annual report 2018...2019/08/30 · raiffeisenbank (bulgaria) ead has a full banking license with...
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B u l g a r i a
Annual Report 2018
2
Budapest
KA Z AK HSTA N
Istanbul
Tbilisi
Yereva nBaku
Asga ba t
Tehra nNico sia
Athens
BLACK SEA CASPIA
N SEA
ARALSEA
BALTICSEA
NORTH SEA
SkopjePodgorica
Osl o
Stockholm
Co penha gen
Fra nkfurt
Berlin
Brussels
Amsterda m
London
Dublin
Paris
Bern
Rome
Lisbon
M a drid
Sicily
Vienna
Ma ribor
Zagreb
Sa rajevo
Tirana
Tunis
Belgrad e
PristinaSo�a
Bucha rest
Kiev
War sa w
Minsk
Vilnius
Algiers
Pra gue
Bra tislava
Helsinki
Mosc ow
Ankara
Co rsica
Sa rdinia
Tallinn
Riga
ME DITERRANEAN SEA
MO RO CCO A LG ERI A TUN ISIA
NO RW AY
SWE DEN
DENMAR K
G ERMA N Y
LUXEM BO URG
BELG IUM
N ETHER LAN DS
UN ITED K I N GD O MI RELA N D
FRA N CE
SW ITZER LAN D
LI ECHTEN -STEI N
ITA LY
PO RTUG A L
SPA I N
AUSTRIA
SLO VE N IA
CRO ATIA
BO SNI A A N DHERZ EG O W I N A
HU N G AR Y
ALBA N IA
MO NTEN EG RO
SER BIA
M ACEDO N IA
BULG ARI A
RO MA N IA
MO LDO VA
UKRA I N E
PO LAN D BELARUS
LITHUA N IA
RUSSIA
SLO VA K IA
LATVI A
FI N LAN D
ESTO N IA
RUSSIA
G EO RG IA
ARME N IA
A SER BAI JA N
TURKE Y
TURKME N ISTA N
I RA N
UZBEK ISTA N
I RA QSYRI A
G REECE
CZ ECH RE PUBLIC
CY PRUS
KO SO V O
Chisinau
BRANCHES, REPRESENTATIVE OF FIC ES AN D OTHER UNITSHEAD OFFICE AND NE TW ORK BANK Swww.rbinternational.com
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Budapest
KA ZAK HSTA N
Istanbul
Tbilisi
Yereva nBaku
Asga ba t
Tehra nNico sia
Athens
BLACK SEA CASPIA
N SEA
ARALSEA
BALTICSEA
NORTH SEA
SkopjePodgorica
Osl o
Stockholm
Co penha gen
Fra nkfurt
Berlin
Brussels
Amsterda m
London
Dublin
Paris
Bern
Rome
Lisbon
M a drid
Sicily
Vienna
Ma ribor
Zagreb
Sa rajevo
Tirana
Tunis
Belgrad e
PristinaSo�a
Bucha rest
Kiev
War sa w
Minsk
Vilnius
Algiers
Pra gue
Bra tislava
Helsinki
Mosc ow
Ankara
Co rsica
Sa rdinia
Tallinn
Riga
ME DITERRANEAN SEA
MO RO CCO A LG ERI A TUN ISIA
NO RW AY
SWE DEN
DENMAR K
G ERMA N Y
LUXEM BO URG
BELG IUM
N ETHER LAN DS
UN ITED K I N GD O MI RELA N D
FRA N CE
SW ITZER LAN D
LI ECHTEN -STEI N
ITA LY
PO RTUG A L
SPA I N
AUSTRIA
SLO VE N IA
CRO ATIA
BO SNI A A N DHERZ EG O W I N A
HU N G AR Y
ALBA N IA
MO NTEN EG RO
SER BIA
M ACEDO N IA
BULG ARI A
RO MA N IA
MO LDO VA
UKRA I N E
PO LAN D BELARUS
LITHUA N IA
RUSSIA
SLO VA K IA
LATVI A
FI N LAN D
ESTO N IA
RUSSIA
G EO RG IA
ARME N IA
A SER BAI JA N
TURKE Y
TURKME N ISTA N
I RA N
UZBEK ISTA N
I RA QSYRI A
G REECE
CZ ECH RE PUBLIC
CY PRUS
KO SO V O
Chisinau
BRANCHES, REPRESENTATIVE OF FIC ES AN D OTHER UNITSHEAD OFFICE AND NE TW ORK BANK Swww.rbinternational.com
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Financial Highlights
Monetary values in BGN Thousand 2018 Change 2017 2016
Income Statement � � �
Net interest income after provisioningfor possible loan losses 194,061 -4% 203,154 204,177
Net commission income 82,398 9% 75,492 70,661
Trading profit (loss) 21,254 14% 18,620 16,587
Administrative and other operating expenses -171,679 4% -165,446 -166,356
Profit / (loss) before income tax 144,526 -2% 147,963 146,691
Profit / (loss) for the financial year 131,549 -2% 134,465 132,641
Balance Sheet
Loans and advances to banks 221,752 -36% 345,268 382,178
Loans and advances to customers 4,845,064 16% 4,185,576 3,789,679
Deposits from banks 96,140 60% 59,907 31,763
Deposits from customers 6,214,181 15% 5,391,470 4,748,602
Equity 910,473 -1% 922,699 910,497
Total assets 7,777,437 11% 6,998,905 6,323,964
Regulatory own funds
Total own funds 1,123,303 -2% 1,150,292 1,114,860
Own funds requirement / Accordingto Local Regulations 315,674 12% 281,772 262,045
Excess cover 807,629 -7% 868,520 852,815
Core capital ratio (TIER I) 18.82% -12% 21.41% 22.98%
Own funds ratio 28.47% -13% 32.66% 34.04%
Performance
Return of equity (ROE) before tax 17.4% -2% 17.7% 17.4%
Cost/income ratio 54.1% -2% 55.3% 55.3%
Return on assets (ROA) before tax 2.0% -10% 2.2% 2.3%
Provisions for possible loan losses/risk-weighted assets/According to Local Regulations 150,220 -14% 173,668 240,760
Resources
Number of staff on balance-sheet date 2,711 0% 2,711 2,736
Banking outlets on balance-sheet date 133 -1% 134 136
Official Exchange Rate (BNB)
1 EUR BGN BGN BGN 1,95583 1,95583 1,95583
RBB
Monetary values in BGN tsd 2018 Change 2017 2016
Income Statement
Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD as at 31 December 2017.
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Contents
General Information 6
The Bank’s Management 8
Statement by the Chairman of the Supervisory Board 10
Statement by the Chairman of the Management Board 12
Vision and Mission 13
Raiffeisen Bank International at a Glance 14
Economic Growth in Bulgaria in 2018 17
Activity of Raiffeisen Group in Bulgaria in 2018 21
Corporate Banking and Capital markets 23
Group Securities Services 24
Financial Institutions and Sovereigns 24
Retail Banking 25
Micro Business 26
Sales and Distribution Channels 26
Human resources 27
Risk management 28
Information Technology 30
Operations 30
Raiffaisen Group in Bulgaria 31
Raiffeisen Leasing Bulgaria OOD 31
Raiffeisen Asset Management (Bulgaria) EAD 32
Raiffeisen Insurance Broker 34
Corporate Governance Statement 36
Notes to the Financial Statements 55
Addresses 166
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General Information
Establishment of the BankRaiffeisenbank (Bulgaria) EAD is the first greenfield foreign investment in the Bulgarian banking sector, made in 1994.
Main ShareholderRaiffeisenbank (Bulgaria) EAD is indirectly a 100 per cent subsidiary of Raiffeisen Bank International AG, Vienna. With this regard, there were no acquired and transferred own shares in 2018.
The capital of Raiffeisenbank (Bulgaria) EAD can be increased upon decision of the sole shareholder through the means provided by the Commerce act:
• Issuance of new shares;
• Increasing the face value of shares already issued;
• Converting bonds into shares.
The Articles of association of Raiffeisenbank (Bulgaria) EAD do not provide for particular rights of the Supervisory board and the Management Board, related to the increase of the bank's capital or acquisition of own shares.
Banking LicenseRaiffeisenbank (Bulgaria) EAD has a full banking license with the right to operate in the country and abroad.
Business profileRaiffeisenbank (Bulgaria) EAD is a universal commercial bank, providing services to large corporate customers, small and medium-sized enterprises, retail clients, financial institutions and institutional clients. The bank also performs operations on the domestic and international money and capital markets of bonds, shares, asset management, etc. The bank is well integrated into the local financial and banking infrastructure and is licensed by the BNB, Primary and Secondary Dealer of Government Securities. The bank is also an investment intermediary licensed by the Securities and Exchange Commission.
The bank's activities do not harm ecology and the environment.
Raiffeisenbank (Bulgaria) EAD is a credit institution and as such does not support a research and development unit.
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The rating of Raiffeisenbank (Bulgaria) EADAssigned by Fitch Ratings as follows:
• Long Term Rating: BBB-
• Short Term Rating: F3
• Outlook: stable.
Correspondent RelationsAs part of an international banking group, Raiffeisenbank (Bulgaria) EAD uses a broad network of correspondent banks, which provides a fast and efficient access to the global financial markets (USA, Western Europe, Asia).
Branch Network At the end of 2018 the branch network of Raiffeisenbank (Bulgaria) EAD consists of 133 offices.
Financial Instruments and Risk Management Policies UsedThe bank's business mainly involves the creation, acquisition and disposal of financial instruments. As a result, the bank is exposed to credit, liquidity, market and capital risk. The risk management policies applicable to those risks are further disclosed in note 4 of the accompanying annual financial statements of the bank.
Events After the Date of the Annual Financial StatementsThere are no events after the reporting date that would require adjustments or further disclosures in the annual financial statements.
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The Bank’s Management
ShareholdersRaiffeisen SEE Region Holding GmbH, Austria – 100 per cent
Supervisory BoardChairman: Martin Gruell
SB Members: Helmut Breit
Gerda Lottersberger-Roschitz
Monika Ruch (from 28.06.2018 – registered in the CR)
Kurt Bruckner (until 28.06.2018 – deleted from the CR)
Fabian Stenzel (from 28.06.2018 – registered in the CR)
Ferenc Berszan (until 28.06.2018 – deleted from the CR)
Robert Wagenleitner
Management BoardChairman: Oliver Roegl
Members of the Board: Dobromir Dobrev
Ani Angelova
Martin Pytlik
Nedialko Mihaylov
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In 2018 the bank paid to the members of the Management Board and the Supervisory Board remunerations amounting to BGN 3,187 thousand.
The members of the Management and Supervisory Board of the bank do not hold participating interests in commercial companies as unlimited liability partners and do not own more than 25 per cent of the capital of another company. The Chairman of the Management Board, Oliver Roegl, is a member of the Supervisory Board of Raiffeisen banka a.d. Beograd. In March 2017, Nedialko Mihaylov was elected as a member of the Board of Directors of Cash Services Company AD.
In the past year, the board members or related parties have not concluded with the Bank contracts that go beyond the ordinary activity or significantly deviate from the market conditions.
At present, there is no provision to grant members of the Supervisory and Management Board rights to acquire shares or bonds of the bank.
Additional Audit ServicesThe auditing companies auditing the annual financial statements of the bank (individual and consolidated) also issue a Report on factual findings regarding the reliability of the internal control systems under Art. 76, para. 7, item 1 of the Law on Credit Institutions and Ordinance 14, Art. 5 on the content of the audit report for supervisory purposes as of 31 December 2018. Ernst & Young Audit also provides audit services and reviews of historical financial information requested by the auditors of the Parent Company.
In 2018, the auditing company Ernst & Young Audit also conducted a tax consultation on "Transfer Pricing on Contracts with Raiffeisen Bank International AG” in the form of historical records.
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Martin GruellChairman of the Supervisory Board of
Raiffeisenbank (Bulgaria) EAD
Statement by the Chairman of the Supervisory Board
Ladies and Gentlemen,
RBI has had another successful financial year in Bulgaria. In 2018, Raiffeisenbank (Bulgaria) achieved very good results in the private individuals and in the corporate segments with credit growth well above the market average. 2018 also developed positively in terms of efforts for reducing the NPL ratio, which is well below the average for the Bulgarian market. Further progress has been made in improving customer experience and by introducing innovation through the new concept for design, equipment and servicing in the branches, new functionalities in digital banking, expanding operations without need of visiting a bank office, as well as through a number of joint projects with start-up companies.
In the 2018 financial year, the members of the Supervisory Board held 4 ordinary meetings. The overall attendance rate for Supervisory Board meetings in the 2018 financial year was around 96 per cent.
The Supervisory Board regularly and comprehensively monitored the business performance and risk developments at Raiffeisenbank (Bulgaria). Discussions were regularly held with the Management Board on the adequacy of capital and liquidity as well as on the direction of the bank’s business and risk strategies. The Supervisory Board also dealt at length with further development in the area of corporate governance and monitored the implementation of corresponding policies. In the course of its monitoring and advisory activities, the Supervisory Board maintained direct contact with the responsible Management Board members, the auditor and heads of the internal control functions. It also maintained a continuous exchange of information and views with representatives of the banking supervisory authorities on topical issues.
Moreover, the Management Board provided the Supervisory Board with regular and detailed reports on relevant matters concerning performance in the respective business areas. Between meetings, the Supervisory Board also maintained contact with the Chairman of the Management Board and the Management Board members. The Management Board was available where required for bilateral or multilateral discussions with members of the Supervisory Board, where applicable with the involvement of experts on the matters addressed by the Supervisory Board.
The work undertaken together with the Management Board was based on a relationship of mutual trust and conducted in a spirit of efficient and constructive collaboration. Discussions were open and critical, and the Supervisory Board passed resolutions after considering all aspects. If additional information was required in order to consider individual issues in more depth, this was provided to members of the Supervisory Board without delay and to their satisfaction.
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The focus in the 2018 financial year was on the topics of: development of IT strategy and architectural plan; development of the corporate portfolio; cost management; implementation of agile methodology; in-depth focus on retail banking, risk management; human resources and portfolio growth results of Raiffeisenbank (Bulgaria). In addition, the Supervisory Board reviewed the annual financial statements, including the proposal for profit distribution and the Annual Report prepared by the Management Board.
I would like to take this opportunity to thank our customers for their continued trust and all employees of Raiffeisenbank (Bulgaria) for their hard work and unwavering efforts in 2018, as well as to ask for their continued commitment in tackling any challenges going forward.
Martin GruellChairman of the Supervisory Board
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Statement by the Chairman of the Management Board
Dear Ladies and Gentlemen,
The successful development of Raiffeisenbank (Bulgaria) EAD continued over the past year. We grow significantly above the market average for a number of indicators.
The loan portfolio increased by nearly 15 per cent and reached approximately BGN 5 billion, compared to BGN 4.36 billion in 2017, with both retail and corporate loans grew above the market. Our new business is of excellent quality, while at the same time we further reduced the NPL ratio to below 3 per cent, which is a very healthy level.
As of December 31, 2018, we reported a profit after tax of BGN 131.5 million. The bank's assets reached BGN 7.78 billion, recording an increase of 11 per cent compared to 2017.
Our good performance was honoured with 8 prestigious international and national awards, including "Bank of the Year" award of The Banker magazine for a third consecutive year.
According to independent marketing surveys that measure customers’ inclination to recommend us (the so called NPS) we are among the leading banks in terms of customer satisfaction in 2018, as well as in previous years.
To further improve customer experience in 2018 we developed a new concept for branch design, furnishing and services, designed entirely on the basis of customer needs and expectations that we’ve explored in depth. The innovative concept is already piloted in one of our offices in Sofia, while in 2019 we plan to gradually implement the concept in other bank's offices as well. Our goal is
to meet customer expectations for ease of service and special attitude from the very entering in the office to the final required service they get.
