Annual Report 2012 - The Cyprus Development Bank

C O N T E N T SPageAdvisers 2Board of Directors 3Report of the Board of Directors 4 - 5Report of the Independent Auditors 6 - 7Consolidated income statement 8Income statement of The Cyprus Development BankPublic Company Limited 9Consolidated statement of comprehensive income 10Statement of comprehensive income of The Cyprus Development BankPublic Company Limited 11Consolidated balance sheet 12Balance sheet of The Cyprus Development BankPublic Company Limited 13Consolidated statement of changes in equity 14 - 15Statement of changes in equity of The CyprusDevelopment Bank Public Company Limited 16Consolidated cash flows statement 17Cash flows statement of The Cyprus Development BankPublic Company Limited 18Notes to the consolidated financial statements 19 - 62

Legal AdvisersCHRYSSAFINIS & POLYVIOUIndependent AuditorsKPMG Limited14 Esperidon Street1087 NicosiaRegistered Office50, Makarios III AvenueAlfa House1508 Nicosia2

Board of DirectorsRena Rouvitha Panou, ChairmanKyriacos ChristofiNeoclis NicolaouAnastasios LeventisAndreas LoizouThemis PapadopoulosJohn PittalisMenelaos ShiacolasChrysostomos TheocliAndri Georghiou (Executive)Kyriacos Iacovides (Executive)Andreas Pourgouras (Non-Executive – until 19.1.2012)Kyriacos IacovidesChief Executive OfficerAndri GeorghiouDeputy Chief Executive OfficerEvi ProtopapaSecretary3

annual report 2012REPORT OF THE BOARD OF DIRECTORS (continued)The continued improvement of asset quality through effective management of non-performing loans is also a key strategic priority ofthe Group. The Group places continued emphasis on effective risk management through adoption of prudent policies and measuresto mitigate any adverse consequences that may result from the deepening economic crisis.At the same time, the banking crisis also creates opportunities for the bank to increase its market share and selectively grow theservices it offers to its corporate clients and small / medium sized enterprises. The Group will also continue to further rationalise internalprocedures and improve operating efficiency, while also focusing on the provision of quality asset management and investment andadvisory services, through its subsidiary companies Global Capital Limited and PCM Advisers Limited. The continued strengtheningand profitable operation of the Group’s Russian subsidiary in the Krasnodar region constitutes a key strategic priority for the Group.BRANCHESThe Company carries out its activities through its head office and two branches, in Nicosia and in Limassol, Cyprus.BOARD OF DIRECTORSThe names of the members of the Board of Directors as at the date of this report are set out on page 3.All directors were members of the Board throughout the year except Mr Andreas Pourgouras who resigned on 19 January 2012. Themembers of the Board of Directors express their gratitude for his valuable contribution.In accordance with the Company’s Articles of Association, at the Company’s annual general meeting for 2013, Messrs Neoclis Nicolaou,Themis Papadopoulos, John Pittalis and Menelaos Shiacolas will be due for retirement and being eligible, offer themselves for reelection.EVENTS AFTER THE BALANCE SHEET DATECurrent developments in the economic environment in Cyprus are referred to in note 35 of the financial statements. Details of theGroup’s Capital Enhancement Plan are referred to in note 31 (e) of the financial statements. There were no other material events afterthe balance sheet date, which affect the financial statements as at 31 December 2012.INDEPENDENT AUDITORSThe independent auditors, Messrs KPMG Limited, have informed the Company of their willingness to continue in office and a resolutiongiving authority to the Board of Directors to fix their remuneration will be submitted to the Annual General Meeting.By the order of the BoardRena Rouvitha PanouChairmanNicosia, 4 June 20135

annual report 2012INDEPENDENT AUDITORS’ REPORT (continued)TO THE MEMBERS OFTHE CYPRUS DEVELOPMENT BANK PUBLIC COMPANY LIMITEDWe further draw attention to note 31(e) of the financial statements, which refer to the Company’s capital adequacy ratios being lowerthan the minimum required by the Central Bank of Cyprus as well as to the respective measures taken by the Company. Failure torectify the situation may indicate the existence of a material uncertainty which may have a significant effect on the operations of theCompany and the Group. Our opinion is not qualified in respect of this matter.Report on Other Legal and Regulatory RequirementsPursuant to the requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Law of 2009, we report thefollowing:• We have obtained all the information and explanations we considered necessary for the purposes of our audit.• In our opinion, proper books of account have been kept by the Company.• The consolidated and separate financial statements are in agreement with the books of account.• In our opinion and to the best of our information and according to the explanations given to us, the financial statements give theinformation required by the Cyprus Companies Law, Cap. 113, in the manner so required.• In our opinion, the information given in the report of the Board of Directors on pages 4 to 5 is consistent with the financialstatements.Other MatterThis report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section34 of the Auditors and Statutory Audits of Annual and Consolidated Accounts Law of 2009 and for no other purpose. We do not, ingiving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report maycome to.Panayiotis A. Peleties FCACertified Public Accountant and Registered Auditorfor and on behalf ofKPMG LimitedCertified Public Accountants and Registered AuditorsEsperidon 141087 NicosiaNicosia, 4 June 20137

CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 20122012 2011Notes €’ 000 €’ 000Turnover 3 34.453 29.563Interest income 4 30.586 25.870Interest expense 5 (22.351) (15.834)Net interest income 8.235 10.036Other income 6 3.867 3.693Total income 12.102 13.729Exchange differences (107) 242Staff costs 7 (8.178) (8.018)Other operating expenses (3.284) (3.241)Depreciation 8 (955) (898)(Loss)/profit before provisions for impairment (422) 1.814Provisions for impairment 8 (4.531) (5.434)Loss before permanent diminution in valueof investments available for sale (4.953) (3.620)Permanent diminution in value of investmentsavailable for sale - Transfer from revaluation reserve (217) (2.323)Loss before tax 8 (5.170) (5.943)Tax 9 (629) (450)Loss for the year (5.799) (6.393)Loss attributable to owners of the parent company (5.826) (6.222)Profit/(loss) attributable to non-controlling interest 27 (171)(5.799) (6.393)Basic and fully diluted loss per share (cent) 10 (46,83) (50,02)The notes on pages 19 to 62 are an integral part of the consolidated financial statements.8

annual report 2012INCOME STATEMENTFor the year ended 31 December 20122012 2011Notes €’ 000 €’ 000Turnover 3 31.449 27.591Interest income 4 28.514 24.361Interest expense 5 (22.286) (15.870)Net interest income 6.228 8.491Other income 6 2.935 3.230Total income 9.163 11.721Exchange differences (78) 261Staff costs 7 (6.921) (6.896)Other operating expenses (2.491) (2.419)Depreciation 8 (879) (832)(Loss)/profit before provisions for impairment (1.206) 1.835Provisions for impairment 8 (4.521) (5.353)Loss before permanent diminution in valueof investments available for sale (5.727) (3.518)Permanent diminution in value of investmentsavailable for sale - Transfer from revaluation reserve (217) (1.054)Loss before tax 8 (5.944) (4.572)Tax 9 (389) (296)Loss for the year (6.333) (4.868)Basic and fully diluted loss per share (cent) 10 (50,91) (39,13)The notes on pages 19 to 62 are an integral part of the consolidated financial statements.9

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 20122012 2011€’ 000 €’ 000Loss for the year after tax (5.799) (6.393)Other comprehensive incomeExchange gains/(losses) arising on the translation andconsolidation of foreign subsidiaries’ financial statements 207 (133)Gains from revaluation of premises - 191Losses from revaluation of investments available for sale (536) (526)Transfer to the income statement - Disposal of investments available for sale 44 (216)Transfer to the income statement - Permanent diminution in the value of investmentsavailable for sale 217 2.323Deferred tax on revaluation of premises 1 (16)Other comprehensive income for the year (67) 1.623Total comprehensive income for the year (5.866) (4.770)Attributable to:Owners of the parent company (5.876) (4.766)Non-controlling interest 10 (4)Total comprehensive income for the year (5.866) (4.770)The notes on pages 19 to 62 are an integral part of the consolidated financial statements.10

annual report 2012STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 31 December 20122012 2011€’ 000 €’ 000Loss for the year after tax (6.333) (4.868)Other comprehensive incomeGains from revaluation of premises - 191Losses from revaluation of investments available for sale (425) (335)Transfer to the income statement - Disposalof investments available for sale 44 (216)Gains/(losses) from revaluation of investments in subsidiaries 609 (270)Transfer to the income statement - Permanent diminution invalue of investments available for sale 217 1.054Deferred tax on revaluation of premises 1 (16)Other comprehensive income for the year 446 408Total comprehensive income for the year (5.887) (4.460)The notes on pages 19 to 62 are an integral part of the consolidated financial statements.11

CONSOLIDATED BALANCE SHEETAs at 31 December 20122012 2011Notes €’ 000 €’ 000ASSETSCash and balances with central banks 11 85.604 51.605Balances with other banks 11 75.422 29.218Loans and advances 12 438.125 383.370Investments in equities 13 1.467 1.960Investments in debt securities 14 71.253 79.498Premises and equipment 16 4.112 4.256Intangible assets 17 1.312 1.558Receivables and other assets 18 2.770 3.184Total assets 680.065 554.649LIABILITIESBalances due to banks 19 - 2Client deposits 20 611.559 468.943Repurchase agreements 21 15.157 15.004Borrowings 22 905 905Accruals and other liabilities 23 6.095 17.247Deferred taxation 24 222 258633.938 502.359Loan capital 25 15.085 15.222Total liabilities 649.023 517.581EQUITYShare capital 26 21.272 21.272Reserves 9.245 15.247Equity attributable to owners of the parent company 30.517 36.519Non-controlling interest 525 549Total equity 31.042 37.068Total liabilities and equity 680.065 554.649Contingent liabilities and commitments 28 84.546 117.613The financial statements were approved by the Board of Directors on 4 June 2013.Rena Rouvitha PanouKyriacos ChristofiChrysostomos TheocliKyriacos IacovidesAndreas EconomidesChairmanDirectorDirectorChief Executive OfficerManager Finance and OperationsThe notes on pages 19 to 62 are an integral part of the consolidated financial statements.12

annual report 2012BALANCE SHEETAs at 31 December 20122012 2011Notes €’ 000 €’ 000ASSETSCash and balances with central banks 11 78.533 46.435Balances with other banks 11 74.876 28.094Loans and advances 12 414.481 367.091Investments in equities 13 1.288 1.682Investments in debt securities 14 71.253 79.498Investment in subsidiary companies 15 18.617 13.996Premises and equipment 16 3.664 3.770Intangible assets 17 616 860Receivables and other assets 18 1.970 2.707Total assets 665.298 544.133LIABILITIESBalances due to banks 19 - 2Client deposits 20 598.312 459.861Repurchase agreements 21 15.157 15.004Borrowings 22 905 905Accruals and other liabilities 23 5.794 17.045Deferred taxation 24 222 258620.390 493.075Loan capital 25 15.085 15.222Total liabilities 635.475 508.297EQUITYShare capital 26 21.272 21.272Reserves 8.551 14.564Total equity 29.823 35.836Total liabilities and equity 665.298 544.133Contingent liabilities and commitments 28 81.285 116.211The financial statements were approved by the Board of Directors on 4 June 2013.Rena Rouvitha PanouKyriacos ChristofiChrysostomos TheocliKyriacos IacovidesAndreas EconomidesChairmanDirectorDirectorChief Executive OfficerManager Finance and OperationsThe notes on pages 19 to 62 are an integral part of the consolidated financial statements.13

