2013. - Societe Generale Srbija · Goran Pitic, President of the Board of Directors Last year...

ANNUAL REPORT

2013.

CONSOLIDATED

32 SOCIETE GENERALE SRBIJA ANNUAL REPORT 2013

TABLE OF CONTENTS

1. SOCIETE GENERALE GROUP __________________________________________ 4

2. WORD OF MANAGEMENT _____________________________________________ 6

3. SOCIETE GENERALE SRBIJA _________________________________________ 10

4. MACROECONOMIC OVERVIEW FOR 2013 _____________________________ 12

5. RETAIL BANKING____________________________________________________ 16

6. CORPORATE ACTIVITIES _____________________________________________20

7. FINANCIAL MARKETS ACTIVITIES _____________________________________ 24

8. HUMAN RESOURCES ________________________________________________26

9. CORPORATE SOCIAL RESPONSIBILITY ________________________________30

10. RISK MANAGEMENT ________________________________________________34

11. FINANCE __________________________________________________________44

12. LIQUIDITY MANAGEMENT ADEQUACY AND INTEREST RATE RISK ________48

13. EXPECTED FUTURE DEVELOPMENT __________________________________ 52

14. ASSOCIATED COMPANIES __________________________________________54

15. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 DECEMBER 2013 ____________________________________________ 57

16. INDEPENDENT AUDITOR’S REPORT _________________________________165

17. STATEMENT BY THE PERSONS RESPONSIBLE FOR THE PREPARATION OF THE ANNUAL REPORT _________________________________________ 167


Societe Generale Group - 36 years in Serbia

Societe Generale is one of the leading financial services groups in Europe. With its diversified universal banking model, the Group combines financial solidity and a sustainable growth strategy with the ambition of being the relationship-focused bank, a leader in its markets, close to its clients, and recognized for the quality and the commitment of its teams.

1.

Societe Generale is also a major player in the businesses of specialized financial services for the purchase of equipment, in car renting and fleet management.

For Societe Generale, offering banking services and developing strong and long term relationships with its clients and partners is, and will be, the primary focus of its business activities.

Societe Generale was founded on May 4th, 1864 in France by a decree signed by Napoleon III. Initially, the Bank was founded by its shareholders with the aim to improve the economy, initiate growth, stimulate industrial investment and develop communication and social spirit.

For almost 150 years of existence, Societe Generale is playing a vital role in the economy, as one of the leading world financial services groups.

Over

154.000 employees

across 76 countries

serve more than

32 million clients across the globeDuring the crisis whose effects are felt throughout

the world, the Group has shown that the business can continue to transform, adapt and evolve, in order to keep up with the activities of their clients. Societe Generale Group improved its position in the international context, which is very important. The fact that the Group operates in accordance with the regulations of Basel III, places it in a position to look into the future with greater confidence.

Societe General’s teams offer advisory and other service to individual clients, companies and institutions as a part of three main business lines:

� Retail Banking in France,

� International Retail Banking, Financial Services and Insurance,

� Corporate and Investment Banking, Private Banking, Asset Management and Securities Services.


2.

I truly believe that we will achieve valuable results this year, with responsible risk management on one side, and by brave and decisive decisions aimed at realization of ambitious plans on the other hand. I also believe we’ll accomplish that on satisfaction of both – Societe Generale Srbija, as well as of our clients.

Goran Pitic, President of the Board of Directors

Last year Serbia was marked by uncertainty, due to the unclear recovery signals in the eurozone, but also because of the increased risk of doing business on the domestic market. The countries of the European periphery, as well as of the Central Europe, are fighting for the provision of new sources of growth and for the long-term higher employment. New fiscal mechanisms are being considered, new concepts of the functioning of the EU banking and financial system are being elaborated. Unrecovered EU market, which represents more than 50% of export of Serbian companies is of great importance for the foreign capital inflow, is a serious limitation for the Serbian economy recovery. However, limitations are present

on the domestic market as well. The increase in business risk, expressed also in increasing NPL volume, is the fact that was clearly, on the one hand, one of the factors that discouraged new investments, and on the other hand – it brought to the increasing number of requests for rescheduling and restructuring.

The unemployment, especialy among the youth, is the biggest problem the country is facing. The long-term problem is the demographic structure (we are among the oldest nations in Europe), which consequently, raises a serious issue of a pension reform, as well as a health care reform. Public financing has deteriorated in the years of crisis, while the efficient management of the state resources became a serious problem. The current budget deficit financing, as well as serious public debt management, certainly are important issues that consolidate the importance of macroeconomic stability, but also the necessity of structural reforms. The way most public companies operate raises the question of their reform and the importance of good corporate governance. The inefficiency of the administration and the lack of predictability in terms and conditions of doing business became important limitations to investors.

The banking sector was faced with some changes, but I think the sector consolidation is yet to come. In terms of increased risks and costs, banks have adapted to the new conditions in different ways. Their common intention is to reduce the size and change the risk profile of their portfolio. Some of them

couldn’t face adaptation, so their licenses were revoked. Those experiences speak about importance of quality assessment rating, credit risk, and above all the importance of sound corporate governance. Some banks have adapted by reducing their portfolio and / or by cleaning their risk assets. Some have found a modus for increasing of their market activities in such conditions.

Societe Generale Srbija has a reason for satisfaction with its business in 2013, having in mind the complexity of the environment in which it operates, as well as increased level of risk in the business. We achieved good results, increased our market share, in many segments of our commercial activities. We are a Bank with reputation of developed and empowered trust among clients, as well as among other members of the Serbian financial system. We achieved a huge success with KBC Banka clients acquisition, thanks to the extraordinary commitment and professionalism of all Societe Generale Srbija employees. We will continue implementation of plans for further growth, development and strengthening of Societe Generale Srbija position in the banking sector in the upcoming days. We put emphasis on improving efficiency and processes, with the goal to increase clients satisfaction. I consider that the increase of the customer satisfaction is one of our major successes, because it’s the basis for the implementation of ambitious plans for the future.

Word Of Management


Being one of the leaders of the financing of corporate segment in Serbia , SGS has been heavily impacted by this situation that lead not only to the increase of the level of NPL on the corporate segment but as well because we apply strict provisioning rules , to a strong increase of our cost of risk and , as a consequence, to a negative net result.

But this negative result coming from the cost of risk on the large domestic corporate clients should not hide the structural great improvements that our bank has achieved in the recent period of time.

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Frederic Coin, CEO

Word Of Management Following our strategy to rebalance our portfolio and diversify our risks by focusing our growth on individual, small business and mid corporate clients, our teams have made a huge job to improve our processes and our product offer in order to increase our efficiency and the quality of service offered to our clients.

These efforts have translated into the regular growth of our customer base and our market shares both in terms of loans and deposits.

In addition, to accelerate the implementation of our strategy, we took the opportunity to buy KBC Bank’s portfolio of individual, small business and mid corporate clients. This successful transaction, the first of its kind in Serbia, allowed us to acquire more than 30000 clients, 150 M euro loans and over 80 M euro deposits.

Thanks to both our successful organic growth and the acquisition of KBC Bank portfolio, we became the number 3 bank in Serbia both for loans and for deposits in 2013. Our NBI grew by 13.6% and our OPEX, thanks to a strict control of our costs, only by 3.6%, what led to a GOI increase of 30.6%.

In the current economic environment we face in Serbia, these results are really outstanding. I would like to warmly thank all Societe Generale Srbija employees for the quality and the intensity of the work done during the year, their commitment and their team spirit.

Year 2014 will be again a challenging year. But in this year in which we are celebrating a remarkable jubilee (150 years of Societe Generale operations worldwide), the quality and the motivation of Societe Generale Srbija people combined with the improvement of the structural situation of our bank allow me to be optimistic.

Societe Generale Srbija determination to stay committed to the needs of its clients, focusing on their satisfaction by providing them with excellent quality of service and an offer adapted to their needs, remains the same. Not only that we belong to prestigious global banking brand, we are the oldest bank in Serbia with initial foreign capital and with a tradition of doing business in this country of nearly four decades.

Once again – a big thank you to all employees and their continuous reflection of our main Corporative value: Building Team spirit together. I also thank my colleagues in the Executive Board, with whom I bring a number of sometimes serious, but always important decisions almost every day, as well as members of Managing Board, particularly to Goran Pitic, President of Managing Board as his selfless support, knowledge and expertise are invaluable to us.

Year 2013 has been a tough year for the Serbian economy. As a matter of fact, the growth of the Country’s GDP, even if it shown an improvement compared to 2012, was not strong enough to allow the economic actors and specifically the Serbian companies to recover after several years of crisis. On the contrary, 2013 witnessed the default of major players in the market.


Societe Generale Srbija3.

For Societe Generale Srbija, 2013 was a very sucesfull year from a commercial aspect, especially having in mind the difficult macroeconomic environment. Despite the challenging economic conditions, Societe Generale Srbija managed to gain additional market shares and position itself as the 3rd largest bank by both loans and deposits. The bank also became the leader by the number of granted housing loans.

The acquisition of KBC Banka’s client portfolio has significantly contributed to the growth of Societe Generale Srbija. By taking over a part of KBC Banka clients portfolio, Societe Generale Srbija took over nearly 150 milion eur in loans, over 80 million in deposits and more than 30 000 clients. This was a first transaction of this kind in Serbia, marking the beginning of consolidation process among banks in the local banking sector. By taking over the portfolio of KBC Banka clients, Societe

Generale Srbija recorded one of the highest growths in its history in the Retail sector and expanded its branch network to a total of 108 in cities across Serbia.

In 2013 the Bank marked 36 years of presence on the local market. During the 36 years the Bank never closed its doors to its clients, despite all changes in the political and economic environment.

Societe Generale Srbija has been present on the domestic market since 1977, when the Bank opened representative office in Belgrade. In 1991, Societe Generale Yugoslav Bank was established as the first bank in the country with a majority of foreign capital, offering its services to Corporate clients. It became a Universal Bank in 2001 when its started to operate in Retail banking with citizens and opened its first branch office in Kralja Petra Street. In 2006, the bank moved to the new headquarter in Bulevar Zorana Djindjica.

As a bank with a thirty-six-year old tradition in Serbia which shows that it is long-term oriented to the Serbian market, Societe Generale Srbija constantly strives to be a sustainable, long term partner to its clients, continuously meeting their needs in line with trends on the market. Mutual trust, respect for contractual obligations, the willingness for cooperation are some of the elements for the relationship that the bank for decades proclaim with its clients, partners and stakeholders.


Macroeconomic Environment For 2013

4.

Last year, the economy advanced by around 2.4% (official estimate from the Republic of Serbia Statistical Office). Most of the growth in 2013 was related to a rebound in the agricultural sector and strong growth in exports. For 2014, we expect that the economy will grow by approximately 1.7%, with exports once again leading the way and a rebound in FDI if needed economic reforms are implemented. The major threat to growth will be low growth among Serbia’s main trading partners in the EU, especially Italy and Germany, who are major destinations for Serbian exports and from where much of Serbia’s FDI originates from.

Serbia’s high unemployment picture substantially improved in the 2005 to 2008 period, as the unemployment rate fell from 20.8% to 13.6%. However, the onset of the global financial crisis dramatically reversed the trend, so that by H1 2012 the figure reached 25.5%. Since then, the rate has been continuously falling, reaching 20.1% in H2 2013. However, the true number of registered workers dropped from around 1,735M to around 1,703M, a decrease of around 1.8%.

Over the same time period, the number of persons declaring themselves as unemployed fell from approximately 775K to 763K by the end of 2013, a decrease of less than 1%. As this can

not be fully explained by changes in demographics, population movements or retirement, it is safe to assume that a certain number of those workers are working in the grey economy.

A major casualty of the high unemployment rate has been wages and therefore domestic spending. According to statistics published by the National Bank of Serbia, average net wages, calculated in euro at official middle rate, fell from an average of more than EUR 400/month in 2008 to around EUR 390 in 2013.

This is not a very large drop in terms of percentage, which explains that the average citizen has increased his or her overall savings as a result of the anxiety caused because of the economic circumstances. As of December 2013, total household savings increased to EUR 8.4B, up from EUR 4.8B in 2008. Therefore a large potential base exists for future spending and borrowing, which will re-emerge once sustainable economic growth returns.

One of the consequences of low consumer demand has been a general drop in the inflation level. Last year inflation fell from almost 13% in January 2013 to just 2.2% by year’s end. Along with low aggregate demand, the improved agricultural season and a restrictive monetary policy all led to the drop in inflation.

Until 2008, Serbian economy was one of the fastest growing in Europe, with average GDP growth of around 5%. Solid growth was interrupted in 2009 due to the global crisis, when the economy of Serbia contracted by 3.5%. The economy returned to growth in 2010 and 2011, albeit, very slow growth as it averaged 1.3% for the two year period. In 2012, the economy contracted by 1.7% as a result of general low growth in the entire region.


Macroeconomic Environment For 2013

Lower inflationary pressure, along with a stable foreign exchange rate, allowed the NBS to begin to decrease the Key policy rate. The Key policy rate stood at 11.75% in February 2013, where it remained until May, at which time the NBS started to lower it, so that by the end of 2013, it was 9.5%, a decrease of 225 basis points.

Relatively high interest rates, a tool used to cool inflation was looked favorably upon by foreign portfolio investors, who had to purchase dinars in order to purchase Republic of Serbia debt. This lead to a very stable exchange rate in 2013, with the dinar only dropping by less than one-percent over the course of the year.

Even though the NBS does not target the FX rate, it attempts to keep if from moving to dramatically in the short-term so that it does not lead to inflation, hurt exporters and borrowers in foreign currency, as most loans and savings are directly tied to the EURRSD rate.

Serbia’s economy is expected to grow in 2014, pulled forward by continued growth in exports and an increase in foreign direct investments and improved

investor sentiment as a result of the expected convergence with the EU. While in 2013, the largest potential shock included the sovereign debt issue among eurozone member states, in 2014 it could be related to overall global macro economic situation and risk/return perception among investors. The end of quantitative easing in the US will most likely effect Serbia to a certain extent, as it has all emerging markets.

We expect that over the next few years, economic growth should come from the agricultural, energy and construction sectors, especially as the market liberalizes, convergence to EU standards continues and global growth rebounds. These factors should lead to higher volume of Serbian exports and more FDI in Serbia.

Considering all of the above factors, the banking sector is expected to continue to consolidate and grow, albeit at a slow rate. Our conservative estimation is that year-end 2015, total deposits with banks will increase from around EUR 13.7B to more than EUR 14.0B, an increase around 5%, while at the same time, total value of loans disbursed are to rise around 2%, to nearly EUR 16.5B.


Retail Banking5.

The takeover of the KBC Banka portfolio (EUR 150 million in loans, EUR 66 million in retail deposits) marked the activities of the Retail sector in 2013, contributing to the increase of share of retail banking in overall bank’s activities. This transaction has a special significance, as despite the difficult environment, the Bank not only found an opportunity for further development but also initiated the consolidation process of the banking sector. This acquisition of KBC Banka portfolio, as well as strong organic growth during the year, have contributed to expansion of all segments and businesses

within Retail, increasing a total number of clients by nearly 50,000 in 2013.

The focus of the Retail Sector remains on serving the needs of its clients and development of long term relationships with them, along with improvement in operational efficiency in order to continue with progress in customer satisfaction.

Good results have been recorded in Small Business as well, as the takeover of KBC Banka portfolio (4,000 clients) helped this segment to significantly boost its activity.

Due to both KBC client acquisition and organic growth in this segment Societe Generale Srbija recorded a significant increase in the number of clients, annual growth of over 80 %, loans outstanding reached EUR 42 million, doubling in comparison to 2012. Strong growth was recorded in Small Business deposits as well, reaching EUR 29.5 million comparing to EUR 19.2 million in 2012 (+54%).

Societe Generale Srbija network of branches has 41 specialized personal bankers, responsible for Small Business business activities, involved in day to day operations in order to facilitate and speed up daily business within the branch.

Societe Generale Srbija always recognizes the importance of Small Business and entrepreneurs for development of the Serbian economy. During last year, the Bank was one of the three banks that participated in the government’s program

One of the key indicators of the Bank ‘s constant support to its clients is strong growth in gross retail loans of over EUR 155 million in 2013. The total loan portfolio, EUR 584 million implies an increase by 36% in comparison with 2012, reflecting an increase in market share of the Bank in this segment by 9.44%.

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of co-financing the purchase of equipment for small businesses and entrepreneurs, in order to encourage development of this segment. For the first time, Societe Generale Srbija was general sponsor of BLIC Entrepreneur action awarding the best Small Business Company with EUR 20,000.

As part of the KBC Banka portoflio acquisition, Societe Generale Srbija also took over six KBC Banka branches: in Kula, Novi Sad (a branch that became the new Corporate

regional center), Banatski Karlovac, Bujanovac, Lebane and Vlasotince. With the exception of Novi Sad, these are the citites where Societe Generale Srbija has not been present before.

With the opening of one more branch office in Stepa Stepanovic, the Bank’s plan with respect to branch opening in 2013 was fullfilled.

At the end of 2013, Societe Generale Srbija had a wide network of 108 branches across Serbia.

ANNUAL REPORT 2013


Retail Banking

In 2013 as well, Societe Generale Srbija remained comitted to its deposit collections strategy, recording significant deposit growth, both as a result of takoever of deposit portfolio of KBC banka, as well as a result of its organic growth. The increase in in the Bank’s deposits is a result of pursuing moderate interest rate policy on deposits, that contributed to keeping the interest rates on loans on a competitive level.

All of the above has led to an increase in retail deposits by over EUR 100 million to EUR 590 million, which is an increase of more than 21% in comparison to 2012.

During 2013, Societe Generale Srbija also managed to position itself as the leader on the local makret in mortgage loans.

With the acquisition of KBC Banka clients portfolio, Societe Generale Srbija took over more than EUR 67 million of mortgage loans. Housing loan portfolio increased by EUR 96 million in 2013 in comparison with 2012, which represents an increase of 42%. This result, in a year of slow market growth, stagnation in lending activities of banks and low number of transactions on the local

real estate market compared to the previous years, is a great success for Societe Generale in Srbija.

Despite a decreasing trend on the market, Societe Generale Srbija achieved positive results regarding production of cash, consumer and refinancing loans as welll. The total portfolio of these loans increased by 30%, comparing to 2012. Strong commercial activity has helped in mitigating and overcoming deteriorating conditions on the market.

The Bank’s desicion to provide a new model of non-cash

payment with Masterata credit card on the

market, achieved great success. This product allows

payment in installments without interest with the

Bank’s partners, hundreds of stores in Serbia, and with

no fee, aroused great interest.

A special offer for pensioners was launched - Evergreen club with a lot

of benefits, Evergreen cash loans and refinancing loans. Every 5th Masterata credit card user belongs to the retired population.


Corporate Activities6.

objectives in accordance with the Bank’s strategy to not only maintain the level but also increase the deposit volumes in this segment. The acquisition of the KBC Banka’s portfolio resulted in a EUR 20 million transfer of deposits in the Mid Market segment.

During 2013, there was a significant increase in the volume of payments, mainly due to the fact that a number of large clients decided to redirect the daily business through their accounts in Societe Generale Srbija. The increased volume of payment transactions has been affected by the fact that the Bank had increase in the number of clients by 22% in

Big improvement was made in terms of POS activites and in the total number of transactions, reaching 24,6% and 43,8%, respectivelly. This increase impacted the Bank’s market share in terms of volumes by increasing it from 14.0% to 15.6% and in terms of the number of transactions from 12.3% to 15.4%.

Cooperation with large domestic and foreign companies, small and medium enterprises (SME), has been very active during 2013. Societe Generale Srbija strived, as always, to support

them in their business plans and activities. Thanks to the intense commercial activity, the Bank finished 2013 with a market share in that segment at a level of 9.19%, reflecting a growth of 0.19% compared to 9.0% at the end of 2012.

Loans granted through operations of MID Market Department amounted to nearly EUR 240 million by the end of 2013 while continuously maintaining the quality of the portfolio at the highest level, despite the adverse business and unstable economic environment. MID Market Department managed to achieved the planned


Corporate Activities

this segment. This increase in the number of clients, in addition to organic growth is largely a consequence of the take over of the portfolio of medium-sized companies from KBC Banka leading to further diversification of the client’s structure.

Main contributor, besides the organic growth leading towards an increase in number of clients was the acquisition of KBC Banka, also leading to the further diversification of the portfolio.

Regardless the market trend of decreasing interest rates paid for corporate deposits, the bank managed to keep great

deal of domestic and deposits of foreign companies, as well as those in the MID segment. The bank also managed to acquire new clients, as well as to increase deposit portfolio. Societe Generale Srbija increased its market share in deposits to 11,66%, compared to 8,45% in December 2012.

Societe Generale Srbija, besides from its own sources, is currently offering loans from several credit lines in cooperation with international financial institutions. Total sum of these lines is 280 million euros, out of which 93 million remains available to final beneficieries, with 17 million already reserved for various

projects. Funds from these credit lines are intended for different segments of clients: small and medium enterprises, entrepreneures, public sector authorities, agri business companies of all sizes. Loans from these lines have various purposes: energy efficiency and protection of environment, agriculture, economy, health, education, industry, tourism.

Although working in a difficult environment, custody unit started several new business activities. For the first time SGS custody started with Investment fund servicing and daily reporting to Securities commission. Also, cooperation with four new

23ANNUAL REPORT 2013

voluntary pension funds was established. SGS custody successfully finished first settlement of securities trading abroad and started to provide such services.

During the last year, focus of corporate sector was on providing continuous services, following the model of universal bank.


Financial Markets Activities7.

Societe Generale Srbija strongly supported its Corporate clients on local FX market and managed to remain among the top four banks on the local market in terms of total volume of transactions in 2013. According to the official statistics of National Bank of Serbia, Societe Generale Srbija reached market share of 10.09% and was ranked 4th (out of 29 licensed banks) in trading with Corporate clients. Besides providing support to the local Corporate clients, Societe Generale Srbija was an important partner for International Corporate clients and financial institutions. Societe Generale Srbija reached a market share of 23.35%, and was ranked 2nd by transaction volume. Another very important segment is trading with domestic banks where Societe Generale Srbija reached market share of 11.87%, ranked the Bank on the 2nd position.

In trading with domestic Corporate clients Societe Generale Srbija increased market share for 8.6%, and in trading with international corporate clients and financial institutions market share increased by 25.4% compared to 2012. In trading with domestic banks, Societe Generale Srbija increased its market share by 14.2%, compared to 2012. Bearing in mind strong

competition on the local FX market, results achieved in this segment of business activities point to a permanent growth, in comparison to the previous period.

Beginning of 2013, the Key policy rate was increased to 11.50%. Since May 2013, the National Bank of Serbia gradually decreased its benchmark interest rate, up to the level of 9.50% in December.

Bank has been actively involved in the interbank money market, the NBS repo auctions and government securities debt market. The Bank participated in the primary market of government securities in 2013 and purchased bonds denominated in RSD in the amount of 13.5 billion. The market share of the bank in 2013 was 6% with an average maturity of 410 days of placement. On the interbank market, bank deposits have been very active with the actual market share of about 2%

The money market in 2013 was very volatile. Rates have ranged from 7.04% to 12.25%, depending on maturity.

Since 2004, Investment Services Unit functions as a separate organizational unit of the bank, and provides clients with a wide range of services, including:

� Brokerage services, � Corporate agent services, � Services in the privatization process, � Agent and/or underwriter services in the issuance of securities.

In 2013, the government debt securities were in the investors’ focus. Due to the relative stability of the exchange rate and very attractive interest rates, a large number of professional investors were interested in purchasing these securities. In 2013, the Investment Services Unit realized turnover of nearly RSD 16 billion, which according to this statistic, ranks it fourth among investment firms and authorized banks licensed to trade via the Republic of Serbia’s Treasury Departments auction trading platform.

In the past year, turnover on the organized, stock exchange market has increased. Total

turnover by the end of 2013 on the Belgrade Stock Exchange reached RSD 30.2 billion, which represents an increase of more than 20% compared to 2012. However, unlike the turnover figures, the number of transactions continues to be on a downward trend, as in comparison to 2012, the number of transactions realized on the stock exchange fell by nearly 30% last year.

In 2013 Investment Services Unit has participated in the stock exchange trading with nearly 3,600 transactions, and with realized annual turnover of RSD 68.5 million.

For the upcoming period, the main objectives of the Unit will remain to be:

� Providing high quality, fast and reliable services to all its clients,

� Creating new products which would be of interest to domestic and foreign investors,

� Expansion of existing services, � To continue to increase the number of clients served.


Human Resources8.

Societe Generale Srbija, at the end of 2013 had 1397 employees. As 2013 was marked with the acquisition of the KBC Banka clients’ portfolio, the increase in the number of employees was a result of, on one hand, optimization of internal processes, and on the other hand, the expansion of the branch network and the need for new staff. These trends in the bank, in 2013, led to the increase in the number of employees by 3%.

The focus of HR Direction and the management of the Bank in 2013 was in the process of consolidating and optimizing resources. New organizational units have been created within the Direction of Human Resources: HR Business Partner Development Department; HR Operations, Policies and Planning Department as well as Administration and Services Unit. All Societe Generale Srbija have been introduced with the new concept of HR Business partners, explaining that one of the main goals is to move the HR function to the business, for better understanding and development of the organization and the employees. Secondly, the role of the HR Business Partner is to provide support to staff in understanding HR tools and processes, to assist in the adjustment of organizational structure and resources according to the Bank’s strategy, to support management in all aspects of performance, to support and help staff development, and control the employment policy. The key to success of this concept is certainly based on open communication, understanding and cooperation.

For employees of Societe Generale Srbija the project of the acquisition of the KBC Banka portfolio considered adaptation of employees to reach this achievement successfully. Training for employees in branches was organized in order to smooth the transition period for clients of KBC Banka, from KBC into Societe Generale Srbija, in order to transfer all the products with as little client engagement as possible. Special attention was paid to the concept of kiosks, processes and procedures, and commercial

terms. ‘People Management Program’ was implemented through two training programs: “Situational Leadership”and “Employee development, communication and coaching”. The program aimed to improve the management skills, especially in terms of defining the readiness of team members and in terms of developing a culture of open communication between employees and managers. The program was intended for Department Managers.

A new training electronic tool was implemented - Video Training, with which the Bank generated and implemented training programs for the E-banking platform, Compliance, Risk, E-banking, security of the IT systems, AML and new products. In this manner, time and cost, especially for the training of employees in the branch network was optimised.

In addition, in order to facilitate the acquisition of the KBC Banka client portfolio, a new program was implemented “Mobility Premium” that provided the necessary resources, throughout the network. This program enabled employees involved to implement their know how in a different setting and environment while strengthening the cooperation with colleagues from other cities and introduce new colleagues in business acitvities of Societe Generale Srbija.


Elena Dojranska, Executive Resources Director


Internal survey, „Employee Barometer“ was launched on May 15th and lasted until June 7th within the whole Societe Generale Group. More than 130,000 employees worldwide in the Societe Generale Group were involved. The survey, was translated into 28 languages and conducted in more than 70 countries. The study’s main purpose and objective was to measure and then further analyse the employee satisfaction, and identify key directions for the development of Societe Generale Group and every individual entities. Societe Generale Srbija took part in the survey, which demonstrated very high level of satisfaction of its employees.

Human Resources

In 2013 the Bank continued to support young professionals - students through participation in activities within the organization-specific development programs, lectures, workshops, job fairs, and realised internships for 93 students. Our most important partners in these activities are the Faculty of Organizational Sciences and the Faculty of Economics, University of Belgrade, and the Faculty of Economics, Finance and Administration - FEFA, as well as student organizations such as AIESEC and Junior Achievement. In mid-March, Societe Generale Srbija was an educational partner in the competition AIESEC Case Challenge 2013, which was held at the Faculty of Economics. Employees from the Direction of Human Resources have worked on the preparation of high-quality case study “Business Development-opening branches,” where the students propose the solution as a way to expand their knowledge and gain new experiences. The team that provided the best solution had the opportunity to receive additional experience through internships in Societe Generale Srbija.

Societe Generale Srbija, in accordance with the standards of the Group, fosters diversity in terms of gender, religion and origin, and is dedicated to its

development and promotion. Great attention is paid to the equal rights of all participants in the labor market, especially people with disabilities.

With the Forum for Youth with Disabilities, the Bank organized the third cycle of its Inclusive Academy, cotinuing to enable individuals with disabilities to improve their knowledge and skills.