In terms of digitization, we are also continuing to implement new solutions to meet the growing expectations of our customers for fast, easy and convenient banking. In cooperation with Evrotrust, the Bulgarian winner of our fintech partnership program Elevator Lab 2018, we have made it possible to receive a consumer loan without visiting a bank office. We also worked with other start-ups – with Log Sentinel for increasing the information security by using block technology, and with PISANO for receiving quick feedback on customer experience through different points of contact.
In 2018, we held the tenth anniversary edition of our “Choose to help” donation campaign, which again supported a number of socially important health, social, cultural and environmental causes. The total amount donated this year is more than 23 per cent higher than last year's, and the amount raised by external donors is doubled, which is an evidence that more and more people recognize our campaign as a reliable way to show their empathy to those in need. Since the establishment of “Choose to help”, the bank and its employees have supported a total of 257 causes with nearly BGN 3 million and a number of volunteer actions.
On behalf of myself and the Management Board, I would like to thank to all our clients and partners for the trust and to the employees of Raiffeisenbank for the professionalism, responsibility and contribution to our development.
Oliver RoeglChairman of the Management Board
Oliver Roegl
Chairman of the MB
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Vision and Mission
VisionRaiffeisenbank Bulgaria EAD is one of the leading banks in all target customer segments in terms of customer experience, innovation and efficiency.
Mission• We seek long-term customer relationships, and are a friendly, reliable and constructive partner for our customers;
• We are proactive, innovative and quick in delivering top quality products and services;
• We communicate openly and transparently with our customers, partners and employees;
• We are an efficient and lean organization. We deploy synergies within the bank and with all our subsidiaries;
• We apply prudent risk management as a key pillar throughout our organization and processes;
• We adhere to the highest corporate culture and standards, and commit to corporate social responsibility;
• We empower our employees to be entrepreneurial, and we foster their development. We are the employer of first choice, and we put special focus on team spirit as well as on promoting key staff and best talent;
• We, as part of the Austrian Raiffeisen Banking Group and the Raiffeisen brand, contribute to the achievement of the overall Group objectives, and generate sustainable and above-average return on equity.
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Economic grow
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auditors` reportRaiffeisen G
roup in Bulgaria
Raiffeisen Bank International
Addresses
Segment reports
Vision and mission
Raiffeisen Bank International at a GlanceRBI regards Austria, where it is a leading corporate and investment bank, as well as Central and Eastern Europe (CEE) as its home market. Subsidiary banks cover 13 markets across the region. In addition, the Group includes numerous other financial service providers active in areas such as leasing, asset management and M&A.
In total, almost 47,000 RBI employees serve 16.1 million customers in more than 2,100 business outlets, the vast majority of which are in CEE.
RBI AG shares have been listed on the Vienna Stock Exchange since 2005.
At year-end 2018, RBI’s total assets stood at € 140 billion.
The regional Raiffeisen banks hold approximately 58.8 per cent of RBI shares, with the remaining approximately 41.2 per cent in free float.
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Group CompaniesThis consolidated report covers the activities of the bank and its subsidiaries and associates (hereinafter referred to as the Group) in 2018. As of 31 December 2018, the bank holds the following investments in subsidiaries and associates:
SubsidiariesSubsidiaries are the companies controlled by the bank. Control is the power to manage an entity's financial and operating policies so as to derive benefits as a result of its activities.
The income and expenses of the subsidiary are included in the consolidated financial statements from the date of acquisition to the date on which the bank ceases to control the subsidiary.
Intra-group balances, transactions, income and expenses arising from transactions between the Group's companies are fully eliminated in the preparation of consolidated financial statements. Gains and losses arising from intragroup transactions that are recognized in the assets, such as loans and receivables, are eliminated altogether.
The subsidiaries controlled by the bank as of 31 December 2018 are as follows:
Raiffeisen Leasing Bulgaria EOODRaiffeisen Leasing Bulgaria OOD was founded in 2004, with Raiffeisenbank (Bulgaria) EAD (24.5 per cent) and Raiffeisen Leasing International GmbH (75.5 per cent) as partners. In 2016, the bank acquired full ownership of Raiffeisen Leasing OOD by buying all shares of Raiffeisen Leasing International GmbH. After the share purchase, the legal status of the company changed to Raiffeisen Leasing Bulgaria EOOD.
Raiffeisen Leasing Bulgaria EOOD has been actively present on the Bulgarian leasing market for fourteen years. The main products offered to customers are leasing of new and used vehicles, construction and agricultural machinery, light and heavy trucks, trailers and forklifts, machinery and equipment and leasing of real estate. From 2017 the company offers its new service – Fleet Management.
As of 31 December 2018, Raiffeisen Leasing Bulgaria OOD reached a market share of 9.66 per cent on a leasing portfolio basis (Bulgarian National Bank statistics). The total volume of the leasing market as of 31 December 2018 amounts to BGN 4,038 mln., an increase of BGN 434 mln. compared to 31 December 2017.
As of 31 December 2018, Raiffeisen Leasing Bulgaria EOOD reached total assets of BGN 399 mln.
At the end of 2018, the net receivables of Raiffeisen Leasing Bulgaria EAD under leasing contracts amount to BGN 381 mln. The leasing assets are split as follows: vehicles – 79.6 per cent, equipment – 12.2 per cent and real estates – 8, 2 per cent.
The customer base of Raiffeisen Leasing Bulgaria EOOD consists of corporate customers, representing 61.0 per cent of the total portfolio, followed by small and medium enterprises – 27.2 per cent and private individuals – 11.8 per cent.
In 2018, the attracted and utilized mid and long term funding amounts to BGN 350 mln., of which BGN 153 mln. from international financial institutions.
Raiffeisen Service EOODRaiffeisen Service EOOD is registered in the Commercial Register with a capital of BGN 4,220 thousand. The company’s scope of activities includes real estate management, financial and accounting consultancy, legal advisory and accounting services, valuation of movable and immovable property, financial assets and enterprises, electronic data processing and information analysis, information services, rental of safes, leasing. As at 31 December 2018, the net assets of the company amount to BGN 5,320 thousand.
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Economic grow
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auditors` reportRaiffeisen G
roup in Bulgaria
Raiffeisen Bank International
Addresses
Segment reports
Vision and mission
Raiffeisen Asset Management (Bulgaria) EAD Raiffeisen Asset Management (Bulgaria) EAD was licensed in 2005 by the Financial Supervision Commission to conduct activities under Article 202, paragraph 1, items 1, 2 and 3 of the Public Offering of Securities Act (POSA), namely management of the activities of collective investment schemes (CIS) and of closed-end investment companies, as well as activities under Article 202, paragraph 2 of POSА – management of individual portfolios at own discretion, without special client orders and providing investment advice on securities. As of 31 December 2018, RAM is managing six local funds, providing investors with both conservative solutions and more risky products. As of 31 December 2018, the assets under management in the six funds exceed BGN 197 mln., i.e. a market share of 13.7 per cent. The registered capital of the company amounts to BGN 250 thousand and its net assets as of 31 December 2018 amount to BGN 1,520 thousand.
Raiffeisen Insurance Broker EOODRaiffeisen Insurance Broker EOOD is a company founded in 2006, 100 per cent owned by Raiffeisenbank (Bulgaria) EAD. The Company was registered in the Register of Insurance Brokers on 30 March 2006, as per Decision No 250-3B of the Financial Supervision Commission.
The activity of the company is related to mediation in the conclusion of insurance contracts between the Broker's clients and insurance companies.
Raiffeisen Insurance Broker EOOD analyses and studies the insurance market, offers insurance products tailored to the clients' individual needs, administrates the insurance contracts and provides assistance upon the occurrence of insurance events.
The clients of Raiffeisen Insurance Broker EOOD are borrowers of Raiffeisenbank (Bulgaria) EAD in the corporate segment, lessees of Raiffeisen Leasing Bulgaria EOOD, as well as clients outside the Raiffeisen Group. As of 31 December 2018, the registered capital of the company amounts to BGN 5 thousand and its net assets amounts to BGN 5,533 thousand.
AssociatesAn associate is an enterprise in which the bank exercises significant influence but does not control its financial and operating policies. Investments in associates are accounted for in the bank’s consolidated financial statements using the equity method. Under the equity method, the investment is initially recorded at its cost and the book value is increased or decreased to recognize the bank's share of the entity's profits or losses after the acquisition date. The bank's share of the associate's profit or loss is recognized in profit or loss of the Group. Income received through allocation from the associate reduces the book value of the investment. Adjustments in the book value may also be required as a result of the change in the percentage of the bank's participation in associate, due to changes in its equity, which changes were not reported in profit or loss. Such changes may also occur as a result of the revaluation of property, plant and equipment, exchange rate differences from foreign exchange transactions. The Group's share in these changes is directly reported in its equity.
Cash Service Company AD In 2009, the bank acquired a shareholding of BGN 2,500 thousand in the Cash Services Company, a share of 20 per cent of the Company's registered capital. In 2016, indications for impairment of the investment were identified and the bank recognized a loss of BGN 1,200 thousand. The bank intends to terminate its participation in the Company, and an agreement for the sale of shareholding was reached in 2018. As a result, a portion of the impairment in the amount of BGN 600 thousand was reintegrated, and as of 31 December 2018 the investment was reclassified to "Investments held for sale" in accordance with IFRS 5.
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The Bulgarian Economy in 2018
Economic GrowthDuring 2018, real GDP increased by 3.1 per cent yoy, according to the preliminary data of the National Statistical Institute, or 0.7 pp less than in 2017 (3.8 per cent yoy). Out of the GDP components, gross fixed capital formation posted the largest increase of 6.5 per cent yoy in 2018, followed by final consumption by 6.0 per cent yoy. Imports grew far faster by 3.7 per cent yoy, compared to exports, which declined by 0.8 per cent yoy, resulting in negative net export. High contribution to the growth in 2018 was stronger domestic demand, supported by the cheap money and an increase in the wages, as well as, by the unfavorable situation in international markets for Bulgarian exports of goods and services. In particular, the weak performance of the Turkish lira made Bulgarian exports too expensive (Turkey is the second largest export partner). The weaker than expected growth of other major trading partners has further depressed national exports. Against this background, moderately rising oil prices, which accounted for a significant share of imports, together with the increased consumption and investment, stimulated faster imports’ growth.
On the production side, the industry increased its output by only 0.8 per cent yoy in 2018, after an upsurge of 3.4 per cent yoy in the previous year. Similarly, to this dynamic, construction growth of 4.5 per cent yoy in 2017 was replaced by a slow positive development of only 1.4 per cent yoy in 2018 driven by the segment of buildings’ construction, while the civil construction showed a zero score during the year.
Labour MarketThe unemployment rate again decreased, reaching 5.2 per cent avg. in 2018, which level was by 1.0 pp lower compared to 2017. On the other hand, the average annual employment rate rose by 0.6 pp yoy to 52.5 per cent. The decline in unemployment was a positive fact in line with the growth of the economy. Against this background, the average monthly salary also stepped up by 8.5 per cent yoy to BGN 1,133 per month over the year.
InflationAfter inflation returned to the Bulgarian economy in 2017 it developed in moderation in 2018. Thus, the average annual inflation rate reached 2.7 per cent, while on December-December basis the CPI pace was 2.8 per cent. The rise of prices in housing, water, fuel, food and non-alcoholic beverages, alcohol and tobacco, communications, entertainment and culture, restaurants and hotels, education, etc. contributed to this inflation. On the other hand, prices of clothing and footwear fell, while transportation kept its prices unchanged.
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Economic grow
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auditors` reportRaiffeisen G
roup in Bulgaria
Raiffeisen Bank International
Addresses
Segment reports
Vision and mission
Fiscal SectorGeneral government revenues reached BGN 39.6 bn in 2018 or BGN 4.3 bn more than their volume in 2017. On the other hand, expenditures, including Bulgaria's contribution to the EU budget, increased to BGN 39.5 bn, which was by BGN 5.0 bn more than in the previous year. Due to this dynamic, a surplus of BGN 137.0 mn was recorded in 2018 amid a surplus of BGN 0.9 bn at the end of 2017.
The total amount of tax revenues in the state budget was measured at BGN 32.2 bn, which was by BGN 2.7 bn more than 2017. Revenues from grants (mainly from EU funds and programs) increased by BGN 590.1 mn and reached BGN 2.1 bn. In terms of expenditures, capital expenditures took out the most significant growth by BGN 1.6 bn yoy, as well as, subsidies and social expenditures by BGN 1.0 bn, while the most significant decline was observed in interest costs by BGN 103.9 mn compared to 2017.
Public DebtAt the end of 2018, public debt amounted to EUR 12.2 bn (22.1 per cent of GDP), which was by EUR 0.9 bn yoy lower remaining at one of the lowest levels in the EU.
Balance of PaymentsThe current account of the balance of payments was again positive at EUR 2.5 bn (4.6 per cent of GDP) in 2018, which was lower than in 2017 when the surplus reached EUR 3.7 bn (6.5 per cent of GDP). Out of the components of the current account, in 2018 the trade balance was negative, as expected, (EUR -2.2 bn), however, offset by the positive balance of the services (EUR 3.3 bn). Similarly, primary income accumulated a deficit of EUR 463.1 mn, being offset by the surplus of secondary income which amounted to EUR 1.9 bn. During the year, both the capital and the financial account also reported surpluses of EUR 0.8 bn and EUR 2.3 bn, respectively.
Foreign Direct InvestmentForeign direct investments in the country registered a decline in year-on-year terms, from EUR 2.3 bn in 2017 to EUR 1.7 bn as of 2018. The leading investor for 2018 was again the Netherlands with EUR 1.3 bn, followed by Hungary with EUR 587.8 mn, Germany with EUR 184.7 mn, and Norway with EUR 114.6 mn.
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Bulgarian Banking Sector in 2018In 2018, the banking sector achieved excellent results. Increased credit activity and a decrease in the share of non-performing exposures were reported. The steady increase in deposits, mainly from domestic sources, continued and contributed to preserving the good level of capitalization and high liquidity of the sector.
Banks in Bulgaria continued to carry out their inherent activities, striving to increase effectiveness in an environment of slightly increasing interest margins, volatile markets, and unpredictable external political environment.
At the end of 2018, the total number of banks operating in Bulgaria was 25, out of which 20 licensed banks and 5 branches of foreign banks. The share of local banks in the total assets of the banking system was measured at 22.3 per cent, which compared to the previous year was 1.2 pp lower (data as of September 2018). Against this background, the share of EU banks subsidiaries fell by 1.3 pp to 71.6 per cent and the relative share of branches of EU banks expanded from 2.3 per cent to 3.0 per cent.
The assets of the banking industry again recorded growth under the impact of the increase in loans and advances as well as, in the "money" position. Thus, by the end of December 2018, the total balance sheets figure of the sector reached BGN 105.6 bn, or by BGN 7.7 bn (7.9 per cent yoy) more than the end of 2017.
Over the past year, the gross credit portfolio of the sector amounted to BGN 60.9 bn, which is 8.6 per cent above its level at the end of 2017. By segments, this growth was decomposed as an increase in household loans by BGN 2.3 bn (11.6 per cent yoy) and loans to the corporate segment by BGN 2.5 bn (7.0 per cent yoy).
Households’ saving attitude was still a determining factor for the growth of deposits that went up at the end of the year by BGN 6.2 bn yoy (7.9 per cent yoy) to BGN 84.6 bn. Rise was also registered by household deposits with BGN 3.9 bn yoy (7.9 per cent yoy), as well as, those by corporate clients by BGN 2.2 bn yoy (7.7 per cent yoy).
Bank's equity increased by BGN 1.3 bn yoy (10.0 per cent yoy) to BGN 13.9 bn as of year’s end. The banking sector profit also peaked to BGN 1.7 bn (BGN 1.2 bn for 2017), while return on assets (ROA) and return on equity (ROE) were 1.7 per cent and 13.3 per cent, improving compared to the previous year, when they amounted to 1.3 per cent and 9.6 per cent respectively.
ChangeSelected macroeconomic indicators 2015 2016 2017 2018 2018/2017
Nominal GDP (EUR bn) 45.3 48.1 50.4 55.2 9.5%
Real GDP growth (%) 3.6% 3.9% 3.8% 3.1% (0.7) p.p.