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2012Attributable to the parent company’s ownersNon- Exchange Non-Share distributable Revaluation difference Revenue controlling Totalcapital reserves reserves reserves reserves Total interest Equity2012 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000Balance 1 January 21.272 51 1.521 (210) 13.885 36.519 549 37.068Exchange differences - - - 207 - 207 - 207Revaluation of investmentsavailable for sale - - (519) - - (519) (17) (536)Transfer from revaluationreserve to the incomestatement on the disposalof investmentsavailable for sale - - 44 - - 44 - 44Transfer from revaluationreserve to the incomestatement for permanentdiminution of investmentsavailable for sale - - 217 - - 217 - 217Transfer from revenuereserve to the special fund - 7 - - (7) - - -Transfer to revenuereserves excess depreciationon revalued premises net of deferred tax - - (16) - 16 - - -Deferred taxation - - 1 - - 1 - 1Defence tax on deemeddividend distribution - - - - (126) (126) - (126)Dividend paid by subsidiary - - - - - - (34) (34)Loss for the year - - - - (5.826) (5.826) 27 (5.799)Balance 31 December 21.272 58 1.248 (3) 7.942 30.517 525 31.042The notes on pages 19 to 62 are an integral part of the consolidated financial statements.14

annual report 2012CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2012Attributable to the parent company’s ownersNon- Exchange Non-Share distributable Revaluation difference Revenue controlling Totalcapital reserves reserves reserves reserves Total interest Equity2011 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000Balance 1 January 21.272 37 (34) (77) 20.153 41.351 677 42.028Exchange differences - - - (133) - (133) - (133)Revaluation of premises - - 191 - - 191 - 191Revaluation of investmentsavailable for sale - - (498) - - (498) (28) (526)Transfer from revaluationreserve to the incomestatement on the disposalof investmentsavailable for sale - - (216) - - (216) - (216)Transfer from revaluationreserve to the incomestatement for permanentdiminution of investmentsavailable for sale - - 2.128 - - 2.128 195 2.323Transfer from revenuereserve to the special fund - 14 - - (14) - - -Transfer to revenuereserves excess depreciationon revalued premises netof deferred tax - - (34) - 34 - - -Deferred taxation - - (16) - - (16) - (16)Defence tax on deemeddividend distribution - - - - (16) (16) - (16)Dividend paid by subsidiary - - - - - - (115) (115)Adjustment to subsidiaries’reserves - - - - (50) (50) (9) (59)Loss for the year - - - - (6.222) (6.222) (171) (6.393)Balance 31 December 21.272 51 1.521 (210) 13.885 36.519 549 37.068Non-distributable reservesThe non-distributable reserves comprise of amounts transferred from revenue reserves by the foreign subsidiary to cover possiblefuture losses in accordance with Russian legislation.Revaluation reservesThe revaluation reserves relate to the revaluation of investments available for sale and revaluation of premises. The revaluationreserves are not distributable.The notes on pages 19 to 62 are an integral part of the consolidated financial statements.15

STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2012Share Revaluation Revenuecapital reserves reserves Total2012 €’ 000 €’ 000 €’ 000 €’ 000Balance 1 January 21.272 (133) 14.697 35.836Revaluation of investments available for sale - (425) - (425)Revaluation of investment in subsidiary companies - 609 - 609Transfer from revaluation reserve to the incomestatement on the disposal of investmentsavailable for sale - 44 - 44Transfer from revaluation reserve to the incomestatement for permanent diminution ofinvestments available for sale - 217 - 217Transfer to revenue reserves excess depreciation onrevalued premises net of deferred tax - (16) 16 -Deferred taxation - 1 - 1Defence tax on deemed dividend distribution - - (126) (126)Loss for the year - - (6.333) (6.333)Balance 31 December 21.272 297 8.254 29.823Share Revaluation Revenuecapital reserves reserves Total2011 €’ 000 €’ 000 €’ 000 €’ 000Balance 1 January 21.272 (508) 19.548 40.312Revaluation of premises - 191 - 191Revaluation of investments available for sale - (335) - (335)Revaluation of investment in subsidiary companies - (270) - (270)Transfer from revaluation reserve to the incomestatement on the disposal of investments available for sale - (216) - (216)Transfer from revaluation reserve to the incomestatement for permanent diminution of investments available for sale - 1.054 - 1.054Transfer to revenue reserves excess depreciation onrevalued premises net of deferred tax - (33) 33 -Deferred taxation - (16) - (16)Defence tax on deemed dividend distribution - - (16) (16)Loss for the year - - (4.868) (4.868)Balance 31 December 21.272 (133) 14.697 35.836Revaluation reservesThe revaluation reserves relate to the revaluation of investments available for sale, revaluation of investment in subsidiary companiesand revaluation of premises. The revaluation reserves are not distributable.The notes on pages 19 to 62 are an integral part of the consolidated financial statements.16

annual report 2012CONSOLIDATED CASH FLOWS STATEMENTFor the year ended 31 December 20122012 2011Notes €’ 000 €’ 000CASH FLOWS FROM OPERATING ACTIVITIESGroup loss for the year (5.799) (6.393)Adjustments for:Interest from debt securities (2.598) (3.394)Interest on loan capital 813 817Loss on disposal of equipment 1 5Depreciation of premises and equipment 534 511Depreciation of intangible assets 421 387Exchange differences 107 (242)Provisions for impairment 4.531 5.434Permanent diminution in the value of equity investments 217 2.323Taxation 629 450Cash flows to operating activities before changes in workingcapital and other balance sheet items (1.144) (102)Increase in loans and advances (64.763) (84.334)Decrease in equity investments 1 2.640Increase in repurchase agreements 153 -Increase in client deposits 142.616 122.489Net increase in working capital and other balance sheet items (6.676) (3.257)Cash flows from operating activities 70.187 37.436Taxes and special contributions paid (665) (466)Net cash flows from operating activities 69.522 36.970CASH FLOWS FROM/(TO) INVESTING ACTIVITIESAcquisition of equipment (378) (1.276)Proceeds from disposal of equipment 1 -Acquisition of intangible assets (175) (286)Maturity/(acquisition) of investments in debt securities 8.245 (22.433)Interest from debt securities 2.598 3.394Net cash flows from/(to) investing activities 10.291 (20.601)CASH FLOWS TO FINANCING ACTIVITIESRepayment of loan capital (137) -Interest on loan capital (813) (817)Net cash flows to financing activities (950) (817)Net increase in cash and cash equivalents 78.863 15.552Effect of exchange rate fluctuations on cash and cash equivalents 200 1.024Cash and cash equivalents at the beginning of the year 80.821 64.245Cash and cash equivalents at the end of the year 30 159.884 80.821The notes on pages 19 to 62 are an integral part of the consolidated financial statements.17

CASH FLOWS STATEMENTFor the year ended 31 December 20122012 2011Notes €’ 000 €’ 000CASH FLOWS FROM OPERATING ACTIVITIESLoss for the year (6.333) (4.868)Adjustments for:Interest from debt securities (2.598) (3.394)Interest on loan capital 813 817Loss on disposal of equipment 1 2Depreciation of premises and equipment 460 448Depreciation of intangible assets 419 384Exchange differences 78 (261)Provisions for impairment 4.521 5.353Permanent diminution in the value of equity investments 217 1.054Taxation 389 296Cash flows to operating activities before changes in workingcapital and other balance sheet items (2.033) (169)Increase in loans and advances (57.523) (73.982)Decrease in equity investments 14 2.640Increase in repurchase agreements 153 -Increase in client deposits 138.451 115.490Net increase in working capital and other balance sheet items (10.254) (10.723)Cash flows from operating activities 68.808 33.256Taxes and special contributions paid (425) (308)Net cash flows from operating activities 68.383 32.948CASH FLOWS FROM/(TO) INVESTING ACTIVITIESAcquisition of equipment (354) (1.144)Acquisition of intangible assets (175) (282)Maturity/(acquisition) of investments in debt securities 8.245 (22.433)Interest from debt securities 2.598 3.394Net cash flows from/(to) investing activities 10.314 (20.465)CASH FLOWS TO FINANCING ACTIVITIESRepayment of loan capital (137) -Interest on loan capital (813) (817)Net cash flows to financing activities (950) (817)Net increase in cash and cash equivalents 77.747 11.666Effect of exchange rate fluctuations on cash and cash equivalents (7) 1.060Cash and cash equivalents at the beginning of the year 74.527 61.801Cash and cash equivalents at the end of the year 30 152.267 74.527The notes on pages 19 to 62 are an integral part of the consolidated financial statements.18

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20121. COMPANY INCORPORATION AND PRINCIPAL ACTIVITIESThe Cyprus Development Bank Public Company Limited (the “Company”) was incorporated in the Republic of Cyprus in 1963. TheCompany’s business name is “cdbbank” and is the parent company of the cdbbank Group.The principal activities of the Company are commercial banking operations.2. BASIS OF PREPARATION(a) Going concernThe financial statements have been prepared on a going concern basis. Despite recent developments in the economicenvironment of Cyprus as reported in note 35 to the financial statements, the Directors and Management of the Group believethat the Company and the Group have the ability to continue operating as a going concern.(b) Statement of complianceThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adoptedby the European Union (EU) and the requirements of the Cyprus Companies Law, Cap.113.(c) Basis of measurementThe financial statements have been prepared under the historical cost convention, except as adjusted to include the revaluationof the freehold premises of the Company and the reporting of equity investments, investments in subsidiary companies andderivatives at their assessed fair values.(d) Adoption of new and revised International Financial Reporting Standards and InterpretationsDuring the current year the Group and the Company adopted all the new and revised International Financial Reporting Standards(IFRSs) that are relevant to their operations and are effective for accounting periods beginning on 1 January 2012. This adoptiondid not have a material effect on the accounting policies of the Group and of the Company.The following Standards, Amendments to Standards and Interpretations had been issued but are not yet effective as at thebalance sheet date:(i) Standards and interpretations adopted by the EU• IFRS 7 (Amendments) ‘’Financial Instruments: Disclosures’’ - ‘’Offsetting Financial Assets and Financial Liabilities’’ (effectivefor annual periods beginning on or after 1 January 2013).• IFRS 10 ‘’Consolidated Financial Statements’’ (effective for annual periods beginning on or after 1 January 2013).• IFRS 11 ‘’Joint Arrangements’’ (effective for annual periods beginning on or after 1 January 2013).• IFRS 12 ‘’Disclosure of Interests in Other Entities’’ (effective for annual periods beginning on or after 1 January 2013).• IFRS 13 ‘’Fair Value Measurement’’ (effective for annual periods beginning on or after 1 January 2013).• IAS 1 (Amendments) ‘’Presentation of items of other Comprehensive Income’’ (effective for annual periods beginning on orafter 1 July 2012).• IAS 19 (Amendments) ‘’Employee Benefits’’ (effective for annual periods beginning on or after 1 January 2013).• IAS 27 (Revised) ‘’Separate Financial Statements’’ (effective for annual periods beginning on or after 1 January 2013).19

