nad jointly controlled entity

39,541 – 39,541 – 39,541

Other assets (only financial) 26,733 – 26,733 – 26,733

Financial liabilities

Trading liabilities 84 – 84 – 84

hedging derivatives 312 – 312 – 312

Deposits by banks 3,930 – 3,930 – 3,930

Customer accounts 3,528,357 – 3,542,219 – 3,542,219

Subordinated debt 8,013 – 8,840 – 8,840

Other liabilities (only financial) 27,178 – 27,178 – 27,178

The estimated fair values of the Bank’s financial assets and liabilities were as follows:

120 121

Subordinated debtThe fair values of subordinated debt are calculated by discounting the future cash flows using current market rates and an estimate of current risk margins.

Other liabilities (only financial)Other liabilities include short-term liabilities with maturity up to three months. The fair value of other assets is the same as its carrying amount.

42. Information on events occurring between the balance sheet date and the date of preparation of financial statements

No events with a material impact and that would require adjustment or disclosure in the Financial Statements as at 31 December 2015 occured after the date of preparation of the Financial Statements.

BR

AN

Ch

NE

TWO

RK

Dan

ubia

na

124 125

Bánovce nad Bebravou Nám. Ľudovíta Štúra 8/8B, 957 01 Bánovce nad Bebravou

Banská Bystrica Dolná 62, 974 01 Banská Bystrica

Bardejov hviezdoslavova 3, 085 01 Bardejov

Bratislava Čachtická 25, 831 06 Bratislava Gorkého 3, 811 01 Bratislava Karloveská 34, 842 64 Bratislava Ľudovíta Fullu 3, 841 05 Bratislava Nám. SNP 35, 811 01 Bratislava Odborárske nám. 2, 811 07 Bratislava Prievozská 2/B, 821 09 Bratislava Tomášikova 21, 821 01 Bratislava Vlastenecké nám. 4, 851 01 Bratislava Pajštúnska 7 (SKyBOX), 851 02 Bratislava Dvořákovo nábrežie 4, 811 02 Bratislava*

Brezno Nám. M. R. Štefánika 7, 977 01 Brezno

Dubnica nad Váhom Nám. Matice slovenskej 12/1298, 018 41 Dubnica nad Váhom

Dunajská Streda Bacsákova ul. 1, 929 01 Dunajská Streda

Humenné Nám. slobody 3, 066 01 humenné

Komárno Mederčská 4987/4, 945 01 Komárno

Košice Škultétyho 1, 040 01 Košice Toryská 3, 040 11 Košice

Levice P. O. hviezdoslava 2/A, 934 01 Levice

Lučenec T. G. Masaryka 19, 984 01 Lučenec

Malacky Zámocká 8, 901 01 Malacky

Martin Andreja Kmeťa 5397/23, 036 01 Martin

Michalovce Ul. kpt. Nálepku 26, 071 01 Michalovce

Nitra Štefánikova trieda 65, 949 01 Nitra Sládkovičova 1, 949 01 Nitra

Nové Mesto nad Váhom hviezdoslavova 19, 915 01 Nové Mesto nad Váhom

Nové Zámky Komárňanská 2, 940 02 Nové Zámky

Pezinok Meisslova 1/A, 902 01 Pezinok

Poprad Vajanského 71, 058 01 Poprad

Prešov hlavná 114, 080 01 Prešov

Prievidza Bojnická cesta 15, 971 01 Prievidza

10. Branch network

45 own commercial locations

Rožňava Janka Kráľa 4, 048 01 Rožňava

Skalica Potočná 20, 909 01 Skalica

Spišská Nová Ves Letná 51, 052 01 Spišská Nová Ves

Topoľčany Námestie M. R. Štefánika 21, 955 01 Topoľčany

Trebišov M. R. Štefánika 52, 075 01 Trebišov

Trenčín Nám. sv. Anny 23, 911 01 Trenčín

Trnava hlavná ulica 33, 917 01 Trnava

Vranov nad Topľou Námestie slobody 5, 093 01 Vranov nad Topľou

Zvolen T. G. Masaryka 955/8, 960 01 Zvolen

Žiar nad Hronom Nám. Matice slovenskej 2820/24, 965 01 Žiar nad hronom

Žilina Na priekope 19, 012 03 Žilina

* commercial location dedicated to VIP clients

1 581 points of sale of Slovenská pošta

More than 1 600 commercial locations make us the most accessible Bank in Slovakia.