GDP per capita (EUR) 6377 6777 7101 7772 9.4%
Unemployment rate (annual average, %) 9.2% 7.6% 6.2% 5.2% (1.0) p.p.
Inflation (end-of-year, %) (0.4%) 0.1% 2.8% 2.7% (0.1) p.p.
Inflation (annual average, %) (0.1%) (0.8%) 2.1% 2.8% 0.7 p.p.
Current account (% of GDP) 0.2% 5.3% 6.5% 4.6% (1.9 p.p.)
Trade balance (EUR bn) (2.6) (1.8) (0.8) (2.2) 175.0%
Foreign direct investment (net, EUR bn) 2.4 1.0 2.3 1.7 (26.1%)
FDI/Current account balance (%) (15580.2%) 80.6% 146.6% 68.5% (78.1 p.p.)
FX reserves (EUR bn) 20.3 23.9 23.7 22.6 (4.6%)
Source: National Statistical Institute, Bulgarian National Bank, Raiffeisen RESEARCH�
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During 2018, the sector was again characterized by a contraction in the total amount of non-performing loans and advances (NPLs) in the portfolio of banks. At the end of the year NPLs gross amount dropped to BGN 7.0 bn (7.6 per cent of gross loans and advances), which is by BGN 1.5 bn less compared to the end-2017 exposure (10.2 per cent).
The impetus of market consolidation in the sector was preserved. Thus, the owners of Cibank bought United Bulgarian Bank, which merged with Cibank, preserving its initial name. DSK Bank acquired 99.74 per cent of the shares of Société Générale Expressbank. Eurobank has signed a contract with Piraeus for acquisition of its Bulgarian subsidiary. The merger of TB Victoria with Investbank also was completed in 2018.
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4,030,4383,912,631 3,834,128
5,981,3526,459,550 6,323,964
6,998,905
7,777,437
4,359,243
4,995,283
in BGN Thousand in BGN Thousand
The Group’s Activity in 2018
Key Financial Indicators of the Bank Total Assets Credit portfolio
Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD
The increase in the total assets at the end of the year compared to the previous one is due to the growth in customer deposits, both in the corporate segment and in the retail banking segment.
In the past 2018, the new business generated in all client segments continued to outweigh the annual amortization of the portfolio, resulting in a net increase in the gross loans and advances to customers.
During the year the bank has written off, against allocated impairment provisions, exposures classified as "loss" amounting to BGN 35 million.
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Deposits from Customers Equity
909,630 910,327 910,497922,699
4,235,399
6,214,181
4,759,9014,748,6025,391,470
910,473
in BGN Thousand in BGN Thousand
Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD
In 2018, the bank records growth in customer deposits in all segments.
The annual profit after tax is included in the equity. In 2018, a dividend at the amount of BGN 134,5 million was paid to the sole shareholder. The initial application of IFRS 9 resulted in a net decrease in equity of BGN 9.4 million.
Net Profit
46,553
61,615
132,641 134,465131,549
in BGN Thousand
5.9 7.9
17.4 17.7 18.6
0.8
1.1
2.3 2.22.0
in % in %
Source: Audited Separate Financial Statements of Raiffeisenbank (Bulgaria) EAD
Return on assets before tax Return on equity before tax
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Corporate Banking and Capital Markets
Corporate BankingIn 2018 Raiffeisenbank (Bulgaria) EAD was focused on the continuous support to its corporate clients, adding 2 per cent more new companies to its customer base. The bank has a well-diversified customer portfolio comprising leading representatives from all growing and export oriented sectors of the economy: agro business, manufacturing, wholesale, pharmacy, IT, Telecommunications, etc. Raiffeisenbank (Bulgaria) EAD is a reliable partner for many multinational companies and participates in several syndicated loans.
As a universal bank, Raiffeisenbank (Bulgaria) EAD offers and constantly improves its range of banking products including lending, import and export factoring, cash management, documentary operations, deposits, foreign exchange, derivatives, etc. to small, medium and large companies. The bank further develops its image of supplier of innovative services, offering large scope of digital solutions via its Online and Mobile banking, FX Exchange Web based platform and innovative online applications for bank guarantees and letters of credit.
Raiffeisenbank (Bulgaria) EAD is one of the major partners of national and supranational financial institutions, including the National Guarantee Fund and the European Investment Fund (with which is currently working under three guarantee line programs – COSME, InnovFin and SME Initiative), thus being a sustainable mediator between the EU programs and the Bulgarian entrepreneurs and procuring the improvement of the competitiveness of the Bulgarian economy.
Raiffeisenbank (Bulgaria) EAD invests significantly in modernization of the IT infrastructure and systems in order to become fully compatible with the new trends in the customer’s expectations and behavior. The bank is actively involved in the development of best practices for innovative and adaptive solutions both in the local market and in the Raiffeisen Group. In addition, Raiffeisen (Bulgaria) EAD has introduced LEAN internal processes as well as new adaptive technologies, leading to additional efficiency.
The Voice of the Customer survey enables the bank to receive regular feedback from its customers. It is conducted regularly with both lending and non-lending clients in order to be on the pulse of their requirements and to constantly keep improving. In 2018, the Bank scored its highest customer satisfaction TRI*M index on the Bulgarian market.
As of 31 December 2018, Raiffeisenbank (Bulgaria) EAD was the sixth largest lender to legal entities with a market share of 7.30 per cent. The bank is ranked third in terms of attracted funds from legal entities with a market share of 8.26 per cent.
Capital MarketsRaiffeisenbank (Bulgaria) EAD is a leading market participant in the foreign exchange and debt markets in the country. The financial institution, in service of its clients, maintains a wide portfolio of currencies and provides for foreign exchange and interest rate risk management tools. The bank is a licensed investment intermediary and a respected primary dealer in the country. The institution cooperates closely with the Ministry of Finance by participating efficiently in development projects organized by the Ministry or the Bulgarian National Bank.
In 2018, Raiffeisenbank (Bulgaria) EAD achieved growth in its capital market performance, backed by the establishment of new and innovative products and services. In the course of the year, the financial institution began to develop consultancy activities by participating in consultancy transactions related to mergers and acquisition of enterprises jointly with Raiffeisen Bank International AG.
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As part of an international banking group, Raiffeisenbank (Bulgaria) EAD successfully implements the experience of the other sister network banks in the region and offers alternative solutions based on a wide range of instruments.
Group Securities ServicesRaiffeisenbank (Bulgaria) specializes in providing a wide range of custodial and depository services to banks, non-bank financial institutions and corporate clients on more than 60 markets via Raiffeisen Bank International as our exclusive sub-depository.
The bank operates as a custodian bank of pension funds in accordance with the provisions of the Social Insurance Code and BNB Ordinance № 36 on Custodian Banks under SIC. In recognition of the customers' satisfaction with the high quality custodial and depository services, Raiffeisen Group, including Raiffeisenbank (Bulgaria), continues to receive excellent results and awards in the surveys of leading specialized publications on the trends in management and administration of client assets.
In 2018, a remarkable growth of 24.5 per cent YoY in client assets under custody in Raiffeisen (Bulgaria) was recorded, which further strengthened our position among the leading financial institutions in Bulgaria in custodial services.
The bank’s policies regulating its activities as investment intermediary (custodial services) are in compliance with the requirements of art. 28-31 of Ordinance №38 of the Financial Supervision Commission from 25.07.2007 and Ordinance №58 from 28.02.2018 of the Financial Supervision Commission.
Financial Institutions and SovereignsRelationship with Banks, Non-Bank Financial Institutions and Sovereigns
Raiffeisenbank (Bulgaria) EAD develops its relations with first-class international and local financial institutions as well as with International Organizations and Central Government Organizations. The bank is among the few banks on the Bulgarian market which has a unit specialized in servicing financial institutions that employs a team of professionals with long experience and knowledge about the specific regulatory and compliance requirements for this customer type.
The number of banks with which Raiffeisenbank (Bulgaria) EAD has established correspondent relations, as well as the number of accounts in different currencies maintained by the bank, continues to grow. The bank serves and offers a full range of services to over 300 non-bank financial institutions, Central Government and International Organizations.
Based on the excellent quality of the services provided in line with the specific requirements of the financial institutions and the confidence of the international financial community to the bank, almost 40 foreign banks – mainly from Europe and North America – and more than 20 international non-banking organizations maintain accounts with the bank in local and foreign currencies.
The bank continues to be among the preferred partners with an increasing number of serviced local Insurance companies, Pension insurance companies, Fund management companies, Investment intermediary etc. Raiffeisenbank (Bulgaria) is among the local leaders in servicing Central Government Authorities, Sovereigns, Non-Commercial Undertakings – Sovereigns and International Organizations by providing a complex bank service and full range of bank products.
Relationship with International Financial Institutions
Raiffeisenbank (Bulgaria) is one of the leaders on the Bulgarian market in attracting mid-term and long-term funding from International Financial Institutions. For the last 16 years, the total amount of agreements negotiated under Credit Line and Risk Sharing Facilities (signed with institutions such as the European Bank for Reconstruction and Development, the European Investment Bank, the European Investment Fund, KfW, the European Fund for Southeast Europe, the Council of Europe Development Bank, the National Guarantee Fund etc.) is more than EUR 950 million.
Traditionally, Raiffeisenbank (Bulgaria) EAD continued its successful cooperation with the IFI and the National Guarantee Fund. During the year, the European Investment Fund guarantee scheme under the InnovFin program increased from EUR 35 million to EUR 78 million.
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Retail BankingPrivate IndividualsIn 2018, Raiffeisenbank's strategy for maintaining and developing innovative and digital banking products and services tailored to clients' expectations and needs in their day-to-day banking was maintained.
At the end of the year the total assets amount to BGN 1.86 billion. The total amount of households deposits is BGN 3.64 billion and the market share increased to 6.81 per cent. The number of customers for which Raiffeisenbank is the main bank exceeds 278 000 and the ratio to the active client base reached 53 per cent.
For home loans, the bank continued to be a preferred customer partner, while increasing its market share to 1.5 per cent, and registering a significant 43 per cent growth in the new business on an annual basis. Again, based on its successful concept "Smart solutions for their new home" and offered customers an individual and transparent approach, expert and professional advice tailored to their profile.
The positive trend is also maintained for consumer loans. The market share improved for the third consecutive year, reaching 11.5 per cent total for the year, which again placed the bank among the top 4 banks on the new loans market.
As of July 2018, customers can get a consumer loan under a quick and simplified procedure. The documents are signed with an electronic signature, without having to visit an office.
In respond to the demand of one of the largest social groups in the country, the bank expanded its product range for pensioners and after the "For retirement" account, launched the offering of consumer loan for pensioners with insurance "Life" protection included, covering the loan installment.
Raiffeisenbank has created a special product "For Every Day" account for the customers who receive their remuneration on an account at the bank. It meets the needs of the most active and transacting clients, by offering them convenience and freedom in day-to-day banking.
The development of the mobile application of Raiffeisen ONLINE continued to be in the spotlight. Users can now access it through a quick fingerprint entrance or PIN, pay their bills, subscribe to notifications related to the products they use. Additionally, customers have the option to make periodic payments via Internet banking by setting the payment frequency themselves. As a result, the number of registered clients for Raiffeisen ONLINE continues to grow, reaching 330,000 at the end of the year, where 91 per cent of the translations are ordered through the bank's online banking.
For the second consecutive year Elevator Lab Bulgaria 2018 was held – the regional challenge within the largest fintech accelerator in Central and Eastern Europe, established by Raiffeisen Bank International. Compared to 2017, twice more Bulgarian companies have applied for projects in the fields of Data Analysis, Corporate Banking, Investment Technologies, New Office Consumer Experience, Open Banking and Regulatory Technology.
At the end of 2018, the total number of active debit and credit cards issued by Raiffeisenbank (Bulgaria) EAD exceeds 550,000. During the year, 32 per cent more credit cards were issued compared to the previous one.
In May 2018, sales of payment accessories to debit cards Debit MasterCard began – stickers with a built-in card chip and micro-cards for insertion into a bracelet or keychain, and only in a few months over 5,300 customers bought their accessories.
The volume of card payments at POS terminals of the bank increased by 86 per cent on an annual basis. The migration of POS terminals to a new and modern card platform has been completed, which will provide even better service to both the merchants who accept card payments and for the cardholders.
The bancassurance business offered additional customer protection with new and upgraded products. Savings Life Insurance "Personal Future" is enriched with more extensive coverage and reflects the leading trends in life insurance. The bank is launching a new insurance with an investment component in partnership with Uniqa Life, linked to an index certificate, where customers receive a 100 per cent guarantee of the capital at the end of the insurance period. The "Protected purchase" insurance on debit cards offers greater security to cardholders with attractive coverage, such as stolen documents and keys, extended warranty on purchased small and large appliances, etc.
In 2018, the partnership with NN Pension Insurance was further strengthen, and now customers can get information and choose their Universal Pension Fund and Voluntary Pension Fund in all bank offices.
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Micro BusinessIn 2018, Raiffeisenbank (Bulgaria) EAD further strengthened its leading position in the Micro segment, servicing a growing base of more than 69,500 customers. The bank added new attractive services to its broad lending and non-lending product portfolios, to provide better service for micro companies and business owners.
The focus of activities in 2018 was on:
• Increasing customer satisfaction by providing extensive and competent service, constant improvement of service quality, development of customer-tailored products;
• Providing micro companies with access to local and EU guarantee programs and credit lines by maintaining strong partnership with the European Investment Fund and the National Guarantee Fund;
• Facilitating the direct interaction and exchange of information with micro customers. By holding 6 regional business forums and over 60 business breakfasts throughout the country, the bank shared information as about the latest opportunities for financing micro business development;
• Providing modern and innovative banking services, introducing remote advisory for micro companies, upgrading online banking and mobile banking platform, ensuring a quick and convenient 24/7 access;
• Further expansion of the bank’s presence in the agricultural sector through actively financing the needs of agricultural producers;
• Conducting attractive CRM and promotional campaigns, focused on clients in the segment and improved presence in alternative channels.
The strong emphasis on personnel development continued to contribute to more efficient performance of the segment.
Sales and Distribution Channels Raiffeisenbank (Bulgaria) EAD has a nationwide branch distribution network with 133 branches as of the end of 2018, located in more than 60 cities in the country. The bank continues to invest in the footprint in order to further enhance customer experience in branches and to more flexible and convenient for its customers.
Investments were made to build the first office of the bank on a new concept that was developed in design thinking methodology, with emphasis being placed on the in-depth preliminary study of customer and employee expectations and experiences. We will continue the development of the new concept to increase the satisfaction of our customers and employees, which is a top priority for us.
In order to meet customers’ expectations for quality, service, and convenience, 14 branches work with extended working time and during the weekdays.
The branch distribution network across the country is illustrated below:
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In 2018 the bank established 2 new branch locations – one in Sofia and one in Pomorie. In all 133 branches the customers can be consulted and serviced for cash and non-cash services from one specialist. In 44 branches categorized as Flexi offices can be furthermore serviced and consulted by the same specialist for lending products.
The bank also continues to invest in specialized centers for private individuals and small business companies. There are specialized Mortgage zones located in the biggest cities – Sofia, Plovdiv, Varna and Bourgas. 23 business centers for small business companies, located in 13 cities, are servicing and consulting the clients, with highly qualified specialists, who are engaged to provide financial solutions to companies for all kind of products and services.
For over 14 years, Raiffeisenbank (Bulgaria) EAD has continued to develop its agent network of mobile bankers and external partners. At their convenient time and place customers can take advantage of completely free personal counseling from mobile bank consultants for basic products and services for private individuals, e.g. consumer loans, credit and debit bank cards, packages, etc. The mobile bankers Network saves customers’ time and efforts including in preparation of the necessary documents for applying for a desired bank service. The external partners’ network is also an important sales channel helping to deliver the business volumes for individual customers and micro businesses.