The program is intended to improve knowledge and skills of persons with disabilities, and to strengthen their competence in the labor market. The previous two cycles of the program were attended by 30 participants, and 21 participants, after the educational part of the program, had the opportunity to attend professional training in Societe Generale Srbija. The participants, as in the previous cycles, had the opportunity to participate in an overall educational part of the training as well as workshops in various fields (project management, human resources, communications, sales, finance, banking) to acquire theoretical and practical knowledge.

At the end of 2013, the total number of employees in Sogelease Srbija was 26, which is for two employees more than in 2012.


Corporate Social Responsibility

9.

Belonging to a global banking network as Societe Generale Group operates in 76 countries, Societe Generale Srbija incorporates high standards in the business strategy toward its stakeholders - employees, and clients, but also to local community and the environment, simultaneously integrating the key principles of social responsibility in its overall operational activities.

Societe Generale Srbija is the founding member of the UN Global Compact in Serbia and the Business Leaders Forum Serbia, two most important

initiatives in the country that gather social responsible companies. Status that both, obliges and motivates, is a confirmation of the fundamental commitment to provide continuous assistance to wider community needs, along with regular business operations of the bank.

Promoting the idea that business does not operate isolated from society, during 2013, Societe Generale Srbija, in addition to its persistent tendency of responsible human resources management, was particularly focused on environmental protection, social inclusion and professional integration, including support to socially vulnerable groups. Volunteering engagement of Societe Generale Srbija employees in many projects undertaken, justified the trust and expectations of those to whom this support was intended and at the same time, strengthen the reputation of the bank in the community.

During previous year, from the Business Leaders Forum Serbia presidential position, Societe Generale Srbija was determined to improve social cohesion by stimulating intersectoral dialogue of business, government and civil society representatives.

CORPORATE VOLUNTEERING - AN INTEGRAL FACTOR OF CSR INITIATIVES

Determined to strengthen awareness of the importance of corporate volunteering, during previous year Societe Generale Srbija, led the majority of its activities thought volunteering programs, while the Volunteer Club of the bank had a key role in that process. This approach allowed employees to actively contribute in solving problems in local community, but also to improve their professional development, simultaneously strengthening team spirit and corporate values that bank promotes.

The success of this approach can be confirmed by the results of the Inclusive

Academy program, that bank is conducting for three years in row. For exceptional results continuously achieved thought this project, that refers to social inclusion and improvement of educational profile of people with disabilities, the Business Leaders Forum Serbia and Smart Kolektiv, with the support of USAID and the Institute for Sustainable Communities awarded Societe Generale Srbija for corporate volunteering in the category of "measuring results", on September 25, 2013.

The award refers to the monitoring methodology used and the effects measurement thought Inclusive academy

program, in terms of increasing employment opportunities of the people with disabilities. The fact that certainly encourage is that under the program, conducted in cooperation with Forum of Youth with disabilities, that includes participation of students in educational trainings and workshops in various domain (project management, human resources, communications, sales, finance, banking), 28 participants completed an internship at Societe Generale Srbija, and most of them succeeded to find employment due to the acquired skills and knowledge.



HIPOTHERAPPY – LONG-TERM PROGRAM FOR CHILDREN (ORPHANS) WITH DISABILITIES

Societe Generale Srbija provide special attention to the youngest, that are particularly sensitive group, as the bank is focused on orphans that are also children with disabilities and special needs. Hyppotherapy, that represents very innovative program, was successfully implemented in 2013, thought the partnership with the humanitarian organization Mali Veliki Ljudi, with whom bank cooperates for five years in row. In the first cycle of the program the participants was children aged from 12 to 16.

This unique and therapeutic horse-riding program, lasted for five months, as weather

conditions allow, and it has various positive aspects on the health of children with disabilities. Due to very positive experience of the bank in the domain of corporate volunteering, the opportunities for this project improvement, in terms of increasing the number of its participants, are significant as Hippotherapy represents a new form of therapeutic treatment in Serbia, compared with regular medical practice. It is also one of very few activities in which persons with disabilities can fully integrate with “healthy" people, what is an important step towards full integration of disabled people into society.

Corporate Social Responsibility

32 SOCIETE GENERALE SRBIJA

FOOD BANK – PROGRAM FOR ALL VUNEARABLE GROUPS

Results achieved during 2013, in cooperation with humanitarian organizations Food Bank, with whom the partnership was established at the level of Societe Generale Group, while in Serbia it lasts for seven years in row, since Food Bank Serbia was founded, represents a remarkable success. In a yearly project, where employees of the entire network are involved in food collecting for citizens in Serbia who need it most, during the previous year, more than 5 tons of various foodstuffs were collected in just four days.

In sustainable development and environmental protection domain significant progress was marked in 2013. Societe Generale Srbija won the award as it is the first company, not only in the banking sector, and not only in Serbia but in the Western Balkan Region, that successfully implemented Building Managerial System (BMS), on the entire Bank network consisted of 107

branches. BMS is a centralized system for the control of all technical systems in distant locations, managed from the Head office of the bank.

In addition to time savings and increased security of operations, one of the major characteristic the BMS system is that in combination with LED lights brought consumption savings of 35 percent.

SUSTAINABLE DEVELOPMENT AND ENVIRONMENTAL PROTECTION


Risk Management10.

Risk management policy

The Bank established risk management system which is constantly being improved in order be able to identify, evaluate, measure, hedge, monitor and communicate risks to which it is exposed in its business operations. Through the risk management system the Bank defines goals and principles of risk management, as well as general policies, methodologies and procedures regarding the risk management.

Basic principles and rules regarding the risk management strategy, as well as the

defining of global principles of the Bank in handling risk in long term are defined by the Risk Management Strategy. It also defines concepts and general terms for risk exposure, identification of risk category and risk apetite. On the other hand, by Risk management policy the Bank defines organization and responsibilities in every phase of the risk taking process, through identification methodology, measurements and analysis of special risk types. Also, the policy defines control and risk exposure limits.

Risk Management Organizational Set Up

The structure of risk management is organized in line with the provisions of the Law on Banks and respective decisions of the National Bank of Serbia which define the area of risk management and capital adequacy, as well as the Bank’s Articles of Association.

The Board of Directors defines Risk Management Policy, Risk management Strategy and Capital Management Strategy. Executive

Board is responsible for carrying out the Risk Management Policy, Risk management Strategy and Capital Management Strategy. Executive Board also adopts procedure for identifying, measuring and evaluating risks. It also analyses the efficiency of their implementation and reports to the Board of Directors. In line with the Law on Banks, the Bank formed a special organizational part for managing risks – Risk Sector.


Risk Management

The main roles in risk management in the Bank fall upon the following bodies:

Board of Directors

The responsibility of the Board of Directors (Hereinafter: BoD) with respect to risk management is to determine the strategy of risk management of the Bank and to supervise risks taken by the Bank in its activities.

The Board of Directors is also in charge of giving prior consent for exposures to a single client or a group of related parties exceeding 10% of the Bank’s capital, including increase of those exposures to over 20% of the capital. These decisions are based on recomendations of the Risk Sector.

The Board of Directors defines limits up to which the Executive Board can approve exposures, as well as conditions under which those exposures are approved.

Finally, the Board of Directors appoints and dismisses the members of the Credit Committee.

Executive Board

The main responsibility of the Executive Board (Hereinafter: EB) is to determine the policy of risk management and follow the implementation of this strategy of risk management. In case some activities or risk management are not in accordance with the defined policy and principles the Executive Board is obligated to notify the Board of Directors.

When it comes to risk management, the Executive Board each quarter follows the segmentation of the portfolio, and in the case of exceeding the approved limit, decide on the position to be taken.

The Executive Committee is also responsible, for the approval of loans to clients within the limits of the appointed Board of Directors. These decisions are made taking into account the proposed recommendations of the Sector risk.

Finally, the Executive Committee shall decide and notify the Board of Directors on exposures to related parties, in accordance with the definition of related parties set by the National Bank of Serbia.

Credit Comittee

The primary obligation of the Credit Committee is to manage the credit policy of the Bank by adopting decisions on loans whose amounts exceed the limits given by the executive directors responsible for different commercial markets. In addition to deciding on the approval of loans to clients, the Credit Committee and Sector Risks also give an opinion on the introduction of new products that generate risk and other common areas that include risk-taking, based on the recommendation of the Risk Sector.

Assets and Liabilities Committee of the Bank

The main function of the Assets and Liabilities Committee of the Bank (Hereinafter: ALCO) is the identification, measurement and managing of risk resulting from the structure of its balance and out of balance items, above all risk liquidity and interest risk.

Risk Sector

The obligation of the Risk Sector (Hereinafter: Risk) is identification, measurement, evaluation and management of risks taken by the Bank in regular business (credit risk including client risk, sector risk, country risk, replacement risk, etc.).

Risk also provides opinion on new products generating risk and other general areas including risk.


Risk Management

Asset and Financial Market Departments – Current Liquidity Management

Liquidity risk is the risk of negative effect occurrence on the financial result of the Bank due to innability of the Bank to settle its current obligations in due manner.

The Department of assets and financial markets responsible for managing of current liquidity secures its function through the following activities:

� planning of inflow and outflow of funds � securing the missing liquidity or placing the surplus of liquidity on financial markets, as well as the maintenance of appropriate currency and time deposit structure for the settlement of due obligations in time;

� analysis of structure and quality of deposits and evaluation of its stability,

� determination, measurement and monitoring of daily liquidity ratio

� securing the monitoring of total level of transactions within determined limits on daily level,

� Internal and external reporting on liquidity movement

Internal audit

Risk management process in the Bank is controlled once per year on behalf of the internal audit, inspecting the adequacy of procedures, and the compliance of the Bank with the adopted procedures. Internal audit discusses the results of its work with the Bank Management, secures that the risks are properly identified and controlled and regularly prepares reports on internal audit activities and submits them to the Boards of Directors and Audit Board.


Risk Management Impairment and provisions policy

The Bank uses the term impaired investments for investments where the objective evidence of impairment has been determined.

Objective evidence of impairment includes the events that condition measurable

impairment of the estimated future cash flows. Objective evidence includes:

� Significant deterioration in financial position of a debtor or a group of debtors,

� Delay in settling commitments,

� Bankruptcy or another form of debtor’s reorganization that jeopardizes timely and complete settlement of commitments and

� Similar events that indicate the occurrence of measurable reduction in the expected future cash flows.

The Bank performs individual assessment of impairment for individually significant exposures or groups of exposures.

The amount of loss shall be determined as a difference between the book value and present value of future cash flows from the client.

The calculated amount of balance sheet assets impairment shall be recorded by the Bank’s accounting as expenses, credited to account of provisions for such assets, while the calculated amount of the probable loss based on off-balance sheet items shall be recorded as expenses, credited to account of provisions for losses per off-balance sheet items.

Collective evaluation of impairment shall be performed for exposures not belonging to the group of individually significant exposures.

For the purpose of collective evaluation, the investments shall be grouped in groups homogenous in terms of credit risk, according to the type of product i.e. the level of sensitivity in accordance with the internal Bank methodology, consistent with the methodology of Societe Generale Group.

Future cash flows for homogenous groups of investments shall be determined based on the available historical data on losses arising from investments with similar characteristics in terms of credit risk. The evaluation process shall include currently available data for the purpose of eliminating the effects that were ongoing in the previous period, and have ceased to be, as well for the purpose of including the effects that are significant nowadays, but had no significance in the previous period.

While evaluating the future cash flows, the flows that shall obliviously occur by realization of collaterals are also taken into account, reduced by the costs of realization.

Credit risk

Credit risk is the risk that the bank will suffer a loss because its clients or the contractual parties will not be able to fully or partially settle their due payment obligations to the Bank in a timely manner, and arises largely from loans and advances to clients and banks and investment securities. For the purpose of reporting on risk management, the Bank considers and consolidates all the elements of credit risk exposure (non-compliance of an individual debtor, activity risk, repayment risk, etc.).

Credit risk management

The Bank manages the credit risk by granting loans in accordance with its business policy having adjusted loan maturity dates and interest rates with the loan purpose, loan type or the client and client’s creditworthiness. Applying the internal procedures, in accordance with its business policy, the Bank seeks to ensure its financial investments with adequate collaterals.

The Executive Board has, by its decision, decentralized powers

and limits for decisions on granting loans, having maintained the risk standards at the adequate level. For the purpose of homogenization of risk evaluation and facilitated and adequate monitoring of obligations, the Bank uses the risk ratings for its clients.

Loans are granted only when the Bank has sufficient information on the creditworthiness of the client. Collaterals will be accepted in terms of reducing the credit risk exposure.


Credit risk management in 2013.

Application of the strict provisioning policy in unfavorable macroeconomic environment and slow economic growth of the country has contributed to increase of net expenditures related to provisions and write-offs during 2013 to 6,048,916 thousands RSD, to the contrast of the level from 2012 (3,452,895 thousands RSD). Conservative credit risk management policy provides firm basis for the further development of the Bank’s business model and making the positive commercial results in the future period. This is additionally strengthened with high capital base with capital adequacy indicator as of end of 2013 of 20.10% which is significantly above minimum capital requirements of 12%.

Detailed overview and analysis of the process of credit risk management is given in the notes to financial statements for 2013.

Sogelease – Risk view

Net cost of risk in 2013 was EUR 2.48 million what was almost 4 times over the initially budgeted amount. Out of this amount, a half is relating to impairment of one big corporate client, whereas the remainng part is resulting from deteriorating macroeconomic environment and a strong decision of Sogelease management to keep very conseravitve risk approach, which was visible also in decision to change the methodology for credit risk provisioning especially relating to proper collateral assessment. Only the said change in methodology results in provisioning increase of some half million Euro. In course of 2013, the Bank recapitalized Sogelease in order to strengthen its capital base up to the level which ensures its further development and growth.

Risk Management


Finance11.

Consolidated Result Analysis

in RSD thousands

2013 2012 var 13/12

Income Statement 10,948,050 9,637,049 13.6%

Net Banking Income 8,301,031 7,127,557 16.5%Interest income 14,633,849 13,376,502 9.4%Interest expence -6,332,818 -6,248,945 1.3%Net fees and commissions 2,056,697 2,133,732 -3.6%Fees and commissions income 3,281,304 3,853,747 -14.9%Fees and commissions expence -1,224,607 -1,720,015 -28.8%Net income from Financial transactions -4,997 286,720Net losses/income from exchange rate differences -880,914 -8,741,573Income from change in value of assets and liabilities 6,863,390 18,187,335Losses from change in value of assets and liabilities -5,987,473 -9,159,042Other operational income 595,319 89,040

Operating Expenses -6,282,120 -6,065,373 3.6%

Salaries, wages and other personnel expenses -2,688,212 -2,588,771 3.8%Depreciation and amortization costs -448,005 -444,531 0.8%Operating and other business expenses -3,145,903 -3,032,071 3.8%

Gross Operating Income 4,665,930 3,571,676 30.6%

Net cost of risk -6,048,916 -3,452,895 75.2%

Operating Income -1,382,986 118,781

Corporate income tax 0 -73,389Gain from created deffered tax assets and decrease in deffered tax liabilities 408,796 43,564

Net result -974,190 88,956

The results in 2013 are marked by a strong growth of net banking income (+13.6% vs. 2012), which has reached 10.95 RSD billion, reflecting mainly good commercial results in retail segmnet, driven by both organic growth and takeover of KBC bank’s portfolio.

Operating expenses at 6.3 RSD billion in 2013 are stable in comparison with 2012, e.g. slightly higher (+3.6%), despite the acquisition of KBC portfolio and continued branch network expansion, reflecting strong cost control.

Gross operating income (operating result before the cost of risk) amounted to 4.7 RSD billion in 2013 and is higher by 30.6% vs. 2012.

The cost of risk was strongly increased to 6.1 RSD billion in 2013 vs. 3.5 RSD billion in 2012, as economic enviroment remained difficult during the year, leading to deterioration of the situation of certain number of clients.

Consolidated net result in 2013 is negative at 0.97 RSD billion, after the bank made significant efforts to further strengthen the balance sheet so as to prepare future developments. Although economic environment is expected to stay difficult in 2014, SGS is committed to serve the needs of its clients and aims to consolidate its position among the top 3 banks in the country.


Finance

BALANCE SHEET

in RSD thousands

2013 2012 var 13/12Cash and cash equivalents 26,431,385 15,710,559 68.2%Revocable deposits and loans 22,873,391 18,892,815 21.1%Receivables in respect of interest, fees, sales, changes in fair value of derivates and other receivables 1,064,994 709,966 50.0%

Gross Loans of clients 160,633,499 155,210,834 3.5%

Stock of provisions (on loans) -14,251,554 -6,438,373 121.4%Other placements 9,197,507 8,905,575 3.3%Securities (excluding own shares) 13,822,015 9,171,206 50.7%Fixed assets and investment property, intangible assets 2,511,167 2,564,302 -2.1%Deferred tax assets 486,447 77,605 526.8%Other assets 2,101,602 1,575,896 33.4%Interests (stakes) in capital of the associated companies by the method of capital 174,592 207,745 -16.0%

TOTAL ASSETS 225,045,045 206,588,130 8.9%

Deposits 120,818,963 112,743,388 7.2%

Loans received 50,899,581 40,673,769 25.1%Liabilities in respect of securities 1,700,004 1,700,022Liabilities in respect of interest, fees and changes in fair value of derivates 96 79 21.5%

Provisions 1,100,068 963,961 14.1%Liabilities for tax 52,520 36,388 44.3%Liabilities from income 0 1,727Other liabilities 17,304,694 16,478,090 5.0%TOTAL EQUITY 33,169,119 33,990,706 -2.4%

TOTAL LIABILITIES 225,045,045 206,588,130 8.9%

Societe Generale Serbia increased its assets by 8.9% to 225.1 RSD billion in 2013 from 206.6 RSD billion at the end of 2012.

Compared to the previous year, gross loans outstanding increased by 3.5% to 160.6 RSD billion, as a result of strong growth in retail, as this segment continued strong organic growth and further developed thanks to KBC loan portfolio take over. On the other hand, difficult enviroment characterized by a lack of demand for loans, has led to a decline in outstanding of corporate loans in 2013.

SGS deposit base was further expanded in 2013 to RSD 120.8 billion (+7.2% vs. 2012), reflecting the confidence of the clients in SGS, part of the SG Group, one of the best rated banks in Top 10 international groups present in the market.

Solid expansion of the SGS balance sheet sum in 2013 has led to further growth of the bank’s market shares and its consolidation among the top 3 banks in the country.


Liquidity Management Adequacy And

Interest Rate Risk12.

Considering the global financial environment, conditions in the local banking sector and financial markets, as well as the Serbian macroeconomic indicators, the Bank's liquidity management performance was at a satisfactory level. Main objectives for 2013 were further diversification of funding structure and optimization of cost of funds.

In terms of organization, Bank's current liquidity was managed by the ALM, Treasury and Funding, through the following activities:

� Planning of inflow and outflow of funds, � Providing missing liquidity or investment excess liquidity in the financial markets, as well as maintaining adequate currency and maturity structure in order to meet all obligations in due time;

� Analyzing the structure and quality of deposits, including stability analyses;

� Establishing, measuring and monitoring daily liquidity ratios;

� Monitoring of the overall level of transactions within the established limits on a daily basis,

� Internal and external reporting.

In order to reduce and/or limit this risk, the Bank seeks to:

� Provide diversified funding sources, � Secure the optimal current daily liquidity

by providing sufficient funds in the amount and currency structure (at any level for each currency) needed for the smooth settlement of all transactions, by taking into consideration an assessment of expected cash flows for the period of up to 30 days;

� The Bank maintains a portfolio consisting of securities which have the highest credit rating (NBS issues or the Republic of Serbia);

� Short-term interbank deposits are invested according to defined limits;

� The Bank has available credit lines that can be used at any time, for the purpose of maintaining liquidity.

� The Bank maintains mandatory dinar and foreign currency reserves, in accordance with the regulations of the National Bank of Serbia.

The level of liquidity is shown by the liquidity ratio, which represents a ratio of the sum of liquid assets of first and second order (cash held in accounts at other banks, deposits with the National Bank of Serbia, claims in

process of realization, irrevocable credit lines granted to the Bank, financial instruments listed on stock exchanges and other receivables that are due within one month) and the sum of liabilities, both a vista deposits in the defined percentage and contractual obligations with maturities within the next 30 days.

Indicator of the liquidity ratio for 2013 was always within the prescribed level, not less than 1 and varied in relation to 2012:

Bank is calculating and following new liquidity ratio prescribed by the Central Bank (narrow liquidity ratio), which was also in accordance with the defined limits.

Long term or structural liquidity is followed by the analyses of balance and off-balance sheet structure, as well as the projection of cash flows and liquidity gaps for the entire balance and off-balance sheet, but also separately for each of the main currencies. Forecasts of liquidity gaps are done on the basis of contractual maturity and amortization plans, but also on the basis of modeling of cash flows for items without the defined maturity or amortization schedule, like current accounts, a vista savings, etc.

During 2013, Liquidity Coverage Ratio (LCR) in accordance with BASEL III was on the regular monthly basis calculated and presented to ALCO committee. Level of LCR ratio increased Y/Y basis (December 2013 / 2012), mainly due to the increase of the stock of high quality liquidie assets (securities portfolio issued by the Ministry of Finance RS and NBS), as well as the increased participation of more stable funding in accordance with BASEL III criteria, like retail deposits and long term lines from International Financial Institutions.

2013 2012

Average for the period 2.03 1.78

Highest 2.48 1.99

Lowest 1.70 1.45


Liquidity Management Adequacy And Interest Rate Risk

During 2013, the Bank worked on diversification of its funding structure in the following manner:

� Through the utilization of existing and contracting new credit arrangements with International Financial Institutions. Remaining 35M EUR of IFC line (total amount 70M EUR) was utilized during 2013. Based on the Loan Agreement with EBRD for 150 M EUR, the Bank has utilized until now the amount of 100M EUR (50M EUR in 2012, 50M EUR in Dec 2013) and net balance at end of 2013 was 92M EUR. The Bank continued to use the Apex loan in 2013, so the balance of these loans at end of 2013 was 28.8M EUR. Credit line from EBRD for Energy Efficiency was entirely utilized at the end of 2013 in the amount of 10M EUR. Agreement signed with EBRD related to CSF Loan in the amount of EUR 10M EUR has been realized in the amount of 6M EUR until end of 2013. Based on the BPA with KBC, during the 2013 Bank took over two EIB loans in total amount of 60M EUR, out of which utilization of 35M EUR is planed for 2014. Frame Loan Agreement for 20M EUR with CEB was signed in Dec 2013 and the funds will be available by June 2015. Also, in 2013 negotiations with KFW were initiated, which led to the finalization of the Agreement for 20M EUR, which is expected to be signed by March 2014, with the possibility of loan utilization during 2014 and 2015. In 2013, Bank achieved net growth in IFIs funding in the amount of 92M EUR, reaching at the end of 2013 total outstanding of 297M EUR, out of which the sum of 18MEUR is utilized by Sogelease, from the line granted to them by EIB.

� Through the collection of retail and corporate deposits. Average interest rate on retail deposits decreased during 2013, which had a positive impact on overall cost of funding of the bank. In the same time, the Bank managed to maintain the stability of its deposit base and to increase the deposit portfolio.

SOCIETE GENERALE SRBIJA

Interest rate risk:

Interest rate risk is defined as exposure of Bank’s financial condition to adverse movements of market rates. In order to manage interest rate risk appropriately, the Bank is:

� Conducting the process of identification, assessment, mitigation and monitoring of interest rate risk on regular monthly basis, separately for all significant currencies the Bank deals with;

� The Bank produces interest rate gap report on monthly basis in order to identify and measure this risk;

� Regularly reports to senior management about interest rate risk exposure;

Interest rate risk is measured and analyzed both from the earnings perspective and economic value perspective (EVE).

Earnings perspective refers to interest rates changes that cause the changes in net interest income of the Bank in up to one year time horizon, while economic value perspective focuses to interest rates changes that cause immediate movement of

present value of Bank’s assets, liabilities and economic value of equity.

The measurement is carried out based on cash flow projections of the banking book balance sheet and certain off-balance sheet positions, in accordance with the interest rate changes. Cash flows for the purposes of assessing interest rate risk are determined based on the earlier of the following two dates:

� The date of the next change of interest rates and

� The maturity date, including the projection based on other assumptions for the conversion of balance and off-balance sheet items without the contractually defined maturity and amortization schedule in cash flows (demand deposits, etc).

Interest rate risk assessment is carried out at least on quarterly basis and for all the relevant currencies. The results of the interest rate risk measurement are reported to the ALCO Committee on a regular basis.


Expected Future Development

13.

The Bank defined its strategic goals in 2014 in the following manner:

� To be the reference bank in the market (Top 3) while implementing a profitable and sustainable business model

� To enhance operational efficiency � To ensure liquidity and preserve solvency ratio (CAR) on long run

� To be ready to grab opportunities for external growth, capitalizing on experience with KBC

These strategic goals were set up considering a macroeconomic scenario which foresees a moderate growth between 2% and 2.5% per annum between 2014 and 2016.

In 2014, Bank will continue to grow on the Serbian market taking full advantage of the acquisition of clients achieved in 2013 and will be fully dedicated to provide qualitative financial services to all its clients.

The development of the retail segment will be dynamic with a strong acquisition of clients foreseen thanks in particular to the implementation of a renewed digital bank offer. In corporate, the objective is to follow the recovery and to seize opportunities especially in the mid segment.


Associated Companies14.

SOCIETE GENERALE OSIGURANJE

In 2013, Societe Generale Insurance doubled its activity and reached break-even. This positive trend is expected to continue in 2014. At the end of 2013 the number of employees was greeted, now there is 21 employees.

In 2013 SG Osiguranje underwrote 48 354 Policies (+112% vs 2012).

At end of 2013, the stock of policies increase by 96% to 69 103 issued policies.

Insurance Company Sogecap (with a share of 51%) and Societe Generale Bank Serbia (with a share of 49%) set-up the Insurance Company SG Osiguranje in 2009 year. Sogecap, with 40 years of experience in banc assurance, currently present in 16 countries, is providing expertise in insurance operations, while SGS gives access to its retail network.

SOCIETE GENERALE PENZIJE

Voluntary Pension Fund Management Company (VPFMC) Societe Gnerale Penzije during its five years of operations in Serbia established over 15.000 new members, managing assets over 420 milion dinars in its fund. Year after year the voluntary pension fund management company was realising an average return on investments that positioned Societe Generale Štednja and Societe Generale Ekvilibrio among the leaders on the market.

As a result of a highly concentrated Voluntary Pension Fund sector on local market, in which the market share of the VPFMC Societe Generale Penzije was 2%, Societe Generale Srbija and Sogecap Insurance France, the shareholders of the VPFMC made a management desicion to transfer the management of the funds of Societe Generale Štednja and Societe Generale Ekvilibrio, to DDOR Garant. Having in mind that the VPFMC, Societe Generale Penzije was the last one that was established on the, at the time, market of already five active Voluntary Pension Fund Management Companies, it was assessed that it is in the best interest of the memebrs of the VPFs Societe Generale Štednja i Societe Generale Ekvilibrio for their funds to be transferred to the VPFMG with a stronger market share and with greater assets under management. As a result, the shareholders of the VPFMC Societe Generale Penzije found the best partner, that will, in line with high business

ethics standards take over the management of the VPFs, Štednja and Ekvilibrio.

The transfer of the management does not, in any manner, influence nor endanger the rights and interests of the existing members, on the contrary, their investment principles are ensured.

National Bank of Serbia, firstly gave its concent in relation to the Contract to transfer the management rights from VPFMCs Societe Generale Srbija to DDOR-Garant, while in December 2013 the fund was officially taken over by DDOR Garant. The Voluntary Pension Fund Management Company Societe Generale Penzije stopped its operations at this point, when the liquidation process of the Company was initiated.


SOGELEASE SRBIJA

SOGELEASE SRBIJA d.o.o., owned 100% by the Societe Generale Srbija offering financial leasing services was established in 2006. Although a young company, in a relatively short time, Sogelease Srbija managed to get a good position on the market, with the constant progress in its area, despite the intensity of the global financial crisis on the leasing market.

The leasing company at the end of 2013 had 26 employees, as well as the full support of the staff of the entire Societe Generale Srbija branch network, where SoGeLease’s products are available. Taking care of the quality of its services, as well as having in mind the increase of internal processes efficiency, SoGelease in 2013 has reorganized its internal organization in Back Office, which is reflected through the creation of Operations department, that consists of three teams.

SoGeLease continued its successful cooperation with partners SCG based on financing commercial vehicles legal entities. This cooperation was also very successful with partners also in domain of financial leasing for individuals. Sogelease

Associated Companies

maintained the continuity in cooperation with partner for the purchase of agriculture machinery.