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20122. BASIS OF PREPARATION (continued)(d) Adoption of new and revised International Financial Reporting Standards and Interpretations (continued)(i) Standards and interpretations adopted by the EU (continued)• AS 28 (Revised) ‘’Investments in Associates and Joint ventures’’ (effective for annual periods beginning on or after 1January 2013).• IAS 32 (Amendments) ‘’Offsetting Financial Assets and Financial Liabilities’’ (effective for annual periods beginning onor after 1 January 2014).• Improvements to IFRSs 2009-2011 (effective for annual periods beginning on or after 1 January 2013).• IFRS 1 (Amendments): ‘’Government Loans’’ (effective for annual periods beginning on or after 1 January 2013).• IFRS 7 (Amendments) ‘’Financial Instruments: Disclosures’’ – ‘’Disclosures on transition to IFRS 9’’ (effective for annualperiods beginning on or after 1 January 2015).• Transition Guidance - Amendments to IFRS 10, 11 and 12 (effective for annual periods beginning on or after 1 January2013).(ii) Standards and interpretations not adopted by the EU• IFRS 9 ‘’Financial Instruments’’ (effective for annual periods beginning on or after 1 January 2015).• Investment Entities - Amendments to IFRS 10, 12 and IAS 27 (effective for annual periods beginning on or after 1January 2014).The Board of Directors expects that the adoption of these standards and interpretations in future periods will not have amaterial effect on the financial statements of the Group and of the Company except from the adoption of IFRS 9 that couldchange the classification and measurement of financial assets. The extent of the impact has not been determined.(e) Use of estimates and judgementsThe preparation of financial statements in accordance with IFRSs requires from Management the exercise of judgement, tomake estimates and assumptions that influence the application of accounting principles and the related amounts of assetsand liabilities, income and expenses. The estimates and underlying assumptions are based on historical experience andvarious other factors that are deemed to be reasonable based on knowledge available at that time. Actual results maydeviate from such estimates.The estimates and underlying assumptions are revised on a continuous basis. Revisions in accounting estimates arerecognised in the period during which the estimate is revised, if the estimate affects only that period, or in the period of therevision and future periods, if the revision affects the present as well as future periods.(f) Functional and presentation currencyThe financial statements of the Group and of the Company are for the year ended 31 December 2012 and are presentedin Euro (€), which is the functional currency of the Company and its subsidiaries in Cyprus. The functional currency of theforeign subsidiary is Russian Roubles.3. SIGNIFICANT ACCOUNTING POLICIESThe accounting policies followed in respect of items which are considered material for the results for the year and the reporting ofthe financial condition of the Group and the Company, are stated below.20

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20123. SIGNIFICANT ACCOUNTING POLICIES (continued)The accounting policies have been consistently applied by the companies in the Group and except where there is a change inaccounting policy, are consistent with those of the previous year. Where necessary, comparative figures are adjusted to conformwith changes in presentation in the current year.Consolidated financial statementsThe consolidated financial statements comprise the financial statements of the Company, and of its subsidiary companies (note15), which together are referred to as the “Group”.All inter-company transactions and balances between the parent company and the subsidiary companies of the Group areeliminated on consolidation.Foreign currencyTransactions in foreign currencies are recorded at the rates ruling on the date of the transaction. Other assets and liabilitiesdenominated in foreign currencies are translated into Euro at the rates of exchange ruling at the end of the year. Exchangedifferences arising from the above are dealt with in the income statement.The income statement of the foreign subsidiary company is translated into Euro using the mid-rate of exchange of the year. Theassets and liabilities of the foreign subsidiary are translated into Euro at the rate of exchange ruling at the end of the year. Theexchange difference arising from the above is dealt with directly in exchange difference reserves.TurnoverThe Group’s and the Company’s turnover comprises interest income, fees and commissions, dividends and profits on disposal ofequity investments, fees from services rendered and other income.Income recognitionInterest receivable and other income is recognised on an accruals basis. Accrued interest and other income from loans witharrears of over three months and which are not fully secured with tangible collateral, as well as accrued interest and other incomefrom accounts considered doubtful, is not taken to the income statement, but is transferred to suspense account.Interest and other income credited to suspense account is transferred to the income statement when collected or when the saidloans or accounts cease to be classified as stated above.Dividends receivable from equity investments are recognised as income in the income statement in the period in which theybecome payable. Interest earned on investments in government and corporate bonds is included in interest income for the periodduring which the investments are held.Income from fees and the provision of services is recognised on the basis of the progress of execution and completion of thetransaction so as to match it with the cost of providing the service.Loans and advancesLoans and advances originated by providing money directly to the borrower are measured initially at cost, which is the fair valueof the consideration given to originate the loan. Loans and advances are subsequently measured at their amortised cost using theeffective interest rate method.21

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20123. SIGNIFICANT ACCOUNTING POLICIES (continued)Loans and advances (continued)Loans and advances are stated on the balance sheet of the Company and of the Group net of provisions for impairment of doubtfulaccounts. Loans and advances are considered doubtful when there are objective indications that the Group will not collect allamounts due in accordance with the contractual terms, unless such loans and advances are secured by tangible collateral orother indications exist that the amounts due will be collected.Provisions are made to reduce doubtful accounts to their estimated recoverable amount. The amount of the provision is thedifference between the book value and the estimated recoverable amount of the loan taking into account the estimated recoverableamounts from tangible collateral and guarantees. Loans and advances are written off to the extent that their recovery is no longerfeasible. Doubtful accounts are monitored continuously and provisions for doubtful accounts are released only when events andfactors make the collection of doubtful amounts feasible.InvestmentsEquity investmentsEquity investments acquired through the Group’s financing and investment operations are accounted for as equity portfolio. Theseinvestments are classified as investments available for sale.Investments available for sale include investments intended to be held for an indefinite period of time and can be sold in responseto changes in their market value, risks and liquidity requirements.These investments are initially recorded at cost on the date of acquisition and revalued at their assessed fair value on 31 Decembereach year.Investments listed on stock exchanges are revalued at their assessed fair value on the basis of closing bid prices published bythe stock exchange on which they are listed on 31 December each year. Unlisted investments are revalued at their assessed fairvalue using recognised models and valuation indices adjusted according to the specific circumstances of the particular company.Fair value adjustments are transferred to the revaluation reserve.Profits or losses on the disposal of equity investments are taken to the income statement in the year in which they are realised.Any related balance in the revaluation reserve is taken to the income statement.When there is objective evidence that an available for sale investment is impaired, the cumulative loss that has been recognised inother comprehensive income is reclassified to the income statement. The amount of the cumulative loss that is reclassified fromother comprehensive income to the income statement is the difference between the acquisition cost and current fair value, lessany impairment loss on that investment previously recognised in the income statement.If, in a subsequent period, the fair value of an impaired available for sale investment increases and the increase can be objectivelyrelated to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed,with the amount of the reversal recognised in other comprehensive income.22

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20123. SIGNIFICANT ACCOUNTING POLICIES (continued)Investments (continued)Investments in government securities and other debt securitiesInvestments in government securities and other debt securities with fixed maturity, which the Group has both the intention and theability to hold to maturity, are classified as held-to-maturity.Held-to-maturity investments are carried at their amortised cost, which is calculated taking into account the cost of acquisition, anyunamortised premium or discount and deducting any impairment loss.The amount of the impairment loss on investments held-to-maturity, which represents the difference between the carrying amountof the investment and the present value of future expected cash flows, discounted at the original effective interest rate of theinvestment, is taken to the income statement. The carrying amount of the investment is reduced accordingly.If, in a subsequent period, the amount of the estimated impairment loss decreases because of an event occurring after theimpairment was recognised, the impairment loss previously recognised is reversed and the reversal is credited to the incomestatement.Subsidiary companiesThe subsidiary companies are consolidated using the acquisition method of accounting. Any excess of the cost of acquisition overthe Group’s share of the fair values of the identifiable net assets acquired, is recognised as goodwill on the consolidated balancesheet. The investments in the subsidiary companies are fully eliminated on consolidation in the consolidated financial statementsof the Group.Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with ownersin their capacity as owners. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of thesubsidiary. No adjustments are made to goodwill and no gain or loss is recognised in the income statement.The investments in the subsidiary companies are stated in the Company’s separate financial statements at their assessed fairvalue. Adjustments to the assessed fair value of subsidiary companies are transferred to the revaluation reserve.On the disposal or partial disposal of an investment in a subsidiary company, the difference between the sale proceeds and thebook value of the shareholding disposed is transferred to the income statement. Any related balance in the revaluation reserve istaken to the income statement.Premises and equipmentFreehold premises are used in the operations of the Group and are stated at valuation on the basis of open market value forexisting use as assessed by independent professional valuers less accumulated depreciation. Revaluation surpluses or deficitsare credited or debited to the revaluation reserve. Any deficit not covered by accumulated revaluation surpluses in the revaluationreserve for the specific asset, is written off to the income statement.23

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20123. SIGNIFICANT ACCOUNTING POLICIES (continued)Premises and equipment (continued)Equipment is measured at cost less accumulated depreciation. Material expenses which add future economic benefit arecapitalised whereas other expenses are written off to the income statement.Depreciation on premises is provided on the straight line method in equal annual instalments over a period of 33 years. Nodepreciation is provided on land.Depreciation on equipment is provided on the straight line method in equal annual instalments over their estimated useful life,which ranges from five to ten years.On disposal of premises and equipment, the difference between the net proceeds and the net book value is transferred to theincome statement. Any related balance in the revaluation reserve is taken to revenue reserve.Intangible assetsIntangible assets include computer software and goodwill.Computer software is stated at cost less accumulated depreciation. Depreciation on computer software is provided on the straightline method in equal annual instalments over their estimated useful life, which ranges from three to five years.Maintenance expenses of computer software are written off to the income statement in the year in which they are incurred.Goodwill represents the excess of the cost of the acquisition over the fair value of the Group’s share of identifiable assets, liabiltiesand contingent liabilities of the acquired entity at the date of acquisition. After initial recognition, goodwill is measured at cost lessany impairment loss. Goodwill is reviewed for impairment annually as at 31 December or more frequently if events or changes incircumstances indicate thet the carrying amount may be impaired.Cash and cash equivalentsCash and cash equivalents consist of cash and other securities which are highly liquid or repayable within three months from thedate of their acquisition.Repurchase agreementsSecurities sold under agreements to repurchase at a specific future date (repos) are not derecognised from the balance sheet.Cash received is recognised on the balance sheet as “Repurchase agreements”, reflecting the economic substance as a loan tothe Company and to the Group. The difference between the sale price and the repurchase price is treated as interest expense andis accrued over the life of the agreement using the effective interest rate method. Repos outstanding at the balance sheet daterelate to agreements with the European Central Bank.Client depositsClient deposits are initially measured at the fair value of the consideration received, which equals the amount deposited by theclient. Subsequently, client deposits are measured at their amortised cost using the effective interest rate method.Loan capitalBonds issued by the Company are initially recorded at fair value, which equals the amount received, and subsequently aremeasured at their amortised cost using the effective interest rate method.24