Raiffeisenbank (Bulgaria) has its own Contact center which is an alternative channel offering 24/7 services to existing and potential customers. The Contact Center handles a wide variety of customer enquiries and consults customers about bank products through various remote communication channels – phone, e-mail, voicemail, web chat, Messenger, web site’s contact forms and Online*Mobile banking.
The Contact Center actively conducts outbound x-sell, loyalty and customer satisfaction programs and initiatives to existing and prospect customers.
Contact Center employees are specialized in servicing inquiries for products and services offered to individuals, MICRO companies, Premium customers, POS terminals, card payments and digital banking.
Reflecting the trends for digitization Raiffeisenbank (Bulgaria) enhances its electronic channels for transactional services and constantly develops and upgrades its web site, internet and mobile banking as sales channels. eLoan project was started and a process for е2е e-lending was designed. Project successfully transformed in Scrum based on visible need and expected much better results. Delivered successfully Minimum Marketable Product – digitally signed contract with customer for pre-approved PI consumer loans – very positive feedback from customers and promising results. Improvements on Mobile banking were done and new authentication mechanisms were provided to the customers in order to answer the actual trends in customer experience.
With its wide branch network and alternative channels, in 2018 the bank is growing the new lending volumes and non-lending sales, as well as its loan portfolio in all retail customer segments.
Raiffeisenbank (Bulgaria) EAD is recognized as a bank with clear customer focus and the best client experience. Raiffeisenbank uses different sources to understand the customer’s expectations. In order to do so, the bank closely monitors customer’s experience with all touch points – branches, corporate web site, electronic channels, Call Center, etc.
Raiffeisenbank not only provides excellent service quality according to internal corporate standards but strives to exceed customer’s expectations. The bank invests in many activities and initiatives to continuously enhance the customer experience in all channels and touch points.
Human Resources At the end of 2018, the staff of Raiffeisenbank (Bulgaria) EAD totaled 2,711 employees, 49 per cent of which were employed in the branch network of the bank; 83 per cent of the employees are university graduates and the average age is 38 years.
In 2018, the main focus in human resources management was the development of the managers’ and employees’ competencies, the development of the employer's brand, as well as enhancing the employees’ engagement and building a culture of learning and supportive organization.
The main focus in employee development programs was on customer experience, digitization and innovation, project management, Agile and adaptive organization, and others.
Several programs for the development of managers from different levels of the organization were implemented, such as the Leadership Program focusing on Client Experience and Project Management. A Behavioral Economy Program was organized
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for Corporate Banking, also a Customer Experience Academy was organized for the Retail Banking. Several training programs were also carried out for different groups of employees on topics related to digitization and innovation: "Innovation and Creative Thinking" and "Design Thinking". In 2018, the bank expanded the internal and external training catalogs, both with professional, and soft and sales skills trainings.
During the year, a survey of employee engagement in the organization was organized, which showed a significant increase in the core areas covered by the Survey – Engagement and Working Conditions.
A new, modern platform for online training, which also provides functionality for providing and receiving instant feedback for all employees, was introduced.
Additional efforts were made to continue and further improve HR practices, such as: mentoring, coaching, training and consulting, structured career paths for different positions. In 2018, the bank invested again in increasing the team effectiveness, sports and teambuilding initiatives. Raiffeisenbank (Bulgaria) also participates in a variety of international HR initiatives such as the International Program for the Development of Young Talents, etc.
The bank continued its active work for the development of the Employer's Brand of Raiffeisenbank Bulgaria, via a social media campaign and an employee initiative, in order to present the employer's brand in an interesting and creative way.
Risk Management
Risk ControllingThe Risk Governance Committee, set up in 2017, continues its quarterly meetings. The Committee reviews the policies, procedures, rules and practices related to the bank's economic capital and stress testing models, as well as reviews and approves the stress test results and scenarios and also reviews and approves the validation results of all models throughout their life cycle.
In 2018, Raiffeisenbank Bulgaria continued working towards regulatory compliance with Standard 239 of the Basel Committee on Banking Supervision – Principles for effective risk data aggregation and risk reporting. The standard addresses the aggregation of data within the bank and sets principles in carrying out regulatory reporting. In 2018, the first phase of Data Governance was successfully completed, namely the decomposition of regulatory key concepts.
In the past year, the non-retail (group) models used were validated.
In December 2018, the Regulator approved the application for processing of the internal rating model for Small and Medium-sized Enterprises segmentation.
The initial validation of the Consumer Credit Card Application was successfully completed.
In December 2018, the bank prepared and sent together with the Raiffeisen Group a set of documents to the ECB in connection with the launch of the process of introducing a new default definition in accordance with EBA/GL/2017/16 and EBA/RTS/2016/03.
The bank's NPL strategy was updated along with operational plans in the respective segments, in line with the ECB's requirements, laid down in the ECB guidelines for NPL Management.
Credit risk impairment models under the new IFRS 9 standard have been implemented. The models cover the whole private individuals segment and the Micro SME enterprises. The approach followed is based on the assessment of the loss during the life of the exposure (Lifetime PD), loss given default and conversion factor. The new models are entirely determined by historical data on the respective internally rated portfolios. The key pint is the recognition of Phase 2, which introduced thresholds for Lifetime PD change from the time of the granting of the loan to the current reporting period. Macro models have been developed to apply the group’s scenarios for the macro environment development for the purposes of IFRS 9, which is limited to several environmental scenarios and the relevant statistically significant parameters. In parallel, the bank also applied the Group’s models for impairment under IFRS 9, formulated at the Vienna headquarters, where the key point is empirical monitoring of non-performing exposures, as well as impairment of financial instruments with inherent element of credit risk. The bank has successfully applied the Group's methodology for classification and fair value measurement of financial instruments under IFRS 9.
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In 2018, the bank reviewed the liquidity risk management models and limits by updating the accounts for withdrawals of deposits and borrowed funds. The bank maintains adequate levels of risk / income under low-interest conditions.
At the beginning of 2018, interest rate sensitivity measurement models were reviewed and updated, as well as Value at Risk in line with the best practices after the introduction of IFRS 9.
The bank successfully completed the upgrade and refinement of its models for market compliance verification for all types of foreign exchange transactions and over the counter securities transactions.
Raiffeisenbank (Bulgaria) EAD and its subsidiaries, as part of the RBI Group, consider the operational risk as a separate category of risk and adhere to the group policies, rules and procedures. The RBI Group encourages the development of an open and risk-sensitive environment and culture to support the identification, measurement, management and monitoring of exposures resulting from inadequate or poorly functioning internal processes, people and systems, or from external events. Operational risk is managed within a Risk Management Cycle through various tools and approaches, such as Risk Assessment, Scenario Analyzes, Early Warning Indicators, Operational Event Data Collection, and Reporting. These tools and measures provide as a whole an overview of the exposure to the Operational Risk and ensure its maintenance within the risk appetite set by the Management. The bank applies the Three lines of defense model, which defines the respective responsibilities in the management of the Operational Risk.
The bank has an Operational Risk Committee. The Committee is a specialized internal body, part of the management of Raiffeisenbank (Bulgaria) EAD in the field of operational risk management and internal controls (ICS). In 2018, the main activity of the Operational Risk Control Unit was focused on ensuring high quality of operational risk management in Raiffeisenbank and in compliance with the Group Standards and Practices, as well as on the further increase of the level of understanding of the operational risk by all employees of the bank. The quality of data collection for operational events and, in particular, the completeness and accuracy of data, was also enhanced, while making additional efforts with regard to the analysis of operating event losses and accounting records on the bank's accounts.
Risk Management Corporate BankingDuring 2018, the corporate banking Risk management continued to support the portfolio growth while maintaining excellent quality. New market opportunities in certain industries have been identified as well as a strict steering of the existing portfolio indicators and caps was also on focus.
Another objective of Corporate risk was to support the existing bank’s clients in their developing strategy as well as acquiring new perspective borrowers with acceptable risk profile and stable market position. The concentration risk on both client and industry level was also well monitored.
A lot of initiatives for automation of the credit process were commenced which in turn will contribute to higher efficiency while maintaining the best practices.
Risk Management Retail BankingOne of the main functions of Retail Risk Management Department is the preparation of Lending Policies for PI (Private Individual) and Micro segments. Lending conditions of citizens and Micro companies were adapted in accordance with consistent course of smart portfolio growth and “BG growth market” initiative.
In 2018, a lot of new automation have been done with external data bases as CCR, NSSI and Trade Register which led to improvement of risk infrastructure in Retail segment and shortened the processing time of loan application.
Lending conditions were improved as a result of automations and implementation of new scorecards of consumer loans.
Portfolio indicators for DR (Default Rate), PD (Probability of Default) and Provision Coverage continued to follow their positive trends.
At the end of 2018, Retail NPL portfolio dropped down to levels far below the average for entire banking sector due to proactive management of delinquent exposures and consistent appliance of collection strategy of legal loans.
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Information TechnologyThe Information Technologies Division elaborated its own development strategy 2018-2020, which was approved by the management of RBBG and RBI. The vision of the Division is to turn IT into a strategic business partner, contributing to the positioning of Raiffeisenbank as a leader in the banking sector in terms of customer experience, innovation and efficiency. The mission of the IT Division is to develop and maintain a high level of internal expertise in order to provide reliable, high quality, efficient and innovative IT services. Key initiatives for the implementation of the strategy have already been completed (Key Change the bank processes review and improvement, Omni Channel setup, ODS implementation, while others are in the process of being implemented – Key Run the bank processes review and improvement, Automation testing, Data Lineage Tool implementation).
In 2018, the IT Division implemented a new organizational structure fully oriented towards achieving the strategic goal of turning IT into a business partner. IT Solutions and Services delivery teams have been set up to cooperate purposefully and transparently with the business units in the preparation and implementation of their initiatives. The goal of these functionally oriented delivery teams for IT solutions is to create conditions for a deeper understanding of business processes and more effective co-operation in making the necessary changes. Another important step in turning IT into a business partner was to change the Demand & Change process, towards work in IT and business teams in the preparation of requests, as well as towards engagement with a specific implementation plan and commitment of all participants in the implementation of the change before it is submitted for approval.
Significant progress has been made in terms of IT processes and their management. All key IT processes are implemented and managed through a modern and intuitive platform.
OperationsInbound foreign currency payments increased with 16,34 per cent and the outbound and intrabank payments grew by over 3.70 per cent. The share of electronic outbound and intrabank foreign currency payments reached around 90 per cent of the total number of foreign payments for 2018.
Customers' local currency payments (outgoing and intrabank) increased by more than 10,65 per cent compared to previous year. The share of electronic local currency payments also increased and reached around 91 per cent by the end of the year. Stable market share in payments processed through the local payments system BISERA, which reached 9.74 per cent. Number of payments through the real time gross settlement system RINGS ensured near 11 per cent market share for 2018.
The bank constantly improves the level of automation of the customers payments, the quality and speed of processing.
The tendency for digitization and a high degree of automation is maintained, with efforts aimed at continuously improving the services provided in the field of Retail Banking and reducing the time for loans approval and utilization (less than 1 day). Following the bank's strategy aimed at improving the customer experience and offering leading products and services, the time for card and PIN delivery to a customer has been reduced, the services related to bank card servicing were digitalized and, easy access was provided via the bank’s online and mobile banking. Since the end of 2018, our customers can also benefit from electronic signing of documents, thus we had created a fully digitized remote service, accessible from anywhere in the country.
The bank has invested in various innovative approaches in various areas of Operations, robotic processes have been implemented in the processing of bank cards and the administrative processes related to PI loans, we have experimented with new communication channels such as Viber, advanced analytical models were used in the field of bad debts collection.
The bank develops and renews its ATM network with machines of the latest generation (touch screen, contactless) by increasing the number of the deposit ATMs (BNAs) that will be available in all offices of the bank.
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Group Companies
Raiffeisen Leasing Bulgaria ЕOODRaiffeisen Leasing Bulgaria OOD was established in 2004 with shareholders Raiffeisenbank (Bulgaria) EAD, holding 24.5 per cent of its shares, and Raiffeisen Leasing International GmbH, holding 75.5 per cent.
Raiffeisenbank (Bulgaria) EAD is sole owner of Raiffeisen Leasing Bulgaria EOOD since July 2016.
Raiffeisen Leasing Bulgaria ЕOOD has already been an active player on the leasing market for 14 years. The main leased assets offered to the customers are new and used vehicles, construction and agricultural machinery, light and heavy trucks, trailers and forklifts, machines and equipment as well as real estate leasing. Since 2017 the company offers to its customers a new service – Fleet Management.
The market share of Raiffeisen Leasing Bulgaria ЕOOD as of 31 December 2018 was 9.66 per cent, based on the leasing portfolio (BNB statistics). The total volume of the leasing market as of 31 December 2018 amounted to BGN 4,038 million which was an increase of BGN 434 million compared to 31 December 2017.
As of 31 December 2018, the total assets of Raiffeisen Leasing Bulgaria EOOD amounted to BGN 399 million.
At the end of 2018 the net lease receivables of Raiffeisen Leasing Bulgaria EOOD amounted to BGN 381 million. The leased assets were distributed as follows: vehicles – 79.6 per cent, equipment – 12.2 per cent and real estate – 8.2 per cent.
The customers of Raiffeisen Leasing Bulgaria ЕOOD are Corporates representing 61.0 per cent of the total portfolio followed by small and medium enterprises – 27.2 per cent and private individuals – 11.8 per cent.
In 2018, the attracted and utilized medium and long-term financing reached to BGN 350 million, out of which BGN 153 million from international financial institutions.
Raiffeisen Leasing Bulgaria ЕOOD have registered 11 branches in the regional cities throughout the country.
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Raiffeisen Asset Management (Bulgaria) EAD
Market Share/Assets under ManagementThe negative global market environment influenced financial markets in 2018. The low equity and bond markets influenced the performance of the Raiffeisen Asset Management funds. The launch of the new fund in leva Raiffeisen Bulgaria Global Balanced Fund contributed to the increase of the assets under management of the company.
The assets under management of Raiffeisen Asset Management have increased from BGN 192 mln. to BGN 196,8 mln. However, the market share of Raiffeisen Asset Management has decreased from 14.5 per cent by the end of 2017 to 13.7 per cent by the end of 2018. During the period the company was able to increase the number of its retail clients by 23 per cent. By increasing the relative share of the investments of the retail clients for the account of big institutional and corporate clients, the company is aiming to limit the concentration risk, which will lead to stability and predictability of its cash flows.
RAM Market Share Assets under management in contractual funds
5.5
11
16.5
22
27.5
14.9%
30.0
6.20
17
14.5%
31.1
2.20
17
14.9%
30.0
6.20
18
13.7%
31.1
2.20
18
250,000
200,000
150,000
100,000
50,000
192,000206,870
196,780174,480
30.0
6.20
17
31.1
2.20
17
30.0
6.20
18
31.1
2.20
18
in %in BGN Thousand
By the end of 2018 RAM manages and distributes six local funds, covering conservative, balanced and high-risk spectrum. As of 31 December 2018, the assets managed by the company in the six local funds are amounting to BGN 196 mln., which represents 13.7 per cent market share.
In 2018, the company has organized and executed the regular trainings of the branch network employees with regard to RAM’s products, sales skills and technics, as well as, changes in the legal framework. RAM has trained approximately 700 RBBG branch network staff in financial and product knowledge. The regular trainings of the employees of the branches of RBBG are aiming to constantly increase their investment culture and knowledge in the field of mutual funds, which is resulting in higher recognition of these products throughout the clients of the bank.
New products and initiatives/Client base
In February 2018 RAM has started the offering of new mutual fund – Raiffeisen (Bulgaria) Global Balanced fund, representing feeder collective investment scheme, investing at all-time 85 per cent or more of its assets in units of master fund Raiffeisen-Ertrag, managed by Raiffeisen Capital Management, Vienna. As of 31st December 2018, the assets accumulated in the fund are amounting to BGN 4,2 mln.
The new fund is aiming to enrich and renew the offered by the company product mix and to attract new clients and assets.