Due to technological innovations and great cooperation with partners, but also to the support of Societe Generale banka Srbija, the company Sogelease achieved remarkable results in 2013. The number of new contracts was 967 and exceeded for 40,55 percent, comparing the number of signed contracts in the previous year, while the amount of new placements amounting EUR 23,2 million, that represents an increase of 7 percent comparing to previous period.

Visible results achieved by SoGeLease Srbija have contributed to its better position on the market in the previous years. According to the Association of Leasing Companies in Serbia reports, the company each year recorded growth of market share by production for financial leasing and held 4th position on the Serbian market. At the end of 2013 SoGelease held 11,07 percent of the financial leasing market share, which represents an increase comparing results in previous year.


15.

Consolidated financial statements as at 31

December 2013

CONSOLIDATED INCOME STATEMENT ___________________________________60

CONSOLIDATED BALANCE SHEET ______________________________________ 61

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ____________________62

CONSOLIDATED CASH FLOW STATEMENT _______________________________64

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS _________________66


CONSOLIDATED INCOME STATEMENT

In RSD thousand

Note 2013 2012

OPERATING INCOME AND EXPENSES

Interest income 4 14,633,849 13,376,502Interest expense 4 (6,332,818) (6,248,945)

Interest gains 8,301,031 7,127,557

Fee and commission income 5 3,281,304 3,853,747

Fee and commission expense 5 (1,224,607) (1,720,015)

Fee and commission gains 2,056,697 2,133,732

Net foreign exchange (losses)/gains 6 (880,914) (8,741,573)Other operating income 7 595,319 89,040Net expenses on indirect write-off of lending and provisions 8 (6,048,916) (3,452,895)Salaries, employee benefits and other personal expenses 9 (2,6048,916) (2,588,771)Depreciation expense 10 (448,005) (444,531)Operating and other expenses 11 (3,145,903) (3,032,071)Income from changes in value of assets and liabilities 12 6,863,390 18,187,335Expense on change in value of assets and liabilities 12 (5,987,473) (9,159 ,042)

PROFIT (LOSS) FROM REGULAR OPERATIONS (1,382,986) 118,781

Income tax 13 - (73,389)Gains from created deferred tax assets and reduction of deferred tax liabilities 13 408,796 43,564

(LOSS) / PROFIT (974,190) 88,956

Belgrade, 7 April 2014Approved by the management of Societe Generale Banka Srbija a.d. Beograd

Sanja Đeković (sgd) Sonja Miladinovski (sgd) Frederic Coin (sgd)

Accounting Division Manager Executive Board Member Executive Board Chairman

CONSOLIDATED BALANCE SHEET

In RSD thousand

Note 2013 2012

ASSETS

Cash and cash equivalents 15 26,431,385 15,710,559Revocable deposits and loans 16 22,873,391 18,892,815Interest, fees and commissions receivable, changes in fair value of derivatives and other receivables 17 1,064,994 709,966

Loans and deposits 18 146,381,945 148,772,461Securities (excluding own shares) 19 13,822,015 9,171,206Other placements 21 9,197,507 8,905,575Intangible assets 22 450,582 449,367Property and equipment, and investment property 22 2,060,585 2,114,935Deferred tax assets 23 486,447 77,605Other assets 24 2,101,602 1,575,896Equity Investments in Associates accounted under Equity Method 20 174,592 207,745

TOTAL ASSETS 225,045,045 206,588,130

LIABILITIESTransaction deposits 25 28,891,132 19,867,128Other deposits 26 91,927,831 92,876,260Borrowings 27 50,899,581 40,673,769Liabilities arising from securities 28 1,700,004 1,700,022Interest, fees and commissions payable and changes in fair value of derivatives 29 96 79

Provisions 30 1,100,068 963,961Tax liabilities 31 52,520 36,388Liabilities from profit 32 - 1,727Other liabilities 33 17,304,694 16,478,090

TOTAL LIABILITIES 191,875,926 172,597,424

CAPITALEquity 34 23,724,274 23,724,274Reserves from profit 34 10,333,077 10,230,225Revaluation reserves 34 109,864 7,131Unrealised losses on securities available for sale 34 (43) (249)Accumulated (loss) / profit 34 (998,053) 29,325

TOTAL CAPITAL 33,169,119 33,990,706

TOTAL LIABILITIES 225,045,045 206,588,130

OFF-BALANCE SHEET ITEMS 125,462,546 103,414,919

Funds managed on behalf of third parties 35 3,437,079 2,826,282Assumed future liabilities 35 66,171,299 57,229,969Derivatives 35 10,668,413 799,820Other off-balance sheet items 35 45,185,755 42,558,848





CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

In RSD thousand Share capital

Premium on issue of shares

Reserves from profit and other reserves

Revaluation reserves

Accumulated profit / (loss)

Unrealised losses on securities available for sale Total

Balance as at 1 January 2012 23,723,021 1,253 8,851,480 1,108 1,266,538 (43) 33,843,357

Total increase in the prior year - - 1,378,745 6,093 141,532 (206) 1,526,164Total decrease in the prior year - - - (70) (1,378,745) - (1,378,815)

Balance as at 31 December 2012 23,723,021 1,253 10,230,225 7,131 29,325 (249) 33,990,706

Total increase in the current year - - 102,852 103,037 (924,526) 206 (718,431)

Total decrease in the current year - - - (304) (102,852) - (103,156)

Balance as at 31 December 2013 23,723,021 1,253 10,333,077 109,864 (998,053) (43) 33,169,119





CONSOLIDATED CASH FLOW STATEMENT In RSD thousand

2013 2012

CASH FLOWS FROM OPERATING ACTIVITIES

Cash inflow from operating activities 20,900,702 19,672,539Inflow from interest 16,448,398 15,081,903Inflow from fees and commissions 3,932,786 4,446,544Inflow from other operating income 519,518 144,092

Cash outflow from operating activities (16,619,006) (17,458,934)Outflow from interest (6,504,057) (6,914,165)Outflows from fees and commissions (1,194,796) (1,711,217)Payments for gross salaries, employee benefits and other personal expenses (2,699,151) (2,599,680)

Payments for taxes, contributions and other duties charged to income (609,193) (576,672)Outflow for other operating expenses (5,611,809) (5,657,200)

Net cash inflow from operating activities before increase or decrease in placements and deposits 4,281,696 2,213,605

Decrease in placements and increase in deposits taken 7,932,503 9,536,504

Decrease in loans and placements to banks and customers - 6,030,305Increase in deposits from banks and customers 7,932,503 3,506,199

Increase in placements and decrease in deposits taken 9,750,724 4,021,743Increase in loans and placements to banks and customers 5,121,711 -Increase in securities at fair value through profit and loss, tradable investments and short-term securities held to maturity 4,629,013 4,021,743

Net cash inflow / (outflow) from operating activities before profit tax 2,463,475 7,728,366

Income tax paid (83,245) (158,703)

Cash inflow / (outflow) from operating activities 2,380,230 7,569,663

CASH FLOWS FROM INVESTING ACTIVITIES

Cash inflow from investing activities 26 13,449Proceeds from sale of intangible assets and property and equipment 26 13,449

Cash outflow from investing activities (394,747) (255,357)Outflow for purchase of intangible assets and property and equipment (394,747) (255,357)

Net cash outflow from investing activities (394,721) (241,908)

CONSOLIDATED CASH FLOW STATEMENTIn RSD thousand

2013 2012

CASH FLOWS FROM FINANCING ACTIVITIES

Cash inflow from financing activities 8,475,160 1,779,874

Net inflow from borrowings 8,475,122 80,126Net inflow from securities 38 1,699,748

Cash outflow from financing activities - (2,371,244)

Net outflow for borrowings - (2,371,244)

Net cash (outflow) / inflow from financing activities 8,475,160 (591,370)

TOTAL NET CASH INFLOW 37,308,391 31,002,366

TOTAL NET CASH OUTFLOW (26,847,722) (24,265,981)

NET INCREASE / (DECREASE) IN CASH 10,460,669 6,736,385

CASH AT THE BEGINNING OF THE YEAR (Note 15) 15,710,559 8,922,659

FOREIGN EXCHANGE GAINS 260,157 51,515

CASH AT THE END OF THE REPORTING PERIOD (Note 15) 26,431,385 15,710,559

Belgrade, 7 April 2014

Approved by the management of Societe Generale Banka Srbija a.d. Beograd




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION ABOUT THE BANKING GROUP

The banking group (hereinafter referred to as: “Group”) consists of the parent company Societe Generale Banka Srbija a.d Beograd (hereinafter referred to as: “Parent Company” or “Bank”), subsidiary company Sogelease Srbija d.o.o. Beograd, where the Parent Company owns a 100% interest, and associated companies Voluntary Pension Fund Management Company Societe Generale Penzije a.d. Beograd - u likvidaciji and Life-Insurance Company Societe Generale Osiguranje a.d. Beograd, where the Parent Company owns an interest of 49%.

As at 31 December 2013 the Bank’s staff numbered 1,397 (2012: 1,361).

Societe Generale banka Srbija a.d. Beograd

Societe Generale Banka Srbija AD Beograd (hereinafter: the “Bank” or “Parent Company”) was founded in 1990 and entered in the Register with the Commercial Court in Belgrade pursuant to the Decision No. Fi-95/91 dated 14 February 1991. The majority founder of the Bank is Societe Generale, Paris.

The Bank has harmonised its operation with the Law on Banks and Other Financial Institutions, as entered in the Register with the Commercial Court in Belgrade pursuant to the Decision No. Fi-20525/96 dated 31 December 1996. The Bank has been registered to conduct foreign payment transactions and foreign loan operations in addition to performance of loan and deposit operations, pursuant to the

Decision of the National Bank of Yugoslavia No. 65 dated 28 February 1991. Pursuant to the Decision of the Business Registers Agency No. BD 165078 dated 13 October 2006, the Bank is registered as a closed joint stock company. Pursuant to the Decision No. 1431-70/2007 dated 1 November 2007 the Bank changed its name from Societe Generale Yugoslav Bank A.D. Beograd to Societe Generale Banka Srbija AD Beograd.

The core activities of the Bank include: domestic and international payment transactions, loan operations, deposit operations and foreign currency purchase/sale. Other activities include issuing of guarantees, opening of letters of credit and other banking and brokerage operations and services. In 2005 the Bank became licensed for conducting custody operations.

The Bank’s tax identification number is 100000303, and the registration number 07552335.

The Bank’s registered office is located at 50 a/b, Bulevar Zorana Đinđića, Belgrade.

Sogelease Srbija d.o.o. Beograd

Subsidiary company Sogelease Srbija d.o.o. Beograd was founded with a 100% interest in its capital. Sogelease Srbija d.o.o. is a limited liability company entered on 19 January 2006 in the Register of Companies maintained by the Business Registers Agency under the number BD 103470/2006. The company is registered

for conducting financial leasing operations. The National Bank of Serbia passed a decision on 4 January 2006 licensing Sogelease d.o.o. Beograd to conduct financial leasing operations.

The total number of staff as at 31 December 2013 was 26 (31 December 2012: 24).

Voluntary Pension Fund Management Company Societe Generale Penzije a.d. Beograd (Društvo za upravljanje dobrovoljnim penzijskim fondom Societe Generale Penzije a.d. Beograd)

Voluntary pension fund management company Societe Generale Penzije a.d. Beograd was established on 19 June 2008. The National Bank of Serbia licensed it for voluntary pension fund management in its decision No. 5206. The company is entered in the Register of Companies on 7 July 2008 under the number BD 118196/2008. The National Bank of Serbia issued the licence for organising and managing two pension funds in its decision number 5215 and 5207 of 19 June 2008. The total number of employees as at 31 December 2013 was 4 (31 December 2012: 9).

The bank participates in the foundation capital of the Company with 49% as at 31 December 2013.

On 21 June 2013, the Supervisory Board of asset management company Societe Generale Penzije a.d. sent a letter to the NBS justifying its decision, adopted at the session held on the same date, to transfer the fund management rights on another company based on item 30 of the Decision on more detailed conditions for issuing certain licences and approvals to a voluntary pension fund management company.

The Decision of the Supervisory Board comprising representatives of the founder

shareholders was confirmed in an appropriate Decision of the asset management company Societe Generale Penzije a.d. shareholders’ meeting, concerning the transfer of management rights on asset management company (AMC) DDOR Garant a.d.

Based on the above decision of AMC Societe Generale Penzije a.d. shareholders’ meeting, concerning the transfer of management rights on AMC DDOR Garant a.d. 3-5 Maršala Birjuzova street.

The decisions of both companies resulted in a decision number 57 of the NBS Executive Board, at its session of 7 November 2013, approving the conclusion of the agreement by:

� Revoking the licence of the VPF management company Societe Generale Penzije a.d. for managing pension fund Societe Generale Štednja;

� Revoking the licence of the VPF management company Societe Generale Penzije a.d. for managing pension fund Societe Generale Ekvilibrio;

� Revoking the operating licence of VPF management company Societe Generale Penzije a.d. issued to our company in the NBS Governor’s decision G. Br. 5206 of 19 June 2008.

Following the revocation of the asset management licence and the operating licence of VPF management company Societe Generale Penzije a.d., the management company’s liquidation procedure commenced by filing a registration application to the Business Registers Agency on 3 December 2013. The Business Registers Agency approved the registration application and passed a Decision to commence liquidation procedure on 5 December 2013.


Life-Insurance Company Societe Generale Osiguranje a.d. Beograd

Societe Generale Osiguranje a.d. is a life-insurance company established on 30 July 2009. The Business Registers Agency issued its decision registering the company on 7 August 2009, under number BD 131615/2009. The Bank participates in the foundation capital of the company with 49% as at 31 December 2013. The total number of employees as at 31 December 2013 was 21 (31 December 2012: 18).

2. ACCOUNTING POLICIES

2.1. Basis of Preparation and Presentation of Consolidated Financial Statements

The consolidated financial statements of the Bank for 2013have been prepared in accordance with the regulations prevailing in the Republic of Serbia, which are based on the Law on Accounting (Official Gazette of the Republic of Serbia No. 62/2013), the Law on Banks (Official Gazette of the Republic of Serbia Nos 107/05 and 91/2010) and the respective regulations issued by the National Bank of Serbia pursuant to the aforementioned legislation. The Law on Accounting prescribes that banks should maintain, prepare and present their consolidated financial statements in accordance with the International Accounting Standards and/or the International Financial Reporting Standards ("IAS/IFRS"), as well as with the Accounting Standards Interpretations.

The consolidated financial statements have been prepared by applying the full consolidation method for subsidiary legal entities and equity method for associated legal entities.

IAS, IFRS and Accounting Standards Interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations

Committee up to 1 January 2009 have been officially adopted by the Ministry of Finance of the Republic of Serbia by its Decision on Determining the IAS and IFRS Base Text Translations (No. 401-00-1380/2010-16), published in the Official Gazette of the Republic of Serbia No. 16 of 5 October 2010.

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

The accompanying financial statements have been presented in the form prescribed by the Rules on Forms and Content of Items in Financial Statement Forms for Banks (Official Gazette of the Republic of Serbia Nos 3/2009, 12/2009, correction 26/2009 and 5/2010). These Rules determine the legal definition of financial statement forms and content of items in the forms, as well as minimal content of notes to the financial statements, which contain derogations from IAS 1 – Presentation of Financial Statements regarding the presentation of certain financial statement items.

In view of the foregoing, the accompanying financial statements have been prepared in accordance with the accounting policies which derogate from IFRS requirements in the following respects:

� The Group has not made certain disclosures in accordance with IAS 1 – Presentation of Financial Statements since the form for the preparation of the balance sheet, income statement, cash flow statement and statement of changes in equity has been defined by the National Bank of Serbia in the Rules on Forms and Content of Items in Financial Statement Forms for Banks and Other Financial Organisations.

� "Off-balance sheet items“ are presented in the Balance Sheet form (Note 3). According to IFRS definition, these items are neither assets nor liabilities.

� Additional disclosures prescribed by standards, amendments of standards and interpretations issued subsequent to 1 January 2009 have not been applied in the preparation of the accompanying financial statements.

The accompanying consolidated financial statements have been prepared under the historical cost concept, except for securities held for trading and securities available for sale, which have been measured at market value.

The amounts in the enclosed financial statements of the Group are expressed in RSD thousands, unless otherwise stated. Dinar (RSD) is the functional and reporting currency of the Group. All transactions in currencies that are not the functional currency are considered to be transactions in foreign currency.

The consolidated financial statements have been prepared under the going concern principle, which implies that the Group will continue its operation in the foreseeable future.

In preparing the accompanying financial statements the Group has adhered to accounting policies further described in Note 2.

The accounting policies and estimates applied in the preparation of these financial statements are consistent with the accounting policies and estimates applied in the preparation of the Group’s annual financial statements for 2013.

Basis for consolidation

The consolidated financial statements contain financial statements of the Bank and its subsidiary legal entity Sogelease Srbija d.o.o. Beograd for the year ending on 31 December 2013. The financial statements of the subsidiary legal entities have been prepared for the same period as the financial statements of the Bank using consistent accounting policies.

In accordance with IAS 27 „Consolidated and Separate Financial Statements“, the Bank has prepared consolidated financial statements with Sogelease Srbija d.o.o. Beograd applying line-by-line method, by adding together the same items of liabilities, assets, equity, income and expenses. Mutual receivables and payables, transactions and unrealised gains are eliminated in full, in line with IAS 27.

The subsidiary legal entity has been fully consolidated from the date of establishment. Control is achieved when the Bank has the power to govern the financial and operating policies of another entity so as to obtain benefits from its activities.


2.2. Comparative figures

The comparative figures represent annual financial statements of the Group for 2012, which were audited.

2.3. Significant Accounting Estimates and Judgements

Preparation and presentation of consolidated financial statements require the management to make the best possible estimates and reasonable assumptions that effect the reported values of assets and liabilities and disclosure of contingent receivables and liabilities at the date of the financial statements, as well as income and expenses for the reporting period.

These estimations and assumptions are based on information available as of the date of the preparation of the financial statements. Actual results may differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis, and when the corrections become necessary, they are recognised in the income statement in the periods in which they become known.

Below is a summary of key estimates and assumptions posing risk of causing material adjustments to the book value of assets and liabilities during the next financial year.

Fair Value of Financial Instruments

The fair value of marketable financial instruments traded on an organised market is based on current offer prices (financial assets) or asking prices (financial liabilities).

Fair value of financial instruments not listed on an organised market is established using appropriate valuation techniques, which include the net present value method, comparison with

available market prices of similar instruments and other relevant models.

When market inputs are not available, they are evaluated through assessments which include a certain reasonable assumption of the “fair“ value. Assessment models reflect a current situation in the market on the measurement day and may not represent market conditions existing prior or after the measurement date. Therefore, the valuation methods are revised from time to time in order to reflect appropriately the current market conditions.

Impairment of Financial Assets

On each reporting date, the Group assesses whether there is any objective evidence that a financial asset or a group of financial assets is reduced (impaired). A financial asset or a group of financial assets is impaired and impairment losses are recognised only if there is objective evidence on impairment as a result of one or several events that occurred after the initial recognition of the asset (a “loss event”) and when the loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated (see Note 2.4.9.).

As for the estimation of losses due to loan impairment, the Group reviews its loan portfolio at least quarterly in order to assess impairment.

In determining whether an impairment losses should be recorded in the income statement,

the Group makes judgements as to whether there is any reliable evidence indicating that there is a measurable decrease in estimated future cash flows from the loan portfolio before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers toward the Group, or national or local circumstances that correlate with defaults on the Group’s assets.

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

Impairment of Equity Investments

The Group considers equity investments available for sale impaired when there is documented (market data) or estimated decrease of fair value of these assets below their cost.

Impairment of Securities Available for Sale

In case of financial instruments available for sale, the Group estimates on a case-by-case basis whether there is any objective evidence on impairment based on the same criteria applicable to financial assets evaluated at amortised cost. Furthermore, the recorded adjustment represents cumulative loss evaluated as difference between the amortised value and the current fair value less any impairment losses

previously recognised in the income statement. In case of equity instruments available for sale, a „significant“ or „prolonged“ decrease in fair value of equity instruments below their cost is also considered as objective evidence. When there is evidence of impairment, cumulative loss, assessed as difference between the cost and current fair value, less any impairment losses previously recognised in the income statement, is removed from equity and recognised in the income statement, while subsequent increase in fair value after recognition of impairment is directly credited to equity.

Useful Life of Intangible Assets and Property and Equipment

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

Due to significant share of non-current assets in the total assets of the Group, the impact of each change in these assumptions could materially affect the Group’s financial position, as well as the results of its operation.

Impairment of Non-Financial Assets

At the balance sheet date the Group management analyses the values at which intangible investments and property and equipment of the Group are presented. If there is any indication that such asset has been impaired, the recoverable amount is estimated in order to determine the extent of


the impairment. If the recoverable amount of an asset is estimated to be less than its carrying value, the carrying amount of the asset is reduced to its recoverable amount.

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

Provisions for Legal Proceedings

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

Reasonable estimates include judgements made by management, after considering information including notifications, settlements, estimates performed by the legal department, available facts, identification of potentially responsible parties and their abilities to contribute to finding a solution, as well as prior experience.

Provision for legal proceedings is recognised when it is probable that an obligation exists and its amount can be reliably estimated by a careful analysis. The required provision may change in the future due to occurrence of new events or obtaining additional information. Contingent liabilities as well as items which do not meet the criteria for provisioning are disclosed, unless the probability of outflow of resources embodying economic benefits is very low.

Deferred Tax Assets

Deferred tax assets are recognised for all

deductible temporary differences, carry forward of unused tax credits and unused tax losses to the extent that it is probable that the expected future taxable profits will be available against which unused temporary tax losses/credits can be utilised.

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Current and deferred taxes are recognised as income or expense and are included in net profit for the period.

Deferred income taxes related to items that are directly credited/charged to equity are also charged/credited to equity.

Retirement and Other Post-Employment Benefits to Employees

The costs of defined employee benefits payable upon termination of employment, i.e. retirement in accordance with the legal requirements are determined based on the actuarial valuation. The actuarial valuation includes an assessment of the discount rate, future movements in salaries, mortality rates and employee turnover. As these plans are long-term, significant uncertainties influence the outcome of the assessment.

2.4 Summary of Significant Accounting Policies

2.4.1. Foreign Currency Translation

Items included in the consolidated financial statements of the Group are valued by using currency of primary economic environment in which the Group operates (functional currency). As disclosed in Note 2.1., the accompanying financial statements are stated in thousands of dinars (RSD), which represent the functional and official reporting currency of the Group.

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

Assets and liabilities denominated in foreign currency as of the balance sheet date are translated into dinars at the middle exchange rate determined on the Interbank Foreign Currency Market, prevailing at that date (Note 43).

Foreign exchange gains or losses arising upon the translation of assets, liabilities and transactions are credited or charged, as appropriate, to income statement, as foreign exchange gains or losses (Note 6).

Foreign exchange gains or losses arising upon the translation of assets and liabilities with the currency clause are credited or charged, as appropriate, to the income statement, as foreign exchange gains or losses through the application of the agreed exchange rate (Note 12).

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

2.4.2. Interest Income and Expenses

Interest income and expenses, including penalty interest and other income and other expenses from interest bearing assets, i.e. liabilities are recognised on an accrual basis based on obligatory terms defined by a contract between the Group and a customer.

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

The calculation of the effective interest rate takes into account all contractual terms of the financial instrument, including fees or incremental costs that are related to loan approval and constitute an integral part of effective interest rate, except future credit losses.

Loan origination fee, which is a part of the effective interest rate, is recorded within Interest income and expenses. Loan origination fees, which are charged, collected or paid on a one-time basis in advance, are deferred and amortised to income from interest over the life of the loan, using the straight-line method. The straight-line deferral does not materially differ from the effective yield.

Income from leasing placement fees, according to financial leasing contracts, are calculated and collected on a one-time basis in advance, and


are then deferred and amortised to income from interest using the straight-line method during life of the leasing contract. The straight-line deferral does not materially differ from the effective yield.

Interest is suspended through decrease of interest income in off-balance sheet items, in the case when the Group estimates that there are problems in collectability of certain loans.

Suspended interest is calculated and recorded as an off-balance sheet item until the final settlement of doubtful debt.

2.4.3. Fee and Commission Income and Expense

Fee and commission income and expenses from rendering and using banking services are generally recognised on an accrual basis and are determined for the period when they were realised, i.e. when the service was provided.

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

2.4.4. Cash and cash equivalents

Cash and cash equivalents comprise balances in the Group’s accounts and cash in hand (both in dinars and in foreign currency), balances in the current account and in the accounts held with other domestic and foreign banks.

2.4.5. Reverse Repurchase Agreements

Securities bought under agreement to repurchase at a specified future date (“repos”) are recognised in the balance sheet.

The corresponding cash give, including accrued interest, is recognised in the balance sheet. The difference between the purchase price and resale price is treated as interest income and is accrued over the life of the agreement.

2.4.6. Property and Equipment

Property and equipment are measured at cost, less accumulated amortisation and impairment losses, if any.

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

Depreciation of non-current assets is calculated using the straight-line method, whereby the cost is depreciated over the estimated useful lifetime of an asset. Estimated annual depreciation rates are as follows:

Buildings and structures from 2% to 10%

Computer equipment 20%

Furniture and equipment from 10% to 16%

Motor vehicles 15.5%

Changes in the expected useful lives of assets are accounted for as changes in the accounting estimates.

Calculation of depreciation and amortisation of property and equipment commences at the beginning of the month following the month when an asset is put into use. Assets under

construction are not depreciated. Depreciation charge is recognised as expense of the period when incurred.

Gains or losses from the disposal or sale of property or equipment are either credited directly to the income statement, as part of other operating income or charged to other operating expenses.

The calculation of depreciation and amortisation for tax purposes is determined by the Law on Corporate Income Tax of the Republic of Serbia and the Rules on the Manner of Fixed Assets Classification in Groups and Depreciation for Tax Purposes, which gives rise to deferred taxes (Note 13).

Buildings and structures are depreciated depending on the estimated useful life, which is different for each individual facility owned by the Group.

2.4.7. Intangible assets

Intangible assets are measured at cost, less accumulated amortisation and impairment losses, if any.

Intangible assets comprise licenses and other intangible assets.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for intangible assets with a finite useful life are reviewed at least once a year.

Changes in the expected useful life or the expected pattern of consumption of future

economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.

Amortisation of intangible assets is calculated using the straight-line method to write down the value of intangible assets to their residual values over the estimated useful lives. Estimated useful life usually ranges between 5 and 7 years, but there are exceptions when shorter useful life is estimated in accordance with the contract conditions.

The amortisation cost of intangible assets with finite lives is recognized in the income statement.

Costs associated with the maintenance of computer software programmes are recognised as an expense in the period when incurred.

2.4.8. Impairment of Non-Financial Assets

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

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


2.4.9. Financial Instruments

Financial instruments are initially recognised at fair value, including transaction costs which are directly attributable to acquisition or issue, except financial assets or financial liabilities that are recognised at fair value through profit and loss.

Financial assets and financial liabilities are recognised in the Group's balance sheet on the date upon which the Group becomes a counterparty to the contractual provisions of a specific financial instrument. All regular way purchases and sales of financial assets are recognised on the settlement date, i.e. the date the asset is delivered to the counterparty.

Derecognition of Financial Assets and Financial Liabilities

Financial assets cease to be recognised when the Group loses control of the contractual rights governing such instruments, which occurs when the rights of use of such instruments have been realised, expired, abandoned or ceded. When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group's continuing involvement in the asset. Continuing involvement of the Group that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same

lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

Classification of Financial Instruments

The Group's management determines the classification of its investments at initial recognition. Classification of financial instruments upon initial recognition depends on the purposes for which financial instruments have been obtained and their characteristics.

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

The subsequent measurement of financial assets depends on their classification as follows:

(i) Financial Assets at Fair Value through Profit or Loss

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

The management did not classify financial instruments, on initial recognition, into the category of the financial assets recorded at fair value through profit or loss.

Financial assets are classified as held for trading if acquired for the purpose of selling or repurchasing in the near term, for generating profit from short-term price fluctuations or are

derivatives. Trading securities are stated in the balance sheet at fair value.

All gains and losses arising upon measurement and sale of financial assets at fair value are stated in the income statement.

(ii) Securities held to maturity

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

Held-to-maturity investments include discounted bills.

Securities held to maturity are subsequently measured at amortised cost using the effective interest rate method, less any allowance for impairment or impairment losses, if any. Amortised cost is calculated by taking into account any discount or premium on acquisition over the period to maturity.