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20123. SIGNIFICANT ACCOUNTING POLICIES (continued)Share capitalThe Company’s own shares are stated as equity.GuaranteesGuarantees issued comprise performance and tender guarantees and other letters of guarantee given to clients and representirrevocable obligations of the Company to pay a specific amount to the beneficiary only if the terms of the specific contractualobligation are not adhered to.Liabilities arising from guarantees are initially measured at fair value and the initial fair value is amortised over the life of theguarantee. The liability is subsequently carried at the higher of this amortised amount and the present value of any expectedpayment to settle the liability when a payment under the contract has become probable.DerivativesDerivatives consist of forward exchange rate contracts.Derivatives are initially recorded at cost and then revalued at their assessed fair value. The assessed fair value is estimated on thebasis of current prices and analyses of discounted cash flows. Derivatives with positive assessed fair value are accounted for asassets and derivatives with negative assessed fair value are accounted for as liabilities.All derivatives are recorded as trading derivatives and adjustments to their assessed fair value are taken to the incomestatement.Retirement benefits to staffThe Company operated a defined retirement benefits scheme for its staff until 31 December 2011. Following a new collectiveagreement signed on 12 January 2012 between the Cyprus Bankers Employers Association and the Cyprus Union of BankEmployees, a defined contribution plan was introduced on 1 January 2012. Under the new plan, the Company contributes tothe Provident Fund 14% and the employees contribute 3%-10% on their basic salary plus COLA respectively. The Company’scontributions are charged to the income statement.TaxationProvision for taxation is made in accordance with the tax legislation and tax rates applicable in Cyprus and the Russian Federation,where the Group carries on operations. Provision for deferred taxation is also made for all temporary differences between thecarrying values of assets and liabilities for financial reporting purposes and their tax base. Deferred taxation is calculated usingthe tax rates that were applicable at the end of the year. Any deferred tax assets arising from deductible temporary differencesare recognised only to the extent that it is expected that taxable profits will be available in the future.Special LevyAccording to the “Special Levy on Credit Institutions Law of 2011”, passed on 14 April 2011, a special levy was imposed on creditinstitutions for the years 2011 and 2012, at the rate of 0,095% on qualifying deposits held by each credit institution at 31 Decemberof the year preceding the year of taxation. Amendments passed on 21 December 2012, for purposes of enforcing the terms ofthe Memorandum between the Republic of Cyprus and the lenders, provide for the extension of the validity of the relevant law,increase of the special levy tax to 0,11% and the deletion of the provision under which the tax paid should not exceed 20% of thetotal taxable profits of the credit institution assessed by the Director of Inland Revenue.25

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20124. INTEREST INCOMETHE GROUPTHE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Loans and advances 27.477 22.066 25.582 20.290Balances with other banks 511 410 334 677Debt securities 2.598 3.394 2.598 3.39430.586 25.870 28.514 24.3615. INTEREST EXPENSETHE GROUPTHE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Borrowings 575 1.183 606 1.173Client deposits 20.948 13.830 20.867 13.880Balances due to banks 15 4 - -Loan capital 813 817 813 81722.351 15.834 22.286 15.8706. OTHER INCOMETHE GROUPTHE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000(Loss)/profit from disposal of equity investments (190) 682 (190) 682Dividends receivable - - 407 871Fees and commissions receivable 4.057 3.011 2.718 1.6773.867 3.693 2.935 3.2307. STAFF COSTSTHE GROUPTHE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Staff costs:Salaries, employer’s contributions and other staff benefits 7.420 6.804 6.163 5.682Cost of retirement benefits 758 1.214 758 1.2148.178 8.018 6.921 6.89626

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20127. STAFF COSTS (continued)The number of persons employed by the Group as at 31 December 2012 was 149 (31 December 2011: 143) and by the Company96 (31 December 2011: 91).Retirement benefitsThe Company operated a defined retirement benefits scheme for its permanent staff until 31 December 2011. Following a newcollective agreement signed on 12 January 2012 between the Cyprus Bankers Employers Association and the Cyprus Union ofBank Employees, a defined contribution plan was introduced on 1 January 2012. Under the new plan, the Company contributesto the Provident Fund 14% and the employees contribute 3%-10% on their basic salary plus COLA respectively. The Company’scontributions are charged to the income statement. In addition, the Company paid to the Provident Fund for each eligible staffmember, the accumulated rights to retirement gratuity as at 31 December 2011.8. LOSS BEFORE TAXThe loss before tax for the year is stated after charging/(crediting) the following:THE GROUPTHE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Directors’ emoluments:Fees 200 273 200 273Expenses 66 71 66 71Salaries, employer’s contributionsand other staff benefits of keymanagement personnel 469 445 469 445Auditors’ remunerationAudit services 56 54 28 26Other non-audit services 6 27 6 27Other assurance services 8 6 8 5Loss on disposal of equipment 1 5 1 2Depreciation on:Premises and equipment 534 511 460 448Intangible assetsComputer software 421 387 419 384Provisions for impairment:Loans and advances 4.489 (2.342) 4.481 (2.417)Receivables and other assets 42 31 40 25Held-to-maturity investments (note 31) - 7.745 - 7.74527

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 20129. TAXATIONTHE GROUPTHE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Corporation tax 7 7 - -Defence Fund 41 38 - -Foreign taxes 192 109 - -Deferred taxation (35) (13) (35) (13)Special tax on deposits 424 309 424 309Charge for the year 629 450 389 296Corporation tax in Cyprus is calculated at the rate of 10%. The foreign subsidiary company is subject to corporation tax in theRussian Federation at the rate of 20% on its taxable income.On 14 April 2011 the House of Representatives enacted a law which provides for the imposition of a tax levy on all credit institutionsoperating within the Republic of Cyprus. The levy is imposed at the rate of 0,095% on all customer deposits as at 31 December ofthe previous year subject to a maximum of 20% of the sum of the taxable income for the two years 2011 and 2012. Amendmentspassed on 21 December 2012, for purposes of enforcing the terms of the Memorandum between the Republic of Cyprus and thelenders, provide for the extension of the validity of the relevant law, increase of the special levy tax to 0,11% and the deletion ofthe provision under which the tax paid should not exceed 20% of the total taxable profits of the credit institution assessed by theDirector of Inland Revenue.Reconciliation of the taxation chargeTHE GROUPTHE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Loss before tax (5.170) (5.943) (5.944) (4.572)Corporation tax on the loss for theyear at the rates applicable in Cyprus (517) (594) (594) (457)Tax effect of:Non-tax allowable expenses 147 1.046 140 973Non-taxable income (117) (105) (93) (226)Different foreign tax rates 111 59 - -Losses of previous years - (290) - (290)Deferred tax asset on tax losses not recognised 575 - 547 -199 116 - -Deferred tax (35) (13) (35) (13)Defence fund 41 38 - -Special tax on deposits 424 309 424 309Charge for the year 629 450 389 29628

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201210. LOSS PER SHARETHE GROUP THE COMPANY2012 2011 2012 2011Loss attributable to the owners of the parent company (€’ 000) (5.826) (6.222) (6.333) (4.868)Weighted average number of shares in issue during the year (thousand) 12.440 12.440 12.440 12.440Basic and fully diluted loss per share (cent) (46,83) (50,02) (50,91) (39,13)11. CASH AND BALANCES WITH CENTRAL BANKS AND OTHER BANKSTHE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Cash 1.252 1.165 732 437Balances with central banks 84.352 50.440 77.801 45.99885.604 51.605 78.533 46.435Balances with other banks 75.422 29.218 74.876 28.094Balances with central banks include mandatory deposits for liquidity purposes which amount to €5.322 thousand (2011: €6.175thousand) for the Group and €5.019 thousand (2011: €5.995 thousand) for the Company.Maturities of balances with central banks and other banks are shown in note 31 – Financial Risk Management.12. LOANS AND ADVANCESTHE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Loans and advances 476.751 411.988 452.858 395.335Provision for doubtful accounts (38.626) (28.618) (38.377) (28.244)438.125 383.370 414.481 367.091Additional analysis and information regarding credit risk and analysis of the provisions for doubtful accounts are set out in note31 – Financial Risk Management.29

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201213. INVESTMENTS IN EQUITIESTHE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000CostBalance 1 January 10.786 13.426 8.990 11.630Acquisitions 419 20 406 20Disposals/maturities (420) (2.660) (420) (2.660)Balance 31 December 10.785 10.786 8.976 8.990Permanent diminutionBalance 1 January (8.779) (6.870) (7.310) (6.670)Charge for the year (217) (2.323) (217) (1.054)Disposals - 414 - 414Balance 31 December (8.996) (8.779) (7.527) (7.310)Revaluation at fair valueBalance 1 January (47) (1.637) 2 (511)Decrease in fair value (536) (517) (425) (325)Permanent diminution 217 2.323 217 1.054Disposals 44 (216) 44 (216)Balance 31 December (322) (47) (161) 2Balance 31 December at fair value 1.467 1.960 1.288 1.682Investments in Cyprus companies:Listed:On the Cyprus Stock Exchange 266 545 159 325Unlisted 1.143 1.357 1.129 1.357Investments in foreign companies:Unlisted 58 58 - -1.467 1.960 1.288 1.682Investments in equities are classified as:Available for sale 1.467 1.960 1.288 1.68230

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201214. INVESTMENTS IN DEBT SECURITIESTHE GROUP AND THE COMPANY2012 2011€’ 000 €’ 000Held-to-maturityGovernment bonds 66.733 74.243Treasury bills - 4.999Corporate bonds 4.520 25671.253 79.498Listed:On the Cyprus Stock Exchange 55.510 75.117On foreign stock exchanges 15.487 4.125Unlisted 256 25671.253 79.498Additional analysis and information regarding the impairment of Greek Government Bonds are set out in note 31 – Financial RiskManagement.15. INVESTMENTS IN SUBSIDIARY COMPANIESTHE COMPANYThe companies included in the consolidated financial statements of the Group and their activities are:ShareholdingActivities2012 2011(%) (%)In Cyprus:Global Capital Limited 84,64 84,64 Portfolio management and theprovision of financial advisoryand brokerage services.PCM Advisers Limited 100,00 100,00 Provision of investment servicesIn the Russian Federation:cdbbank Russia 100,00 100,00 Commercial banking operationsShareholding interest in Global Capital LimitedGlobal Capital Limited is the parent company of three companies that are registered and operate in Cyprus. The companies of thegroup are:ShareholdingActivities2012 2011(%) (%)Global Capital Securities andFinancial Services Limited 99,99 99,99 Portfolio management, provisionof financial advisory servicesand brokerage servicesGlobal Capital Finance Limited 100,00 100,00 Investment accountsGlobal Capital Secretarial Limited 100,00 100,00 Inactive31

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201215. SUBSIDIARY COMPANIES (continued)Shareholding interest in Global Capital Limited (continued)The Company’s balances with Global Capital Limited are shown below:2012 2011€’ 000 €’ 000Cost 3.713 3.713Adjustment to assessed fair value (820) (687)Assessed fair value of investment 2.893 3.026Amounts due to subsidiary company (2.664) (3.435)Amounts due by subsidiary company 185 636Balance 31 December 414 227Shareholding interest in PCM Advisers LimitedThe Company’s balances with PCM Advisers Limited are shown below:2012 2011€’ 000 €’ 000Cost 1.795 2.137Adjustment to cost - (342)1.795 1.795Adjustment to assessed fair value (1.181) (1.016)Assessed fair value of investment 614 779Amounts due to subsidiary company (682) (946)Amounts due by subsidiary company 222 385Balance 31 December 154 218Shareholding interest in cdbbank RussiaThe Company’s balances with cdbbank Russia are shown below:2012 2011€’ 000 €’ 000Cost 6.442 6.442Exchange differences (490) (645)5.952 5.797Adjustment to assessed fair value 616 (137)Assessed fair value of investment 6.568 5.660Amounts due to subsidiary company (1.865) (2.396)Amounts due by subsidiary company 13.346 10.287Balance 31 December 18.049 13.551The amounts due by the subsidiary company include a subordinated loan amounting to €2.278 thousand (USD3.000 thousand)which bears interest at a floating rate equal to the six-month USD LIBOR applicable from time to time plus 2% and it is repayableon 4 June 2017.32