In addition to the core product range, RAM offers to its clients two additional products, suitable for long term saving of funds – Deposit Mix and Individual Investment Plan (IIP).
In 2018 the main focus of the company was entirely oriented towards the sales of low risk profile mutual funds with an accent in the Retail segment. The sales performance of the PI segment brought forth the main contribution to the net funds inflow and significantly decreased the client’s concentration in the funds’ portfolios.
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In 2018, together with the direct sales of RAM’s mutual funds, important accent in the product mix was put on the promotion of individual investment plans as form of long term saving and investment of the clients’ funds. In that period the number of sold products has increased double.
At the end of 2018 the number of RAM clients has reached 13,418, which represents an increase of 23 per cent compared to 2017. The share of the investments held by institutional and corporate clients in the funds managed by RAM is approximately 12, compared to 15 per cent in December 2017, which has resulted respectively in an increase of the share of retail customers from 85 per cent to 88 per cent for the same period.
Total assets under management in local funds as of 31.12.2018 are amounting to BGN 196,8 mln. which represents an increase of 2.5 per cent compared to the end of 2017.
RCM Funds
Based on the decision of the Management board of RBBG the distribution of RCM Funds has been transferred from RAM to the bank. As of 31st December 2018, the clients’ assets in RCM funds left in the portfolio of RAM are amounting to EUR 0.457 mln.
For second consecutive year, in 2018, Raiffeisen Asset Management has received the award for the "Best asset management company" in Bulgaria granted by the international finance edition ЕМЕА Finance.
Investment approach and achieved return
Raiffeisen Asset Management (Bulgaria) EAD applied analytical and professional expertise working in close collaboration with Raiffeisen Group in making investment decisions, construction and management of the local funds’ portfolios.
The monetary policies of the FED and ECB were one of factors influencing the financial markets indexes. For 2018 the European STOXX 600 registered a decrease of -13.2 per cent, while the STOXX 50 was down by -14.3 per cent. In the U.S. the S&P 500 has lost -6.2 per cent.
The Bulgarian SOFIX ended the year with a decrease of -12.3 per cent.
Assets under management in the mutual funds managed by RAM as of the end of 2018 are as follows:
• MF Raiffeisen Conservative Fund Bulgaria is the biggest mutual fund in Bulgaria with assets amounting to BGN 110.9 mln;
• MF Raiffeisen (Bulgaria) Active Protection in EUR is managing BGN 48.9 mln;
• MF Raiffeisen (Bulgaria) Active Protection in BGN is managing BGN 3.8 mln;
• MF Raiffeisen (Bulgaria) Global Mix is managing BGN 20.7 mln.;
• MF Raiffeisen (Bulgaria) Global Balanced fund is managing BGN 4.2 mln.;
• MF Raiffeisen (Bulgaria) Global Growth is managing BGN 8.2 mln.
Absolute return of the locally managed mutual funds for 2018 is as follows:
• MF Raiffeisen Conservative Fund Bulgaria: -0.34 per cent p.a.;
• MF Raiffeisen (Bulgaria) Active Protection in EUR: -4.13 per cent p.a.;
• MF Raiffeisen (Bulgaria) Active Protection in BGN: -4.41 per cent p.a.;
• MF Raiffeisen (Bulgaria) Global Mix: -2.47 per cent p.a.
• MF Raiffeisen (Bulgaria) Global Balanced fund: n.a.;
• MF Raiffeisen (Bulgaria) Global Growth Fund: -10.60 per cent p.a.
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Raiffeisen Insurance BrokerRaiffeisen Insurance Broker EOOD is founded in 2006, as a subsidiary 100 per cent owned by Raiffeisenbank (Bulgaria) EAD. On 30 March 2006 the Financial Supervision Commission listed Raiffeisen Insurance Broker EOOD in the Register of the insurance brokers under Registration No 250-3B, thus marking up the launch of its activities of insurance intermediation.
In fulfillment of the highest customer service standards, Raiffeisen Insurance Broker performs various activities, some of which are related to studying and analyzing the insurance market trends, preparation of detailed analysis, modeling of specific insurance products, administrating insurance contracts and last but not least – assistance in cases of insurance events. Raiffeisen Insurance Broker provides high-quality insurance intermediation services to individuals and legal entities. The company’s clients are borrowers of Raiffeisenbank (Bulgaria) EAD in the corporate segment, lessees of Raiffeisen Leasing Bulgaria OOD and other customers outside Raiffeisen Group.
We always strive to keep up with the latest trends in the insurance market and to increase our customers' satisfaction by achieving the best quality service and a diverse range of insurance products and solutions.
The purpose of Raiffeisen Insurance Broker is to provide insurance mediation, focusing on the needs and interests of the customer. For each customer we are trying to find the balance between price and coverage.
For our customers, the lessees of Raiffeisen Leasing Bulgaria Ltd, we provide 24/7 service – when an insurance event of their vehicles occurs.
The financial data as of 31 December 2018 shows that for the past one-year period Raiffeisen Insurance Broker has realized BGN 24.146 million insurance premium income.
Raiffeisen Insurance Broker as insurance intermediary, offers to its client’s products of 12 insurance companies with which the Broker has contracts.
As of 31.12.2018, the Company has a 1.74 per cent market share.
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Future OutlookIn 2019 the Group will focus on:
• Keeping its leading market position;
• The Group will keep investing both in its infrastructure and in process optimization, as well as in its employees to ensure high quality of service and customer satisfaction;
• Achieving sustainable growth in the credit portfolio while maintaining good risk profile of the new business;
• Focus on increasing Primary customers through various initiatives to attract new and retain existing customers;
• The Group will continue to improve the functionality of digital channels in order to increase the share of online credit and non-credit products;
• The Group will boost its partnerships with third parties in order to offer an enriched palette of financial services and an excellent customer experience;
• Regulating processes in line with the dynamic regulatory framework;
• Expanding business-oriented data management;
• Cultivating and fostering innovation and innovative thinking.
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Corporate Governance StatementRaiffeisenbank (Bulgaria) EAD considered good corporate governance as part of modern business practice, a set of balanced relationship between the management bodies of the bank, its sole shareholder, and all other stakeholders – employees, customers, partners, regulators and society as a whole.
In the pursuit of its activities, Raiffeisenbank (Bulgaria) EAD is guided by the principles of corporate governance recommended for adoption by the National Corporate Governance Committee.
Along with the aforementioned principles, which are of a recommendatory nature, Raiffeisenbank (Bulgaria) EAD, as part of the Raiffeisen Group, also applies corporate governance requirements established at the group level and which are binding for the management bodies and the employees of the bank, and a Code of Conduct of the RZB Group (information under Art. 100n, para. 8, item 1b) in the Public Offering of Securities Act (POSA)) has been adopted for this purpose.
Raiffeisenbank (Bulgaria) EAD and the companies of the entire Raiffeisen Group implement the Code of Conduct, recognizing that effective implementation of good corporate governance practices contributes to high standards in the bank's operations, preserving and improving the reputation of the entire Raiffeisen Group, and establishing a transparent relationship with all stakeholders (information under Art. 100n, para. 8, item 1b) in POSA).
Raiffeisenbank (Bulgaria) EAD hereby declares its commitment to:
1. Introduce procedures and principles to be followed by the bank’s managing bodies in order to create the necessary conditions and to enable the shareholders to exercise their rights in full.
2. Apply the principles of transparency, independence and accountability by the bank’s managing bodies (Supervisory Board and Management Board) in accordance with the established objectives and strategies of the Bank (informa-tion under Art. 100n, para. 8, item 5 of POSA) established in the Policy on diversity in the executive, management and supervisory bodies (information under Article 100n(8)(6) of POSA).
2.1. The Supervisory Board of Raiffeisenbank (Bulgaria) EAD consists of six (6) members elected by the bank’s Sole Shareholder for a fixed term of office of no longer than five (5) years.
2.2. The Supervisory Board performs its activities in accordance with the By-laws of the bank and the Rules of the Supervisory Board of Raiffeisenbank (Bulgaria) EAD.
2.3. The Management Board of Raiffeisenbank (Bulgaria) EAD consists of five (5) members elected by the Supervi-sory Board for a fixed term of office of no longer than five (5) years.
2.4. The Management Board performs its activities in accordance with the By-laws of the bank and the Rules of the Management Board of Raiffeisenbank (Bulgaria) EAD.
2.5. In the performance of their tasks and responsibilities, the Supervisory and Management Boards are guided by the applicable law, the bank’s By-laws, the internal rules and procedures of the bank and the Raiffeisen Group, as well as by the principles of integrity and competence.
2.6. The Management Board acts independently on behalf of the bank and makes decisions on all matters, unless the relevant activities are within the competence of the Sole Shareholder or the Supervisory Board. In the performance of its duties, the Management Board:
• manages and represents the bank;
• manages the bank’s ongoing activities;
• sets the bank’s objectives, adopts plans, programs and strategies for the bank’s activities;
• adopts the bank’s organizational and management structure.
2.7. The Management Board is required to obtain prior consent from the Supervisory Board in the following cases:
a) Defining the general principles of the bank's corporate policy (including the corporate mission, the medium and long-term strategy and the business model);
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b) Annual budget of the Bank and (when required) in its consolidated companies prepared in accordance with the International Financial Reporting Standards (including the investment budget) and
i. Any additional investment that exceeds 5 per cent of the annual budget of the bank for capital expenditures (“CAPEX"), approved under this letter "b"; and
ii. The opening and closing of branches and representative offices if they are not included in the annual budget or business plan (but in any case, the opening of such offices abroad);
c) An annual plan of the bank for financing in foreign or local currencies with a maturity of more than one year (e.g. issue of bonds or other financial instruments, any kind of borrowing of funds, acceptance of a money market deposit) and any deviation therefrom; client deposits forming part of the normal business activity will not be considered as part of the bank's annual financing plan under this point "c"
d) The allocation of responsibilities between the members of the Management Board (Organizational Structure), any functional changes in the organizational structure of the Management Board and at Management Board level – minus 1, as well as the establishment of new and closing of the current departments to the Management Board and to Management Board level – minus 1;
e) All matters submitted to the Sole Shareholder for their final resolution;
f) Decisions concerning participations of the bank (equity instruments excluding those held for trading) in relation to:
i. Acquisition, creation, disposal or liquidation of a participation or part of a participation (whether the investment derives from normal business activity or debt restructuring) directly or indirectly through a subsidiary;
ii. Holdings or the establishment of joint ventures with other companies, directly or indirectly through a subsidiary;
iii. Decisions related to "Corporate Restructuring" (merger or separation) which relate directly to the bank with respect to the disposition of its assets or are related to the taking over of the control on the assets or undertaking the obligations of the respective company involved in the restructuring, as well as any restructuring measures involving subsidiaries;
iv. Any measures related to capital (e.g. an increase or decrease of capital) regarding the capital of any subsidiary
and
v. Concluding or terminating consortium agreements and voting agreements with other shareholders, option agreements or similar agreements that could affect the value or the transferability of the shares of the bank in each participation, unless the counterparty is part of the Group;
g) Acquisition, incorporation or disposition of, or investment in any type of investment schemes (e.g. trusts, funds or the like) provided that they are not intended for sale (trading portfolio assets) or are not within the competence of an existing group-level risk management co-ordination body or are already included in the scope of letter f) above;
h) Conclusion or termination of agreements relating to profit-sharing or loss-taking, group tax agreements or similar agreements concerning the bank;
i) Acquisition and disposal, including the establishment of mortgages and encumbrances on real estate (or parts thereof) owned by the bank or any of its subsidiaries and used by the bank as a Head Office, Regional Office or back office / operational center (including any reconstruction of already occupied premises) in case the value of the property (the price at which the relevant premises is offered for sale by the bank or a third person) exceeds EUR 1,000,000 /one million euro/ (excluding investment costs for adaptation or renovation) or the area of the property exceeds 1 000 sq.m. /one thousand square meters/ total usable area;
j) Conclusion of rental or leasing agreements related to real estate (or parts thereof) used by the bank as a Head Office, Regional Office or back office / operational center (including any reconstruction of already occupied premises), if the duration of the agreement is equal to or exceeds 5 years (in the case of several successive agreements, the total duration of the agreements is relevant), or if the impact of total operating expenses ("OPEX") (total rent, taking into account the VAT accrued in cases where it can not be deducted and, together with the proportional cost of adjusting the property, calculated over the entire period of the agreement) exceeds EUR 1 000 000 /one million euro/;
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k) Internal rules on the powers of the Management Board related to credit risk and risks assessment when granting country credit limits (e.g. the Rules of the Credit Committee) governing which decisions require the approval of the Supervisory Board and any annual credit polices (affecting risks) for certain categories of assets or customers;
l) Decisions for granting loans or other risk limits, contingent liabilities or other exposures to a client, a "group of economically related parties", as well as decisions concerning countries credit limits for which the approval of the Supervisory Board is required in accordance with letter "k" above;
m) Internal rules on the powers of the Management Board concerning problem exposures (e.g. Rules of Procedures of the Problem Loan Committee) stipulating which decisions require the approval of the Supervisory Board;
n) Decisions for limits, restructuring, allocation or release of provisions and write-offs of problem exposures to a single borrower or a group of economically related parties for which the approval of the Supervisory Board is required in accordance with letter "m" above;
o) Granting or increasing loans, including limits on credit risk and contingent liabilities of members of the Supervisory or Management Board of the bank;
p) Acquisition or sale of client portfolio, retail segment (e.g. loan portfolio), if the effect on the existing risk-weighted assets in the Retail Banking segment ("RWAs") is equal to or exceeds 5 per cent, as well as the acquisition or sale of client portfolio in the corporate banking segment, if the effect on the existing risk-weighted assets for the corporate banking segment ("RWAs") is equal to or exceeds 10 per cent;
q) Approval of the following matters relating to remunerations:
i. General principles of the remuneration policy (including salaries and discretionary pension bonuses) for all employees, including members of the Management Board, senior management, risk-engaging employees, employees performing control functions and all employees whose remuneration is commensurate with the remuneration of senior management and employees engaged in risk-taking activities and whose activities have a material impact on the bank's risk profile ("Identified personnel");
ii. Introduction or significant change in the compensation plan, motivational schemes and other schemes providing cash benefits (provided that the total annual cost of schemes providing cash benefits exceed 10 per cent of total annual payments of salaries or if such schemes deviate from the general principles of the remuneration policy approved by the Supervisory Board);
iii. Introduction or significant change in any pension plan, compensation plan upon termination of employment insurance plan or another scheme for cash benefits to a member of the Management Board, employees or their families or others who have a contractual relationship with the bank during or after retirement or any termination of appointment or contractual relationship with the bank;
iv. Introduction or significant change in any securities acquisition plan (e.g. securities options) or a profit-sharing plan that concerns a member of the Management Board, the employees or their families or other persons having a contractual relationship with the bank;
v. Introduction or significant change in an employee retention program;
vi. Annual selection of employees from the „Identified personnel“;
vii. Defying the level of maximum ratio between variable and fixed remuneration which can be paid for a reporting period to an employee of the "Identified personnel", if the maximum level of variable remuneration exceeds by 100 per cent the fixed one;
viii. Decisions relating to remuneration, including regarding defined or paid annual remuneration of members of the Management Board, as well as decisions in case of "malus" (reduction of deferred remuneration) or "clawback" (reimbursement of paid or acquired remuneration) according to the meaning of these terms under the Remuneration Policy for the year in which they occurred and the consequences that these events will have for determining and paying the remuneration of members of the Management Board;
r) The assumption of functions as members of controlling and managing bodies of companies which are not subsidiaries of the bank by members of the Managing Board of the bank;
s) Any transactions (including their terms) between the bank, a Group company, a member of the Management Board or any other person or company closely associated with a member of the Management Board, except for transactions made in the ordinary course of business;
t) Agreements with a member of the Supervisory Board whereby this member of the Supervisory Board under- takes to provide services to the bank or to its subsidiary which are beyond his responsibility as a member of the Supervisory Board, if these services will be offered against significant remuneration; this rule also applies
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to agreements with companies where a member of the Supervisory Board has a significant economic interest. The exercise of functions within the Group or the exercise of individual powers by a member of the Supervisory Board as a member of a management board or an executive director shall not result in the company concerned being considered for a „company where a member of the Supervisory Board has a significant economic interest“, unless the circumstances give reason to assume that the member of the Supervisory Board derives personal benefits from such a company.
u) The Supervisory Board has the power to determine other matters that require its approval.