The Group performs individual assessment in order to determine whether there is objective evidence on impairment of the investment into securities held to maturity.

If there are objective evidence that such securities have been impaired, the amount of impairment loss for investments held to maturity is calculated as the difference between the investment’s carrying amount and the present value of expected future cash flows discounted at the investment’s original interest rate and stated in the income statement as the impairment losses from direct write-offs of financial assets.

If, in a subsequent year, the amount of the estimated impairment loss decreases as a consequence of an event occurring after the

impairment was recognised, the previously recognised impairment loss is reduced and effects are credited to the income statement.

Interest income from these instruments is calculated using the effective interest rate and is recorded in Interest Income.

Fees that are part of the effective yield from these instruments are accrued and recorded as deferrals. They are subsequently recognised in the income statement during the useful life of the instrument.

(iii) Financial Assets Available for Sale

Securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as “securities available for sale“. Securities available for sale include other legal entities’ equity instruments and debt securities.

Securities available for sale comprise other legal entities’ shares and government treasury notes of the Republic of Serbia.

Subsequent to the initial measurement, securities available for sale are measured at fair value. The fair value of securities quoted in active markets are based on current bid prices. Unrealised gains and losses are recognised directly in revaluation reserves until such security is sold, collected or otherwise realised, or until it is impaired. In case of disposal of securities or their impairment, accumulated gains and losses, previously recognised in equity, are recognised in the income statement.

Interest income on government notes of the Republic of Serbia is calculated and accrued monthly and recognised in the income statement.


Income from dividends, earned from investments in other legal entities’ shares, and income from equity stakes in other legal entities are recognised as income when collected.

In case of financial instruments available for sale, the Group estimates on a case-by-case basis whether there is any objective evidence on impairment based on the same criteria applicable to financial assets evaluated at amortised cost. Furthermore, the recorded adjustment represents cumulative loss evaluated as difference between the amortised value and the current fair value less any impairment losses previously recognised in the income statement. In case of equity instruments available for sale, a „significant“ or „prolonged“ decrease in fair value of equity instruments below their cost is also considered as objective evidence. When there is evidence of impairment, cumulative loss, assessed as difference between the cost and current fair value, less any impairment losses previously recognised in the income statement, is removed from equity and recognised in the income statement, while subsequent increase in fair value after recognition of impairment is directly credited to equity.

(iv) Investments in associated companies

According to IAS 28 „Investments in Associates“, investment in an entity over which the Bank has significant influence, but which is neither a subsidiary nor a joint venture, is considered investment in associates. Investments in associates are accounted for using the equity method whereby an investment is first recognised at cost and then adjustments of equity is made, in the Bank’s books under net assets of the entity, for any changes that occur after the date of acquisition.

The Group’s profit or loss includes the Group’s share in the profit or loss of the entity which was

invested in, and this share is recognised under Operating and other expenses.

Financial statements of associated companies are prepared for the same reporting period as the financial statements of the Group. The accounting policies of the associated company are harmonised with the accounting policies of the Group, as necessary.

(v) Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. All loans and receivables granted by the Group to banks and customers are recognised in the balance sheet when cash is advanced to the borrower. All loans and placements are initially recognised at fair value.

After the initial recognition, loans and placements to banks and customers are subsequently measured at outstanding amount of placements, taking into account all discounts and premiums on acquisition, less any allowance for impairment. Interest income and receivable in respect of these instruments are recorded and presented under interest income, i.e., interest receivable. Fees that are part of the effective yield on these instruments are recognised as deferred income and credited to the income statement as interest income over the life of a financial instrument.

Loans in dinars, with agreed foreign currency clause, i.e. RSD-EUR, RSD-CHF or RSD-USD exchange rate as protection against risk, are revalued in accordance with the contract signed for each loan. The difference between the carrying amount of loan and the amount calculated applying the foreign currency clause is disclosed within loans, advances and deposits. Gains and losses resulting from

the application of foreign currency clause are recorded in the income statement as gains/losses from changes in value of assets and liabilities.

Impairment of Financial Assets and Risk Provisions

In accordance with the Group’s internal policy, the Group assesses on each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Impairment losses are recognised only if there is an objective evidence on impairment as a result of one or several events that occurred after the initial recognition of the asset and when the loss event makes an impact on the estimated future cash flows of the financial asset or group of financial assets which can be reliably assessed.

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

When assessing the impairment of loans and placements to banks and customers measured at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes an asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that

are individually assessed for impairment and for which an impairment loss is recognised, are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred).

The present value of estimated future cash flows is discounted by using the agreed effective interest rate for that particular financial asset. If a loan has a variable interest rate, current effective interest rate is applied. The calculation of the present value of the estimated future cash flows of a collateralised financial asset takes into account the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Group’s internal grading system that takes into account credit risk characteristics.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the years on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The Bank regularly reviews the methodology and assumptions used for estimating future cash flows in order to reduce any differences between loss estimates and actual loss experience.


The carrying amount of the asset is reduced through the use of an allowance account and the amount of impairment loss arising from impairment of loans and receivables, as well as other financial assets measured at amortised cost, is recognised in the income statement as impairment losses on financial assets (Note 8). Loans together with the associated allowance for impairment are written off when there is no realistic prospect of future recovery and when collateral has been realised or has been transferred to the Group.

If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement (Note 8).

A write-off is made pursuant to a court decision, or based on decisions made by the Shareholders' Meeting or the Group Executive Board when a claim is deemed uncollectible and when all collaterals have been activated.

(vi) Renegotiated Loans

Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur.

Renegotiated loans continue to be subject to assets impairment assessment.

2.4.10. Leases

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

Operating Lease – Group as a Lessee

Lease of assets where all rewards and risks incident to ownership remain with the lessor, i.e. where they are not transferred to the lessee, is classified as operating lease.

Payments for business lease are charged to the income statement as expense of the period when incurred over the period of the lease.

Operating Lease – Group as a Lessor

Lease is an agreement under which the lessor transfers to the lessee the right to use an asset over the agreed period in exchange for one or several payments. When an asset is rented out under operating lease, the asset concerned is recognised in the balance sheet depending on the type of asset. Income from rent in recognised on the straight-line basis over the period of lease.

Financial lease – Group as a Lessor

Financial lease is a lease in which all risk and rewards incidental to the ownership of the leased asset are essentially transferred to lessee. Subsequent to the expiry of the lease period the ownership rights may but do not necessarily need to be transferred.

At the initial recognition, the Group as the lessor recognises the assets given in financial lease in the Balance Sheet as long-term financial

investments equivalent to the value of the leased asset at its cost.

Gross investment in the lease is the aggregate of the minimum lease payments receivable and any unguaranteed residual value accruing to the lessor. The net investment in the lease is the gross investments less unearned financial income calculated at the interest rate defined in the financial lease contract.

Investments in the lease recognised in the balance sheet within other investments are subsequently valued at amortised cost less the assessed impairment losses.

Financial income, i.e. revenues from interest accrued on financial lease is recognised in the manner which reflects a constant periodical yield on the remaining net investment made in financial lease.

2.4.11. Deposits from Banks and Customers

Deposits from banks and customers and interest-bearing financial liabilities are initially recognised at the fair value, less transaction costs, except for financial liabilities through profit and loss. After initial recognition, interest-bearing deposits and loans are subsequently measured at amortised cost by using the effective interest rate.

2.4.12. Borrowings

Borrowings are recognised initially at fair value net of translation costs incurred. Borrowings are subsequently stated at amortised cost.

2.4.13. Operating Liabilities

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

2.4.14. Offsetting Financial Instruments

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

2.4.15. Special Reserve for Estimated Losses on Balance Sheet Assets and Off-balance Sheet Items

Reserves against potential losses on balance sheet assets and off-balance sheet items are calculated in accordance with the National Bank of Serbia’s Decision on the Classification of Bank Balance Sheet Assets and Off-balance Sheet Items (Official Gazette of the Republic of Serbia, 94/2011, 57/2012, I 123/2012, 43/2013 and 113/2013). Decision on the Classification of Bank Balance Sheet Assets and Off-Balance Sheet Items applies to the Bank operation but not also on the operation of the Leasing company.

All receivables (balance sheet and off-balance sheet exposure) from a single borrower are classified in categories from A to D in accordance with the assessment of their recoverability. Individual credit exposures are evaluated based upon the borrower’s credit history and financial position, number of days of default in the payment of principal and interest and the quality of collateral.

In accordance with the classification of receivables, and pursuant to the aforementioned decision, the amount of the reserve against potential losses is calculated by applying the following percentages: A (0%), B (2%), V (15%), G (30%) and D (100%).

Through its internal regulation, the Bank has


defined the criteria and methodology for determining the reserves against potential losses within the percentages prescribed by the National Bank of Serbia’s decision, in line with the credit history, financial position and business performance of the borrower, adequacy of cash flow statements and collateral.

The Bank assesses the amount of the necessary special reserve for estimated losses as the sum of positive differences between the reserve for estimated losses calculated in accordance with this decision and the allowances for impairment of balance sheet assets and provisions against losses on off-balance sheet items for each individual borrower.

2.4.16. Provisions, Contingent Liabilities and Contingent Assets

Provisions are recognised when the Group has a present obligation, legal or constructive, as a result of past events and when it is probable that an outflow of resources will be required and a reliable estimate can be made of the amount of the obligation. In order to be maintained, the best possible estimates of provisions are considered, determined and, if necessary, adjusted at each reporting date. Provision is measured at present value of estimated future cash outflow necessary to settle the liability, using the discount rate which reflects the current market estimate of the value of money.

When the outflow of economic benefits is no longer probable in order to settle legal or constructive liabilities, provisions are derecognised in income. Provisions are taken into account in accordance with their type and they can be used only for the expenses they were recognised initially for. Provisions are not recognised for future operating losses.

Contingent liabilities are not recognised in the financial statements. They are disclosed in the notes to the financial statements (Note 40), unless the possibility of an outflow of resources embodying economic benefits is remote.

The Group does not recognise contingent assets in the financial statements. Contingent assets are disclosed in the notes to the financial statements if an inflow of economic benefits is probable.

2.4.17. Employee Benefits

(a) Taxes and Contributions for Compulsory Social Security – Defined Benefit Plans

In accordance with the regulations prevailing in the Republic of Serbia, the Group has an obligation to pay contributions to various state social security funds. These obligations involve contributions payable by the employees and payable by the employer in the amounts calculated by applying legally prescribed rates. The Group is also legally obligated to withhold contributions from employees' gross salaries, and on their behalf to transfer the withheld amounts to the appropriate government funds. The Group has no legal obligation to pay benefits due to its employees to the Pension Fund of the Republic of Serbia. Taxes and contributions relating to defined earnings-related benefit plans are charged to expenses in the period in which they arise.

In addition, the Executive Board of the Bank made a decision in 2009 whereby all employees of the Bank with over four years of employment with the Bank are entitled to the payment in favour of voluntary pension fund Societe Generale Penzije in the amounts defined by the decision, credited to the Bank. In the course of 2013, Voluntary Pension Fund Management Company Societe Generale Penzije transferred

the management of assets of voluntary pension funds Societe Generale Štednja and Societe Generale Ekvilibrio to the Voluntary Pension Fund Management Company DDOR – Garant. As a result, as of 26 December 2013 the Bank started to make payments relating to that plan of benefits in favour of the voluntary pension fund DDOR – Garant under the same terms. Contributions relating to this benefits plan are charged to expenses in the period in which they arise.

(b) Other Employee Benefits — Retirement Benefits and Jubilee Awards

In accordance with the Labour Law, the Group has an obligation to provide a mandatory severance pay on retirement equal to the higher of 3 average monthly salaries in the Republic of Serbia in the month prior to retirement, or 3 average monthly salaries gained in the Bank in the month prior to retirement, or 3 average monthly salaries of the employee concerned in the month preceding the month of payment.

Expenses and liabilities for the plans are not funded. Liabilities for employee benefits and related expenses are recognised in the amount of present value of estimated future cash flows using the actuarial method of projected unit cost.

Actuarial gains and losses and past service costs are recognised in the income statement when incurred.

(c) Short-Term Compensated Absences

Accumulated compensated absences may be carried forward and used in future periods if the current period’s entitlement has not been fully used. The expected cost of compensated absences is recognised in the amount of accumulated unused entitlements on the balance sheet date that is expected to be used

in the forthcoming period. In the instance of non-accumulating compensated absences, no liability or expense is recognised until the time of the absence.

2.4.18. Equity

Equity consists of share capital (ordinary shares), share premium, revaluation reserves, reserves from profit and profit and loss of the current and previous yeas (Note 34).

Dividends on shares are recognised as liability in the period when the decision on their payment has been made. Dividends approved for the year after the balance sheet date are disclosed in the note concerning the events after the balance sheet date.

The Group is in obligation to maintain its equity at all times at the level necessary to cover all risks it is or may be exposed to in the course of its business and the capital adequacy ratio may not be lower than 12%.

In accordance with the Decision on Capital Adequacy Ratio, if the Group’s capital adequacy ratio is higher of due to profit distribution would be higher by less than 2.5 percentage points than the required minimum (12%), the Group may distribute its profit only into elements of its core capital.

2.4.19. Financial Guarantees

In the ordinary course of business, the Group gives financial guarantees, consisting of payment guarantees and performance bonds, letters of credit, acceptances and other warrantees. Financial guarantees are contracts which obligate the issuer of a guarantee to perform the payment or compensate the loss to


the holder of a guarantee, incurred if a certain creditor fails to settle its liabilities in due time as required under the terms of the contract.

Financial guarantees are initially recognised in the financial statements at fair value as of the date the guarantee is given. Subsequent to initial recognition, the Group’s liabilities under financial guarantees are measured at the higher of the amortised premium or the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to the financial guarantees is recognised in the income statement. The premium received is recognised in the income statement within net fees and commissions income on a straight-line basis over the life of the guarantee.

2.4.20. Taxes and Contributions

(a) Income Tax

Tekući porezi

Income tax represents an amount that is calculated and paid in accordance with the effective Law on Corporate Income Tax of the Republic of Serbia. During the year the Group pays income tax in advance monthly instalments, estimated on the basis of the prior year tax return. The final taxable profit, which is subject to corporate income tax rate of 15%, is determined in the Group’s tax balance sheet.

In order to arrive at the taxable profit, the accounting profit is adjusted for certain permanent differences and reduced for certain investments made during the year, as shown in the annual tax balance sheet. Tax balance sheet is submitted within 180 days after the expiry of the period for which tax is assessed.

In accordance with the Law on Corporate Income Tax of the Republic of Serbia, tax credit are recognised in the amount equal to 20% of the investment in property and equipment, with the maximum that cannot exceed 33% of the calculated profit in the year when the investment was made. Unused portion of tax credit can be carried forward toward settlement of income tax in subsequent tax periods up to the limit of 33%, but not longer than within ten years.

The tax regulations in the Republic of Serbia do not permit that any tax losses of the current period be used to recover taxes paid within a specific carry back period. However, any current period losses may be used to reduce taxes to be paid in future periods, but only for duration of up to 5 ensuing years.

The Group does not prepare a consolidated tax balance sheet. All members of the Group prepare their individual tax balance sheets.

Deferred Income Tax

Deferred income taxes are calculated according to the liabilities method in respect of the balance sheet for the temporary differences arising on the balance sheet date between the carrying value of assets and liabilities in financial statements and their taxable amount. The tax rate that will apply in the forthcoming maintenance periods was used for the calculation of deferred taxes.

Deferred tax liabilities are recognised for all taxable temporary differences, except where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated

with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

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

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

Current and deferred taxes are recognised as income or expense and are included in net profit/(loss) for the period.

Deferred income taxes related to items that

are directly credited/charged to equity are also charged/credited to equity.

(b) Taxes and Contributions Not Related to Operating Result

Taxes and contributions that are not related to the operating result include property taxes, value added tax, contributions on salaries borne by the employer and various other taxes and contributions paid pursuant to republic and local tax regulations. These taxes and contributions are included within other operating expenses (Note 13).

2.4.21. Earnings per Share

Basic earning per share is calculated by dividing the net profit attributable to shareholders, owners of ordinary shares of the Group, by the weighted average number of ordinary shares in issue during the year.

2.4.22. Funds Managed on Behalf of Third Parties

The funds that the Group manages, against consideration, on behalf of and for the account of third parties are disclosed within off-balance sheet items of the Group (Note 35). The Group bears no risk in respect of these placements.


3. SEGMENT REPORTING

In line with the requirements of IFRS 8.22 the Group must disclose its operation by operating segments. The Group management monitors its operation through the following three segments Retail customers, Corporate customers and Banks. For the purposes of segment reporting, the Corporate banking segment, in addition to working with legal entities, also includes working with customers belonging, by their sector structure, to the financial services sector other than banks which are disclosed in a separate item. The Group management monitors the results of operation by segment at the level of the entire balance sheet. The items which are currently not managed by segments but at the Group level are disclosed in the table under the category Unallocated.

Retail customers

Corporate customers Banks Unallocated Total 2013

ASSETS

Cash and cash equivalents - - 9,624,620 16,806,765 26,431,385Revocable deposits and loans - - 22,873,391 - 22,873,391Interest, fees and commissions receivable, changes in fair value of derivatives and other receivables

92,135 960,687 12,172 - 1,064,994

Loans and deposits 58,230,241 88,151,704 - - 146,381,945Securities (excluding own shares) 12,293 13,809,722 - - 13,822,015Other placements 910,204 8,287,303 - - 9,197,507Intangible assets - - - 450,582 450,582Property and equipment, and investment property - - - 2,060,585 2,060,585

Deferred tax assets - - - 486,447 486,447Other assets 788,746 256,467 169,463 886,926 2,101,602Equity Investments in Associates accounted under Equity Method - 174,592 - - 174,592

Total 60,033,619 111,640,475 32,679,646 20,691,305 225,045,045

Retail customers


LIABILITIESTransaction deposits 4,880,472 23,248,210 762,450 - 28,891,132Other deposits 58,450,279 23,391,744 10,085,808 - 91,927,831Borrowings 3,590 7,715,777 43,180,214 - 50,899,581Liabilities arising from securities - - - 1,700,004 1,700,004Interest, fees and commissions payable and changes in fair value of derivatives

- 96 - - 96

Provisions 6,857 840,481 8,460 244,270 1,100,068Tax liabilities - - - 52,520 52,520Other liabilities 198,563 729,043 13,858,231 2,518,857 17,304,694Equity - - - 33,169,119 33,169,119

Total 63,539,761 55,925,351 67,895,163 37,684,770 225,045,045

Retail customers


AssetsCash and cash equivalents - - 2,402,100 13,308,459 15,710,559Revocable deposits and loans - - 18,892,815 - 18,892,815Interest, fees and commissions receivable, changes in fair value of derivatives and other receivables

56,368 643,339 10,259 - 709,966

Loans and deposits 44,796,438 103,976,023 - - 148,772,461Securities (excluding own shares) 16,388 9,154,818 - - 9,171,206Other placements 731,604 8,173,971 - - 8,905,575Intangible assets - - - 449,367 449,367Property and equipment, and investment property - - - 2,114,935 2,114,935

Deferred tax assets - - - 77,605 77,605Other assets 356,300 37,926 2,326 1,179,344 1,575,896Equity Investments in Associates accounted under Equity Method - 207,745 - - 207,745

Total 45,957,098 122,193,822 21,307,500 17,129,710 206,588,130

Retail customers


LiabilitiesTransaction deposits 3,446,291 15,718,515 702,322 - 19,867,128Other deposits 48,761,154 16,613,919 27,501,187 - 92,876,260Borrowings 5,786 4,457,348 36,210,635 - 40,673,769Liabilities arising from securities - - - 1,700,022 1,700,022Interest, fees and commissions payable and changes in fair value of derivatives

- 79 - - 79

Provisions 6,927 754,780 10,320 191,934 963,961Tax liabilities - - - 38,115 38,115Other liabilities 148,734 481,505 13,823,841 2,024,010 16,478,090Equity - - - 33,990,706 33,990,706

Total 52,368,892 38,026,146 78,248,305 37,944,787 206,588,130


Retail customers



Interest income 5,557,378 8,118,059 956,246 2,166 14,633,849Interest expense (1,926,459) (2,278,752) (2,127,607) - (6,332,818)

Interest gains 3,630,919 5,839,307 (1,171,361) 2,166 8,301,031Fee and commission income 1,167,034 1,101,164 1,013,106 - 3,281,304Fee and commission expense (10,071) (612,427) (602,109) - (1,224,607)

Fee and commission gains 1,156,963 488,737 410,997 - 2,056,697

Net foreign exchange (losses)/gains (161,918) (159,635) (510,026) (49,335) (880,914)Other operating income 50,520 431,695 1,030 112,074 595,319Net expenses on indirect write-off of lending and provisions 252,368 (6,201,766) (99,518) (6,048,916)

Salaries, employee benefits and other personal expenses (1,537,474) (669,226) (151,676) (329,836) (2,688,212)

Depreciation expense (170,171) (20,009) (878) (256,947) (448,005)Operating and other expenses (1,501,461) (195,743) (10,680) (1,438,019) (3,145,903)Income from changes in value of assets and liabilities 2,179,482 3,319,812 2,763 1,361,333 6,863,390

Expense on change in value of assets and liabilities (1,692,057) (3,078,020) (1,242) (1,216,154) (5,987,473)

PROFIT FROM REGULAR OPERATIONS 2,207,171 (244,848) (1,431,073) (1,914,236) (1,382,986)

Gains from created deferred tax assets and reduction of deferred tax liabilities - - - 408,796 408,796

PROFIT (LOSS) 2,207,171 (244,848) (1,431,073) (1,505,440) (974,190)

Retail customers



Interest income 4,344,423 8,492,238 539,841 - 13,376,502Interest expense (2,319,077) (1,560,733) (2,369,135) - (6,248,945)

Interest gains 2,025,346 6,931,505 (1,829,294) - 7,127,557

Fee and commission income 1,019,392 1,028,504 1,805,851 - 3,853,747Fee and commission expense (5,816) (384,732) (1,329,467) - (1,720,015)

Fee and commission gains 1,013,576 643,772 476,384 - 2,133,732

Net foreign exchange (losses)/gains - - - (8,741,573) (8,741,573)Other operating income 11,083 20,075 - 57,882 89,040Net expenses on indirect write-off of lending and provisions (317,210) (3,050,170) - (85,515) (3,452,895)

Salaries, employee benefits and other personal expenses (1,319,276) (683,986) (130,592) (454,917) (2,588,771)

Depreciation expense (163,461) (28,685) (729) (251,656) (444,531)Operating and other expenses (1,349,804) (171,117) (10,599) (1,500,551) (3,032,071)Income from changes in value of assets and liabilities - - - 18,187,335 18,187,335

Expense on change in value of assets and liabilities - - - (9,159,042) (9,159,042)

PROFIT FROM REGULAR OPERATIONS (99,746) 3,661,394 (1,494,830) (1,948,037) 118,781

Income tax - - - (73,389) (73,389)Gains from created deferred tax assets and reduction of deferred tax liabilities - - - 43,564 43,564

PROFIT (99,746) 3,661,394 (1,494,830) (1,977,862) 88,956

4. INTEREST INCOME AND EXPENSES

Interest incomeIn RSD thousand

2013 2012

Interest income on loans 11,335,104 10,685,171Interest income on deposits 244,635 206,396Interest income on securities 23,471 32,922Interest income on reverse repo transactions 519,303 302,872Interest income on government treasury notes 1,179,165 833,498Interest income on other investments 942,214 780,961Interest income on foreign currency loans 388,172 476,247Interest income on foreign currency deposits 1,629 784Interest income on foreign currency government treasury notes 156 57,651

Total Interest Income 14,633,849 13,376,502

Interest expensesIn RSD thousand

2013 2012

Interest expenses on loans (221,655) (242,876)Interest expenses on deposits (1,575,341) (1,046,970)Interest expenses on securities – bonds issued (286,119) (177,031)Interest expenses on other liabilities (2,853) (9,044)Interest expenses on foreign currency loans (1,723,621) (1,651,365)Interest expense on foreign currency deposits (2,523,227) (3,121,634)Interest expenses on other liabilities in foreign currency (2) (34)

Total Interest expenses (6,332,818) (6,248,945)

Interest gains 8,301,031 7,127,557


Interest income from and interest expenses to customers are presented in the following table:

Interest incomeIn RSD thousand

2013 2012

Affiliated banks 1,969 553Other associated entities 4,332 118Other banks and financial institutions 667,959 315,793National Bank of Serbia 930,052 514,074Companies 5,831,910 6,584,042Public sector 1,501,918 1,403,634Entrepreneurs 95,782 66,183Retail customers 5,460,628 4,277,852Non-residents 30,046 15,547Other customers 109,253 198,706

Total income 14,633,849 13,376,502

Interest expense

Affiliated banks (1,446,424) (1,728,089)Other associated entities (10,210) (29,252)Other banks and financial institutions (533,919) (411,366)National Bank of Serbia - (3,673)Companies (1,660,909) (1,246,203)Public sector (70,899) (8,773)Entrepreneurs (828) (2,436)Retail customers (1,820,714) (2,157,847)Non-residents (743,097) (652,921)Other customers (45,818) (8,385)

Total expenses (6,332,818) (6,248,945)

Interest gains 8,301,031 7,127,557

5. FEE AND COMMISSION INCOME AND EXPENSE

In RSD thousand

2013 2012

Fee and commission income

Domestic payment transactions 259,771 201,566International payment transactions 260,421 230,995Purchase and sale of foreign exchange 1,050,635 1,857,314Loan operations 60,197 45,540Payment card operations 440,987 378,968Guarantees and other surety operations 385,399 466,751Funds managed on behalf of third parties 22,258 13,102Issue of own bonds - 114Other fees and commissions 801,636 659,397

Total fee and commission income 3,281,304 3,853,747

Fee and commission expense

Domestic payment transactions (48,989) (37,346)International payment transactions (6,000) (4,417)Purchase and sale of foreign exchange (490,836) (1,216,006)Loan fees and commissions (183,523) (33,503)Payment card operations (187,217) (147,952)Brokerage fees and commissions (196) (136)Issue of own bonds - (826)Other fees and commissions (307,846) (279,829)

Total fee and commission expenses (1,224,607) (1,720,015)

Fee and commission gains 2,056,697 2,133,732


6. NET FOREIGN EXCHANGE INCOME AND EXPENSES

In RSD thousand

2013 2012

Foreign exchange gains 32,247,938 70,407,874Foreign exchange losses (33,128,852) (79,149,447)

Net foreign exchange (losses) / gains (880,914) (8,741,573)

7. OTHER OPERATING INCOME

In RSD thousand

2013 2012

Lease income 11,770 10,443Proceeds from sale of property and equipment and intangible assets 147 3,512

Proceeds from collected receivables written-off 65 181Surpluses 23,005 255Other income 560,332 74,649

Total other operating income 595,319 89,040

8. NET EXPENSES ON INDIRECT WRITE-OFFS OF PLACEMENTS AND PROVISIONS

In RSD thousand

2013 2012

Expenses of indirect write-offs of placements and provisions

Interest and fees receivable (Note 17) (443,458) (375,669)Loans and deposits (Note 18) (9,355,548) (4,988,391)Investments in held-to-maturity securities (Note 19) (67,430) (16,564)Equity investments (39,860) -Other placements (Note 21) (1,336,122) (860,288)Other assets (Note 24) (76,975) (25,129)

(11,319,393) (6,266,041)

Expenses on provisions for losses on off-balance sheet assets (Note 30) (1,490,845) (996,797)

Expenses on provisions for liabilities - (343)Expenses on provisions for employee benefits (Note 30) (138,608) (85,514)Expenses on provisions for legal proceedings (Note 30) (791) -Expenses on collected suspended interest (100,600) (110,187)Total expenses of indirect write-offs of placements and provisions (13,050,237) (7,458,882)

Income from reversal of indirect write-offs of placements and provisionsInterest and fees receivable (Note 17) 291,868 246,981Loans and placements to customers (Note 18) 4,931,261 2,568,826Other placements (Note 21) 315,171 264,639Investments in held-to-maturity securities (Note 19) 40,656 15,985Other assets (Note 24) 14,974 4,382

5,593,930 3,100,813

Income from reversal of provisions for off-balance sheet items (Note 30) 1,319,552 902,144

Income from reversal of provisions for employee benefits 79,741 -Income from reversal of provisions for liabilities 343 -Income from collected suspended interest 7,755 3,030

Net (expenses) on indirect write-off of placements and provisions (6,048,916) (3,452,895)


9. SALARIES, EMPLOYEE BENEFITS AND OTHER PERSONAL EXPENSES

In RSD thousand

2013 2012

Salaries 1,681,372 1,618,597Employee benefits 198,096 200,105Taxes on salaries and employee benefits 273,041 301,529Contributions on salaries and employee benefits 460,341 411,760Compensation for temporary and casual work 32,905 16,150Other personal expenses 42,457 40,630

Total salaries, employee benefits and other personal expenses 2,688,212 2,588,771

10. DEPRECIATION COSTS

In RSD thousand

2013 2012

Depreciation costs: – Property and equipment (Note 22) 298,787 295,878 – Intangible assets (Note 22) 149,218 148,653

Total depreciation costs 448,005 444,531

11. OPERATING AND OTHER BUSINESS EXPENSES

In RSD thousand

2013 2012

Non-material costs 544,638 459,820Insurance costs 330,450 299,568Contributions 487,809 471,770Lease for branch offices 412,514 413,120Advertising and promotion 142,730 175,756Material costs 146,200 136,308Property and equipment maintenance costs 136,398 133,005Technical support costs 148,972 129,364Production services 290,567 204,770PTT services 148,436 146,487Refunded fee costs 87,189 212,617Other expenses 62,141 56,655Telecommunication services 45,829 42,052Other production services 15,656 12,310Taxes 56,650 38,422Other lease costs 23,658 28,225Expenses from write-off of uncollectible receivables 59,594 13,614Losses from decommissioning and write-off of property, equipment and intangible assets 4,189 55,510

Losses from sale of property and equipment and intangible assets - 251Professional literature 2,283 2,439Shortages and damages 8

Total operating and other business expenses 3,145,903 3,032,071

12. GAINS AND LOSSES FROM CHANGE IN VALUE OF ASSETS AND LIABILITIES

In RSD thousand

2013 2012

Gains from:– change in value of assets 6,784,919 17,165,899– change in value of liabilities 78,471 1,021,436

Total gains from changes in value of assets and liabilities 6,863,390 18,187,335

Losses from:– change in value of assets (5,925,885) (8,034,304)– change in value of liabilities (61,588) (1,124,738)

Total losses from changes in value of assets and liabilities (5,987,473) (9,159,042)

Net gains / (losses) on change in value of assets and liabilities 875,917 9,028,293

13. INCOME TAX

In RSD thousand

2013 2012

Components of Income TaxCurrent income tax - (73,389)

Gains from created deferred tax assets and reduction of deferred tax liabilities 408,796 43,564

Total income tax 408,796 (29,825)

Reconciliation of income tax and operating results before tax

In RSD thousand

2013 2012

Profit (loss) before tax (1,382,986) 118,781

Income tax calculated at the rate of 15% (202,658) 11,878Tax effects of expenses not recognised in the tax balance sheet 80,471 29,593

Tax effects from income reconciliation (253,800) -Transfer price income - 5,546Used tax credit on investments in property and equipment - (31,176)Unused tax credit on investments in property and equipment (40,716) -Tax effect of interest on borrowing from the associated company exceeding the level recognised in the tax balance sheet.