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201215. INVESTMENTS IN SUBSIDIARY COMPANIES (continued)Shareholding interest in cdbbank Russia (continued)cdbbank Russia owns 100% of the share capital of Egida Consult, which is registered in the Russian Federation. The principalactivities of Egida Consult are the equity participation in customer companies and the provision of consultancy services. On 28December 2011 Egida Consult was liquidated.16. PREMISES AND EQUIPMENTTHE GROUPPremises Equipment Total2012 €’ 000 €’ 000 €’ 000Cost or valuationBalance 1 January 3.466 2.670 6.136Exchange differences 14 4 18Additions 191 187 378Disposals (1) (72) (73)Balance 31 December 3.670 2.789 6.459DepreciationBalance 1 January 258 1.622 1.880Exchange differences 1 3 4Charge for the year 247 287 534On disposals - (71) (71)Balance 31 December 506 1.841 2.347Net book value 31 December 3.164 948 4.112Historic net book value of owned premises stated at valuation 31 December 1.266 - 1.2662011 €’ 000 €’ 000 €’ 000Cost or valuationBalance 1 January 2.705 2.257 4.962Exchange differences (6) (2) (8)Revaluation 191 - 191Additions 814 462 1.276Reversal of depreciation on revaluation (236) - (236)Disposals (2) (47) (49)Balance 31 December 3.466 2.670 6.136DepreciationBalance 1 January 250 1.403 1.653Exchange differences - (1) (1)Charge for the year 244 267 511Reversal of depreciation on revaluation (236) - (236)On disposals - (47) (47)Balance 31 December 258 1.622 1.880Net book value 31 December 3.208 1.048 4.256Historic net book value of owned premises stated at valuation 31 December 1.292 - 1.29233

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201216. PREMISES AND EQUIPMENT (continued)THE COMPANYPremises Equipment Total2012 €’ 000 €’ 000 €’ 000Cost or valuationBalance 1 January 2.991 2.300 5.291Additions 172 182 354Disposals - (68) (68)Balance 31 December 3.163 2.414 5.577DepreciationBalance 1 January 187 1.334 1.521Charge for the year 193 267 460On disposals - (68) (68)Balance 31 December 380 1.533 1.913Net book value 31 December 2.783 881 3.664Historic net book value of owned premises stated at valuation 31 December 885 - 8852011 €’ 000 €’ 000 €’ 000Cost or valuationBalance 1 January 2.342 1.899 4.241Revaluation 191 - 191Additions 696 448 1.144Reversal of depreciation on revaluation (236) - (236)Disposals (2) (47) (49)Balance 31 December 2.991 2.300 5.291DepreciationBalance 1 January 220 1.136 1.356Charge for the year 203 245 448Reversal of depreciation on revaluation (236) - (236)On disposals - (47) (47)Balance 31 December 187 1.334 1.521Net book value 31 December 2.804 966 3.770Historic net book value of owned premises stated at valuation 31 December 888 - 888The Company’s freehold premises were valued by external professional valuers on 31 December 2011 at open market value onthe basis of existing use. The surplus arising from the revaluation of freehold premises amounting to €191 thousand less relateddeferred tax of €16 thousand, was transferred to the revaluation reserve.The net book value of freehold property, on a cost less accumulated depreciation basis, as at 31 December 2012 would haveamounted to €650 thousand (2011: €564 thousand). The net book value of leasehold property as at 31 December 2012 amountsto €235 thousand (2011: €324 thousand).34

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201217. INTANGIBLE ASSETSTHE GROUPTHE COMPANYGoodwill Software Total Software2012 €’ 000 €’ 000 €’ 000 €’ 000Cost or valuationBalance 1 January 1.037 2.985 4.022 2.839Additions - 175 175 175Balance 31 December 1.037 3.160 4.197 3.014Depreciation and impairment lossesBalance 1 January 342 2.122 2.464 1.979Charge for the year - 421 421 419Balance 31 December 342 2.543 2.885 2.398Net book value 31 December 695 617 1.312 6162011 €’ 000 €’ 000 €’ 000 €’ 000Cost or valuationBalance 1 January 1.037 2.699 3.736 2.557Additions - 286 286 282Balance 31 December 1.037 2.985 4.022 2.839Depreciation and impairment lossesBalance 1 January - 1.735 1.735 1.595Charge for the year 342 387 729 384Balance 31 December 342 2.122 2.464 1.979Net book value 31 December 695 863 1.558 860Goodwill relates to the acquisition of PCM Advisers Ltd, and represents the difference between the fair value of net assetsacquired and the total consideration paid.35

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201218. RECEIVABLES AND OTHER ASSETS THE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Fees receivable 93 81 93 81Sundry debtors and other assets 2.658 2.030 1.853 1.553Assessed fair value of derivatives 19 1.073 24 1.0732.770 3.184 1.970 2.707Derivatives consist of forward exchange rate contracts. The nominal value and assessed fair value of derivatives are as follows:Forward exchange rate contractsTHE GROUPTHE COMPANYAssessedAssessedNominal fair value Nominal fair valuevalue Asset value Asset€’ 000 €’ 000 €’ 000 €’ 000At 31 December 2012 6.215 19 6.415 24At 31 December 2011 19.613 1.073 19.613 1.07319. BALANCES DUE TO BANKSTHE GROUP AND THE COMPANY 2012 2011€’ 000 €’ 000Balances due to banks - 2Maturities of balances due to banks are shown in note 31 – Financial Risk Management.20. CLIENT DEPOSITSTHE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Demand deposits 133.095 73.724 125.531 67.348Fixed-term or notice deposits 478.464 395.219 472.781 392.513611.559 468.943 598.312 459.861Maturities of client deposits are shown in note 31 – Financial Risk Management.36

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201221. REPURCHASE AGREEMENTSTHE GROUP AND THE COMPANYRepurchase agreements relate to agreements with European Central Bank and include amounts collected under theagreements, including interest.2012 2011€’ 000 €’ 000Over one year 15.157 15.004Assets pledged as collateral – Debt securities: Carrying amount 16.467 60.07422. BORROWINGSTHE GROUP AND THE COMPANY2012 2011€’ 000 €’ 000Foreign borrowings 905 905Maturities of borrowings are shown in note 31 – Financial Risk Management.23. ACCRUALS AND OTHER LIABILITIESTHE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Accrued expenses and other liabilities 5.863 3.765 5.562 3.448Staff retirement benefits scheme - 12.108 - 12.108Assessed fair value of derivatives 232 1.374 232 1.4896.095 17.247 5.794 17.045Derivatives consist of forward exchange rate contracts. The nominal value and assessed fair value of derivatives are asfollows:Forward exchange rate contractsTHE GROUP THE COMPANYAssessedAssessedNominal fair value Nominal fair valuevalue Liability value Liability€’ 000 €’ 000 €’ 000 €’ 000At 31 December 2012 8.640 232 8.640 232At 31 December 2011 24.792 1.374 26.352 1.48937

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201224. DEFERRED TAXATIONTHE GROUP AND THE COMPANY2012 2011€’ 000 €’ 000Balance 1 January 258 255Deferred tax on revaluation of premises (1) 16Credited to the income statement (35) (13)Balance 31 December 222 258Deferred taxation is in respect of the following:2012 2011€’ 000 €’ 000Surplus on revaluation of premises(net of accumulated depreciation) 290 291Accumulated temporary differencesbetween depreciation and capital allowances (68) (33)25. LOAN CAPITALTHE GROUP AND THE COMPANY222 2582012 2011€’ 000 €’ 000Subordinated bonds 2010/2015 15.085 15.222Subordinated bonds were issued on 9 December 2005 and are of 10 years duration. The bonds are unsecured and their redemptionis subordinated to the claims of depositors and other creditors of the Company, but has priority over the ordinary shares of theCompany. The expenses of the bond issue, which amounted to €193 thousand, were amortised over a period of five years fromthe date of issue.From 9 December 2010 until maturity they carry a floating rate of interest equal to the base rate of the Company plus 1,875% perannum. The base rate is reset every six months. Interest is payable every six months, on 9 June and 9 December each year.The Company has the option to redeem the bonds in whole or in part before their maturity at their nominal value together withaccrued interest, after five years from the date of issue, by giving prior written notice to bondholders. The Company did not exercisethe option.The bonds rank as Tier II capital for the purposes of the calculation of the capital adequacy ratio of the Company and of theGroup.38

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201226. SHARE CAPITALTHE COMPANY2012 2011No.of shares €’ 000 No.of shares €’ 000Authorised:Ordinary shares of €1.71 each 100.000.000 171.000 100.000.000 171.000Issued and fully paid:Balance 1 January and 31 December 12.439.922 21.272 12.439.922 21.27227. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIESFair value represents the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willingparties in an arm’s length transaction. The fair value of the Group’s and of the Company’s financial instruments, which are not shownon the calculated fair value, are measured at amortized cost using the effective interest method less provision for impairment.The fair value of loans and advances to customers equals the amount shown in the balance sheet after deducting provisions forimpairment.Where possible, the Group calculates the fair value of financial assets using prices in active markets. A market is considered activeif prices are available in a stable and continuous basis where real transactions between market participants are frequently carriedout under normal commercial practice. The assets are valued at “bid price” and the liabilities at “ask price”.When the market for some financial instruments is not active, the Group calculates fair value using various methods of valuation.Such valuation methods may include the use of prices from recent transactions made at an arm’s length, the use of the currentfair value of other similar instruments, discounted cash flow methods and option pricing models. The chosen valuation method iscompatible with generally accepted economic methodologies used to determine the value of financial instruments. The data usedin the valuation techniques represent market expectations and measurements of the relationship between risk-return relating tothe financial instruments.The Group and the Company use the following hierarchy for determining and disclosing fair value:Level 1: investments valued using quoted prices in active markets.Level 2: investments valued using models for which all inputs which have a significant effect on fair value are market observable.Level 3: investments valued using models for which inputs which have a significant effect on fair value are not based onobservable market data.39

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201227. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)The following table presents an analysis of financial instruments recorded at fair value by level of the fair value hierarchy.THE GROUPLevel 1 Level 2 Level 3 Total2012 €’000 €’000 €’000 €’000Financial assetsTrading derivativesForward exchange rate contracts - 19 - 19Investments available for sale 266 - 1.201 1.467266 19 1.201 1.486Financial liabilitiesTrading derivativesForward exchange rate contracts - 232 - 232- 232 - 2322011Financial assetsTrading derivativesForward exchange rate contracts - 1.073 - 1.073Investments available for sale 545 - 1.415 1.960545 1.073 1.415 3.033Financial liabilitiesTrading derivativesForward exchange rate contracts - 1.374 - 1.374- 1.374 - 1.374THE COMPANYLevel 1 Level 2 Level 3 Total2012 €’000 €’000 €’000 €’000Financial assetsTrading derivativesForward exchange rate contracts - 24 - 24Investments available for sale 159 - 1.129 1.288159 24 1.129 1.312Financial liabilitiesTrading derivativesForward exchange rate contracts - 232 - 232- 232 - 23240