2.8. The members of the Management Board are guided in their work by the generally accepted principles of integ-rity, professionalism and confidentiality, and respect the ethical rules adopted by the bank.
2.9. The members of the Supervisory and Management Board apply in their work, the principle of avoidance and prevention of real or potential conflicts of interest, in accordance with the bank’s Rules for Conflict of Inter-est Disclosure. Any conflict of interest is to be disclosed to the other Management Board members and to the Supervisory Board. The members of the Management Board inform the Supervisory Board whether, directly, indirectly or on behalf of third parties, they have a material interest in any transactions or issues that have a direct impact on the bank. All transactions between the bank and any of its affiliates and any Management Board member or person or company closely associated with the Management Board member, are carried out under market conditions. The transactions and their terms and conditions must be approved in advance by the Supervisory Board, except for the standard bank transactions.
2.10. Raiffeisenbank (Bulgaria) EAD declares that it follows a diversity policy in the selection and evaluation of the members of the bank’s executive, management and supervisory bodies, and believes that this policy contrib-utes to ensuring a reliable management and monitoring system based on the principles of transparency and independence.
2.11. Main criteria and principles of the diversity policy in the selection and evaluation of members of the execu-tive, management and supervisory bodies of Raiffeisenbank (Bulgaria) EAD (information under Art. 100n, para.8, item 6 of POSA):
• The members of the management bodies may only be legally capable individuals. Persons who are over 68 years of age may not be appointed as members of the Management Board and their term of office may not be renewed. Persons who have reached 75 years of age may not be appointed as members of the Supervisory Board and their term of office may not be renewed. All members of the management, respectively the supervisory board should meet the requirements of Ordinance No 20 of the Bulgarian National Bank (BNB) in 28 April 2009 on the Issuance of Approvals to the Members of the Management Board (Board of Directors) and Supervisory Board of a Credit Institution and Requirements for Performing their Duties. There are no other limitations on age, gender, nationality or education imposed on Management and Supervisory Board members;
• Good reputation, professional experience and managerial skills, given the complexity and specifics of the activities conducted by the bank;
• Keeping the balance between experience, professionalism and knowledge of the activities, as well as independence and objectivity in the expression of opinions and decision-making;
• The members of the Management and Supervisory Board may be re-elected without any restrictions.
3. Internal Control System (information under Art. 100n, para. 8, item 3 of POSA)
Raiffeisenbank (Bulgaria) EAD has implemented an Internal Control System that both helps the bank achieve its objectives and:
• prevents losses;
• ensures reliable financial accountability;
• ensures compliance with the relevant statutory and internal regulations.
The bank’s internal control system is used to achieve the strategic goals, increase process efficiency, and reduce risks.
The internal control system is based on the internal regulations applicable to the Raiffeisen Group, the Bulgarian legislation and the internal regulations of Raiffeisenbank (Bulgaria) EAD (policies, procedures, instructions, etc.), which govern all significant and strategically important topics.
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Participants in the internal control system who carry out control activities at different levels are the bank’s management and the structural units’ heads. They are responsible for carrying out the Management Board’s decisions, including implementing strategies and policies, and creating an effective Internal Control System. The management team creates more specific internal control policies and procedures.
4. Risk Management System (information under Art. 100n, para. 8, item 3 of POSA)
4.1. As a result of its activities, Raiffeisenbank (Bulgaria) EAD is exposed to the following risks: credit risk, market and liquidity risk, operational risk.
А. Credit Risk
The bank has incorporated and observes organizational and operational independence of the risk control functions from the business lines, that it monitors and controls. The organizational structure and risk control and management processes are coordinated through a clear definition of responsibilities, through the bank's current policies and rules, as well as through the functional characteristics of the individual units. The bank's risk strategy is adhered to and subject to approval by the Management Board and the Supervisory Board.
Raiffeisenbank has a strategy for non-performing exposures, which is also subject to approval by the bank's Management Board and Supervisory Board. The strategy is subject to annual review in order to track the level of implementation of the planned measures and performance indicators for the process of non-performing loans collection.
A system of control processes has been put in place to identify measure, monitor and manage the risks documented in the risk management policies.
The bank applies rules and procedures approved by the Management and Supervisory Board for the internal control of the overall process of lending and credit risk management. They are prepared in accordance with the requirements of the Credit Institutions Act, the BNB regulations and the rules of the Raiffeisen Group.
The credit policy, the specialized credit management bodies and the credit risk assessment are regulated in the credit rules. Apart from these rules, there are rules on the delegation of approval powers to departments under the Executive Director in charge of Risk Management and Finance by the bank’s Credit Committee. All executives and employees involved in the credit process are required to follow the approved credit policy and the credit process.
The bank's credit policy is determined by its Supervisory Board, which provides interpretations and clarifications regarding its implementation. It is based on the principles of profitability, liquidity and collateral.
The bank's credit policy is implemented by the Management Board, the Executive Directors, the Credit Committee, Internal Audit, Risk Management, Corporate Banking, Corporate Segment – Mid Market, Retail Banking and Micro & SME Client Lending at the bank's Head Office in Sofia.
The credit policy is implemented through the regulation and management of credit parameters, market niches, rules and procedures, including in the form of documents adopted by the bank’s Management Board.
The bank has collective management bodies for managing the credit process and regulating risk exposures.
The Credit Committee is a specialized body responsible for managing the credit process. Its main function is to conduct the bank’s credit policy, as determined by the Management Board, and to make decisions on credit transactions that exceed the powers of the departments under the Executive Director in charge of Risk Management and Finance. The Credit Committee operates at the bank's Head Office and is directly subordinated to the Management Board.
The assessment of the risk exposures, determination of the amount of the necessary individual impairment is performed by a specialized collective body in the bank – the Problem Loans Committee. Its activity is carried out in compliance with the requirements of the Law on Credit Institutions and the bank’s internal regulations. The Problem Loan Committee prepares an assessment of the risk exposures, both on the basis of the International Financial Reporting Standards and the internal directives of the Raiffeisen Group.
The credit risk assessment elements and the calculation of impairment for expected credit losses are regulated in the internal policies and procedures in line with the International Accounting Standards and International Financial Reporting Standards.
The bank also has Risk Governance Committee, authority for decision-making at Raiffeisenbank (Bulgaria) with regard to the risk management strategy, the risk management framework, as well as all matters related to the applied models for all material risks, including models at an account, group, or wallet level.
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The bank operates an Early Warning Signals System (EarlyWarningSignals), whose role is to ensure the timely collection of data on indicators and their correct analysis and assignment of client risk statuses.
B.Market and Liquidity Risk
The Bank has rules and procedures in place for the identification of the various types of market and liquidity risk, which have been developed in accordance with the Group’s directives, the regulatory requirements and the bank’s established practice. with regard to the identification, measurement and management of market and liquidity risk in the bank, as well as its relationship with the Raiffeisen Bank International group and the supervising authorities.
The Asset and Liability Management Committee is responsible for the overall management of the bank’s balance sheet structure and acts as a decision body, supporting the Management Board in matters relating to the management of the bank. In particular, it manages the short-term and structural liquidity of the bank, the bank's interest rates, the internal pricing parameters and their effect on net interest income and the value of the assets and liabilities, opening of positions forming market risk, approvals of new products and more.
The activities of the Asset and Liability Management Committee are governed by By-Laws prepared in accordance with the Law on Credit Institutions. These Rules set out the objectives of the Assets and Liabilities Committee, its delegated decision-making powers and the responsibilities of its members and the Committee as a whole.
The main objectives of the Asset and Liability Management Committee are:
• To manage the structure of the bank's Balance Sheet;
• To manage the bank's exposure to interest and exchange differences;
• To manage the bank’s liquidity;
• To manage and take decisions for undertaking market risk bearing positions;
• To manage the internal funds transfer pricing mechanism and the funding of the bank;
• To facilitate the exchange of information between the bank’s departments in order to optimize risk and liquidity management.
In addition to the objectives set out above, the Asset and Liability Management Committee also:
• analyses and discusses the current market development and the status of the bank’s competitors;
• analyses and discusses the macroeconomic environment and the development of the key market parameters;
• examines changes in the regulatory legal framework and their impact on the bank’s balance sheet structure and liquidity;
• approves new products related to market and liquidity risk, as well as the balance sheet risk;
• examines the legal provisions and their impact on the bank’s open position.
The minutes of committee meetings are provided to RBI Vienna.
C. Operational Risk
Operational risk is the risk of loss resulting from inadequate or poorly functioning internal processes, people and systems, or from external events. The definition includes legal risk but excludes strategic and reputational risk.
Legal risk is the risk of loss resulting from non-compliance with legal or statutory requirements and / or improperly prepared contracts and their implementation due to ignorance, lack of diligence in applying the relevant law or delay in responding to changes in the legal framework. Non-observance due to ignorance is also considered to have occurred if the real legal situation and the assessment of RBBG and its subsidiaries for the situation differ without fault or when it is inevitable, for example, unexpected changes in the jurisdiction or upon the entry into force of new legal provisions, either of which having retroactive effect on existing legal relations. Legal risk is a component of Operational Risk.
Model risk (the risk that the models used in the overall process of risk management of the bank or their application are not suitable for achieving the objectives) is covered completely in the subcategories of the Operational risk.
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Reputational risk is the risk associated with the potential loss to the bank due to inappropriate, unethical or unlawful behavior (including cases of intentional or unintended behavior) in the process of providing financial services.
Raiffeisenbank (Bulgaria) EAD and its subsidiaries, as part of the RBI Group, consider the operational risk as a separate category of risk and adhere to the group policies, rules, procedures and principles set out in the document Sound Practices for the Management and Supervision of Operational Risk, published by the Basel Committee on Banking Supervision, adopting these principles as fundamental to the operational risk management. The aim is to implement into the bank a properly formulated and coherent methodology for the detection, assessment, monitoring, control and reduction of the operational risks faced by the Group’s companies in the course of their daily business activities.
Operational Risk Management is identifying, measuring, managing and monitoring exposures, resulting from inadequate or failed internal processes, human interaction and systems, or from external events.
Managing Operational Risk consists of identifying, measuring, managing and monitoring exposures arising from inadequate or poorly functioning internal processes, people and systems, or from external events.
The general framework for operational risk management includes the processes, structures, controls and systems used for operational risk management within the Group and ensuring the availability of key elements of corporate governance and operational activities.
Operational Risk is managed within the risk management cycle which involves the identification, measurement, management and monitoring of risk using the following tools and approaches, which together give an overview of the exposure to the Operational risk and ensure its maintenance within the risky appetite of RBBG.
Risk assessments aim to increase knowledge with regard to operational risk, to identify the operational risks, to simplify the environment in which these processes occur and to reduce the already established operational risks. Risk assessments identify the net risk of a process, the unit from which the risk or activity originated, which may be referred to as a target value for quality risk management measures. The results of the RBBG’s risk assessments are the basis for the operational risk profile of RBBG.
The scenario analysis is a process by which the Group recognizes the impact of events with low probability of occurrence but with serious consequences for the organization's activities, by assessing the probability and severity of possible consequences. The scenario analyzes aim to:
• To forecast events with an extremely low probability of occurrence but with significant losses that may not have occurred in the bank's history;
• To increase knowledge and educate authorities responsible for managing specific risks by giving them a perspective on the different types of risk.
The collection and analysis of data for internal operational events provides significant information to measure the impact of Operational Events and the effectiveness of internal control.
Reporting assists the operational risk management cycle by ensuring a continuous and timely information flow to the relevant decision-making bodies. In this way, the reporting of Operational Risk assists the transparency of the risk and the integration of the Operational Risk Management activities into the routine business operations. The Group defines the reporting standards in order to ensure the sound management of the Operational Risk on the basis of the risk strategy.
The bank operates an Operational Risk and Controls Committee. The Committee is a specialized internal body, part of the management of Raiffeisenbank (Bulgaria) EAD in the field of operational risk management and internal controls (ICS).
The Management Board of the bank, as the highest operational risk management body, determines the composition and members of the Operational Risk and Controls Committee, delegates functions and responsibilities.
4.2. Regulatory Compliance
The bank has a local Compliance unit. The Compliance Department has been set up according to the Group’s Compliance Requirements, which in turn are organized according to the requirements of the Basel Committee on Banking Supervision, titled “Guidelines for monitoring on the compliance with the regulatory requirements in the Banks”.
The department monitors compliance with the applicable laws, regulations and rules, as well as with the national and international standards (Best Practice) and the group and internal rules of the Raiffeisen Group. Compliance monitors the development of internal guidelines, procedures, and organizational rules to ensure that the bank, as well as its governing bodies and employees are familiar with the rules, work in accordance with them, and that the bank will not take advantage of illegal business practices.
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The ongoing work with regard to compliance with regulatory requirements is to advise and assist the bank and its employees on all measures that may be useful for prior prevention of breach of the rules and even criminal activity. This also includes managing conflicts of interest between the bank, the employees and the customers. Essentially, all these measures are necessary to protect the reputation and the good name of the bank. If there is a reasonable suspicion based on facts and information that a customer or transactions have an unlawful purpose or involve the bank at high risk for its reputation, the Compliance Unit clearly applies the necessary measures to protect the bank, which in extreme cases may even include reporting to the authorities.
5. Information on the existence of takeover / merger bids in 2018 (information under Art. 100n, para. 8, item 4 of POSA – respectively under Article 10, paragraph 1, letters (c), (d), (f), (h) and (i) in Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids)
As of 31.12.2018, Raiffeisenbank (Bulgaria) EAD has not received any takeover and/or merger bids.
5.1. Information under Article 10, paragraph 1, letter “c” of Directive 2004/25/EC on takeover bids – significant direct and indirect shareholdings (including indirect shareholdings through pyramid structures and cross-share-holdings) within the meaning of Article 85 of Directive 2001/34/EC.
The company is part of the Austrian Raiffeisen Group. The bank's sole shareholder is Raiffeisen SEE Region Holding GmbH, Austria. The ultimate controlling entity is Raiffeisen Bank International, Austria.
Raiffeisenbank (Bulgaria) EAD is the sole shareholder of the following companies:
• RAIFFEISEN ASSET MANAGEMENT (BULGARIA) EAD;
• RAIFFEISEN SERVICE EOOD;
• RAIFFEISEN INSURANCE BROKER EOOD;
• RAIFFEISEN LEASING BULGARIA EOOD.
The bank holds shares amounting to 20 per cent of the capital of Cash Service Company AD.
5.2. Information under Article 10, paragraph 1, letter “d” of Directive 2004/25/EC on takeover bids – the holders of any securities with special control rights and a description of those rights.
The capital of Raiffeisenbank (Bulgaria) EAD is divided into 603,447,952 (six hundred and three million four hundred and forty seven thousand nine hundred and fifty two) shares with a par value of BGN 1 (one) each. The shares of the Company are registered, dematerialized and indivisible, and there are no separate classes of shares.
Each share gives the right to one vote in the General Meeting of Shareholders, the right to a dividend and a proportional liquidation dividend of the bank's assets.
The bank's shares may only be dematerialized.
5.3. Information under Article 10, paragraph 1, letter “f” of Directive 2004/25/EC on takeover bids – any restric-tions on voting rights, such as limitations of the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the company’s cooperation, the financial rights attached to securities are separated from the holding of securities.
The bank’s current By-laws does not provide for such restrictions.
5.4. Information under Article 10, paragraph 1, letter “h” of Directive 2004/25/EC on takeover bids – rules gov-erning the appointment and replacement of board members and the amendment of the articles of association.
Raiffeisenbank (Bulgaria) EAD has a two-tier management system, including a Supervisory Board and a Management Board.