7,372 11,098

Tax effects of the share in the loss of associated entities - 2,274Other 535 612

Income Tax (408,796) 29,825

Effective interest rate 0.00% 25.11%


In RSD thousand

2013 2012

Deferred tax assets from difference between the net carrying amount of property and equipment and net tax value of property and equipment 77,566 58,881Deferred tax assets from accrued outstanding liabilities to government 11,780 10,366Deferred tax assets from calculated unpaid severance pays 9,144 8,610Deferred tax assets from investments in property and equipment 40,716 -Deferred tax assets from tax loss 346,490 -Other 751 (252)

Balance as at 31 December 486,447 77,605

Movements in deferred tax assets during the year are presented in the following table:

In RSD thousand

Deferred tax assets Deferred tax liabilities

Income statement

Effects in equity

Deferred tax assets

Deferred tax liabilities

Income statement Effects in equity

2013 2013 2013 2013 2012 2012 2012 2012

Temporary differences:Between net carrying amount of property and equipment and net tax value of property and equipment

77,567 ‘- 19,619 - 58,881 - 34,285 -

Other temporary differences 23,889 - (15,065) - 18,976 - 9,340 -

Tax credit from tax loss 343,524 - 364,061 - - - - -

Unused tax credits which may be carried forward 41,613 - 40,181 - - - - -

Other (146) - - 45 (252) - (61) (129)

Balance as at 31 December 486,447 - 408,796 45 77,605 - 43,564 (129)


14. EARNINGS PER SHARE

Pursuant to the decision of the Business Registers Agency No. BD 165078/2006 dated 13 October 2006, the Bank was registered as a closed joint stock company. Therefore, the Bank is not required to calculate and disclose earnings per share in accordance with the requirements of IAS 33 “Earnings per Share“.

15. CASH AND CASH EQUIVALENTS

In RSD thousand

2013 2012

Cash on hand – In dinars 1,492,134 1,060,749 – In foreign currency 722,213 747,150

Gyro accountForeign currency accounts maintained with: – Other banks within the Societe Generale Group 136,984 386,452 – Central Securities Depository and Clearing House 4,938 8,808 – Other banks abroad 9,487,626 2,015,632

Balance as at 31 December 26,431,385 15,710,559

Required reserve in dinars represents the minimum reserve in dinars allocated in accordance with the Decision of the National Bank of Serbia on Banks' Required Reserves (Official Gazette of the Republic of Serbia, Nos 3/2011, 31/2012, 57/2012, 78/2012, 87/2012, 107/2012 and 62/2013) which sets forth that banks must calculate the required reserve in dinars at the rate of 5% on the daily average of reservable dinar liabilities, excluding foreign currency clause-indexed dinar liabilities, maturing in less than two years and at the rate of 0% daily average of reservable dinar liabilities, excluding foreign currency clause-indexed dinar liabilities, maturing in over two years, during a calendar month.

The Bank must keep the average daily balance of the allocated required reserve in dinars in its gyro-account within the maintenance period.

The calculated required dinar reserve which had to be kept in the gyro-account in the maintenance period from 18 December 2013 to 17 January 2014 amounted to RSD 10,361,267 thousand and complied with the mentioned Decision of the National Bank of Serbia.

The average interest rate on the amount of allocated dinar reserve in 2013 equalled 2.50% on the annual level.

16. REVOCABLE DEPOSITS AND LOANS

In RSD thousand

2013 2012

Required foreign currency reserve 17,873,391 15,892,815Receivables from the National Bank of Serbia on reverse repo transactions 4,000,000 3,000,000

Other short-term deposits– In dinars 1,000,000


Required foreign currency reserve represents the minimum reserve in foreign currency allocated in accordance with the Decision of the National Bank of Serbia on Banks‘ Required Reserves (Official Gazette of the Republic of Serbia, Nos 3/2011, 31/2012, 57/2012, 78/2012, 87/2012, 107/2012 and 62/2013) which sets forth that banks shall calculate required foreign currency reserve at the rate of 29% on the daily average of reservable foreign currency liabilities maturing in less than two years and at the rate of 22% on the daily average of reservable foreign currency liabilities, with an obligation to allocate required reserve on the amount of foreign currency clause-indexed dinar liabilities, regardless of their maturity, at the rate of 50% during a calendar month.

Furthermore, 32% of the calculated required foreign currency reserve for foreign currency liabilities with initial maturity of up to 2 years and 24% of the calculated required foreign currency reserve for foreign currency liabilities

with initial maturity of over 2 years are translated into dinars and the exchange rate valid on the reporting date and, hence, allocated in dinars.

The calculated required foreign currency reserve for the period 18 December 2013 – 17 January 2014 was in compliance with the above Decision of the National Bank of Serbia and amounted to EUR 170,462 thousand.

The National Bank of Serbia does not pay interest on the average balance of allocated required foreign currency reserve.

Receivables on reverse repo transactions in the amount of RSD 4,000,000 thousand as at 31 December 2013 (31 December 2012 in the amount of RSD 3,000,000 thousand) refer to funds invested in treasury bills, which are debt securities issued by the National Bank of Serbia that mature within 7-8 days and earn interest of 7,42%% on annual level.


17. RECEIVABLES FROM INTEREST, FEES, DISPOSALS, CHANGES IN FAIR VALUE OF DERIVATIVES AND OTHER RECEIVABLES

In RSD thousand

2013 2012

Calculated interest due: – In dinars 1,651,313 1,155,237 – In foreign currency 24,709 368

1,676,022 1,155,605

Fees receivable: – In dinars 220,436 125,699 – In foreign currency 1,133 42

221,569 125,741

Less: Allowance for impairment (832,597) (571,380)

Balance as at 31 December 1,064,994 709,966

Movements in allowance for impairment of interest and fees during the year were as follows:

In RSD thousand

2013 2012

Balance as at 1 January 571,380 424,921Charge for the year (Note 8) 443,458 375,669Reversal of impairment losses (Note 8) (291,868) (246,981)Exchange rate differentials (57) 17,771Direct write-offs (24,914) -Other changes 134,598


In RSD thousand

2013 2012

In dinars

Other banks and financial institutions 673,750 290,022National Bank of Serbia 10,268 9,768Entrepreneurs 45,302 16,346Companies 740,515 663,794Public sector 23,330 8,530Retail customers 340,036 290,425Non-residents 1,577 1,011Other customers 36,971 1,040

1,871,749 1,280,936

In foreign currencyAffiliated banks 1,118 25Entrepreneurs 20 -Companies 23,907 334Non-residents 797 51

25,842 410



18. LOANS AND DEPOSITS

(a) Summary by Type of Lending

In RSD thousand

2013 2012

Lending in dinarsOverdrafts 4,789,344 5,687,490Consumer loans 3,183,361 3,762,990Loans for working capital 74,435,701 82,258,482Export loans 459,494 1,611,053Investment loans 18,162,719 14,152,594Housing loans 35,565,303 26,264,279Other loans 19,146,160 14,312,746

155,742,082 148,049,634

Lending in foreign currency

Loans for payment of imported goods and services 3,999,846 5,834,619Other loans 891,571 1,326,581

4,891,417 7,161,200

Total lending 160,633,499 155,210,834

Less: Allowance for impairment (14,251,554) (6,438,373)

Net lending to customers 146,381,945 148,772,461

Loans to corporate customers were mainly granted for financing of daily liquidity (current account overdrafts), purchase of fixed assets, imports and for financing of investments. Short-term loans were granted with maturities ranging from 30 days to 1 year, and long-term loans with maturity term over 1 year. Interest on loans granted in 2012 was calculated at interest rate equal to one-month, three-month or six-month Euribor or Libor increased on average by 4.71% p.a. for loans with currency clause, and for loans in dinars equal to one-month and three-month Belibor increased on average by 1.25% per annum.

During 2013, long-term loans for acquisition of residential premises were granted to retail customers with maturity terms ranging from 5 to 25 years. The Bank's rate for housing loans with variable interest rate in 2013 was based on six-month Euribor increased by 4.25%–4,85% and 5.75%–6.90% for loans with fixed interest

rate. The Bank also offers long-term loans in dinars for purchase of residential premises with maturity term between 5 and 25 years and with interest rate based on six-month Belibor increased by 4.75% to 5.00%.

In 2013 the Bank also granted loans to small businesses, entrepreneurs and registered farm households. Interest rate on short-term loans for working capital financing ranged from 8.50% to 17.75% p.a. for loans indexed to EUR and from 16,00% to 24.50% for loans in dinars with maturities up to 2 years, while long-term investment loans were granted at interest rates based on six-month Euribor increased by 7.95% to 14.25% p.a. Subsidised loans were granted in February and March 2013, and co-financed loans with fixed interest rate of 7.8% in June, July and August.


(b) Summary of Loans and Deposits by Type of Borrower

In RSD thousand

2013 2012

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

In dinarsLoans and placements: - Banks and financial institutions 804,903 2,542,479 3,347,382 1,375,803 1,761,996 3,137,799 - Companies 38,934,029 50,579,665 89,513,694 36,352,383 61,116,302 97,468,685 - Entrepreneurs 404,029 710,223 1,114,252 210,828 363,421 574,249 - Retail customers 4,143,035 55,425,855 59,568,890 3,174,904 42,647,545 45,822,449 - Public sector 43,680 1,025,413 1,069,093 8,492 804,518 813,010 - Non-residents 4,096 131,656 135,752 2,803 106,852 109,655 - Other customers 824,813 168,206 993,019 61,755 62,032 123,787

Total in dinars 45,158,585 110,583,497 155,742,082 41,186,968 106,862,666 148,049,634

In foreign currency

Loans and placements: - Companies 656,844 3,169,173 3,826,017 711,587 5,009,313 5,720,900 - Entrepreneurs 1,865 - 1,865 - - - - Public sector - 891,572 891,572 - 1,326,581 1,326,581 - Non-residents 171,963 - 171,963 113,719 - 113,719

Total in foreign currency 830,672 4,060,745 4,891,417 825,306 6,335,894 7,161,200

Total placements to customers 45,989,257 114,644,242 160,633,499 42,012,274 113,198,560 155,210,834

Allowance for impairment (8,995,040) (5,256,514) (14,251,554) (4,914,334) (1,524,039) (6,438,373)

Balance as at 31 December 36,994,217 109,387,728 146,381,945 37,097,940 111,674,521 148,772,461

Loans with foreign currency clauses are included in loans and deposits in dinars.

(c) Movements in Allowance for Impairment of Loans and Deposits

In RSD thousand

2013 2012Balance as at 1 January 6,438,373 3,848,520Charge for the year (Note 8) 9,355,548 4,988,391Reversal of impairment losses (Note 8) (4,931,261) (2,568,826)Exchange rate differentials 89,675 170,493Other changes 3,611,080 -Direct write-offs (311,861) (205)



(a) Summary of Allowance for Impairment of Loans and Deposits by Type of Borrower

In RSD thousand

Banks and financial institutions Companies Entrepreneurs Retail customers Public sector Non-residents Other customers Total

Opening balance 1 January 2013 24,490 4,695,241 45,342 1,663,022 5,285 2,302 2,691 6,438,373

New provisions 211,414 7,059,948 206,220 1,101,551 48,324 2,243 718,848 9,355,548Reversal of provisions (117,203) (2,897,361) (170,122) (1,512,125) (3,781) (1,465) (229,203) (4,931,260)Exchange rate differentials 2,539 75,059 847 5,543 106 14 5,567 89,675Other changes 1,076 2,121,402 334,889 906,901 18,860 - 227,951 3,611,079Direct write-offs - (311,861) - - - - - (311,861)Balance as at 31 December 2013 122,316 10,742,428 417,176 2,171,892 68,794 3,094 725,854 14,251,554

Individual provisions 104,542 9,817,659 389,753 1,884,099 16,363 1,070 707,096 12,920,582

Collective provisions 17,774 924,769 27,423 287,793 52,431 2,024 18,758 1,330,972

In RSD thousand

Banks and financial institutions Companies Entrepreneurs Retail customers Public sector Non-residents Other customers Total

Opening balance 1 January 2012 12,583 2,398,332 46,508 1,385,529 3,740 1,812 16 3,848,520

New provisions 52,544 3,931,162 33,451 966,035 2,819 2,335 45 4,988,391Reversal of provisions (44,517) (1,850,240) (32,931) (638,425) (999) 1,690) (24) (2,568,826)Exchange rate differentials (1,141) 223,868 (1,686) (50,117) (275) (155) (1) 170,493Direct write-offs - (205) - - - - - (205)Balance as at 31 December 2012 19,469 4,702,917 45,342 1,663,022 5,285 2,302 36 6,438,373

Individual provisions - 4,077,089 41,075 1,342,636 - 1,194 - 5,461,994

Collective provisions 19,469 625,828 4,267 320,386 5,285 1,108 36 976,379


19. SECURITIES

In RSD thousand

2013 2012

In dinarsSecurities available for sale 13,735,477 7,756,036Securities held to maturity 113,991 278,738

In foreign currencySecurities available for sale 1,954 1,139,065

13,851,422 9,173,839Less: Allowance for impairment (29,407) (2,633)


Summary of securities available for sale by type of securities:

In RSD thousand

2013 2012

Securities available for saleBeogradska berza (Belgrade Stock Exchange) 906 906Tržište novca (Money market) 89 89Swift 1,954 2,245Government bills of the Republic of Serbia 13,734,482 8,891,861Less: Allowance for impairment of Money market securities (89) (89)

Net securities available for sale 13,737,342 8,895,012

Securities held to maturity

Discounted bills 113,991 278,738Less: Allowance for impairment (29,318) (2,544)

Net securities held to maturity 84,673 276,194


Promene na računima ispravke vrednosti prikazane su u sledećoj tabeli:

In RSD thousand

2013 2012

Securities held to maturity

Other securities available for

saleTotal Securities held

to maturity

Other securities available for

saleTotal

Balance as at 1 January 2,544 89 2,633 1,965 89 2,054

Charge for the year (Note 8) 67,430 - 67,430 16,564 - 16,564

Impairment allowance reversal (Note 8)

(40,656) - (40,656) (15,985) - (15,985)

Balance as at 31 December 29,318 89 29,407 2,544 89 2,633

20. EQUITY INVESTMENTS IN ASSOCIATES ACCOUNTED UNDER EQUITY METHOD

The Group owns 49% of equity interest in associated legal entities Voluntary Pension Fund Management Company Societe Generale Penzije a.d. Beograd and Life-Insurance Company Societe Generale Osiguranje a.d. Beograd.

The following table summarises financial information concerning the Group’s equity investments in associates:

Voluntary Pension Fund Management Company Societe Generale Penzije a.d. Beograd

Voluntary Pension Fund Management Company Societe Generale Penzije a.d. Beograd

31 Dec. 13 31 Dec. 12

Fixed assets - 1,037Current assets 60,492 60,759Long-term liabilities - 317Short-term liabilities 3,270 2,987Equity 57,222 58,491Loss of the current year (1,269) (11,707)

31 Dec. 13 31 Dec. 12

Group’s equity investment in the associated legal entity 56,826 58,095

Life-Insurance Company Societe Generale Osiguranje a.d. Beograd

31 Dec. 13 31 Dec. 12

Fixed assets 87,884 7,380Current assets 156,120 7,380Long-term liabilities 76,669 39,222Short-term liabilities 9,709 11,079Equity 157,626 149,650Profit (loss) of the current year 7,976 (11,029)

31 Dec. 13 31 Dec. 12

Group’s equity investment in the associated legal entity 157,626 149,650


21. OTHER PLACEMENTS

In RSD thousand2013 2012

Acquired placements – forfeiting in dinars 351,282 -Acquired placements – factoring in dinars 3,608,6i40 3,621,120Placements arising from acceptances, backings and payments under guarantees in foreign currency 2,004,586 1,665,885

Placements arising from acceptances, backings and payments under guarantees in dinars 799,910 684,271

Other placements in dinars 4,920,433 4,546,504Other placements in foreign currency 4,586 4,549

Total placements to customers 11,689,437 10,522,329

Less: Allowance for impairment (2,491,930) (1,616,754)


As at 31 December 2013, other placements include financial lease placements provided by subsidiary legal entity Sogelease Srbija d.o.o. Beograd in the amount of RSD 4,920,433 thousand, gross (31 December 2012: RSD 4,546,504 thousand).

Movements in allowance for impairment of other placements are presented in the following table:


Balance as at 1 January 1,616,754 967,064Charge for the year (Note 8) 1,336,122 860,288Reversal of impairment losses (Note 8) (315,171) (264,639)Exchange rate differentials 16,714 54,041Direct write-offs (240,829) -Other changes 78,340 -


In RSD thousand

2013 2012

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

In dinarsLoans and placements: - Banks and other financial institutions 81,946 - 81,946 81,946 - 81,946 - Companies 5,437,180 2,999,447 8,436,627 4,923,846 3,097,644 8,021,490 - Entrepreneurs 357,545 433,842 791,387 80,603 149,454 230,057 - Public sector 2,948 3,647 6,595 418 816 1,234 - Retail customers 104,072 80,674 184,746 171,745 342,450 514,195 - Other customers 176,807 2,157 178,964 908 2,065 2,973

Total in dinars 6,160,498 3,519,767 9,680,265 5,259,466 3,592,429 8,851,895

In foreign currencyLoans and placements: - Other banks and financial institutions 4,586 - 4,586 - - - - Companies 2,004,586 - 2,004,586 1,665,885 - 1,665,885 - Public sector - - - 4,549 - 4,549

Total in foreign currency 2,009,172 - 2,009,172 1,670,434 - 1,670,434

Total placements to customers 8,169,670 3,519,767 11,689,437 6,929,899 3,592,430 10,522,329Allowance for impairment (2,380,058) (111,872) (2,491,930) (1,554,020) (62,734) (1,616,754)


Summary of allowance for impairment of other placements by customer category

In RSD thousandBanks and financial

organisations Companies Entrepreneurs Retail customers

Other customers Total

Opening balance 1 January 2013 533 1,602,979 4,999 7,648 595 1,616,754

New provisions 13,561 1,158,403 25,772 19,432 118,954 1,336,122Reversal of provisions (850) (208,981) (182) (23,395) (81,853) (315,171)Exchange rate differentials - 17,628 - - (914) 16,714

Direct write-offs - (240,829) - - - (240,829)Other changes - (74,455) 31,655 121,140 78,340Balance as at 31 December 2013 13,244 2,254,835 30,589 35,340 157,922 2,423,930

Individual provisions 13,244 2,193,757 24,640 34,193 157,548 2,423,382Collective provisions - 61,078 5,949 1,147 374 68,548

In RSD thousandBanks and

financial organisations

Companies Entrepreneurs Public sector

Retail customers

Other customers Total

Opening balance 1 January 2012 - 958,880 4,883 15 3,271 15 967,064

New provisions - 854,491 591 586 4,588 32 860,288Reversal of provisions - (263,365) (475) (587) (211) (1) (264,639)

Exchange rate differentials - 54,041 - - - - 54,041

Direct write-offs - - - - - - -Balance as at 31 December 2012 - 1,604,047 4,999 14 7,648 46 1,616,754

Individual provisions - 1,542,959 2,527 - 3,690 - 1,549,176Collective provisions - 61,088 2,472 14 3,958 46 67,578


22. TANGIBLE AND INTANGIBLE ASSETS

In RSD thousand Buildings and structures Land Equipment and

other fixed assets

Investments in third party’s fixed

assets

Fixed assets under construction

Intangible investments under

constructionIntangible Assets Total

ACQUISITION COSTBalance as at 1 January 2012 1,786,010 71,049 1,403,583 484,144 104,012 39,771 1,013,185 4,901,754Increases during the year - - 1,079 - 250,332 54,992 38,733 345,136Transfers (from)/to - - 179,255 63,198 (256,436) (63,467) 77,450 -Disposals and write-offs - - (91,267) (7,576) - - (154,999) (253,842)Other - - 56,469 (29,214) (475) - (27,255) (475)

Balance as at 31 December 2012 1,786,010 71,049 1,549,119 510,552 97,433 31,296 947,114 4,992,573

Increases during the year - - 1,163 - 186,939 144,035 1,552 333,687Transfers (from)/to 99,268 - 165,293 26,904 (295,366) (81,992) 85,893 -Disposals and write-offs - - (97,266) (13,300) - - (10,834) (121,400)Transfers from prepayment - - - 63,698 1,707 - 65,407Other - - (74,856) (46,326) - - 121,182 -

Balance as at 31 December 2013 1,885,278 71,049 1,543,453 477,830 52,704 95,046 1,144,907 5,270,267

ACCUMULATED IMPAIRMENT ALLOWANCEBalance as at 1 January 2012 474,989 - 952,042 241,452 - - 492,441 2,160,924Depreciation (Note 10) 95,186 - 152,273 48,419 - - 148,653 444,531Disposals and write-offs - - (87,634) (4,754) - - (84,795) (177,183)Other - - 56,469 (29,214) - - (27,2550 -

Balance as at 31 December 2012 570,175 - 1,073,150 255,903 - - 529,044 2,428,272

Depreciation (Note 10) 96,407 - 155,001 47,378 - - 149,219 448,005Disposals and write-offs - - (96,835) (10,268) - - (10,074) (117,177)Other - - (74,856) (46,326) - - 121,182 -

Balance as at 31 December 2013 666,582 - 1,056,460 246,687 - - 789,371 2,759,100

Net book value as at:

– 31 December 2013 1,218,696 71,049 486,993 231,143 52,704 95,046 355,536 2,511,167

– 31 December 2012 1,215,835 71,049 475,971 254,649 97,434 31,296 418,068 2,564,302

“Other” refers to assets that are fully depreciated/amortised and their book value is zero, but are still in use. The Group does not have any buildings and structures that are pledged as collateral for loan repayment. Due to incomplete data in cadastral records, as at 31 December 2013 the Group does not have title deeds for buildings and structures with net book value of RSD 68,445 thousand. The Group’s management has taken all necessary steps to obtain title deeds.


23. DEFERRED TAX ASSETS

In RSD thousand

2013 2012

Deferred tax assets from difference between the net carrying amount of property and equipment and net tax value of property and equipment.

77,566 58,881

Deferred tax assets from accrued outstanding liabilities to government 11,780 10,366

Deferred tax assets from calculated unpaid severance pays 9,144 8,610Deferred tax assets from investments in property and equipment 40,716 -

Deferred tax assets from tax loss 346,490 -Other 751 (252)


The Group’s management believes that deferred tax assets as at 31 December have been recognised up to the amount for which it is probable that future taxable profit will be available against which tax assets could be utilised.

24. OTHER ASSETS

In RSD thousand

2013 2012

Receivables from advances for working capital 11,466 11,859Receivables from advances for non-current investments 564 5,222Receivables from employees 188 461Receivables from overpaid income tax 202,775 121,259Receivables from operating transactions with payment cards 773,433 315,751Other operating receivables* 256,731 332,196Receivables from advances for working capital in foreign currency 5,470 5,122Receivables from employees in foreign currency 13,069 12,342Other operating receivables in foreign currency 29,536 6,966Accrued receivables in foreign currency 2,985 3,947Deferred receivables for accrued interest 561,911 419,202Deferred receivables for other accrued income 6,336 11,567Other costs deferred 95,486 72,915Other deferred costs and accrued income 10,465 11,213Deferred receivables for accrued interest in foreign currency 54,436 95,862Deferred interest expenses 823 -Deferred costs for liabilities in foreign currency carried at amortised value applying effective interest rate 158,514 163,103

Deferred interest expenses in foreign currency 660 -Deferred other costs in foreign currency 36,188 46,251

2,221,036 1,635,238



* Out of the total amount of Other operating receivables, RSD 93,530 thousand (31 December 2012: RSD 228,587) refers to returned leased assets. The respective part of the allowance for impairment of these receivables amounts to RSD 5,982 thousand (31 December 2012: RSD 3.061).