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201227. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)THE COMPANYLevel 1 Level 2 Level 3 Total2011 €’000 €’000 €’000 €’000Financial assetsTrading derivativesForward exchange rate contracts - 1.073 - 1.073Investments available for sale 325 - 1.357 1.682325 1.073 1.357 2.755Financial liabilitiesTrading derivativesForward exchange rate contracts - 1.489 - 1.489- 1.489 - 1.48928. CONTINGENT LIABILITIES AND COMMITMENTSThe Group, as a financial institution, provides services such as documentary credits and guarantees. These facilities are usuallyoffset by corresponding obligations of third parties. Contingent liabilities and commitments are not reflected in the balance sheet.The nominal amounts of contingent liabilities and commitments as at 31 December are as follows:THE GROUP AND THE COMPANYContingent liabilities2012 2011€’ 000 €’ 000Guarantees issued 32.429 37.645Guarantees issued comprise performance and tender guarantees and other letters of guarantee given to clients and representirrevocable obligations of the Company to pay a specific amount to the beneficiary only if the terms of the specific contractualobligation are not adhered to.41

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201228. CONTINGENT LIABILITIES AND COMMITMENTS (continued)CommitmentsTHE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Documentary credits 3.588 5.247 3.588 5.247Undrawn commitments for loans and advances granted to clients 48.529 74.721 45.268 73.31952.117 79.968 48.856 78.566Documentary credits represent bank commitments for payment to third parties, on condition that the terms of the documentarycredit are satisfied, including the presentation of the required documents. The repayment by the client is usually immediate.Undrawn commitments for loans and advances represent agreements to grant loans, overdrafts or other facilities to a client thathave not yet been utilised by the client.29. CAPITAL COMMITMENTSCommitments for contracted capital expenditure as at 31 December 2012 amount to €2.750 thousand (2011: €71 thousand).30. CASH AND CASH EQUIVALENTSThe cash and cash equivalents that are included in the cash flows statement consist of the following balances:THE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Cash 1.252 1.165 732 437Balances with central banks 84.352 50.440 77.801 45.998Balances with other banks 74.280 29.218 73.734 28.094Balances due to banks within three months - (2) - (2)159.884 80.821 152.267 74.52742

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENTThe Group, as a financial organisation, is exposed to risks, the most important of which are credit risk, market risk, liquidity riskand operational risk.The Group implements internal mechanisms for continuous and systematic monitoring of the above risks in order to avoidexcessive concentration of such risks. The nature of such risks and the manner of dealing with them are explained below:Risk management frameworkThe Group establishes risk management policies to identify and analyse the risks faced by the Group, to set appropriate risk limitsand control procedures, and to continuously monitor such risks as well as the Group’s adherence to limits and controls. Riskmanagement policies are reviewed regularly to reflect changes in market conditions, products and services rendered.(a) Credit riskIn the ordinary course of business the Group is exposed to credit risk. Credit risk emanates from the potential inability ofclients to repay their loans and other credit facilities and the non–compliance with their contractual obligations. Credit riskis monitored through various control mechanisms in order to prevent undue risk concentration and to price facilities andproducts on a risk adjusted basis.The Group establishes the financing policies and sets limits on credit exposures to clients and ensures that these policiesand limits, as well as the related credit sanctioning procedures and controls, are complied with in the conduct of the Group’soperations. The Group takes collateral for the loans and credit facilities it grants to clients. Credit risk from connected clients’accounts is monitored on an aggregated basis. The creditworthiness of clients is assessed using credit rating and creditscoring systems. Provisions for impairment have been made for possible losses that may arise in relation to specific accountsin the portfolio.The Group’s policy relating to suspension of income on loans and advances and provisions for impairment of doubtful accountsis stated in note 3 – Significant Accounting Policies.The Group set limits for the composition of the portfolio of loans and advances and monitors compliance with them. The creditrisk exposure of the Group is diversified across the various sectors of the economy. The terms of loans and advances maybe renegotiated due to deterioration in the client’s financial position. The Group implements a restructuring policy in orderto maximise collection opportunities and minimise the risk of default. The revised terms usually include extending maturity,changing timing of interest and principal payments and amendements of terms of loan covenants.Internal Audit undertakes audits of the Group’s portfolio of loans and advances and of the Group’s credit processes.The Group assesses the credit risk relating to investments in liquid funds, mainly debt securities and placements with banks,and recommendations for counterparty and country limits are submitted to the Assets and Liabilities Committee (ALCO) forapproval.43

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(a) Credit risk (continued)Concentration of loans and advances:By economic sector:THE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Industry 55.238 54.938 52.367 52.460Hotels & catering 43.364 38.496 42.974 38.293Services 212.421 179.081 204.213 175.831Transport and communications 8.538 6.414 6.837 4.496Agriculture 18.540 17.728 15.876 15.223Construction 111.251 96.481 104.013 90.437Other sectors 27.399 18.850 26.578 18.595Analysis of performing loans and advances:476.751 411.988 452.858 395.335THE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Carrying amountGrade 1-3: Low-medium risk 311.062 256.070 290.037 240.586Grade 4-5: Special mention 99.913 105.109 97.584 104.183410.975 361.179 387.621 344.769Of which loans and advances with renegotiated terms 73.722 71.265 70.339 70.315Fair value of collateral securityGrade 1-3: Low-medium risk 259.130 183.906 238.105 168.422Grade 4-5: Special mention 95.319 103.324 92.989 102.398354.449 287.230 331.094 270.820Of which loans and advances with renegotiated terms 63.419 58.069 60.036 57.11944

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(a) Credit risk (continued)Analysis of non-performing loans and advances:THE GROUPNon-Fair valueperformingofloans and Carrying collateraladvances Provisions amount security2012 €’ 000 €’ 000 €’ 000 €’ 000Arrears of less than three months 2.597 541 2.056 1.836Arrears between three and six months 842 132 710 82Arrears between six months and one year 2.133 851 1.282 1.265Arrears over one year 60.204 35.795 24.409 24.409Total 65.776 37.319 28.457 27.592Of which loans and advances with renegotiated terms 992 22 970 899Non-Fair valueperformingofloans and Carrying collateraladvances Provisions amount security2011 €’ 000 €’ 000 €’ 000 €’ 000Arrears of less than three months 2.118 644 1.474 765Arrears between three and six months 4.701 70 4.631 1.141Arrears between six months and one year 2.321 242 2.079 1.091Arrears over one year 41.669 27.531 14.138 14.138Total 50.809 28.487 22.322 17.135Of which loans and advances with renegotiated terms 2.418 13 2.405 30045

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(a) Credit risk (continued)Analysis of non-performing loans and advances (continued):THE COMPANYNon-Fair valueperformingofloans and Carrying collateraladvances Provisions amount security2012 €’ 000 €’ 000 €’ 000 €’ 000Arrears of less than three months 2.597 541 2.056 1.836Arrears between three and six months 842 132 710 82Arrears between six months and one year 2.133 851 1.282 1.265Arrears over one year 59.665 35.693 23.972 23.972Total 65.237 37.217 28.020 27.155Of which loans and advances with renegotiated terms 992 22 970 899Non-Fair valueperformingofloans and Carrying collateraladvances Provisions amount security2011 €’ 000 €’ 000 €’ 000 €’ 000Arrears of less than three months 2.118 644 1.474 765Arrears between three and six months 4.701 70 4.631 1.141Arrears between six months and one year 2.321 242 2.079 1.091Arrears over one year 41.426 27.288 14.138 14.138Total 50.566 28.244 22.322 17.135Of which loans and advances with renegotiated terms 2.418 13 2.405 30046

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(a) Credit risk (continued)The movement in the provisions for loans and advances to customers is shown in the tables below:Provisions for impairment of doubtful accounts:THE GROUPSuspendedProvisions income Total2012 €’ 000 €’ 000 €’ 000Balance 1 January 11.140 17.478 28.618Exchange differences 10 3 13Loans and advances written off (136) (88) (224)Income suspended for the year - 5.808 5.808Charge for the year 5.175 - 5.175Release of provisions and recoveries (686) - (686)Collection of prior years’ suspended income - (78) (78)Balance 31 December 15.503 23.123 38.626SuspendedProvisions income Total2011 €’ 000 €’ 000 €’ 000Balance 1 January 13.706 17.713 31.419Exchange differences (4) (2) (6)Loans and advances written off (220) (3.803) (4.023)Income suspended for the year - 3.607 3.607Charge for the year 765 - 765Release of provisions and recoveries (3.107) - (3.107)Collection of prior years’ suspended income - (37) (37)Balance 31 December 11.140 17.478 28.61847

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(a) Credit risk (continued)Provisions for impairment of doubtful accounts (continued):THE COMPANYSuspendedProvisions income Total2012 €’ 000 €’ 000 €’ 000Balance 1 January 10.859 17.385 28.244Loans and advances written off (11) (19) (30)Income suspended for the year - 5.760 5.760Charge for the year 5.083 - 5.083Release of provisions and recoveries (602) - (602)Collection of prior years’ suspended income - (78) (78)Balance 31 December 15.329 23.048 38.377SuspendedProvisions income Total2011 €’ 000 €’ 000 €’ 000Balance 1 January 13.495 17.636 31.131Loans and advances written off (219) (3.803) (4.022)Income suspended for the year - 3.589 3.589Charge for the year 649 - 649Release of provisions and recoveries (3.066) - (3.066)Collection of prior years’ suspended income - (37) (37)Balance 31 December 10.859 17.385 28.24448

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(a) Credit risk (continued)Provision for impairment of investment in Greek Government Bonds (GGBs)The European Summit announced a support plan for Greece on 26 October 2011, involving the voluntary exchange of existingGGBs held by private investors with new bonds of extended maturities and revised coupons. Following the finalisation of theterms and conditions of the proposed Private Sector Involvement (PSI), the exchange offered:• New bonds issued by the Hellenic Republic having a nominal value equal to 31.5% of the nominal value of the exchangedbonds• European Financial Stability Facility (EFSF) notes with a maturity date of two years or less and having a nominal value equalto 15% of the nominal value of the exchanged bonds• Detachable GDP-linked bonds issued by the Hellenic Republic having a notional amount equal to the nominal value of thenew bonds.As at 31 December 2011, the Group held investments in Greek Government Bonds (GGBs) of nominal value of €11.410thousand. Based on the terms and conditions of the new bonds issued, the Group proceeded with the impairment of GGBs.The impairment loss was calculated as the difference between the GGBs’ carrying amount and the present value of estimatedfuture cash flows from the new bonds issued or in the case of disposal, the actual loss incurred.The impairment loss and the book value of GGBs as at 31 December are as follows:ImpairmentBook value loss recognised Book valueNominal before in the income afterGreek Government Bonds Value impairment statement impairment€’000 €’000 €’000 €’0002012EUR denominated 1.890 1.922 1.200 7222011EUR denominated 6.000 6.309 4.587 1.722USD denominated 5.410 5.560 3.158 2.40211.410 11.869 7.745 4.124(b) Market riskMarket risk is the risk of loss which emenates from adverse changes in the current prices of listed investments, bonds andother securities or in the assessed fair value of unlisted investments and from adverse fluctuations in interest rates andforeign exchange rates.(i) Risk from changes in the value of equity investmentsThe Group establishes the policies and exposure limits for its equity financing activities so that equity financing is providedwhere the assessed risk is considered to be within acceptable boundaries in accordance with the investment managementpolicies and within the limits set. Equity investments are closely monitored on a continuous basis. The risk is diversified to49