The rules of procedure of the Supervisory Board are laid down in the Statute of Raiffeisenbank (Bulgaria) EAD and the By-laws of the Supervisory Board of Raiffeisenbank (Bulgaria) EAD.
The rules of procedure of the Management Board are laid down in the Statute of Raiffeisenbank (Bulgaria) EAD and the By-laws of the Management Board of Raiffeisenbank (Bulgaria) EAD.
The bank’s Supervisory Board and Management Board are governed by the applicable law, the bank’s statutes and procedures, and the standards of integrity and competence in the performance of its duties and responsibilities.
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According to Art. 5, para. 7 of the Statute of Raiffeisenbank (Bulgaria) EAD, the sole shareholder has exclusive competence to make decisions on the following matters:
• Amendments to the Statute;
• Capital increase and decrease;
• Bond issue authorizations;
• Selection and dismissal of Supervisory Board members;
• Approval of the annual financial statements and profit distribution, as well as approval of the Supervisory Board and Management Board report;
• The amount of the remuneration of the members of the Supervisory Board;
• Selection of a specialized auditing company to verify and certify the annual financial statements;
• Company transformation and/or dissolution;
• Selection and dismissal of the head of the Specialized Internal Audit Service.
The functions and powers of the Supervisory Board are set out in Article 6 of the bank’s Statute and in the By-laws of the Supervisory Board of Raiffeisenbank (Bulgaria) EAD and the By-laws of the Management Board of Raiffeisenbank (Bulgaria) EAD. In addition to the other competencies mentioned under Article 6 of the Statute of the Bank, the Supervisory Board:
• Elects and dismisses Management Board members;
• Adopts the By-laws of the bank’s Supervisory and Management Board;
• Approves pre-defined actions and transactions of the Management Board.
Detailed information on the rules governing the appointment or replacement of the Supervisory or Management Board members is given under item 2 of this Statement and, respectively, in the Statute of Raiffeisenbank (Bulgaria) EAD and the By-laws of the Supervisory Board and the Management Board of Raiffeisenbank (Bulgaria) EAD.
5.5. Information under Article 10, paragraph 1, letter “i” of Directive 2004/25/EC on takeover bids – powers of the board members and in particular the power to issue or buy back shares.
The capital of Raiffeisenbank (Bulgaria) EAD may be increased by decision of the Sole Shareholder by the methods provided in the Commerce Act:
• Issuance of new shares;
• Increase of the par value of shares already issued;
• Conversion of bonds into shares.
The Statute of Raiffeisenbank (Bulgaria) EAD does not provide for special powers of the Supervisory or Management Board to increase the bank's capital or buy back shares.
6. Stakeholders
6.1. Raiffeisenbank (Bulgaria) EAD believes that effective interaction with stakeholders has a direct impact on corpo-rate governance. Taking this into consideration, the Bank identifies who are the stakeholders involved in the conduct of the bank’s business based on their degree and spheres of influence, and on the basis of how their role and attitude directly affects the bank’s sustainable development and operations, including sole owner/shareholders, regulatory and other authorities of state and local government, clients, employees, public groups and others.
6.2.Raiffeisenbank (Bulgaria) EAD, recognizing the public significance of its activities, adheres to the principle of publicity of the information on its activities and strives to build and maintain sustainable, constructive relations with regulatory and other authorities of the state and local government. The bank conducts its activities in strict compliance with the laws and the other legal acts of the Republic of Bulgaria and the European Union. The bank’s relations with state and local government authorities are based on the principles of responsibility, good faith, professionalism, partnership, mutual trust, as well as respect and fulfilment of its obligations.
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Raiffeisenbank (Bulgaria) EAD publishes the Code of Conduct of the Raiffeisen Bank International Group and the present Corporate Governance Statement on the bank's website (https://www.rbb.bg) in compliance with Article 100n, para. 7 and 8 of the Public Offering of Securities Act, with regard to Article 40, para. 1 and 2 of the Accountancy Act. This Statement is also enclosed to the Annual Activity Report of Raiffeisenbank (Bulgaria) EAD.
This Corporate Governance Statement forms an integral part of the 2018 Annual Financial Statements of Raiffeisenbank (Bulgaria) EAD.
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Non-financial declarationIn compliance with the requirements of DIRECTIVE 2014/95/EU, transposed under art. 48-49 of the Bulgarian Accountancy act, that the public interest entities have to include in their annual report a non-financial disclosure, Raiffeisenbank (Bulgaria) EAD has provided information on the activities undertaken in the field of ecology, social issues and those related to employees, human rights, the fight against corruption in the notes below.
EcologyThe head office of Raiffeisenbank Bulgaria EAD is housed in a building certified under the US standard for energy efficiency LEED. It has a modern building monitoring system that monitors all energy consumers and provides energy efficiency measures. The operation of the central air-conditioning system is assisted by built drainage water wells, thus increasing the efficiency of the system and optimizing the power consumption.
The bank is working to reduce electricity consumption. In 2017, a project to replace the lighting in the branch network with the latest generation of energy-efficient LED lighting has been launched, also gradual replacement of air conditioning systems in the branch network with new energy efficient ones is planned. All office equipment meets the ENERGY STAR energy standards.
Social Responsibility and CommitmentIn 2018, Raiffeisenbank held the tenth anniversary edition of the "Choose to Help" donation campaign, which supported 24 major public health, social, cultural and ecological causes. Since its establishment in 2009 to date, the charity initiative has helped to realize a total of 257 projects with nearly BGN 3 million.
A total of 1,717 employees of the bank donated funds for the causes included in the last edition of the campaign. Under the initiative, Raiffeisenbank donates up to BGN 100 to every donation of its employees. The total amount raised in 2018 is BGN 264,834, which is more than 23 per cent more than the previous campaign. The trend is an increase in the donations of employees of the Raiffeisen Group in Bulgaria and the bank itself, as well as in the amount of donations from external donors, which in the current campaign reached BGN 43 thousand or more than double the previous one.
The projects included in "Select to help" are selected in advance by the Raiffeisenbank Sponsorship and Donorship Commission, in accordance with the Principles of Sponsorship and Donations of the bank and its subsidiaries, as well as the Regulations on Regulatory Compliance. The projects are also evaluated for sustainability by the Bulgarian Donor Forum. The final approved causes are presented at the donation platform izberi.rbb.bg, through which the people willing to make a direct donation until September of the next calendar year can easily and comfortably do so.
The campaign retains its main objectives – to engage employees of the Raiffeisen Group in Bulgaria in charitable initiatives by giving them a real opportunity to directly participate in the donation process and to promote philanthropy in the society.
Proof of high public significance and recognition of "Choose to help" are the awards awarded to Raiffeisenbank in 2018: "Investor in the Society" from the 16th edition of the Responsible Business Awards of the Bulgarian Business Leaders Forum, "The most sustainable donation program" of the Bulgarian Donor Forum and the award from the SOS Children's Villages for a long-term corporate partnership.
In 2018, a total of 596 employees participated in 13 volunteer events, contributing 1 309 man-hours. Participation in the events personally engages and emotionally binds the employees to the causes included in the "Choose to help" charity initiative – they see how their donations have been used and raise Raiffeisenbank's image as a socially responsible employer.
Increasing the financial literacy among students is another cause with which the bank is traditionally committed to. In 2018, 5 Bank Hours initiatives were organized, involving a total of 465 students aged 12-18 from Sofia and the country. A team of bank experts presented the themes "What is the money", "How does a bank work", "Entrepreneurship" and answered questions of the students.
Once again, Raiffeisenbank was the general sponsor of the Austrian Music Weeks in the country and other cultural events organized by the Austrian Embassy on the occasion of the Euro-Presidency of Bulgaria.
For years, Raiffeisenbank has been supporting charity organizations by providing them with free of charge bank services. At present, the bank services 23 accounts of organizations that are engaged in charities. 12 of them participate annually in
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the "Choose to help" donation campaign, and 11 of them are exempt from all tariffs. Among them is the Bulgarian Donor Forum – in 2018, the association organized the photo competition "Charity Through the Lens", featuring photographs related to social issues, which was also sponsored by Raiffeisenbank.
Each year, Raiffeisenbank (Bulgaria) organized a sports day for all employees across the country, providing them with the opportunity to participate in more than 10 collective and individual sports disciplines.
Human ResourcesRaiffeisenbank (Bulgaria) EAD organizes Anti-money laundering trainings to all employees, which is class-room for new employees and online for the rest (in order to refresh their knowledge).
Regarding Mental health we have assigned a company psychologist and coach who is giving free session to the employees, who need such a support.
In the internal Training catalog we provide trainings on "Stress Management", "Healthy Lifestyle", "How to Keep Your Energy" and "How to Keep Work-Life Balance".
Raiffeisenbank (Bulgaria) EAD provides opportunity for part-time work to all employees, both women and men.
The bank has introduced a sports program that gives employees access to a variety of sporting and recreational activities used through a prepaid sports card.
Also, every year, the bank organizes a sports day for all its employees in order to make the topic of balance work – private life more tangible. Office massages are available.
The bank provides all its employees with additional health insurance and annual prophylactic health checks.
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Regulatory ComplianceRespect for human rights
Our Corporate Responsibility
We realize that our business can have an important impact on every pillar of sustainability: in the economic sphere, in society and in the environment. This is reflected in our Sustainability Strategy as a "Responsible Banker", "Loyal Partner" and "Engaged Corporate Citizen". That is why we strive to achieve long-term profitable business, while avoiding social and environmental damage. Furthermore, our desire is to contribute to the improvement of environmental protection and social standards.
We are aware of sensitive business fields (especially, but not limited to nuclear power, coal, military goods and technologies, gambling) which we handle with care and for which internal policies have to be followed by our employees.
Human rights
We respect and support the protection of human rights stipulated in the European Convention on Human Rights as well as the Universal Declaration of Human Rights. We aim to engage into business, which is in line with these principles.
We strive to not finance directly or indirectly transactions, projects or political parties, nor to collaborate with business partners (including customers, service providers and operators) that do not adhere to and comply with those standards or are suspected of human rights violations.
We seek not to be involved in business with products that are intended to be used to restrict demonstrations, political unrest or other violations of human rights. This applies in particular to countries where political unrest or military conflicts or other violations of human rights are ongoing or expected.
Environmental protection
We care about the environment and therefore we take into account the environmental impact of our business activities. We focus on environmentally friendly businesses using technologies that protect the environment and we aim to choose suppliers, taking into account environmental balance and related measurements.
We strive to conduct our operations in a safe manner that minimizes negative environmental impact and reduces carbon emission. We expect our service providers and subcontractors to adhere to our standards. We strive to work with sustainable companies. Funding or engaging in transactions or projects that endanger the environment in the long run (e.g. rain forest destruction, land, air or water pollution) does not comply with our principles of business conduct.
Our employees are taking into consideration the potential risks of adverse effects on the environment and the associated risk of undermining our reputation in any decision related to transactions or projects, especially when providing funding.
Contribution to society
We are aware of our role in society. We want to contribute to the development of the society to the better beyond our business activities and take action in line with our capabilities. We support non-profit and charitable organizations in line with our policy on sponsoring activities and donations. However, under no circumstances may donations for charitable causes be used as a condition or a means to influence decisions or public officials.
We encourage our employees to participate in volunteer initiatives that are part of our corporate volunteer programs.
Anti-corruption and bribery matters
In the recent years, major changes in relation to bribery and corruption and the management of risks arising from them have been put in motion worldwide. Bribery (B) and / or corruption (C) are criminal offenses that are prosecuted by the law at an international and local level, both in the private and in the public sector. Measures to combat all forms of corruption are focused on the implementation of international and local laws. In this regard, a comprehensive approach is needed to engage all stakeholders in the process, which also includes assistance and support from financial institutions.
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Every employee of the bank should be aware of:
• His/her personal responsibility to protect the reputation of the bank and of him-/herself from the risks arising from B & C;
• That corporate and social responsibility, integrity and ethical behavior are the essence of the core values of Raiffeisenbank Bulgaria and its approach to business, in order to adequately respond to any situation.
The policy has two main objectives:
• The first is aimed at the ABC policy and rules that apply to all employees;
• The second determines the relevant approach and the principles for its implementation in the bank.
As far as the ABC Program is concerned, the bank follows a "zero tolerance" policy towards illegal or unethical business conduct such as giving / receiving bribes and corruption.
In order to develop and implement the ABC program, the policy also addresses the following objectives:
• Discussion of the bank's strategy on managing the risk of bribery and corruption;
• Creating a clear and transparent ABC program, in order for all subsidiaries to have a unified and consistent approach;
• Outlining a common set of indicators and red flags that facilitate the members and the employees of the bank in the identification of different types of bribery and corruption.
ABC Program and Strategy
B&C risks might have a substantial negative impact on the Group’s reputation and therefore affect, directly or indirectly, its profitability and the value for the shareholders. Hence, the ABC program addresses B&C risks as an integral part of the risk management strategy at both group and local level.
The strategy of the ABC policy includes the following approach and management principles:
• Comprehensive coverage and risk assessment of B & C situations in all relevant areas of business processes;
• A structured, well-documented and risk-based approach;
• Pro-active management of potential Conflict of Interest (CoI) situations within the focus of corruption and bribery risks, in order to prevent and mitigate such situations / risks;
• Maximizing the efficiency and synergy through sharing of experience across the Group;
• Consolidation and concentration of resources for managing fraud and corruption within the Compliance department.
The ABC Group policy includes the following four key elements:
• Planning the structure of the ABC program;
• Prevention;
• Opening;
• Resolving cases.
The starting point for planning the structure of the ABC program is the preparation of periodic risk assessments that serve to determine the appropriateness of the ABC approach. In some areas of business, there are more prerequisites for corrupt practices, so these areas need more frequent surveys or more rigorous monitoring. For example, in case of identified weaknesses, the most appropriate risk mitigation, control and monitoring measures should be implemented locally in order to mitigate the residual risk.
For the purposes of risk assessment, as well as of training and awareness of the employees, a complete list of B/C indicators/red flags and risks is available in the Risk Library on the Anti-Bribery and Corruption Measures in RBBG. This library is part of the bank's overall risk library and aims to raise awareness of potential B/C risks for better prevention and detection of bribery and corruption situations.
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The suspicious cases must be appropriately managed on risk basis (probability of occurrence and potential impact), in combination with internal and/or potentially external due diligence, where the senior management (the Management Board) should be informed of the relevant, if necessary (in case of loss for the bank/employee involvement and others).
Appropriate introductory training on corruption and bribery should be conducted for new employees and regularly repeated for all employees and third parties, the frequency being determined by the B/C risk assessment.
The trainings should include explanations of the relevant definitions and references to the applicable internal policies, procedures, laws and regulations, case studies and / or practical examples with reference scenarios from the respective business sector. The main objective of the training is to clearly explain the duties and responsibilities of the employees and to provide information on the competent departments to which they can address their opinion and how to report any concerns or doubts about bribery and corruption.
The bank takes the following actions for effective prevention of bribery and corruption:
• Implementing procedures for preventing and solving conflicts of interest;
• Monitoring of the B&C focus areas, such as giving gifts or receiving invitations, paid hospitality expenses; donations and sponsorship; management of third parties regarding contractual relations on the part of the bank and its structures (e.g. mandates, due diligence, monitoring, contract review, etc.);
• Applying appropriate employee vetting procedures in line with local laws and regulations;
• Managing committed corruption offenses or specific cases where there is a suspicion that a bank employee is involved in corrupt schemes, preparing appropriate risk mitigation measures;
• Compulsory training for all employees of the bank in order to make them aware of the rules and regulations on Anti Bribery and Corruption.
Risk MethodologyCredit Risk
The bank has incorporated and observes organizational and operational independence of the risk control functions from business lines that it monitors and controls. The organizational structure and risk control and management processes are coordinated by clearly defined responsibilities, through the current policies and rules of the bank, as well as through the job descriptions of the individual units. The bank's risk strategy is respected and is subject to approval by the Management Board and the Supervisory Board.