Movements in allowance for impairment of other assets are presented in the following table:

In RSD thousand

2013 2012

Balance as at 1 January 59,342 37,649Charge for the year (Note 8) 76,975 25,129Reversal of impairment losses (Note 8) (14,974) (4,382)Exchange rate differentials 157 946Other changes 16 -Direct write-offs (2,082) -



25. TRANSACTION DEPOSITS

In RSD thousand

2013 2012

Transaction deposits in dinars 14,958,526 9,402,400Transaction deposits in foreign currency 13,932,606 10,464,728


In RSD thousand 2013 2012

in dinars In foreign currency total in dinars In foreign

currency total

- Other banks 90 - 90 - - - - Associated entities *11,508 14,526 26,034 - - - - Financial organisations 317,044 22,762 339,806 88,185 9,596 97,781 - Pension funds and pension

funds management companies

*1,311,305 53,780 1,365,085 720,982 221,882 942,864

- Insurance companies 120,679 16,314 136,993 23,643 22,495 46,138 - Holding companies 536,028 49,148 585,176 64,401 19,517 83,918 - Companies 8,553,576 11,036,374 19,589,950 5,912,161 7,067,636 12,979,797 - Entrepreneurs 301,619 32,754 334,373 152,393 21,624 174,017 - Retail customers 2,583,197 1,702,819 4,286,016 1,673,355 1,403,874 3,077,229 - Public sector 12,671 30,115 42,786 11,116 131,715 142,831 - Foreign banks 577,886 3,123 581,009 354,580 3,099 357,679 - Other non-residents 238,829 784,790 1,023,619 179,805 1,343,388 1,523,193 - Other customers 394,094 186,101 580,195 221,779 219,902 441,681


26. OTHER DEPOSITS

In RSD thousand

2013 2012

Savings deposits 1,678,447 936,949Deposits for loans granted 53,580 167,057Specific-purpose deposits 205,798 259,105Other deposits 14,623,125 8,728,537Savings deposits in foreign currency 55,949,230 47,185,366Deposits for foreign currency loans 10,716,793 12,697,500Specific purpose deposits in foreign currency 1,531,500 1,919,766Other deposits in foreign currency 7,169,358 20,981,980



Short-term Long-term total Short-term Long-term total

In dinarsSavings deposits: - Retail customers 1,575,363 55,312 1,630,675 904,146 9,495 913,641 - Non-residents 47,772 - 47,772 23,308 - 23,308Specific-purpose deposits 251,082 8,296 259,378 416,223 9,939 426,162Other deposits - Banks 329,501 - 329,501 210,892 - 210,892 - Other financial institutions 924,959 - 924,959 782,500 - 782,500 - Holding companies 191,010 - 191,010 223,909 - 223,909 - Public companies 166,029 - 166,029 125,000 - 125,000 - Public sector 72,276 - 72,276 74,509 - 74,509 - Companies 9,328,657 - 9,328,657 5,553,844 - 5,553,844 - Entrepreneurs 3,980 - 3,980 4,306 - 4,306 - Other customers 3,6,6,713 - 3,606,713 1,753,577 - 1,753,577

16,497,342 63,608 16,560,950 10,072,214 19,434 10,091,648

In foreign currencySavings deposits: - Retail customers 42,095,050 10,176,165 52,271,215 35,277,588 8,957,162 44,234,750 - Non-residents 2,704,336 973,679 3,678,015 2,168,865 781,751 2,950,616Specific-purpose deposits 5,904,392 6,343,901 12,248,293 9,273,674 5,343,592 14,617,266Other deposits: - Banks 47,090 - 47,090 33,291 - 33,291 - Other financial institutions 257,945 286,605 544,550 466,218 227,437 693,655 - Public companies 13,757 - 13,757 5,686 - 5,686 - Companies 5,764,541- 5,764,541 3,855,984 - 3,855,984 - Other customers 27,267 - 27,267 7,057 - 7,057 - Non-residents 644,327 126,106 770,433 16,318,209 68,098 16,386,307 - Retail customers 1,720 - 1,720 - - -

Total in foreign currency 57,460,425 17,906,456 75,366,881 67,406,572 15,378,040 82,784,612

Total other deposits 73,957,767 17,970,064 91,927,831 77,478,786 15,397,474 92,876,260


Interest rates on deposits in 2013 ranged in the following intervals:

TIME DEPOSITS

EURPERIOD Nominal interest rate (from – to)1-6 months 1.00% - 5.00%12-36 months – special product “Progressive Savings” 0.10% - 13.50%

USD

PERIOD Nominal interest rate (from – to)

1-6 months 1.00% - 4.25%12-36 months 2.00% - 5.00%

CHFPERIOD Nominal interest rate (from – to)1-6 months 0.25% - 2.75%12 months 1.00% - 3.00%

GBPPERIOD Nominal interest rate (from – to)1-6 months 0.75% - 4.25%12 months 1.50% - 4.50%

RSDPERIOD Nominal interest rate (from – to)1-6 months 8.75% - 11.50%12-24 months – special product “Progressive Savings” 9.75% - 17.75%

27. BORROWINGS

In RSD thousand

2013 2012

Loans maturing within one day (overnight) in dinars 4,011,604 2,440,866Other financial liabilities 6,732 26,069Loans maturing within one day (overnight) in foreign currency 541,657 3,820,446Borrowings in foreign currency 46,146,240 34,291,927Other financial liabilities in foreign currency 193,348 94,461


Borrowings in foreign currency are shown in the following table:

In RSD thousand

2013 2012

European Investment Bank (EIB) 11,143,520 6,931,153European Bank for Reconstruction and Development (EBRD) 13,220,691 8,680,918IFC 9,680,888 7,518,043KBC Banka NV Brussels 940,065 -Long-term borrowings from Societe Generale Paris 11,161,076 11,161,813


As at 31 December 2013, the outstanding balance of borrowings from the European Investment Bank (EIB) amounting to RSD 11,143,520 thousand (31 December 2012: 6,931,153 thousand) refers to:

� Loans for financing small- and medium-sized enterprises which mature up to the year 2023 at the interest rate 3M EURIBOR + 0.25% p.a. in the amount of RSD 2,750,202 thousand, APEX loans which mature up to the year 2022 at interest rate 3M / 6M EURIBOR + margin ranging from 0.96% to 1.27% p.a. in the amount of RSD 3,305,132 thousand and EIB loan taken on 25 October 2013 in the amount of RSD 3,038,561 thousand at interest rate 3m EURBOR / 6 M LIBOR + 0.133% (on LIBOR) up to 1.392% margin;

� Borrowings in the amount of 2,049,625 provided to subsidiary legal entity Sogelease Srbija a.d. Beograd at interest rate of 2.26% to 2.83% p.a. (31 December 2012 RSD 1,857,772 thousand).

Outstanding balance amounting to RSD 13,220,691 thousand as at 31 December 2013 refers to several long-term borrowings from the European Bank for Reconstruction and Development (EBRD) with maturity term from 2015 to 2018 at interest rate of 6M EURIBOR + margin ranging from 2.05% to 2.75% p.a. (31 December 2012: RSD 8,680,918 thousand).

As at 31 December 2013, the outstanding balance of the agribusiness loan line borrowed from IFC at interest rate 6M EURIBOR + 2.5% margin maturing in 2016 and 6M EURIBOR + 3% p.a. and maturing in 2017 amounts to RSD 9,680,888 thousand (31 December 2012: RSD 7,518,043 thousand).

As at 31 December 2013, the outstanding balance of long-term borrowings from Societe

Generale Paris in the amount of RSD 11,161,076 thousand (2012: 11,161,813 thousand) refers to:

� Long-term borrowings in the amount of RSD 8,856,770 thousand at a fixed interest rate ranging from 5.43% to 6.61% p.a. in the amount of 7,249,910 thousand or the variable interest rate ranging from 1.56% to 5.004% p.a. on the respective EURIBOR, in the amount of RSD 1,606,860 thousand, for a period of up to 2036 (31 December 2012: RSD 9,448,079).

� The long-term borrowings in the amount of RSD 2,304,306 thousand were provided for the purpose of financing the subsidiary legal entity Sogelease Srbija a.d Beograd for the period of 3 to 5 years and at interest rate ranging from 3.28% to 6.46% p.a. The repayment of the borrowings is made in annual instalments (31 December 2012: RSD 1,713,734).

An outstanding balance of RSD 940,065 thousand as at 31 December 2013 refers to long-term line borrowed from KBC Bank NV Brussels, which matures in August 2016 at interest rate of 6M EURIBOR + 0.775% margin p.a.


28. LIABILITIES ARISING FROM SECURITIES

In RSD thousand

2013 2012

Liabilities for own securities in dinars 1,700,000 1,700,000Liabilities for own securities in foreign currency 4 22


On 23 April 2012 the Bank issued 1,700,000 bonds of each with par value of RSD 1,000.00.

These long-term bonds were issued with 3-year maturity, they are transferable without restriction and are registered as inscribed securities with the Central Securities Depository and Clearing House.

Interest rate on bonds is variable and consists of a fixed and variable part. The variable part of the interest rate is equal to the reference interest rate of the National Bank of Serbia on a given date. The fixed rate is unchangeable if the bonds are held to maturity and equals 5.25% p.a. If the reference rate is determined for a period shorter than two weeks, the variable interest rate shall be increased by 0.15% p.a. The entire issue of bonds was successfully sold to professional investors.

29. INTEREST AND FEES PAYABLE AND CHANGES IN FAIR VALUE OF DERIVATIVES

In RSD thousand

2013 2012Interest and fees payable 96 79

Balance as at 31 December 96 79

30. PROVISIONS

In RSD thousand

2013 2012

Provisions for off-balance sheet exposures 855,797 772,021Provisions for employee benefits 243,480 191,597Provisions for legal proceedings 791 -Provisions for liabilities coverage - 343


Movements in provisions are presented in the following table:

In RSD thousand

2013 2012

Provisions for off-balance sheet exposures (a)Balance as at 1 January 772,021 638,685New provisions (Note 8) 1,490,845 996,797Reversal of provisions (Note 8) (1,319,552) (902,144)Exchange rate differentials 782 38,683Other changes (88,299) -


Provisions for employee benefits (b)Balance as at 1 January 191,597 113,764New provisions (Note 8) 138,608 85,514Reversal of provisions (Note 7) (79,741) -Provisions used (6,984) (7,681)


Provisions for liabilities coverage (c)Balance as at 1 January 343 -New provisions (Note 8) - 343Reversal of provisions (343) -

Balance as at 31 December - 343

Provisions for legal proceedings (d)Balance as at 1 January - -New provisions (Note 8) 791 -Reversal of provisions - -

Balance as at 31 December 791 -

(a) According to the Group’s internal policy, provision for risky off-balance sheet assets (guarantees, acceptances, L/Cs, undrawn credit facilities, etc.) is established when it is probable that potential commitments would have to be borne by the Group.

(b) Provision for employee benefits largely refer to provision for severance pay on employee’s retirement, as well as calculated amount of accumulated paid annual vacation leaves.


Provision for severance pay on employees’ retirement in the amount of RSD 60,952 thousand (2012: RSD 57,398 thousand) were established on the basis of the report of an independent actuary with the balance on the balance sheet date and are carried at present value of expected future payments. When determining the net present value of expected outflows, a 7% discount rate was applied, representing the adequate rate under IAS

19 “Employee Benefits”, in the absence of a developed market for high-quality corporate bonds.

As at 31 December 2013, the Group calculated the accumulated paid annual leaves in the amount of RSD 115,471 thousand (2012: RSD 115,471 thousand), which may be carried forward and used in the next period.

31. TAX LIABILITIES

In RSD thousand

2013 2012

VAT payable 27,056 13,846Other taxes and contributions payable 25,464 22,542


32. LIABILITIES FROM PROFIT

In RSD thousand

2013 2012

Corporate tax payable - 1,727

Balance as at 31 December - 1,727

33. OTHER LIABILITIESIn RSD thousand

2013 2012

Trade payables 114,818 85,276Liabilities with respect to receipts for transactions on behalf and for account of customers 102 7

Other operating liabilities 470,799 272,895Accrued liabilities 18,558 17,315Suspense and temporary account 133 1,611Net employee benefits 2,303 1,468Taxes on salaries and employee benefits 704 874Contributions on salaries and employee benefits 644 379Temporary and casual work 257 136Other liabilities due to employees 244 390Deferred liabilities for accrued interest 169,936 162,939Deferred interest income 113,818 120,295Deferred liabilities for other incurred costs 104,797 159,127Deferred income for receivables carried at amortised value applying effective interest rate 686,722 616,074

Deferred other income 83,848 62,243Other accruals and deferred income 8,031 405Trade payables in foreign currency 179,468 152,525Other operating liabilities in foreign currency 147,193 123,786Deferred liabilities for accrued interest in foreign currency 767,859 712,698Deferred liabilities for other accrued expenses in foreign currency 336,230 341,451Deferred interest income in foreign currency 340,335 -Deferred other income in foreign currency 843 -

3,547,642 2,831,894Subordinated liabilities in foreign currency 13,757,052 13,646,196


Subordinated liabilities in foreign currency amounting to RSD 13,757,052 thousand as at 31 December 2013 (31 December 2012: RSD 13,646,196) refer to subordinated liabilities to Societe Generale Paris as follows:

On 23 August 2005 a contract on subordinated loan was concluded with Societe Generale Paris in the amount of EUR 10,000 thousand with maturity up to 31 August 2015, at the 6M EURIBOR + 0.5% annual interest rate.

On 19 December 2007 the a Contract on subordinated loan was concluded with Societe Generale Paris in the amount of EUR 50,000 thousand with maturity up to 2012. In 2009, under an annex to the contract, the maturity was changed to until 19 June 2015. The agreed interest rate is 6M EURIBOR + 2.06% p.a.

On 23 September 2009 a contract on subordinated loan was concluded with Societe Generale Paris in the amount of EUR 35,000 thousand with maturity up to 30 March 2015, at the 6M EURIBOR + 2.64% annual interest rate.

On 21 December 2009 a contract on subordinated loan was concluded with Societe Generale Paris in the amount of EUR 25,000 thousand with maturity up to 23 December 2019, at the 6M EURIBOR + 2.47% annual interest rate.

Subordinated loans are recognised as supplementary capital up to 50% of core capital. The amount of the Bank’s subordinated liability included in its supplementary capital is reduced by 20% of the annual amount paid within the last five years prior to maturity of the liability; therefore, it may not be included in capital in the last year.


34. EQUITY

(a) Group’s Equity Structure

In RSD thousand

2013 2012

Share capital – ordinary shares (i) 23,723,021 23,723,021Share premium (ii) 1,253 1,253Other profit reserves 1,696,740 1,593,888Reserves from Profit for Estimated Losses (iii) 8,636,337 8,636,337Revaluation reserves for securities available for sale (iv) 109,821 6,882Profit / (Loss) of the current year (998,053) 29,325


(i) Share capital

The share capital consists of 5,331,016 shares with par value of RSD 4,450 per share. Out of this, one share is owned by Genebenque S.A, while 5,331,015 shares are owned by Societe Generale S.A. Paris.There was no new issuing of shares in 2013.

(ii) Premium on issue of shares

Share premium represents a positive difference between the achieved selling value of shares and their par value, as well as gains and losses resulting from trade in own shares.

(iii) Other Reserves from Profit

Other reserves from profit were established from profit in accordance with the decisions of the Bank's Shareholders Meeting. Other reserves from profit as at 31 December 2013 total RSD 1,696,740 thousand (31 December 2012: RSD 1,593,888 thousand).

(iv) Reserves from Profit for Estimated Losses

Reserves from profit are established in accordance with the regulations governing estimated losses, Articles of Association and other Bank acts. In accordance with the

applicable Decision on Classification, the Bank is not required to calculate the lacking amount of reserves from profit for estimated losses.

The established reserves from profit for estimated losses as at 31 December 2013 remained unchanged from previous year and total RSD 8,636,337 thousand. Other reserves from profit amount to RSD 1,696,740 thousand, making up the total amount of reserves from profit of RSD 10,330,077 thousand.

The required reserve from profit for estimated losses as at 31 December 2013 in the amount of RSD 11.928.836 thousand (2012: RSD 12.698.143 thousand) was calculated as a difference between the calculated special reserve for estimated losses and the established amount of impairment allowances for balance sheet assets and losses on off-balance sheet assets, in accordance with the Decision on Classification of Balance Sheet Assets and Off-balance Sheet Items (Official Gazette of the Republic of Serbia, Nos 94/2011, 57/2012, 123/2012, 43/2013 and 113/2013), issued by the National Bank of Serbia.

(v) Revaluation reserves

Revaluation reserves express the effects of changes in fair value of financial instruments available for sale.

(b) Bank’s Pe rformance Indicators – Compliance with Legal Regulations

The Group is required to reconcile the scope and the structure of its operations and risky placements with performance indicators prescribed by the Law on Banks and the relevant decisions of the National Bank of Serbia

issued on the basis of the mentioned Law. As at 31 December 201 the Bank’s performance indicators complied with all the prescribed values (Note 39).

35. OFF-BALANCE SHEET ITEMS

In RSD thousand

2013 2012

Funds managed on behalf of third parties (a) 3,437,079 2,826,282Guarantees and other irrevocable commitments (b) 66,171,299 57,229,969Derivatives (c) 10,668,413 799,820Other off-balance sheet items (d) 45185,755 42,558,848


(a) Funds Managed on Behalf of Third Parties

In RSD thousand

2013 2012

Balance at the beginning of year 2,826,282 2,020,512Increases during the year 610,797 805,770


(b) Guarantees and Other Irrevocable Commitments

In RSD thousand

2013 2012

Guarantees payable 4,367,502 2,405,938Performance bonds 8,588,323 7,558,882Acceptances 34,143 40,808Irrevocable commitments 16,667,696 11,387,990

in dinars 29,657,664 21,393,618

Guarantees payable 9,072,918 11,266,051Performance bonds 6,639,986 4,350,254

In foreign currency 15,712,904 15,616,305

Uncovered letters of credit 1,197,380 1,490,356Irrevocable commitments 19,603,351 18,729,690

20,800,731 20,220,046



(c) Derivatives

In RSD thousand

2013 2012

Currency forward contracts 562,112 404,902Currency swap contracts 10,106,301 394,918


d) Other Off-Balance Sheet Items

In RSD thousand

2013 2012

Received guarantees 16,410,470 17,129,829SPOT transactions 4,598,700 5,273,835Treasury notes on reverse repo transactions 4,000,000 3,000,000Unused credit lines 5,482,494 4,981,523Securities of custody clients 12,202,926 6,673,851Bonds for “old” foreign currency savings and shares 85,187 3,643,611Suspended interest 1,705,189 881,858Foreign cheques sent for collection 624,635 72,736Nostro letters of credit at sight 76,133 901,585Other 21 20


36. RELATED PARTY DISCLOSURES

In its regular course of business the Group performs usual operating transactions with its shareholders and other related parties, including the Group’s management and its related parties.

A summary of transactions with related parties in 2013 and 2012 is presented in the tables below:

2013 In RSD thousand

ASSETS

Related partiesCash

and cash equivalents

Interest and fees receivable

Loans and deposits

Other assets Total

Societe Generale Penzije a.d. - - - 3 3Societe Generale Osiguranje a.d.o. - 44 - 25,924 25,968Societe Generale Paris 92,432 1,226 - - 93,658Societe Generale Amsterdam Rembrandt - - - -

SKB Banka d.d., Ljubljana - 15 - - 15Societe Generale S.A. Frankfurt - - - - -Societe Generale Zweigniederlassung - - - - -Societe Generale Bruxelles - - - - -Societe Generale New York Mcgrow-Hil 44,552 - - - 44,552Societe Generale Podgorička Banka - - 66 66SG Maroco - - - - -Societe Generale Ohridska banka - - - 190 190ALD Automotive d.o.o., Beograd - - 57,321 - 57,321Bank’s Management - - 97,336 - 97,336

Balance as at 31 December 136,984 1,285 154,657 26,183 319,109


LIABILITIES

Related parties Transaction deposits

Other deposits Borrowings Other

liabilities Total

Societe Generale Penzije a.d. 10,694 112,504 - - 123,198Societe Generale Osiguranje a.d.o. 15,340 279,537 - 6,438 301,315Societe Generale Paris 575,127 8,947,485 11,161,076 14,012,319 34,696,007SKB Banka d.d., Ljubljana 3,645 - - - 3,645Societe Generale Splitska banka 1,949 - - - 1,949Podgorička banka SG Group - - - - -ALD Automotive d.o.o., Beograd 10,283 60 - 45 10,388SG Private banking (Suisse), Geneve - 761,147 - 9,006 770,153

Bank’s Management 12,259 181,003 - - 193,262

Balance as at 31 December 629,297 10,281,736 11,161,076 14,027,808 36,099,917



INCOME

Related parties Interest income Fee income Other operating

income Total

Societe Generale Splitska banka - 725 - 725Societe Generale SKB Banka - 110 - 110Societe Generale Paris 1,471 75,724 11,545 88,740Societe Generale Penzije a.d. - 356 1,848 2,204Societe Generale Osiguranje a.d.o. - 40,280 2,266 42,546ALD Automotive d.o.o., Beograd - - 10,160 10,160Societe Generale Private Banking, Geneve 499 - - 499Societe Generale Ohridska Banka - - 191 191Societe Generale Podgoricka Banka - - 814 814Bank’s Management 1,741 151 - 1,892

Balance as at 31 December 3,711 117,346 26,824 147,881


EXPENSES

Related parties Interest expense

Fee expense

Operating and

business expenses

Gross payroll

Other provisions Total

Societe Generale Penzije a.d. 12,170 - - - 39,860 52,030Societe Generale Osiguranje a.d.o. 12,010 - 2,551 - - 14,561

Societe Generale Paris 1,404,132 64,498 72,660 - - 14,561Societe Generale Splitska banka - 6 - - - 6

Societe Generale New York - 4,100 - - - 4,100Societe Generale Vienna - 20 - - - 20Societe Generale Brussels - 17 - - - 17Societe Generale Amsterdam - 30 - - - 30Societe Generale Frankfurt - 57 - - - 57Societe Generale SKB Banka - 11 - - - 11BRS Group Societe Generale - 11 - - - 11ALD Automotive d.o.o., Beograd - - 45,303 - - 45,303Societe Generale Express Banka - 5 - - - 5

Societe Generale Private Banking, Geneve 23,992 - - - - 23,992

SG Global Solution Centre Pvt. Ltd - - 1,298 - - 1,298

Bank’s Management 7,418 - - 171,087 - 178,505

Balance as at 31 December 1,459,722 68,755 121,812 171,087 39,860 1,861,236

OFF-BALANCE SHEET ITEMS


ASSETS

Related partiesGuarantees

and other warranties

Irrevocable commitments for

undrawn loans and placements

Receivables from

derivatives

Other off-balance

sheet assets Total

Societe Generale Paris 4,631,952 663,000 3,364,612 950,114 9,609,678Societe Generale Splitska banka 63,394 - - - 63,394Societe Generale Podgorička Banka 112,693 - - - 112,693

BRD Group Societe Generale 137,846 - - - 137,846SG Expressbank 97,446 - - - 97,446ALD Automotive d.o.o., Beograd - 57,321 - - 57,321Bank’s Management - 5,686 - - 5,686

Balance as at 31 December 5,043,331 726,007 3,364,612 950,114 10,084,064



LIABILITIES

Related parties Liabilities from derivatives

Received guarantees

Other off-balance sheet

liabilities Total

Societe Generale Paris 3,370,478 4,061,196 951,512 8,383,186Societe Generale Splitska banka - 80,591 - 80,591BRD Group Societe Generale - 155,101 - 155,101SG Expressbank - 97,445 - 97,445Societe Generale Podgorička Banka - 124,157 - 124,157

Balance as at 31 December 3,370,478 4,518,490 951,512 8,840,480


ASSETS

Related partiesCash

and cash equivalents

Interest and fees

receivable

Loans and deposits Other assets Total

Societe Generale Penzije a.d. - - - 390 390Societe Generale Osiguranje a.d.o. - 17 - 3,249 3,266Societe Generale Paris 90,930 127 - 1,154 92,211Societe Generale Amsterdam Rembrandt 9,704 - - - 9,704

SKB Banka d.d., Ljubljana - 6 - - 6Societe Generale S.A. Frankfurt 4,072 - - - 4,072Societe Generale Zweigniederlassung 12,650 - - - 12,650Societe Generale Bruxelles 9,498 - - - 9,498Societe Generale New York McGraw-Hill 259,598 - - - 259,598Podgorička banka SG Group - - - 98 98SG Maroc - - - 133 133ALD Automotive d.o.o., Beograd - - - 90 900Bank’s Management - - 145,947 - 145,947

Balance as at 31 December 386,452 150 145,947 5,924 538,473



LIABILITIES

Societe Generale Penzije a.d. Transaction deposits

Other deposits Borrowings Other

liabilities Total

Societe Generale Osiguranje a.d.o. 4,027 118,011 - - 122,038Societe Generale Paris 9,331 304,659 - 6,835 320,825SKB Banka d.d., Ljubljana 347,142 26,797,698 12,916,487 13,964,957 54,026,284Societe Generale Splitska banka 5,032 - - - 5,032Podgorička banka SG Group 3,722 - - - 3,722ALD Automotive d.o.o., Beograd 1 - - - 1Bank’s Management 583 - - - 583SG Private banking (Suisse), Geneve 3,256 115,676 - - 118,932Balance as at 31 December - 456,533 - 5,843 462,376

Stanje na dan 31. decembra 373,094 27,792,577 12,916,487 13,977,635 55,059,794


INCOME

Related parties Interest income Fee income

Other operating

income Total

Societe Generale Splitska banka - 702 - 702Societe Generale SKB Banka - 73 - 73Societe Generale Paris 553 64,646 - 65,199Societe Generale Penzije a.d. - 487 1,554 2,014Societe Generale Osiguranje a.d.o. - 20,004 1,912 21,916Societe Generale Private Banking, Geneve - - - -Societe Generale Ohridska Banka - - - -Societe Generale Podgoricka Banka - - -ALD Automotive d.o.o., Beograd 118 771 11,194 12,083Bank’s Management 609 75 - 684

Balance as at 31 December 1,280 86,757 14,660 102,697


EXPENSES

Related parties Interest expense

Fee expense

Operating and business

expenses

Gross payroll Total

Societe Generale Penzije a.d. 15,716 - - - 15,716Societe Generale Osiguranje a.d.o. 13,535 8 - - 13,543Societe Generale Paris 1,716,305 68,770 261,155 - 2,046,230Societe Generale Private Banking, Geneve 11,784 - - - 11,784

ALD Automotive d.o.o., Beograd - - 44,442 - 44,442Bank’s Management 5,264 - - 146,470 151,734

Balance as at 31 December 1,762,604 68,778 305,597 146,470 2,283,449



ASSETS

Povezana licaGuarantees

and other warranties

Irrevocable commitments for

undrawn loans and placements

Receivables from derivatives

Other off-balance

sheet assets Total

Societe Generale Paris 7,664,566 700,000 - 3,512,772 11,880,338Societe Generale Splitska banka 62,883 - - - 62,883

Podgorička banka SG Group 43,213 113,718 - - 156,931BRD Group Societe Generale 52,093 - - - 52,093

SG Expressbank 96,661 - - - 96,661SG Spolka Akcyjna Oddzial d.d. 23,881 - - - 23,881

Bank’s Management - 2,447 - - 2,447Balance as at 31 December 7,943,297 816,165 - 3,515,772 12,275,234



LIABILITIES

Related parties Liabilities from derivatives

Received guarantees

Other off-balance sheet liabilities Total

Societe Generale Paris - 4,680,732 3,521,326 8,202,058Societe Generale Splitska banka - 176,602 - 176,602BRD Group Societe Generale - 58,990 - 58,990SG Expressbank - 245,778 - 245,778Podgorička banka SG Group - 43,213 - 43,213

Balance as at 31 December - 5,205,315 3,521,326 8,726,641


37. FAIR VALUE OF FINANCIAL INSTRUMENTS

The table below presents comparison of the book value for the most important classes of financial instruments and their respective fair values. The table does not include non-financial assets and liabilities.

consolidated 2013 2012

Book value Fair Value Unrecognised gains / (losses) Book value Fair Value Unrecognised

gains / (losses)

Financial assetsDeposits with the NBS and securities refinanceable with the NBS

22,873,391 22,873,391 - 18,892,815 18,892,815 -

Interest and fees receivable 1,064,994 1,064,994 - 709,966 709,966 -

Placements to banks 3,772,725 3,772,725 - 2,994,003 2,994,003 -Placements to customers 151,806,727 151,816,255 9,528 154,684,033 154,669,237 (14,796)

Securities 13,996,607 13,996,607 - 9,380,151 9,380,151 -

Financial liabilitiesPayables to banks 46,884,646 46,883,901 (744) 43,539,225 43,540,361 1,136Payables to customers 124,833,898 124,863,671 29,773 109,877,932 109,891,929 13,997Interest and fees payable 96 96 - 79 79 -Liabilities arising from securities 1,700,004 1,701,080 1,076 1,700,022 1,699,646 (376)

Having in view a very undeveloped market in the Republic of Serbia, and the fact that the portfolio of available-for-sale securities consists of treasury notes of the Republic of Serbia, the Group estimates fair value of financial instruments applying comparative approach, using information

on similar financial instruments or other market information to derive the value of a financial instrument and compare the interest rates against the prevailing interest rates for similar products available on the market.

Assets and Liabilities with Fair Values Approximately Equal to Their Book Values

For liquid financial assets and financial liabilities, it is assumed that their book values are approximately equal to their fair values.

Assets and Liabilities whose Fair Value is to be Determined

Fair value of financial assets and financial liabilities carried at their amortised cost is assessed comparing the market interest rates at the time of their initial recognition against the currently prevailing market rates for similar

instruments. The assessed fair value of deposits is based on discounted cash flows by applying interest rates prevailing on the money market for contracts with similar credit risk and maturity terms.

Available-for-sale securities are assessed at fair value based on available market information, i.e. using the market prices quoted on the reporting date. Where such information is not available, other valuation techniques are used.