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(b) Market risk (continued)(i) Risk from changes in the value of equity investments (continued)various companies and sectors of the economy as shown in the table below, and in certain cases the Group has pre-agreedexit arrangements from the investment. The Group’s policy relating to revaluation of equity investments at their assessedfair value, as well as the recognition of permanent diminution in value, is stated in note 3 - Significant Accounting Policies.Listed and unlisted equity investments are stated in the financial statements at their assessed fair value which takes intoaccount possible losses that may arise in relation to specific investments. A change in the value of equity investmentsclassified as “available-for-sale” affects the equity of the Group.The table below indicates how the equity of the Group will be affected from a change in the price of the equity investmentsheld, as a result of reasonably possible changes in the relevant stock exchange indices or change in the book value ofunlisted equity investments.THE GROUP2012 2011Change inChange inindex or Effect on index or Effect onEquity Investments book value equity book value equity% €’000 % €’000Listed +20 53 +20 109Unlisted +25 300 +25 354Listed -20 (53) -20 (109)Unlisted -25 (300) -25 (354)THE COMPANY2012 2011Change inChange inindex or Effect on index or Effect onEquity Investments book value equity book value equity% €’000 % €’000Listed +20 32 +20 65Unlisted +25 282 +25 339Listed -20 (32) -20 (65)Unlisted -25 (282) -25 (339)50

annual report 2012NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(b) Market risk (continued)(i) Risk from changes in the value of equity investments (continued)Concentration of investments:By economic sector:THE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Equity investments available-for-saleManufacturing 795 1.031 795 1.031Services 553 810 432 590Other sectors 119 119 61 611.467 1.960 1.288 1.682(ii) Interest rate riskInterest rate risk arises as a result of changes in the rates of interest and repricing timing mismatches on assets andliabilities. The Group closely monitors on a continuous basis fluctuations in interest rates and the relationship of assets andliabilities, which are subject to interest rates fluctuations, and takes measures to contain in acceptable levels the effects ofthese changes on the Group’s profitability.Interest rate risk is measured using interest rate sensitivity gap analysis, where the annual impact of any change in interestrates on profit is calculated by multiplying the net asset or liability position repricing in each time band with the assumedchange in interest rates.51

NOTES TO THE FINANCIAL STATEMENTSYear ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(b) Market risk (continued)(ii) Interest rate risk (continued)The interest rate sensitivity gap analysis indicating the effect on the Group’s and on the Company’s profit of changes ininterest rates is shown in the tables below:THE GROUP2012BetweenBetween three BetweenUpto one and months one and Over Nononethree and one five five interestmonth months year years years bearing Total€ ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000ASSETSCash and balanceswith central banks 77.801 - - - - 7.803 85.604Balances with other banks 73.584 150 225 917 - 546 75.422Loans and advances 284.289 47.994 64.010 12.554 90 29.188 438.125Equity investments - - - - - 1.467 1.467Debt securities 1.180 5.561 27.615 36.174 723 - 71.253Premises, equipment& intangible assets - - - - - 5.424 5.424Other assets - - - - - 2.770 2.770Total assets 436.854 53.705 91.850 49.645 813 47.198 680.065LIABILITIES & EQUITYClients deposits 120.197 97.938 212.830 47.502 - 133.092 611.559Repurchase agreements - - - 15.157 - - 15.157Borrowings 905 - - - - - 905Other liabilities - - - - - 6.317 6.317Loan capital - - 15.085 - - - 15.085Non-controlling interest - - - - - 525 525Share capital and reserves - - - - - 30.517 30.517Total liabilities & equity 121.102 97.938 227.915 62.659 - 170.451 680.065Net Position 315.752 (44.233) (136.065) (13.014) 813 (123.253) -Change in interest rates-1% - effect on profit (3.158) 442 1.361 130 (8) - (1.233)Change in interest rates+1% - effect on profit 3.158 (442) (1.361) (130) 8 - 1.23352

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(b) Market risk (continued)(ii) Interest rate risk (continued)THE GROUP2011BetweenBetween three BetweenUpto one and months one and Over Nononethree and one five five interestmonth months year years years bearing Total€ ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000ASSETSCash and balanceswith central banks 45.998 - - - - 5.607 51.605Balances with other banks 28.693 341 - - - 184 29.218Loans and advances 235.787 51.892 68.711 - - 26.980 383.370Equity investments - - - - - 1.960 1.960Debt securities 10.070 9.023 256 58.112 - 2.037 79.498Premises, equipment& intangible assets - - - - - 5.814 5.814Other assets - - - - - 3.184 3.184Total assets 320.548 61.256 68.967 58.112 - 45.766 554.649LIABILITIES & EQUITYBalances due to banks 2 - - - - - 2Clients deposits 87.036 55.338 205.874 59.895 - 60.800 468.943Repurchase agreements 15.000 - - - - 4 15.004Borrowings 905 - - - - - 905Other liabilities - - - - - 17.505 17.505Loan capital - - 15.172 - - 50 15.222Non-controlling interest - - - - - 549 549Share capital and reserves - - - - - 36.519 36.519Total liabilities & equity 102.943 55.338 221.046 59.895 - 115.427 554.649Net Position 217.605 5.918 (152.079) (1.783) - (69.661) -Change in interest rates-1% - effect on profit (2.176) (59) 1.521 18 - - (696)Change in interest rates+1% - effect on profit 2.176 59 (1.521) (18) - - 69653

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(b) Market risk (continued)(ii) Interest rate risk (continued)THE COMPANY2012BetweenBetween three BetweenUpto one and months one and Over Nononethree and one five five interestmonth months year years years bearing Total€ ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000ASSETSCash and balances withcentral banks 77.801 - - - - 732 78.533Balances with other banks 73.584 150 225 917 - - 74.876Loans and advances 283.758 46.679 54.856 - - 29.188 414.481Equity investments - - - - - 1.288 1.288Debt securities 1.180 5.561 27.615 36.174 723 - 71.253Subsidiary companies - 502 1.778 5.855 - 10.482 18.617Property, equipment &intangible assets - - - - - 4.280 4.280Other assets - - - - - 1.970 1.970Total assets 436.323 52.892 84.474 42.946 723 47.940 665.298LIABILITIES & EQUITYClient deposits 120.197 96.655 211.378 44.554 - 125.528 598.312Repurchase agreements - - - 15.157 - - 15.157Borrowings 905 - - - - - 905Other liabilities - - - - - 6.016 6.016Loan capital - - 15.085 - - - 15.085Share capital and reserves - - - - - 29.823 29.823Total liabilities & equity 121.102 96.655 226.463 59.711 - 161.367 665.298Net Position 315.221 (43.763) (141.989) (16.765) 723 (113.427) -Change in interest rates-1% - effect on profit (3.152) 438 1.420 168 (7) - (1.133)Change in interest rates+1% - effect on profit 3.152 (438) (1.420) (168) 7 - 1.13354

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(b) Market risk (continued)(ii) Interest rate risk (continued)THE COMPANY2011BetweenBetween three BetweenUpto one and months one and Over Nononethree and one five five interestmonth months year years years bearing Total€ ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000 € ‘000ASSETSCash and balances withcentral banks 45.998 - - - - 437 46.435Balances with other banks 27.745 341 - - - 8 28.094Loans and advances 219.571 51.892 68.711 - - 26.917 367.091Equity investments - - - - - 1.682 1.682Debt securities 10.070 9.023 256 58.112 - 2.037 79.498Subsidiary companies - 867 2.701 - - 10.428 13.996Property, equipment &intangible assets - - - - - 4.630 4.630Other assets - - - - - 2.707 2.707Total assets 303.384 62.123 71.668 58.112 - 48.846 544.133LIABILITIES & EQUITYBalances due to banks 2 - - - - - 2Client deposits 87.036 55.338 205.874 59.895 - 51.718 459.861Repurchase agreements 15.000 - - - - 4 15.004Borrowings 905 - - - - - 905Other liabilities - - - - - 17.303 17.303Loan capital - - 15.172 - - 50 15.222Share capital and reserves - - - - - 35.836 35.836Total liabilities & equity 102.943 55.338 221.046 59.895 - 104.911 544.133Net Position 200.441 6.785 (149.378) (1.783) - (56.065) -Change in interest rates-1% - effect on profit (2.004) (68) 1.494 18 - - (560)Change in interest rates+1% - effect on profit 2.004 68 (1.494) (18) - - 56055

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(b) Market risk (continued)(iii) Currency riskCurrency risk from adverse movements in the rates of exchange arises when there is a net currency position (asset orliability) in one or more currencies. Net currency positions are monitored on a continuous basis and the Group takes suchmeasures so that this risk is contained within acceptable boundaries. The foreign exchange position limits prescribed bythe Central Bank of Cyprus are adhered to.The foreign exchange risk resulting from the net foreign exchange positions of the Group and of the Company at 31December are set out below. The sensitivity analysis assumes reasonable possible changes in exchange rates of majorcurrencies against the Euro, based on past rate fluctuations.THE GROUP2012 2011Net Change in Change inopen exchange Effect on Net open exchange Effect onposition rates profits position rates profitsCurrency €’ 000 % €’ 000 €’ 000 % €’ 000US Dollar 34 +8,0 3 352 +8,0 28British pound (26) +8,0 (2) 105 +8,0 8Russian Rouble 227 +8,0 18 442 +8,0 35Other currencies 39 +8,0 3 (41) +8,0 (3)US Dollar 34 -8,0 (3) 352 -8,0 (28)British pound (26) -8,0 2 105 -8,0 (8)Russian Rouble 227 -8,0 (18) 442 -8,0 (35)Other currencies 39 -8,0 (3) (41) -8,0 3THE COMPANY2012 2011Net Change in Change inopen exchange Effect on Net open exchange Effect onposition rates profits position rates profitsCurrency €’ 000 % €’ 000 €’ 000 % €’ 000US Dollar 63 +8,0 5 111 +8,0 9British pound (26) +8,0 (2) 105 +8,0 8Russian Rouble 216 +8,0 17 289 +8,0 23Other currencies 39 +8,0 3 (41) +8,0 (3)US Dollar 63 -8,0 (5) 111 -8,0 (9)British pound (26) -8,0 2 105 -8,0 (8)Russian Rouble 216 -8,0 (17) 289 -8,0 (23)Other currencies 39 -8,0 (3) (41) -8,0 356