The Bank uses the following hierarchy when determining and disclosing fair values of financial instruments:

� Level 1: Market quotations of equal financial instruments;

� Level 2: Comparative approach whereby

information on similar financial instruments or other market information are used to derive the value of a financial instrument; and

� Level 3: Mark to model approach whereby information not available from the market, but derived on the basis of the theoretical model appropriate for determining the value of a financial instrument, are used.

The table below presents fair values of financial instruments established using the techniques mentioned above as at 31 December 2013 and 31 December 2012, respectively.

31 December 2013 Level 1 Level 2 Level 3 Total

Financial assets available-for-sale - 13,737,343 - 13,737,343

31 December 2013 Level 1 Level 2 Level 3 Total

Financial assets available-for-sale - 8,895,012 - 8,895,012


38. RISK MANAGEMENT

38.1. Introduction

Politika upravljanja rizikom

The Group has established and is maintaining on an ongoing basis the risk management system in order to identify assess, measure, prevent, monitor and communicate the exposure to risks it is exposed to in it regular business. Through the risk management system, the Bank defines the risk management goals and rules, as well as relevant policies, methodologies, procedures and reports.

The main goals and rules relating to Bank's risk management and equity management, as well as definition of the overall Bank's principles referring to risk assumption in the long run, are defined by the Risk Management Strategy and Policy and by the Equity Management Policy. Risk management strategy and policy also defines concepts and general conditions for risk exposure, identifies risk categories and define aspirations for risk assumption. Furthermore, by its risk management strategy and policy the Bank also defines organisation and responsibilities in each phase of risk assumption through the methodology of identification, measurement and analysis of specific kinds of risks. This includes, among other things, the definition and control of limits of risk exposures.

Risk Management Structure

The risk management structure is organised in accordance with the provisions of the Law on Banks, applicable decisions of the National Bank of Serbia that regulate the area of risk management and capital adequacy of banks, as well as the provision of the Bank’s Articles of Association.

The Board of Directors determines the risk management strategy and policy, as well as the strategy on capital management. The Executive Board is in charge of implementing the risk management strategy and policy, as well as strategy on capital management. The Executive Board adopts procedures for risk identification, measurement and assessment and for risk management and analyses the efficiency of their implementation and reports to the Board of Directors thereon Pursuant to Article 28 of the Law on Banks, the Bank has established a separate organisational unit for risk management – the Risk Management Department.

Board of Directors and the Executive Board

The following authorities/bodies play the key roles in risk management in the Group:

The Board of Directors

The main responsibility of the Board of Directors (hereinafter: the Board) in respect of risk management is to determine the risk management strategy and strategy on capital management, as well as policies for the management of different risks and to oversee the risks the Group undertakes in its activities.

The Board of Directors also gives prior consent for Bank’s exposure to a single person or a group of related persons exceeding 10% i.e. for increase of this exposure to over 20% of the Bank’s equity. In making such decisions the Board takes into consideration the recommendations of the Risk Management Department.

The Board of Directors defines limits within which the Executive Board may make decision on the Bank’s lending, as well as terms and conditions under which such lending is approved.

Finally, the Board of Directors appoints and dismisses the members of the Credit Committee.

The Executive Board

The main responsibility of the Executive Board (hereinafter: “EB“) is to determine risk management procedures, rules and methodology and to implement the risk management strategy, strategy on capital management and risk management policy. Should some of the activities or risks fail to comply with the defined policy, strategy and principles, the Executive Board is required to notify the Board of Directors thereon.

As for the risk management, the Executive Board monitors the changes and segmentation of the portfolio on a quarterly basis, and in case certain limits are exceeded, decides on measures to be taken.

The Executive Board is also in charge of deciding on approval of certain lending to customers, within the limits determined by the Board of Directors. These decisions are made taking into consideration the recommendations of the Risk Management Department.

Finally, the Executive Board decides and reports to the Board of Directors on risks assumed by a related party, in accordance with the definition of related parties provided by the National Bank of Serbia.

The Credit Committee

The primary responsibility of the Credit

Committee is to decide, in the scope of credit policy, on approving loans (lending) to Bank customers, within the limits of its decision-making authority.

In addition to deciding on loans to be extended to customers, the Credit Committee and the Risk Management Department also give their opinion on introduction of new products that generate risk and other general areas that imply assumption of risk.

Asset/Liability Committee

The main function of the Asset/Liability Committee (hereinafter: “ALCO”) is to identify, measure and manage risks arising from the structure of the Bank’s balance and off-balance items, notably liquidity risk and interest rate risk.

Risk Management Department

Risk Management Department The Risk Management Department (hereinafter: “Risk”) is in obligation to identify, measure, assess and manage risks assumed by the Bank in the course of its regular operation (credit risk, including risk relating to the customer concerned, sector risk, country risk, substitution risk, etc.).

Furthermore, the Risk Management Department also gives its opinion on new products that generate risk and other general areas that imply assumption of certain risks.

Treasury and Financial Markets Division – Current Liquidity Management

Liquidity risk is a risk of occurrence of adverse effects on the financial result of the Bank due to its inability to service its current liabilities duly and in timely manner.


The Treasury and Financial Markets Division is responsible for the management of current liquidity and performs its function through the following activities:

� cash inflows and outflows planning; � providing lacking liquidity or placing surplus liquidity on financial markets, as well as maintaining appropriate currency and maturity structure in order to ensure timely satisfaction of all due liabilities;

� analysis of deposits structure and quality and assessment of their stability;

� determining, measuring and monitoring daily liquidity ratios;

� providing monitoring of the total volume of transactions within the determined limits on

a daily basis; � internal and external reporting on liquidity trends.

Internal Audit

Risk management process in the Group is audited at least annually by the internal audit function, which examines both the adequacy of the procedures and the Bank's compliance with such procedures. The Internal Audit communicates the results of its work to the Group's management, thus ensuring that risks are appropriately identified and controlled. The Internal Audit regularly prepares reports on its activities and submits them to the Board of Directors and the Audit Committee.

38.2. Credit Risk

Credit risk is a risk that the Bank will sustain loss due to the failure of its customers or counterparties to settle their due liabilities to the Bank, either in full or partially, within the agreed terms. It mainly arises from loans and other similar placements to customers and from investments in available-for-sale securities. For the purpose of reporting on risk management, the Bank takes into consideration and consolidates all elements of exposure to credit risk (default of an individual debtor, activity risk, repayment risk, etc.).

(i) Credit Risk Management

The Group manages credit risk by granting loans in accordance with its business policy, coordinating loan maturity and interest rate with the purpose of the loan, type of loan or client and creditworthiness of its clients. By its internal regulations, in accordance with business policy, the Group aims to secure its lending with adequate collateral.

The Executive Board of the Group by its decision decentralised authorities and limits for loan approval decisions, subject to the maintenance of risk standards at adequate level. In the aim of more uniform risk assessment and easier and more appropriate monitoring of liabilities, the Group uses risk ratings for its corporate clients.

A loan may be approved only when the Group has sufficient information to assess the borrowers creditworthiness. Collaterals are accepted to mitigate exposure to credit risk.

(ii) Impairment and Provisioning Policy

The Group considers its lending impaired when there is objective evidence to the fact that a certain lending is impaired.

Objective evidence of impairment implies events that result in decrease of estimated future cash flows from the client. Objective evidence includes:

� significant aggravation of financial standing of the debtor or group of debtors,

� delinquency in the settlement of undertaken obligations,

� bankruptcy or other form of reorganisation of the debtor which threatens timely and full settlement of undertaken obligations, and

� similar events that indicate a measurable reduction of future cash flows has occurred.

The Group performs individual impairment assessment for individually significant placements or groups of placements. In that case, the amount of loss is determined as a difference between the carrying amount and the present value of future cash flows.

The calculated amount of impairment of balance sheet assets of banks is charged to expenses and credited to allowance for impairment of respective assets. The calculated amount of probable loss on off-balance sheet assets is charged to expenses and credited to provisions for losses on off-balance sheet items.

Collective assessment of impairment is made for placements that are not individually significant.

For the purpose of collective assessment, placements are classified in homogenous groups with respect to their credit risk, type of product or degree of sensitivity, in accordance with the Group’s internal methodology which is in line with the methodology of the Societe Generale Group.

Future cash flows for homogenous groups of placements are determined on the basis of available historical data on losses sustained on investments with similar credit risk characteristics. When making such assessment, currently available data are also taken into consideration in order to eliminate the effects that existed in the past period but are no longer

relevant, and to include those effects that are relevant today, but were not significant in the past period.

When estimating future cash flows, flows that would certainly result from foreclosure on collateral, less costs of foreclosure, are also taken into consideration.

(iii) Client Rating System

The rating system of Societe General Group is based on qualitative analysis and may be used both for clients and for transactions. The scale is divided in 10 levels and 22 sub-levels with seven classes 19 of which denote in bonis clients, and 3 problematic clients. This rating scale covers Group's operations with clients in all sectors except in the financial sector, where a different model is used. The rating depends on the quality of the client and allows compliance of all lines of the specific credit file ratings with the rating of the client and the structure of transactions.

Client ratings are reviewed at least annually, after receiving financial statements, or during the year in case an unexpected event changes the client's risk profile (it is essential as an element of risk control and, therefore, has to be assessed independently from the “event” relating to the credit file).

For all credit files outside the local loan approval limits, the rating has to be approved by RISQ/IBF (or another competent department within the Societe Generale Group in charge of the client concerned).

The rating scale for borrowers is graduated according to the probability of default. The rating scale for borrowers makes it possible to determine the probability of default by a counterparty within the one-year period.


Table 1: Rating Scale of Societe Generale Group

SG Group Rating Scale for Borrowers Moody`s S & P Fitch IBCA

1 Aaa AAA AAA2+ Aa1 AA+ AA+2 Aa2 AA AA2- Aa3 AA- AA-3+ A1 A+ A+3 A2 A A3- A3 A- A-4+ Baa1 BBB+ BBB+4 Baa2 BBB BBB4- Baa3 BBB- BBB-5+ Ba1 BB+ BB+5 Ba2 BB BB5- Ba3 BB- BB-6+ B1 B+ B+6 B2 B B6- B3 B B7+ Caa1 CCC+ CCC+7 Caa2 CCC CCC7- Caa3 CCC- CCC-8 Ca DDD9 C D DD

10 D

The structure of on- and off-balance sheet assets that are classified and allowances for impairment determined in accordance with the internal methodology of the Group is presented in the following table.

2013 2012

Classified balance sheet

assets

Allowance for impairment

Of which collective

assessment

Classified balance sheet

assets

Allowance for impairment

Of which collective

assessment

Retail customer 60,943,175 2,576,426 299,546 46,845,666 1,956,145 327,034Corporate customer 122,565,480 15,137,551 1,109,239 120,149,385 6,727,369 722,181

Other 1,611,156 89 - 1,535,222 1,905 -


2013 2012

Classified off-balance sheet

items

Provisions for losses on off-balance sheet

items

Of which collective

assessment

Classified off-balance sheet

items

Provisions for losses on off-balance sheet

items

Of which collective

assessment

Retail segment 2,160,335 5,209 5,209 1,671,927 6,000 6,000Corporate segment 65,201,769 850,586 594,940 56,438,146 766,021 359,752

Other 6,166 - - - - -Balance as at 31 December 67,368,270 855,795 600,149 58,110,073 772,021 365,752

Classification of clients in the category of retail customers (retail segment) and corporate customers (corporate segment) is performed on the basis of criteria in the Bank's internal methodology. The retail segment mainly includes exposures to the household sector, entrepreneurs and farmers. The corporate segment mainly includes exposures to banks, financial institutions and companies. Placements to corporate clients in this review are presented net of items that are not subject to classification and which refer to placements to the Government of the Republic of Serbia. Other placements include investments in securities, equity investments in other legal entities and other assets subject to classification.

(iv) Credit-Related Risks

The Bank issues guarantees and letters of credit to its customers and, consequently, has a

contingent liability to perform payment in favour of third parties. Thus, the Group is exposed to credit-related risk, which may be mitigated by the same processes and procedures used to control credit risk.

(v) Maximum Exposure to Credit Risk by Balance Sheet and Off-Balance Sheet Items

Maximum exposure to credit risk of the Group (gross on- and off-balance sheet risk-weighted assets subject to classification) as at 31 December 2013 and 31 December 2012, respectively, before taking into consideration collaterals and other instruments of protection against credit risk, may be analysed through the following geographical regions according to the principle of country of residence for natural persons and country of residence of the owner of capital for legal persons.

2013

In RSD thousandBalance sheet receivables

net of interest due, fees and other assets

Interest, fees and other

assets

Guarantees, L/Cs and other revocable

and irrevocable commitments

Total

Serbia 156,085,826 927,895 48,699,315 205,713,036EU 24,171,709 6,396 18,102,588 42,280,693Of which France 626,666 - 2,531,294 3,157,960Rest of Europe 986,460 762 351,935 1,339,195Rest of world 2,946,106 822 208,267 3,155,195

Balance as at 31 December 2013 184,190,101 935,875 67,362,105 252,488,081

2012

In RSD thousandBalance sheet receivables

net of interest due, fees and other assets

Interest, fees and other

assets

Guarantees, L/Cs and other revocable

and irrevocable commitments

Total

Serbia 156,163,816 1,079,505 45,957,056 203,200,377EU 8,241,503 28,052 6,507,005 14,776,560Of which France 1,512,254 9,787 3,001,265 4,523,306Rest of Europe 2,151,500 817 3,272,901 5,425,218Rest of world 864,797 283 2,373,111 3,238,191

Balance as at 31 December 2012 167,421,616 1,108,657 58,110,073 226,640,346


(vi) Coverage by Collaterals and Other Types of Security

For most of its lending to clients (except those to banks) the Group demands certain collateral.

The amount and type of collateral depend on the credit risk assessed for each client and on the characteristics and maturity of the placement concerned.

Assessment of the fair value of collateral is based on the value of collateral estimated at the time of disbursement of placement to the client. The required fair value of collateral, as well as the method and the term of its reassessment, are determined in accordance with the business policy.

The following table shows coverage of exposures by different types of collateral used by the Group as recognised collateral, in accordance with the Decision of the National Bank of Serbia on the Classification of the

Bank Balance Sheet Assets and Off-Balance Sheet Items. When calculating reserves for estimated losses and in the calculation of net present value of future cash flows for clients where settlement from collateral is likely and where allowance for impairment is individually assessed, the Bank uses the following types of collateral:

� Prime collateral includes:• Cash deposits in dinars or in foreign currency• Guarantees issued by first-class banks• Guarantees and other forms of warranty issued by governments

in accordance with requirements in Article 28 of the NBS Decision on Classification of Bank Balance Sheet Assets and Off-Balance Sheet Items

� Adequate collateral includes:• Property mortgage in accordance with requirements in Article 29 of the NBS Decision on Classification of Bank Balance Sheet Assets and Off-Balance Sheet Items

31 December 2013 Balance sheet assets Off-balance sheet assets

In RSD 000 Secured by prime collateral

Secured by adequate collateral:

Secured by prime collateral

Secured by adequate collateral

Retail segment 142,178 33,194,201 5,696 -

Of which:Consumer loans - 21,262 - -Loans for working capital - 13,996 - -Investment loans - 18,586 - -Housing loans - 30,493,271 - -Other balance sheet placements 142,178 2,647,086 - -Guarantees and other warranties - - 573 -Unused commitments - - 5,123 -

Corporate segment 15,272,426 23,779,648 1,281,814 3,325,223

Of which:Loans for working capital 3,851,914 16,000,886 - -Investment loans 2,870,030 6,945,637 - -Other balance sheet placements 8,550,482 833,125 - -Guarantees and other warranties - - - -Unused commitments - - - 3,194,401Other off-balance sheet placements - - 1,281,814 130,822

TOTAL 15,414,604 56,973,849 1,287,510 3,325,223

31 December 2012 Balance sheet assets Off-balance sheet assets

In RSD 000 Secured by prime collateral

Secured by adequate collateral:

Secured by prime collateral

Secured by adequate collateral

Retail segment 204,403 24,414,540 - 7,195

Of which:Consumer loans - 1,017 - -Loans for working capital 144 2,869 - -Investment loans - 16,054 - -Housing loans - 24,387,286 - -Other balance sheet placements 204,259 7,314 - -Guarantees and other warranties - - - -Unused commitments - - - 7,195

Corporate segment 21,081,338 15,590,188 1,533,553 8,554,488

Of which:Loans for working capital 9,205,251 9,858,265 - -Investment loans 3,180,577 4,730,820 - -Other balance sheet placements 8,695,510 1,001,103 1,436,573 -Guarantees and other warranties - - 30,123 2,304,819Unused commitments - - 62,119 6,249,669Other off-balance sheet placements - - 4,738 -

TOTAL 21,285,741 40,004,728 1,533,553 8,561,683

The management monitors the market value of collateral and as necessary requests additional collateral in accordance with the agreement. The management also takes into consideration the market value of collateral when reviewing the adequacy of impairment allowances of receivables.

(vii) Concentration Risk Analysis

Analysis of the Group’s exposure to credit risk by industry sectors before and after taking into consideration collateral and other types of security against credit risk as at 31 December 2013 and 31 December 2012 is presented in the following table:

In RSD thousand 2013 2012s

Gross maximum exposure*

Net maximum exposure**

Gross maximum exposure*

Net maximum exposure**

Retail segment 62,534,479 29,212,537 48,134,647 23,508,513Mining, quarrying and manufacturing 11,202,226 8,870,041 50,848,395 38,826,825Trade 19,950,593 17,271,694 53,421,254 42,871,648Agriculture, hunting, fishing and forestry 3,574,217 2,263,689 8,247,490 4,584,216

Construction 4,337,005 3,123,053 12,468,711 9,884,281Transportation, storage and communications, electricity supply, hotels and restaurants

8,515,640 5,450,429 24,060,841 11,489,896

Real estate activities, leasing and business activities, other utility, social and personal services

1,782,203 873,276 7,521,102 4,643,658

Other 140,591,718 100,730,961 21,937,906 19,445,606

Balance as at 31 December 252,488,081 167,795,680 226,640,346 155,254,643

*Classified assets according to the National Bank of Serbia’s regulations.

**Collateral taken into consideration: cash deposits, bank guarantees issued by first-class banks and property mortgages that fully cover

the amount of receivable.


(viii) Portfolio Quality

The Group manages the quality of its financial assets using the internal classification of placements. The following table present the quality of portfolio (gross placements and off-balance sheet exposures) by types of placements, based on the Group’s classification system, as at 31 December 2013 and 2012.

Neither past due nor impaired Past due

2013High quality Standard quality Sub-standard quality Past due but not

impaired Impaired Total

Placements to banks 11,377,322 154 424,798 4 17 11,802,295Placements to customers:- Placements to corporate customers 91,300,432 43,630,719 18,618,772 4,512,602 17,683,751 175,746,276- Entrepreneurs 48,166 114,780 - 100,410 12,693 276,049- Mortgage loans 30,312,081 - - 2,196,525 160,935 32,669,541- Other placements to retail customers 23,543,030 391,038 - 3,640,372 2,802,158 30,376,598- Other 1,617,233 - - - 89 1,617,322


Neither past due nor impaired Past due

2012High quality Standard quality Sub-standard quality Past due but not

impaired Impaired Total

Placements to banks 3,884,197 - - 41 - 3,884,238Placements to customers:- Placements to corporate customers 127,953,224 19,161,560 5,928,657 6,807,706 12,630,392 172,481,539- Entrepreneurs 41,388 144,053 - 76,684 11,837 273,962- Mortgage loans 24,657,380 - - 277 -1,618,828 26,276,485- Other placements to retail customers 18,259,000 357,270 - 159,525 3,413,105 22,188,900- Other 1,535,222 - - - - 1,535,222


Classification of financial assets that are neither past due nor impaired (high, standard and sub-standard quality) is in accordance with the Group's internal rating model.

Financial assets that are neither past due nor impaired include exposures to clients that do not default on their obligations and that are not individually impaired.

Financial assets that are past due but not impaired include exposures to clients who default on their obligation one or more days

and for which impairment allowance has been collectively assessed.

Impaired financial assets include exposures where individual impairment allowance has been established in accordance with the Bank’s assessment of the collectability of such receivables.

Number of days of default is determined according to the principle of materiality defined by the rules of Societe Generale Group.

Placements are considered to be:

� Of high quality if they have no current default and are assigned the following internal rating:

• 1, 2+, 2, 2-, 3+, 3, 3-, 4+, 4, 4-, 5+, 5 and 5-

� Of standard quality if they have no current default and are assigned the following internal rating:

• 6+, 6 and 6-

� Of sub-standard quality if they have no current default and are assigned the following internal rating:

• 7+, 7, 7-, 8, 9 and 10

A detailed description of the rating system is presented in Note 36.2 iii. Client Rating System


Ageing analysis of loans and placements to banks and customers which are past due but not impaired as at 31 December 2013 and 31 December 2012, respectively, is presented below:

In RSD thousand

2013 From 1 to 30 days

From 31 to 60 days

From 61 to 90 days Over 90 days Total

Placements to banks - - 4 - 4Placements to customers:- Placements to corporate

customers 2,243,847 1,642,619 257,855 360,570 4,504,891

- Entrepreneurs 71,543 32,561 583 468 105,155- Mortgage loans 1,240,032 497,124 150,204 309,166 2,196,526- Other placements to retail

customers 2,445,059 692,968 279,785 225,525 3,643,337

Balance as at 31 December 6,000,481 2,865,272 688,431 895,729 10,449,913

In RSD thousand

2012 From 1 to 30 days

From 31 to 60 days

From 61 to 90 days Over 90 days Total

Placements to banks 2 - 11 28 41Placements to customers:- Placements to corporate

customers 4,931,346 1,194,422 74,425 607,513 6,807,706

- Entrepreneurs 45,550 21,538 9,222 374 76,684- Mortgage loans 277 - - 1 278- Other placements to retail

customers 106,131 20,857 6,186 26,350 159,524

Balance as at 31 December 5,083,306 1,236,817 89,844 634,266 7,044,233

2013 2012

In RSD 000 Past due, not impaired

Individually impaired

Past due, not impaired

Individually impaired

Exposure amount 10.449.913 20.659.643 7.044.233 17.674.162Placements to banks 4 17 41 -Placements to customers:- Placements to corporate customers 4.512.602 17.683.751 6.807.706 12.630.392- Entrepreneurs 100.410 12.693 76.684 11.837- Mortgage loans 2.196.525 160.935 277 1.618.828- Other placements to retail customers 3.640.372 2.802.158 159.525 3.413.105- Other - 89 - -

Amount of exposure not covered by collateral * 6.429.678 17.214.259 6.263.400 13.201.944

Placements to banks 4 17 41 -Placements to customers:- Placements to corporate customers 3.080.938 15.267.136 6.158.873 9.654.872- Entrepreneurs 98.076 12.667 76.684 10.021- Mortgage loans 119.077 53.693 277 167.482- Other placements to retail customers 3.131.583 1.880.657 27.525 3.369.569- Other 0 89 - -

* The presented amounts of unsecured exposures represent those exposures which according to the rules of the National Bank of Serbia are not covered by prime or adequate collateral.

(ix) Renegotiated Loans

In accordance with the internal methodologies, the Group pays particular attention to receivables that are subject to rescheduling due to increased credit risk. Under these receivables the Group implies loans and other placements where the initially agreed terms have been renegotiated due to the client’s inability to settle is obligations in accordance with the terms and deadlines defined by the contract as a result of problems in business operation, aggravation of financial indicators and/or significant deterioration of the client’s creditworthiness.

The carrying amounts of rescheduled loans and placements to clients are presented in the following table:

In RSD thousand

2013 2012

Placements to customers*: - Placements to corporate customers 5,133,226 7,203,729

- Placements to retail customers 174,980 158,853


*Including guarantees, L/Cs and commitments

38.3 Liquidity Risk and Assets Management

Liquidity risk is risk of occurrence of adverse effects on the Group's financial result and equity arising from the Group's inability to discharge its obligations when they fall due without sustaining unacceptable losses. The liquidity problem is expressed as shortage of liquid assets for the settlement of all due liabilities and coverage of unexpected withdrawal of deposits and non-deposit liabilities resulting from impossibility to acquire or difficulty in acquiring liquid assets through disposal of liquid assets (market liquidity risk) or impossibility to acquire or difficulty in acquiring new or renewing existing sources of financing at reasonable market price (liquidity risk of sources of financing).

Liquidity risk management plays a key role in prudent and sound performance of banking activity. Liquidity risk management is an on-going process of assessing the needs for liquidity in different business scenarios and planning for extraordinary circumstances. That is the process of providing and maintaining a satisfactory level of liquid assets based on the analysis and assessment of demand for liquidity,

as well as changes in the Bank's on- and off-balance sheet structure. In order to implement these activities, the greatest attention focuses on the analysis of stability and degree of concentration of deposits and other sources of financing, as well as on continuous analysis of the conditions on financial market. This reflects on the Group’s ability to acquire liquid assets or dispose of the parts of liquid assets on the market under favourable terms.

Liquidity Risk Management

Liquidity risk management implies identification, measurement, mitigation and monitoring of liquidity risk on an on-going basis. To mitigate and/or limit this risk, the Group aims to:

� Continuously monitor and analyse all factors affecting the liquidity position of the Bank,

� Secure diversified sources of financing,


� Ensure optimum current daily liquidity by securing funds in sufficient amount and currency structure (at the level of each currency) for unimpeded settlement of its liabilities, including the assessment of expected cash flows for a 30-day period,

� Assess and monitor long-term liquidity position based on the projection of liquidity gaps, i.e. monitor how cash inflows and outflows arising from on- and off-balance sheet items match in the long run,

� Ensure liquidity reserve on the basis of maturity matching of balance sheet items and in a way that ensures marketability of receivables and assets in the short term should the need arise,

� Maintain a portfolio of liquid securities with the highest credit rating (securities issued by the NBS or by the Republic of Serbia),

� Invest short-term interbank deposits within the defined limits,

� Have at its disposal framework loan facilities that it can use at any time to maintain its liquidity,

� Maintain the prescribed level of required dinar and foreign currency reserve, in accordance with the regulations of the National Bank of Serbia.

In the aim of achieving adequate liquidity in all operating conditions, the Group has managed its liquidity in the manner that ensures stability, diversification and flexibility of the sources of financing. In the scope of diversification of sources of financing, the Group has paid particular attention to deposit sources of financing, particularly deposits of retail customers, and to ensuring access to sources of financing provided by international financial

institutions. In 2013 the Bank successfully pursued this objective. This is reflected not only in the fact that it maintained the existing deposit base, but also in the growth of deposit potential of the retail sector, with further diversification of its maturity structure and reduction of respective costs. The share of funds provided by international financial institutions in the Bank's total sources of financing increased as well.

The adopted policies and procedures ensure adequate assets management. Along with monitoring of cash flows and set limits on a daily basis and elaboration of long-term (structural) liquidity gaps on the monthly level, these policies and procedures should ensure that liquidity risk is minimised.

The Group maintains a portfolio of highly liquid and easily marketable securities, notably in the form of government treasury notes of the Republic of Serbia and treasury bills of the National Bank of Serbia. They are held as liquidity reserves that can easily, quickly and with minimum losses of their value be converted to cash for the settlement of due liabilities and in cases of unexpected outflows or interruption of cash inflows.

The liquidity ratio in 2013 was always within the prescribed limits (not less than 1) and is presented in the table below:

2013 2012Average of the period 2.03 1.78Highest 2.48 1.99Lowest 1.70 1.45

As at 31 December 2.23 2.11

Analysis of Financial Assets and Liabilities According to Remaining Contractual Maturity – Liquidity Gap

In addition to regulatory daily liquidity indicators, the Group monitors its liquidity position more precisely by measuring its overall cash flows arising from all its assets and liabilities, including off-balance sheet items. Cash flow reports are made for all major currencies in which the Group operates. Interim cash flow reports are used to identify significant mismatches and to assess future needs for liquidity, as well as excess liquidity. Decisions concerning liquidity management are based on the cash flows mismatch analysis.

When making projections of cash flows, balance sheet items are classified according to the remaining contractual maturity of the items concerned (number of days to contractual maturity date). The remaining maturity is also determined and allocated to items with no maturity term, i.e. items without contractual maturity date, such as: required reserve funds, overdraft receivables, transaction deposits, other sight deposits and all other receivables and liabilities without the contractual maturity. In this respect the Group applies moderately conservative approach.

As for other off-balance sheet items (contingent receivables and liabilities), they are presented separately from balance sheet flows on assets and liabilities sides.

Hereinafter are the tables presenting the analysis of the Group’s assets and liabilities by the remaining maturity, taking the anticipated time for disposal of assets and settlement of liabilities, as at 31 December 2013 and 31 December 2012.