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(c) Liquidity riskLiquidity risk refers to possible losses that may be incurred due to a potential inability of the Group to meet fully or promptlyits cash flow obligations. This risk includes the possibility that the Group may have to raise funding at higher cost.The Group’s banking business requires a steady flow of funds both to replace existing deposits as they mature and to satisfycustomer requests for additional borrowings. Undrawn borrowing facilities are also taken into consideration in managing theliquidity position.Liquidity risk is managed on a continuous basis by closely monitoring the relationship between cash flow obligations and liquidassets and timely action is being taken to secure financial resources to meet the Group’s funding requirements. The Groupmaintains at all times adequate amounts of cash and other highly liquid assets.An analysis of financial liabilities as at 31st December according to their residual contractual maturities is as follows:THE GROUPOn demand Between Between2012 and up to one one and three months Overmonth three months and one year one year TotalLIABILITIES €’ 000 €’ 000 €’ 000 €’ 000 €’ 000Client deposits 250.393 100.852 212.320 47.994 611.559Repurchase agreements - - - 15.157 15.157Borrowings 905 - - - 905Other liabilities 5.655 - - 430 6.085Loan capital - - 49 15.036 15.085Derivatives – assessed fair value - 84 148 - 232Guarantees issued 1.653 3.889 9.463 17.424 32.429Undrawn facilities 10.051 - - 38.478 48.529Total liabilities 268.657 104.825 221.980 134.519 729.981On demand Between Between2011 and up to one one and three months Overmonth three months and one year one year TotalLIABILITIES €’ 000 €’ 000 €’ 000 €’ 000 €’ 000Balances due to banks 2 - - - 2Client deposits 138.705 56.640 211.504 62.094 468.943Repurchase agreements - - - 15.004 15.004Borrowings 905 - - - 905Other liabilities 2.754 - 16 13.361 16.131Loan capital - - 50 15.172 15.222Derivatives – assessed fair value 184 173 1.017 - 1.374Guarantees issued 1.039 1.474 14.679 20.453 37.645Undrawn facilities 12.400 - - 62.321 74.721Total liabilities 155.989 58.287 227.266 188.405 629.94757

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(c) Liquidity risk (continued)THE COMPANYOn demand Between Between2012 and up to one one and three months Overmonth three months and one year one year TotalLIABILITIES €’ 000 €’ 000 €’ 000 €’ 000 €’ 000Client deposits 242.829 99.569 210.868 45.046 598.312Repurchase agreements - - - 15.157 15.157Borrowings 905 - - - 905Other liabilities 5.354 - - 430 5.784Loan capital - - 49 15.036 15.085Derivatives – assessed fair value - 84 148 - 232Guarantees issued 1.653 3.889 9.463 17.424 32.429Undrawn facilities 6.790 - - 38.478 45.268Total liabilities 257.531 103.542 220.528 131.571 713.172On demand Between Between2011 and up to one one and three months Overmonth three months and one year one year TotalLIABILITIES €’ 000 €’ 000 €’ 000 €’ 000 €’ 000Balances due to banks 2 - - - 2Client deposits 129.623 56.640 211.504 62.094 459.861Repurchase agreements - - - 15.004 15.004Borrowings 905 - - - 905Other liabilities 2.437 - 16 13.361 15.814Loan capital - - 50 15.172 15.222Derivatives – assessed fair value 184 273 1.032 - 1.489Guarantees issued 1.039 1.474 14.679 20.453 37.645Undrawn facilities 10.998 - - 62.321 73.319Total liabilities 145.188 58.387 227.281 188.405 619.26158

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(d) Operational riskOperational risk is the risk of loss arising from a variety of causes associated with the Group’s processes, personnel, technologyand infrastructure, and from other external events. It is inherent in every business organisation and covers a wide range ofissues.The Group establishes policies and procedures for managing operational risk and ensures that these are adhered to in theconduct of the Group’s operations. Operational risk is managed by establishing internal processes and controls involving:• Segregation of duties, including independent authorisation of transactions, the reconciliation and monitoring of transactions,documentation of controls and procedures• Compliance with regulatory and other legal requirements• Development of business continuity plans and disaster recovery plans• Personnel training• Risk mitigation by taking out insurance coverInternal Audit has the responsibility of reviewing periodically the above procedures and controls.Business Continuity Plans and Disaster Recovery Plans are being developed by the Group and regularly updated to ensurecontinuity and timely recovery of operations after a catastrophic event.(e) Capital managementThe Central Bank of Cyprus sets and monitors capital requirements for the Group and for the Company. The individual capitalrequirements of the subsidiary company cdbbank Russia are set and monitored by the Central Bank of the Russian Federation.The capital requirements of the subsidiary companies Global Capital Ltd and PCM Advisers Limited are set and monitored bythe Cyprus Securities and Exchange Commission. All Group subsidiaries adhere to the mandatory capital requirements of therespective supervisory authorities.The Central Bank of Cyprus requires the Group to maintain a prescribed capital adequacy ratio, which is the ratio of totaleligible capital to total risk-weighted assets, in accordance with its Directive for the calculation of the capital requirements andlarge exposures of banks of 2006 to 2012.The Central Bank of Cyprus requires the Group to maintain a minimum Core Tier I ratio of 8.01%, Tier I ratio of 9.51% and TotalCapital Adequacy ratio of 11.51%. The Central Bank of Cyprus may impose additional capital requirements for risks not coveredby Pillar I. The Group and the Company adopted the Standardised Approach for credit risk and market risk and the BasicIndicator Approach for operational risk.59

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(e) Capital management (continued)The Group’s and the Company’s capital adequacy ratios are lower than the minimum required by the Central Bank of Cyprus.On 12 April 2013, at a meeting of the Board of Directors, the required increase in the Company’s share capital of €13m wasapproved within the framework of the Group’s Capital Enhancement Plan. The new shares to be issued have been offeredto existing shareholders on a pro rata basis at the nominal value per share of €1,71 each. Shareholders’ commitment andpayment of amounts to be subscribed are expected to take place by end of June 2013. The approved share capital increase willenable the Group and the Company to meet Central Bank’s supervisory requirements.The Group’s and the Company’s regulatory capital position as at 31 December, calculated in accordance with the Directive ofthe Central Bank of Cyprus is as follows:THE GROUP THE COMPANY2012 2011 2012 2011€’ 000 €’ 000 €’ 000 €’ 000Regulatory capitalTier I capital - Original own funds 28.154 33.948 20.607 29.244Tier II capital - Additional own funds 10.627 13.740 5.298 7.798Total regulatory capital 38.781 47.688 25.905 37.042Risk weighted assetsCredit risk 424.013 387.338 399.025 370.288Market risk - 913 - 513Operational risk 22.237 20.100 17.925 16.450Total risk weighted assets 446.250 408.351 416.950 387.251Core Tier I / Tier I ratio 6.31% 8.31% 4.94% 7.55%Tier II ratio 2.38% 3.37% 1.27% 2.02%Total capital adequacy ratio 8.69% 11.68% 6.21% 9.57%32. LITIGATIONOn 31 December 2012, there were pending litigation cases against the Group in connection with its activities, the outcome of whichis not expected to have a material effect on the Group’s financial position or operations. As a result, no provision has been madein the financial statements in relation to these cases.60

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201233. OWNERSThe owners of the Company and their respective interest as at 31 December 2012 were as follows:Number of Percentageshares (%)Path Holdings Ltd 2.438.224 19,60Leon Investments S.A., SPF 2.438.224 19,60Constantinos Shiacolas 1.950.580 15,68Delphis Investments Ltd 1.751.459 14,08Leonidas Ioannou 1.751.459 14,08Intergaz Ltd 1.219.113 9,80CLR Investment Fund Public Ltd 609.556 4,90Emerging Financial Partners Ltd 248.799 2,00Panikos Katsouris 16.254 0,13Antonios Gerolemou 16.254 0,1334. RELATED PARTY TRANSACTIONSTHE GROUP AND THE COMPANY12.439.922 100,002012 2011€’ 000 €’ 000Loans and advances to:Members of the current Board of Directorsand their connected persons (excluding membersof the Board who are key management personnel and are disclosed below) 9.435 11.421Key management personnel 206 229In addition to loans and advances, there were contingent liabilities and commitments in respect of members of the Board ofDirectors and their connected persons, in the form of guarantees and commitments to lend amounting to €1.435 thousand in 2012(2011: €681 thousand).Connected persons include spouses, minor children and companies in which members of the Board of Directors or keymanagement personnel, hold directly or indirectly, at least 20% of the voting rights in a general meeting, or act as directors of theentities concerned or have guaranteed credit exposures of such entities.Key management personnel consists of the Chief Executive Officer and the Deputy Chief Executive Officer.All transactions with members of the Board of Directors and their connected persons are made on normal business terms.Transactions with key management personnel are made according to the terms applicable to the rest of the personnel of theCompany.61

NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201235. ECONOMIC ENVIRONMENTIn June 2012, the Cyprus Government applied to the European Commission, the European Central Bank and the InternationalMonetary Fund (“TROIKA”) to recapitalise the financial sector, cover fiscal deficits and refinance the Cyprus debt. On 25 March2013 the Finance Ministers of the Eurozone approved the funding of the Cyprus debt and restructuring of the banking sector. TheMemorandum of Understanding, which provides financial assistance to the Republic of Cyprus of €10bil, was approved by allparties on 30 April 2013.The decisions of the “Eurogroup” on 25 March 2013 include, inter alia, the immediate restructuring of Cyprus Popular BankPublic Company Ltd (“Laiki”) with the contribution of its shareholders, bondholders and unsecured depositors (i.e. deposits over€100.000) on the basis of the decree issued by the Central Bank of Cyprus under the new law recently passed by the House ofRepresentatives “Resolution of Credit and Other Institutions Law”. The decree provides for the division of Laiki into “good” and“bad” bank, with the “good” bank being absorbed by Bank of Cyprus Public Company Ltd (“BOC”) and the “bad” bank to be woundup. The decree further provides for the recapitalization of BOC with the full contribution of its shareholders and bondholders andthe conversion of unsecured deposits into equity. With the Eurogroup’s decision, deposits up to €100.000 are guaranteed, whilecontributions from depositors of other financial institutions, including cdbbank, are not required.On 22 March 2013, the House of Representatives passed the “Restrictive Measures on Transactions Law of 2013” which imposerestrictions on banking transactions. The restrictive measures are approved by the Minister of Finance upon the recommendationof the Governor of the Central Bank of Cyprus and following consultation with “TROIKA” and include, among others, restrictionson cash withdrawals and fund transfers, no early termination of fixed-term deposits and notice accounts before maturity andmandatory renewal of specified amounts of fixed-term deposits.On 25 March 2013 the European Central Bank announced that it will provide liquidity to the Central Bank of Cyprus through theEmergency Liquidity Assistance (ELA) mechanism according to applicable legislation.Consequences of the recent developmentsThe Directors and Management of the Group believe that, the depositors’ contribution for the recapitalization of BOC andrestructuring of Laiki, may result in a loss of confidence of foreign depositors and investors and significant movement in capital.The Group ensures its smooth operational efficiency by maintaining healthy liquidity and taking preventive measures.The Directors and Management of the Group are not in a position to assess future developments which could have an impact on theCyprus Economy and, as a result, on the future financial performance, cash flows and financial position of the Group. The Directorsand Management of the Group take all necessary measures possible to maintain the viability of the Group and to manage thenegative impact on its operations resulting from the current economic environment. The Directors and Management of the Grouptake also all necessary actions to strengthen and maintain adequate capital base in order to comply with minimum supervisorycapital requirements. In case the Group is unable to continue as a going concern, appropriate adjustments will need to be madefor impairment of assets to their net realizable value and to make provision for any additional liabilities that may arise.36. EVENTS AFTER THE BALANCE SHEET DATECurrent developments in the economic environment in Cyprus are referred to in note 35 of the financial statements. Details of theGroup’s Capital Enhancement Plan are referred to in note 31 (e) of the financial statements. There were no other material eventsafter the balance sheet date, which affect the financial statements as at 31 December 2012.62

THE CYPRUS DEVELOPMENT BANK PUBLIC COMPANY LIMITED, 50 ARCH. MAKARIOS III AVE, 1508 NICOSIA,CYPRUS, TEL: +357 22846500, FAX: +357 22846600, website: www.cdb.com.cy