Maturity Analysis of Assets and Liabilities

LIQUIDITY RISK In RSD thousand

31.12.2013. Up to 1 month From 1 to 3 months

From 3 to 6 months

From 6 months to 1 year From 1 to 5 years Over 5 years Total

ASSETS

Cash and cash equivalents 26,431,385 - - - - - 26,431,385Revocable deposits and loans 22,873,391 - - - - - 22,873,391Interest, fees and commissions receivables and changes in fair value 144,267 167,405 251,107 502,215 - - 1,064,994

Loans and deposits 10,109,928 10,308,863 12,811,737 25,097,298 56,193,775 31,860,344 146,381,945Securities (excluding own shares) 1,053,669 957,520 5,027,898 2,542,968 4,255,011 2,949 13,822,015Equity investments - - - - - 174,592 174,592Other placements 918,099 1,383,527 1,66,753 2,472,507 2,865,302 391,319 9,197,507ROther assets and deferred costs and accrued income 910,038 107,735 2,031 3,956 27,364 1,050,478 2,101,602

TOTAL FINANCIAL ASSETS 62,440,777 12,925,050 19,259,526 30,600,944 63,341,452 33,479,682 222,047,431

Up to 1 month From 1 to 3 months

From 3 to 6 months


LIABILITIES

Transaction deposits 6,540,981 1,031,011 1,546,517 3,093,034 13,318,141 3,361,448 28,891,132Other deposits and borrowings 22,127,415 10,030,435 13,202,250 29,690,681 56,364,542 11,412,089 142,827,412Liabilities arising from securities - - 1,700,004 - - - 1,700,004Interest, fees and commissions payable and changes in fair value of derivatives 96 - - - - - 96

Provisions 1,100,068 - - - - - 10100,068Other liabilities and accruals and deferred income 3,418,170 30,513 21,053 52,766 5,236,553 8,598,159 17,357,214

TOTAL FINANCIAL LIABILITIES 33,186,730 11,091,959 16,469,824 32,836,481 74,919,236 23,371,696 191,875,926

MATURITY MISMATCH – MARGINAL LIQUIDITY GAP 29,254,047 1,833,091 2,789,702 (2,235,537) (11,577,784) 10,107,986

MATURITY MISMATCH – CUMULATIVE LIQUIDITY GAP 29,254,047 31,087,138 33,876,840 31,641,303 20,063,519 30,171,505


LIQUIDITY RISK In RSD thousand

31.12.2012. Up to 1 month From 1 to 3 months From 3 to 6 months From 6 months to 1 year From 1 to 5 years Over 5 years Total

ASSETS Cash and cash equivalents 15,710,559 - - - - - 15,710,559Revocable deposits and loans 18,892,815 - - - - - 18,892,815

Interest, fees and commissions receivables and changes in fair value 106,189 109,778 164,666 329,333 - - 709,966

Loans and deposits 12,154,655 9,247,763 12,467,915 30,105,042 58,060,109 26,736,976 148,772,461Securities (excluding own shares) 2,139,354 892,028 1,212,794 2,551,359 2,372,431 3,240 9,171,206Equity investments - - - - 207,745 207,745Other placements 1,001,904 1,320,132 1,028,502 2,217,666 2,824,700 512,671 8,905,575Other assets and deferred costs and accrued income 813,170 238,843 9,384 6,641 918 506,939 1,575,896

TOTAL FINANCIAL ASSETS 50,818,646 11,808545 14,883,261 35,210,041 63,258,158 27,967,572 203,946,223

Up to 1 month From 1 to 3 months From 3 to 6 months From 6 months to 1 year From 1 to 5 years Over 5 years Total

LIABILITIES

Transaction deposits 4,475,736 701,132 1,051,698 2,103,397 9,212,133 2,323,032 19,867,128

Other deposits and borrowings 20,255,401 13,637,678 14,210,695 27,258,941 47,942,725 10,244,588 133,550,029Liabilities arising from securities - - 1,700,022 - - - 1,700,022Interest, fees and commissions payable and changes in fair value of derivatives 79 - - - - 79

Provisions 963,961 - - - - - 963,961Other liabilities and accruals and deferred income 2,692,161 22,615 21,996 71,175 10,863,574 2,842,958 16,514,478


MATURITY MISMATCH – MARGINAL LIQUIDITY GAP 22,431,308 (2,552,881) (2,101,150) 5,776,528 (4,760,273) 12,556,995 -

MATURITY MISMATCH – CUMULATIVE LIQUIDITY GAP 22,431,308 19,878,427 17,777,277 23,553,805 18,793,532 31,350,526 -


Liquidity risk, off-balance sheet items 31.12.2013

In RSD thousand

Up to 1 month

From 1 to 3 months

From 3 months to 1 year

From 1 to 5 years Over 5 years Total

Financial guarantees 6,205,371 1,382,743 12,177,657 8,555,290 474,070 28,795,131Letters of credit 278,650 232,191 686,540 - - 1,197,381Assumed future liabilities 4,885,057 3,996,528 23,468,782 3,075,011 753,409 36,178,787

Total 11,369,078 5,611,462 36,332,979 11,630,301 1,227,479 66,171,299

Liquidity risk, off-balance sheet items 31.12.2012

In RSD thousand

Up to 1 month

From 1 to 3 months

From 3 months to 1 year

From 1 to 5 years Over 5 years Total

Financial guarantees 6,637820 858,568 8,497,808 8,628,918 1,154,757 25,777,871Letters of credit 787,225 264,369 438,762 - - 1,490,356Assumed future liabilities 5,089,659 4,125,276 18,600,354 1,647,400 499,053 29,961,742

Total 12,514,704 5,248,213 27,536,924 10,276,318 1,653,810 57,229,969

38.4. Market Risk

Market risk is a risk that the Group will sustain adverse effects on its financial result due to changes in the value of balance sheet items caused by changes of prices in the market. Among the market risks, the Bank is exposed to foreign exchange risk and to the risk of changes in interest rates.

Market Risk Management

The main strategic guidelines and rules of the Bank relating to market risks defining the method of performing activities include:

The general rule that any open item generating market risk as such is not allowed, unless the open item resulted from a commercial activity that was previously identified, controlled and approved, and provided that it is within the allowed exposure levels prescribed by the regulatory body (the National Bank of Serbia).

The rules applying to market risk management are:

� Market risks are managed in centralised manner;

� Market risks are centralised, consolidatedand subject to regular standardised reporting;

� The allowed exposure to individual risks is defined by previously approved limits, depending on the type of market activity for which the limit is determined.

Market risk control system is implemented through division and independence of risk assuming functions (front office) from their monitoring (middle office) and management (Risk Division), as well as from supporting activities (back office).

Market Risks Committee – MARCO

Market Risks Committee – MARCO was established to identify, monitor and manage market risks.

The primary responsibilities of MARCO include:

� Identification, assessment and monitoring of market risks arising from Bank’s transactions,

� Control of compliance of market activities and transactions with standards and instructions of SG Group,

� Ensuring independent activities of risk control and support services (back office and middle office) in relation to services in charge of contracting the transactions (front office),

� Controlling and monitoring of compliance with the adopted limits in the area of market risk

� Initiating, reviewing and confirming new limits, change and/or abolishment of existing limits that are approved locally, confirmation of limits notified by SC Group relating to market risks,

� Communication with the Executive Board and the Board of Directors on matters relating to market risks.

38.4.1. Interest Rate Risk

Interest rate risk is the risk of occurrence of adverse impact on the Group's financial result and equity due to changes in market interest rates. The main types of interest rate risks are: maturity mismatch risk (for assets and liabilities items subject to fixed, unchangeable interest rate) and repricing risk (for items subject to variable interest rate), yield curve risk, basis risk and risk of embedded options (optionality risk).

Interest rate risk is managed through monitoring, identification, measurement and mitigation of effects that adverse movement in interest rates may have on the Bank's financial result and equity. Effect that credit risk may have on the bank's financial result is measured by calculating changes in net interest margin in certain scenarios of future market interest rate movements (NIM Sensitivity Analysis), while the impact of interest rate risk on the bank's equity

is measured by monitoring changes in economic value of equity in case of interest rate changes (EVE sensitivity analysis).

In the aim of adequate management of interest rate risk, the Bank has established limits that are monitored on a monthly basis. Compliance with limits is regularly reported to competent committees (Bank’s Asset and Liability Management Committee)

Interest Rate Risk Management

The main principle followed by the Group in interest rate management is harmonisation of its assets and liabilities according to interest rate type (fixed or variable interest rate) and according to maturities and dates of re-determination of interest rates (so-called natural hedging). This principle is applied either on individual or block basis, depending on the volume of transactions.

For the measurement of interest rate risk, the Group prepares interest gap and calculates the effect of interest rate changes on economic value of equity (Group's net value). The Group classifies items in interest gap guided by the following principles:

� For items with variable interest rate – date of interest rate re-determination

� For items with fixed interest rate – maturity date; � For the purpose of interest gap, non-interest bearing items are treated as items with fixed 0% interest rate and presented according to expected maturity of cash flow;

� Equity is treated as non-interest bearing source of financing that never matures;

� Interest-bearing items without contractual maturity date or interest rate re-determination date are presented according to the expected maturity of cash flow.


Projections of interest rate gaps according to planned maturities of balance sheet items with fixed interest rates and according to planned change of interest rates for balance sheet items with contracted variable interest rate as at 31 December 2013 and 31 December 2012 are presented in the following tables:

INTEREST RATE RISK In RSD thousand

31.12.2013 Up to 1 month From 1 to 3 months

From 3 to 6 months


ASSETS

Cash and cash equivalents 26,431,385 - - - - - 26,431,385Revocable deposits and loans 7,566,227 1,200,584 1,585,193 4,372,577 6,516,667 1,632,143 22,873,391Interest, fees and commissions receivables and changes in fair value 1,064,994 - - - - - 1,064,994

Loans and deposits 81,836,575 20,377,942 8,445,594 5,797,562 23,601,570 6,322,702 146,381,945Securities (excluding own shares) 1,061,612 962,569 5,057,703 2,531,836 4,206,820 1,475 13,822,015Equity investments 4,338 8,677 13,015 26,031 59,175 63,356 174,592Other placements 4,464,757 775,875 1,621,815 907,623 923,940 503,497 9,197,507Other assets 1,131,018 176,692 262,880 527,050 3,962 - 2,101,602Off-balance sheet items 8,170,864 56,947 20,373 - - - 8,248,184

TOTAL ASSETS 123,560,906 23,502,339 16,986,200 14,162,679 35,312,134 8,523,173 222,047,431

Up to 1 month From 1 to 3 months

From 3 to 6 months


LIABILITIES

Transaction deposits 14,690,860 703,978 1,055,966 2,111,933 8,251,492 2,076,903 28,891,132Other deposits and borrowings 26,270,974 25,057,438 41,452,870 29,380,777 14,427,251 6,238,102 142,827,412Liabilities arising from securities 1,700,004 - - - - - 1,700,004Interest, fees and commissions payable and changes in fair value of derivatives 96 - - - - - 96

Provisions - - - - - 1,100,068 1,100,68Other liabilities and tax liabilities 372,178 4,291,076 10,145,894 551,869 232,749 1,763,448 17,357,214Off-balance sheet items 8,173,376 54,975 19,833 - - - 8,248,184

TOTAL LIABILITIES 43,034,112 30,052,492 52,654,730 32,044,579 22,911,492 11,178,521 191,875,926

INTEREST GAP 80,524,282 (6,548,181) (35,667,990) (17,881,900) 12,400,642 (2,655,348) -


INTEREST RATE RISK In RSD thousand

31.12.2012 Up to 1 month From 1 to 3 months From 3 to 6 months From 6 months to 1 year From 1 to 5 years Over 5 years Total

ASSETS Cash and cash equivalents 15,710,559 - - - - - 15,710,559Revocable deposits and loans 5,260,072 2,274,741 2,618,325 3,897,763 3,573,678 1,268,236 18,892,815Interest, fees and commissions receivables and changes in fair value 707,971 1,995 - - - - 709,966

Loans and deposits 82,751,500 21,599,517 10,075,822 7,853,851 15,909,811 10,581,960 148,772,461Securities (excluding own shares) 2,140,334 891,968 1,215,443 2,546,301 2,375,539 1,621 9,171,206Equity investments 2,862 5,723 8,585 17,170 79,094 94,311 207,745Other placements 3,987,085 555,212 1,152,070 1,109,909 1,591,959 509,340 8,905,575Other assets 1,096,222 93,517 130,996 254,244 917 - 1,575,896Off-balance sheet items 5,517,745 677,169 1,199,459 938,885 1,415,845 201 9,749,304

TOTAL FINANCIAL ASSETS 111,656,605 25,422,673 15,201,241 15,679,238 23,530,998 12,455,468 203,946,223

Up to 1 month From 1 to 3 months From 3 to 6 months From 6 months to 1 year From 1 to 5 years Over 5 years Total

LIABILITIESTransaction deposits 8,957,380 521,479 782,219 1,564,438 6,423,378 1,618,234 19,867,128Other deposits and borrowings 21,472,759 28,542,502 35,211,583 26,185,587 15,884,302 6,253,296 133,550,029Liabilities arising from securities 1,700,022 - - - - - 1,700,022Interest, fees and commissions payable and changes in fair value of derivatives 79 - - - - - 79

Provisions - - - - - 963,961 963,961Other liabilities and tax liabilities 282,548 4,241,322 9,859,926 561,201 251,040 1,320,168 16,516,205Off-balance sheet items 6,125,487 474,598 1,749,113 988,601 888,186 166,650 10,392,635


INTEREST GAP 78,636,075 (7,680,059) (31,202,141) (12,681,704) 1,499,937 2,133,360 -

Sensitivity of economic value of equity to interest rate fluctuations is measured for each of major currencies. It proceeds from the assumption on parallel change of interest rates by 200 basis points (2 percentage points). The impact of interest rate changes on equity measured on 31 December 2013 is shown in the following table:

2013In RSD thousand

RSD EUR OSTALE VALUTE TOTAL

Total (314,721) 135,729 230,005 51,013Short-term (91,898) 516,046 40,407 464,555Medium-term (456,992) (435,159) 119,668 (772,482)Long-term 234,169 54,842 69,930 358,941

The impact of interest rate changes on equity measured on 31 December 2012 is shown in the following table:

2012In RSD thousand

RSD EUR OSTALE VALUTE TOTAL

Total (140,656) (5,901) 95,755 (50,802)Short-term (75,466) 410,204 25,008 359,747Medium-term (214,655) 129,857 45,535 (39,264)Long-term 149,465 (545,962) 25,212 (371,285)

38.4.2. Foreign Currency Risk

Foreign Currency Risk

Foreign currency risk is either current or potential risk of losses in financial result or equity arising from changes in balance sheet positions and off-balance sheet items of the bank due to movements and changes of exchange rates on the market.

Foreign exchange risk is calculated on:• Assets and liabilities denominated in foreign

currency• Foreign currency transactions• Financial derivatives in foreign currency (foreign

currency futures, swaps)


Foreign Currency Risk Management

In the aim of managing foreign currency risk, the Risk Service, together with the Treasury Service ensures identification of foreign currency risk and monitoring of the foreign currency position on the daily basis, defines methods, models and procedures for their monitoring and measurement, proposes and defines limits and reports externally and internally.

In accordance with the regulatory requirement of the National Bank of Serbia, the Group

continuously maintains its foreign currency position within the allowed limits. The foreign currency risk ratio was in 2013 within the limits of maximum ratio to equity prescribed by law, under which the Group is required to ensure that its total net open foreign currency position does not exceed 20% of its equity on a daily level.

The following table shows the Group’s exposure to foreign exchange risk as at 31 December 2013:

In RSD thousand

EUR USD CHF Other currencies Total in foreign currency Total in dinars Total

RSD thousand

ASSETS Cash and cash equivalents 8,384,708 1,265,949 340,368 360,738 10,351,763 16,079,622 26,431,385Revocable deposits and loans 17,873,391 - - - 17,873,391 5,000,000 22,873,391Interest and fees receivable 51,616 - - 5,464 57,080 1,007,914 1,064,994Loans and placements 115,757,362 747,345 2,660,197 - 119,164,913 27,217,032 146,381,945Securities (excluding own shares) 1,954 - - - 1,954 13,820,061 13,822,015Equity investments - - - - - 174,592 174,592Other placements 7,858,592 6,557 96 - 7,865,245 1,332,262 9,197,507Intangible assets - - - - - 450,582 450,582Property and equipment and investment property - - - - - 2,060,585 2,060,585Other assets and deferred costs and accrued income 274,729 609 73 49 275,460 1,826,142 2,101,602Deferred tax assets - - - - - 486,447 486,447

Total Assets 150,202,352 2,020,469 3,000,734 366,251 155,589,806 69,455,239 225,045,045

LIABILITIES

Transaction deposits 11,420,389 2,437,717 8,100 66,398 13,932,604 14,958,528 28,891,132Other deposits 71,394,378 3,249,525 881,384 266,505 75,791,792 16,136,039 91,927,831Borrowings 45,256,326 14,273 1,603,558 7,092 46,881,249 4,018, 332 50,899,581Liabilities arising from securities - 4 - - 4 1,700,000 1,700,004Interest and fees payable and changes in fair value of derivatives - - - - - 96 96

Provisions 545,793 15,822 - - 561,615 538,453 1,100,068Tax liabilities - - - - - 52,520 52,520Other liabilities 15,597,428 27,589 2,520 1,192 15,628,729 1,675,965 17,304,694

Total liabilities 144,214,314 5,744,930 2,495,562 341,187 152,795,993 39,079,933 191,875,926

Net foreign currency position as at 31 December 2013 5,988,038 (3,724,461) 505,172 25,064 2,793,813 30,375,306 33,169,119

As at 31 December 2012

Total assets 142,648,210 1,911,967 1,086,307 375,381 146,021,865 56,903,368 202,925,233 Total liabilities 141,576,756 4,725,264 862,566 370,116 147,534,702 24,940,763 172,475,465


The following table show the effect of changes in exchange rates on the Group’s gross profit resulting from an open position as at 31 December:

In RSD thousand

2013 2012

Scenario Effect on gross profit Effect on gross profit

5% depreciation of dinar (19,272) 55,84210% depreciation of dinar (38,544) 111,68320% depreciation of dinar (77,087) 223,366

38.5. Operational Risk

Operational risk relates to the possibility of adverse effects on the Group's financial result and equity resulting from failures (non-intentional and intentional) in employees' work, inadequate internal procedures and processes, inadequate management of information and other systems, and from occurrence of unforeseeable external events. Operational risk also includes legal risk.

To ensure proper management of this risk,

in addition to a special organisational unit, Operational Risk Management Service, the Operational Risk Committee (ORCO) is responsible for coordination of operational risk management through implementation of corrective measures aimed at mitigating operational risk and raising awareness about operational risk management through the Group’s organisational system.

38.6. Reputational Risk

Reputational risk refers to the possibility of loss resulting from adverse impact on market positioning of the Group.

38.7. Exposure Risks

Exposure risks of the Group include risks of the Group’s exposure to a single party or a group of related parties, as well as risks of the Group’s exposure to a party related to the Bank. The Group manages exposure risk in accordance with risk management strategy and policy. The Group’s management defines limits for concentration of placements by individual legal persons or a group of related parties or parties related to the Group.

The Risk Management Department monitors, measures and reports the competent Group bodies on risks of exposure to a single party or a group of related parties.

By applying the mentioned measures, the Group management and relevant bodies and persons with authorities in the Group strive to ensure compliance of the Group’s exposure with prescribed limits. They ensure that exposure of

the Group to a single party or a group of related parties does not exceed 25% of the Group’s capital, that the sum of large exposures does not exceed 400% of the Group's capital, the exposure of the Group to a party related to the Group does not exceed 5% of the Group's capital and that total exposure to parties related to the Group does

not exceed 20% of the Group's capital.

In the course of 2013, the Group has continuously monitored the compliance of exposure risks and they were within the prescribed limits throughout 2013 as well as at 31 December 2013.

38.8. Investment Risks of the Bank

Investment risks of the Group include risks of investments in the capital of other legal persons and in fixed assets.

The Group manages investment risks in accordance with risk management strategy and policy.

In accordance with the regulations of the National Bank of Serbia, the Risk Management Department monitors the Group’s investments and reports to the Board of Directors. It also

ensures that the Group’s investments into a single non-financial sector party does not exceed 10% of the Group’s capital, and that investments in parties not operating in the financial sector and in fixed assets of the Group do not exceed 60% of its capital.

In the course of 2013 and as at 31 December 2013 the Group had continuously monitored the investment risks and they were within the legally prescribed indicators.

38.9. Country Risk

Risk relating to the country of origin of a party the Group is exposed to implies adverse effects that might affect its financial result and equity due to inability to collect receivables from this party for reasons resulting from political, economic or social circumstances in that party's country of origin.

The Group manages country risks in accordance with risk management strategy and policy.

When assuming risks toward banks outside the

Republic of Serbia, the respective country risk is also taken into consideration in determining limits.

Since the general rating rule, defined by major international rating agencies, determines that the rating of the general transactions of a particular entity must not exceed the rating of the country where the entity has its registered office, we are of opinion that the rating of that bank against the term of transaction may be considered as the key indicator of the country risk.


39. CAPITAL MANAGEMENT

The Bank manages its equity in order to:

� Ensure compliance with the requirements of the National Bank of Serbia

� Secure adequate level of capital for continued operation

� Maintain its capital at the level that would ensure further development

Capital adequacy of the Group is monitored monthly by the Group’s management.

The Law on Banks and relevant decisions of the National Bank of Serbia lay down that banks must maintain a minimum volume of capital in dinar equivalent of 10 million euros, calculated at the middle official exchange rate, capital adequacy ratio of at least 12% and adjust the volume and structure of their operation with performance indicators laid down in the Decision on Risk Management (Official Gazette of the Republic of Serbia, Nos 5/2011, 94/2011, 119/2012, 123/2012, 23/2013, 43/2013 and 92/2013) and the Decision on Capital Adequacy (Official Gazette of the Republic of Serbia, Nos 46/2011 and 6/2013).

The Decision of the National Bank of Serbia on capital adequacy of banks defines the method for calculation of Group›s capital and capital adequacy ratio for that capital. The total capital of the Group consists of core and supplementary capital and defined deductibles, while risk-weighted balance and off-balance assets are determined in accordance with prescribed risk weights for all types of assets.

Capital adequacy ratio of the Group is equal to the ratio of the Group’s capital and the sum of capital requirement for credit risk, capital requirement for market risks and capital

requirement for operational risks multiplied by reciprocal value of capital adequacy ratio (prescribed 12%).

The core capital of the Group is defined by the mentioned decision and must equal at least 50% of the Group›s capital. The core capital is composed of share capital consisting of ordinary and preference shares, share premium, reserves from profit, retained earnings and capital gains from repurchase of own shares. Deductibles from core capital include intangible assets, acquired own shares, losses from the current and previous years and regulatory adjustments (unrealised losses from AFS, other net negative revaluation reserves, gains from the Group’s liabilities carried at fair valued and reduced due to changes in credit rating, necessary reserves from profit for estimated losses on balance sheet assets and off-balance sheet items).

Supplementary capital is share capital from ordinary and priority cumulative shares, share premium from priority cumulative shares and part of the positive revaluation reserves and subordinated liabilities. Deductibles from supplementary capital include acquired own preferential cumulative shares.

Deductibles from total capital include the amount of necessary reserve from profit for estimated losses on balance sheet assets and off-balance sheet items of the Bank, interests in the capital of banks and other financial organisations that exceed 10% of the capital of these banks, i.e. other parties.

The following table presents calculated amounts of core, supplementary and total capital of the Group, as well as capital adequacy calculations.

In RSD thousand

2013 2012

Core capital 26.834.057 30.330.346

Supplementary capital 9.723.444 7.170.844Total core and supplementary capital 36.557.501 37.501.190Deductibles from capital 6.139.010 9.731.352

Capital 30.418.491 27.769.838

ToTal risk-weighTed balance sheeT asseTs 113.753.807 116.241.918Total risk-weighted off-balance sheet assets 23.754.912 25.957.631Derivatives that are not traded on the market 15.733 17.040Total open foreign currency position 178.188 134.022

Total risk-weighted assets 137.702.640 142.350.611

Capital requirement for operational risk (basic indicator approach) 1.476.563 1.316.585

Capital adequacy as at 31 December 20,10% 18,00%

The Group is required to comply the volume and structure of its operation with operating indicators set forth in the Decision on Risk Management (Official Gazette of the Republic of Serbia, Nos 45/2011, 94/2011, 119/2012, 123/2012, 23/2013, 43/2013 and 92/2013). The Group’s operating indicators as at 31 December 2013 and 31 December 2012 were as follows:

Operating indicator Prescribed valueActual value

2013 2012

Investments of the bank in fixed assets and entities not operating in the financial sector maximum 60% 6.77% 7.62%

Exposure to parties related to the Bank maximum 20% 4.10% 5.66%Sum of large exposures of the Bank maximum 400% 100.95% 89.29%Average monthly liquidity ratio for December minimum 1% 2.09% 1.70%Foreign currency risk ratio maximum 10% 4.88% 4.02%Exposure of the Bank to a group of related parties maximum 25% 16.21% 18.16%Capital adequacy minimum 12% 20.10% 18.00%Exposure to a party related to the Bank maximum 5% 1.68% 3.19%Investments of the bank to entities in the financial sector maximum 10% 1.74% 1.25%


40. COMMITMENTS AND CONTINGENT LIABILITIES

(a) Liabilities under operating leasing

In 2011, the Bank concluded a contract on operating leasing of vehicles.Future liabilities under that contract are presented below:

In RSD thousand

Matures between 1.1.2014 and 31.12.2014

Matures between 1.1.2014 and 31.12.2014 Total

Operating lease liability 24,238 5,086 29,324

(b) Tax Risks

The fiscal system of the Republic of Serbia has been continuously revised and amended. Tax period in the Republic of Serbia is open for 5 years. In different circumstances tax authorities may have different approaches to certain issues and they may assess additional tax liabilities and the corresponding default interest and penalties. The Group management considers that tax liabilities presented in the enclosed financial statements were correctly stated.

(c) Tax Risks

The fiscal system of the Republic of Serbia has been continuously revised and amended. Tax period in the Republic of Serbia is open for 5 years. In different circumstances tax authorities may have different approaches to certain issues and they may impose additional tax liabilities together with the corresponding default interest and penalties. The Group management considers that tax liabilities presented in the enclosed financial statements were correctly stated.

41. EVENTS AFTER THE BALANCE SHEET DATE

The Group did not have any significant event after the balance sheet date that could materially affect the financial statements.

42. LIABILITIES AND RECEIVABLES RECONCILIATION

As at 30 November 2013 the Group reconciled liabilities and receivables with legal entities and banks.

In RSD thousand

Total Assets 157 792 487Reconciled 84 910 754Not reconciled 10 399No response 72 871 334

Total liabilities for reconciliation 62 425 637Reconciled 26 864 929Not reconciled 1No response 35 560 707

Total off-balance sheet receivables for reconciliation 75 401 057Reconciled 30 350 641Not reconciled 1No response 45 050 415


43. EXCHANGE RATES

Exchange rate determined at the interbank foreign exchange market applied to the translation of balance sheet items as at 31 December 2013 and 31 December 2012 for given currencies was:

Valuta 31.12.2013 31.12.2012EUR 114,6421 113,7183CHF 93,5472 94,1922USD 83,1282 86,1763

Beograd, 7. april 2014. godineOdobreno od rukovodstva Societe Generale Banka Srbija a.d. Beograd




Statement By The Persons Responsible

For The Preparation Of The Annual Report

17.

In accordance with Article 50, paragraph 2 Item 3 from the Law on Capital Markets (official Gazette no. 31/2011) the persons responsible for the preparation of the annual report of Societe Generale Srbija, give the following:

STATEMENT

The consolidated annual report for the period 01.01-31.12.2013, according to the best of our knowledge, made in accordance with the international financial reporting standards provides accurate and objective information about the assets, liabilities, profits and losses, financial position and operations of Societe Generale Srbija, including the company’s related companies which are part of its consolidated financial statements.

Pursuant to Article 51 of the Act, we confirm that the Annual report has been adopted by the competent authority of Societerte Generale Srbija a.d. Belgrade, on the 23rd of April 2014.

Sanja Đeković (sgd)Accounting Division Manager

Sonja Miladinovski (sgd)Executive Board Member

Frederic Coin (sgd)Executive Board Chairman

2013. - Societe Generale Srbija · Goran Pitic, President of the Board of Directors Last year...

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