Raiffeisenbank has a strategy for non-performing exposures, which is also subject to approval by the Management Board and Supervisory Board of the bank. This strategy is subject to renewal on annual basis and is monitored for the level of implementation of the measures and performance indicators related to the non-performing loans collection process.
A system of control processes is in place to identify, measure, monitor and manage the risks that are documented in the risk management policies.
The bank applies rules and procedures approved by the Management and Supervisory Board on the internal control of the overall lending and credit risk management process. They are prepared in accordance with the requirements of the Credit Institutions Act, the BNB regulations and the rules of the Raiffeisen Group.
The credit policy, the specialized credit management bodies and the credit risk assessment are regulated in the lending rules. Apart from these rules, there are rules on the delegation of approval powers to the departments under the Executive Director in charge of Risk Management and Finance by the bank’s Credit Committee. All executives and employees involved in the credit process are required to follow the approved credit policy and credit process.
The bank's credit policy is determined by its Supervisory Board, where it provides interpretations and clarifications regarding its application. The policy is based on the principles of profitability, liquidity and collateral.
The bank's credit policy is implemented by the Management Board, the Executive Directors, the Credit Committee, Internal Audit, Risk Management, Corporate Banking, Corporate segment – Mid Market, Retail Banking and Lending to Micro SME Clients Divisions at the bank's Head Office in Sofia.
The credit policy is implemented through the regulation and management of credit parameters, market niches, rules and procedures, including in the form of documents adopted by the bank's Management Board.
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The bank operates collective bodies to manage the credit process and to regulate risk exposures.
The Credit Committee is a specialized body responsible for the lending process management. Its main function is to conduct the credit policy of the bank, determined by the Management Board, and to take decisions on credit transactions that exceed the competencies of the departments under the Executive Director in charge for "Risk Management and Finance ". The Credit Committee functions in the bank's Head Office and is directly subordinated to the Management Board.
The risk exposures assessment, the determination of the amount of the necessary individual impairment is performed by a specialized collective body in the bank – the Problem Loans Committee. Its activity is carried out in compliance with the requirements of the Credit Institutions Act, the internal banking documents. The Problem Credit Committee prepares an assessment of the risk exposures, both based on the International Financial Reporting Standards and the internal directives of the Raiffeisen Group.
The elements of credit risk assessment and impairment calculation are regulated in the internal policies and procedures in line with the International Accounting Standards and the International Financial Reporting Standards.
The bank also has a Risk Governance Committee, a decision-making body in RBBG responsible for the risk management strategy, the risk management framework, as well as all for issues related to the applied models for all material risks, models at an account, group, or wallet level.
The Committee reviews the policies, procedures, rules and practices related to the RBBG models applied for Economic Capital and Stress Tests and reviews and approves the results and stress test scenarios, and reviews and approves the validation results of all models throughout their entire life cycle (initial validation, regular performance monitoring and periodic validation). The Committee assesses the bank compliance with the Raiffeisen Group's regulations and analyzes the impact of the regulatory changes. The Committee provides for comprehensive risk identification, measurement, monitoring and timely implementation of corrective actions. It is responsible for determining the risk parameters, assumptions, forecasts and trends.
The Risk Governance Committee is responsible for the control and management of all risks inherent to the bank's operations. Changes and developments in all related areas should be reviewed and approved by the Committee.
The bank has a system for early warning signals (EWS, EarlyWarningSignals), its role is to ensure the timely collection of data on indicators and their correct analysis and assignment of client risk statuses.
Market and Liquidity Risk
The bank has rules and procedures in place for the identification of the various types of market and liquidity risk, which have been developed in accordance with the Group’s directives, regulatory requirements and the bank’s established practice. They also define the responsibilities of Market and Liquidity Risk Management Department regarding the identification, measurement and management of the bank’s market and liquidity risk, as well as its relationship with the RBI Group and the regulatory bodies.
The Asset and Liability Management Committee is responsible for the overall management of the bank’s balance sheet structure and acts as a decision making body, assisting the Management Board in matters relating to the management of the bank. In particular, it manages the bank’s short-term and structural liquidity, the interest rates applicable to the bank, the internal funds transfer pricing parameters and their effect on the net interest income, and the assets and liabilities value, undertaking market risk bearing positions, approval of new products, etc. A more detailed description of the competences and the organizational structure of the committee is set out in the By-laws of the Asset and Liability Management Committee and in the relevant internal documents regulating market and liquidity risk management, as well as the activities of the Asset and Liability (Treasury) Department.
The activity of the Asset and Liability Management Committee is governed by rules prepared in accordance with the Credit Institutions Act. Those rules set out the objectives of the Asset and Liability Management Committee, its delegated decision-making powers and the responsibilities of its members and the Committee as a whole.
The main objectives of the Asset and Liability Management Committee are:
• manage the bank’s balance sheet structure;
• manage the bank’s exposure to interest and foreign currency exchange rate differences;
• manage the bank’s liquidity;
• manage and take decisions for undertaking market risk bearing positions;
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• manage the funds transfer pricing mechanism and the funding of the bank;
• facilitate the exchange of information between the different departments of the bank in order to optimize the risk and liquidity management.
In addition to the objectives set out above, the Asset and Liability Management Committee:
• analyses and discusses the current market development and condition of the bank’s competitors;
• analyses and discuss the macroeconomic environment and the development of the main market parameters;
• examines any legislative changes and their impact on the bank’s balance sheet structure and liquidity;
• approves new products with impact on market, liquidity and balance sheet risk;
• reviews legal provisions and their impact on the bank’s open position.
The minutes of the Committee’s meetings are be provided to RBI, Vienna.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or poorly functioning internal processes, people and systems, or from external events. The definition includes legal risk but excludes strategic and reputational risk.
Legal risk is the risk of loss resulting from non-compliance with legal or statutory requirements and/or improperly prepared contracts and their implementation due to ignorance, lack of diligence in applying the relevant law or delay in responding to changes in the legal framework.
Non-observance due to ignorance shall also be deemed to have taken place where the actual legal situation and the RBBG and its subsidiaries’ own assessment of it diverge without fault or unavoidably, for example in the event of an unexpected change in jurisdiction or on the entry into force of new legal provisions, either of which has retroactive effect on existing legal relations. Legal risk is a component of Operational Risk.
Model risk (the risk that the models used in the overall process of risk management of the bank or their application is not suitable for achieving the objectives) is covered completely in the subcategories of the Operational risk.
Reputational risk is the risk associated with the potential loss to the bank due to inappropriate, unethical or unlawful behavior (including cases of intentional or unintended behavior) in the process of providing financial services.
Raiffeisenbank (Bulgaria) EAD and its subsidiaries, as part of the RBI, consider the operational risk as a separate category of risk and adhere to the group policies, rules, procedures and principles set out in the document Sound Practices for the Management and Supervision of Operational Risk, published by the Basel Committee on Banking Supervision, adopting these principles as fundamental to the operational risk management. The aim is to implement into the bank a properly formulated and coherent methodology for the detection, assessment, monitoring, control and reduction of the operational risks faced by the Group’s companies in the course of their daily business activities.
Operational Risk Management consists of identifying, measuring, managing and monitoring exposures arising from inadequate or poorly functioning internal processes, people and systems, or from external events.
The overall operational risk management framework includes the processes, structures, controls and systems used for operational risk management within the Group and ensures the availability of key elements of corporate governance and operational activities.
Operational Risk is managed within the risk management cycle which involves the identification, measurement, management and monitoring of risk using the following tools and approaches, which together give an overview of the exposure to the Operational risk and ensure its maintenance within the risky appetite of the bank.
Risk assessments aim to increase knowledge with regard to operational risk, to identify the operational risks, to simplify the environment in which these processes occur and to reduce the already established operational risks. Risk assessments identify the net risk of a process, the unit from which the risk or activity originated, which may be referred to as a target value for quality risk management measures. The results of the RBBG’s risk assessments are the basis for the operational risk profile of the bank.
Early warning indicators (EWI) are used for operational risks monitoring and reporting. They provide the opportunity for early warning of potential problems or changes in the Operational Risk profile that generate timely actions at the management level.
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The scenario analysis is a process by which the Group recognizes the impact of events with low probability of occurrence but with serious consequences for the organization's activities, by assessing the probability and severity of possible consequences. The scenario analyzes aim to:
• To forecast events with an extremely low probability of occurrence but with significant losses that may not have occurred in the bank's history;
• To increase knowledge and educate authorities responsible for managing specific risks by giving them a perspective on the different types of risk.
The collection and analysis of data for internal operational events provides significant information to measure the impact of Operational Events and the effectiveness of internal control.
Reporting assists the operational risk management cycle by ensuring a continuous and timely information flow to the relevant decision-making bodies. In this way, the reporting of Operational Risk assists the transparency of the risk and the integration of the Operational Risk Management activities into the routine business operations. The Group defines the reporting standards in order to ensure the sound management of the Operational Risk on the basis of the risk strategy.
The bank has an Operational Risk and Controls Committee. The Committee is a specialized internal body, part of the management of Raiffeisenbank (Bulgaria) EAD in the field of operational risk management and internal controls (ICS).
The Management Board of the bank, as the highest operational risk management body, determines the composition and members of the Operational Risk and Controls Committee, delegates functions and responsibilities.
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Independent Auditors’ Report
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Notes to the Financial Statements 66
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Explanatory Notes1. Basis of Preparation of the Financial Statements(а) Reporting entity
Raiffeisenbank (Bulgaria) EAD (the “bank”), UIC 831558431, registered in the Commercial Register under company file N 14195/1994, is indirectly 100 per cent owned by Raiffeisen Bank International as the ultimate owner.
Raiffeisenbank (Bulgaria) EAD has a general banking license issued by the Bulgarian National Bank (BNB) according to which it is allowed to conduct all banking transactions permitted by the Bulgarian legislation in the country and abroad, as well as to conduct all deals and services in its capacity of investment intermediary according to the Public offering of securities Act and the regulations related to it.
The bank is a joint-stock company with a two-tier management system, being managed and represented by a Management Board, which carries out its activity under the supervision of a Supervisory Board.
The consolidated financial statements of the bank for 2018 represent the financial statements of the bank and its subsidiaries and associated companies as described in note 35, hereinafter referred to as the Group.
(b) Basis of accounting
These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union. The reporting framework “IFRS adopted by EU” in its essence is the adopted national accounting base IAS, as accepted by the EU, regulated by the Bulgarian Accountancy act and defined under p. 8 of the additional provisions thereof.
(c) Basis of measurement
These financial statements have been prepared on the historical cost basis except for the following:
• Financial assets and liabilities at fair value through profit or loss, or through other comprehensive income, financial instruments which are measured at fair value (including derivatives);
• Defined benefit retirement obligations to employees, which are accounted at their net present value, adjusted for any actuarial gains/losses.
(d) Presentation of the financial statements
These consolidated financial statements are presented in Bulgarian leva (BGN) rounded to the nearest thousand, which is the Group’s functional currency.
The Group presents the statement of financial position based on liquidity ranking. A maturity analysis up to 12 months and more than 12 months from reporting date is presented in the accompanying notes.
The Group’s assets and liabilities are presented gross in the statement of financial position, except for items, for which there is legal or contractual right to be netted.
(e) Comparable information
The financial statements include comparative information for a previous reporting period. The data disclosed for previous periods is adjusted when necessary in order to be consistent with the presentation in the current year, except for effects resulting from a change in accounting policy due to the entry into force of new financial reporting standards for which a modified retrospective application approach has been chosen (see Note 3).
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(f) Changes in the accounting policy
As of 1 January 2018, the new standard for classification and valuation of financial instruments, IFRS 9, came into force. All the changes to the reporting of financial instruments imposed by the standard had to be applied retrospectively. The Group exercises the option provided by IFRS 9 not to alter the comparative information for prior periods regarding the classification and measurement of financial instruments, including the expected credit losses.
All differences, arising as a result of the initial IFRS 9 implementation in the book value of the financial instruments, are recognized in the opening balance of retained earnings as at 1 January 2018.
The Group had to make the following estimates based on facts and circumstances at the time of initial implementation of IFRS 9:
• What is the business model that manages a given financial instrument (or portfolio of financial instruments);
• Which financial instruments will be designated at fair value through profit or loss at the time of their occurrence;
• Determine strategic investments that are not held for trading to be measured at fair value through other comprehensive income.
Under IFRS 9, the financial instruments shall be measured at amortized cost or at fair value. Debt instruments held in a business model for collecting the contractual cash flows, which constitute only a principal payment and interest on the outstanding principal, shall be measured at amortized cost. All other instruments shall be measured at fair value.
IFRS 9 permits an entity to make an irrevocable election to present in other comprehensive income changes in the fair value of equity instruments that are not held for trading to be recognized in other comprehensive income, and only the dividends received under the instrument to be recognized in profit or loss.
IFRS 9 introduced a fundamental change in the determination of allowances for impairment of loans. The impairment is determined for financial instruments measured at amortized cost or at fair value through other comprehensive income. The Standard requires the measurement of impairment of off-balance-sheet credit commitments, as well as financial guarantees. The impairment model is also changed – from a model based on incurred losses pursuant to IAS 39, to a model based on expected losses.
In accordance with IFRS 9, there are three phases that determine the amount of expected credit losses and recognition. According to Stage 1, the expected credit loss for the next 12 months is determined upon the initial recognition of the financial instrument. In the event of a significant increase in credit risk, the financial instrument passes into Stage 2 and the expected credit loss is determined for the entire remaining period up to the maturity of the instrument. The financial instrument passes into Stage 3 when objective evidence of impairment arises. Then the interest income is recognized only on the net value of the instrument. Note 4 details the methodology and models for determining expected credit losses.
The implementation of IFRS 9 as of 1 January 2018 resulted in an adjustment to the opening balance of the Group’s equity as of 1 January 2018, amounting to BGN 11.5 million decrease (BGN 10.9 million net after tax). The adjustment is a result of:
• Increase of about BGN 9.1 million in the requirements for impairment of financial assets;
• Increase of about BGN 2.1 million as a result of the classification and measurement requirements other than impairment of financial assets;
• Decrease of about BGN 4.5 million as a result of an initial classification of financial instruments.
On 27 December 2017, Regulation (EU) 2017/2395 of the European Parliament and of the Council on transitional arrangements for mitigating the impact of the introduction of IFRS 9 on own funds. The Regulation provides a choice between two approaches for recognizing the effect of the introduction of IFRS 9 on regulatory capital:
1. Stepwise recognition of a straight-line basis within a five year transition period.
2. A one-time recognition on the date of initial implementation of the standard.
The Group decided to apply the second approach, with the decrease in core capital CET1 amounting to BGN 10.9 million.
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2. Significant Accounting PoliciesThese consolidated financial statements are prepared by applying one and the same accounting policy by the bank and its subsidiaries.
(a) Basis of consolidation
These consolidated financial statements are prepared in accordance with the requirements of IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in associates and joint ventures”, whereby participations with more than 50 per cent of the voting rights are fully consolidated and all participations with more than 20 per cent of the voting rights are consolidated using the equity method.
(b) Income and expense recognition
Income is recognized to the extent, that the Group assumes that the economic benefits will be realized and income can be measured reliably.
Interest income and expense
Interest income and expense are recognized in profit or loss for all interest bearing assets and liabilities on accrual basis using the effective interest rate method.
Interest income and expense recognized in profit or loss include:
• Interest on financial assets and liabilities at amortized cost;
• Interest on financial instruments at fair value through profit or loss that excludes interest on financial assets held for trading. Interest income on financial instruments held for trading is disclosed in net trading result;
• Interest on financial instruments measured through fair value in other comprehensive income;
• Interest on available-for-sale financial instruments (until December 31, 2017).
Interest income and expense from all financial assets and liabilities held for trading are considered as part of the net trading result and are accounted for together with any other changes in the fair value of the instruments, in the net trading result.
In the current environment of negative market interest rates, the Group realizes interest expense on financial assets, as for example deposits with other banks or maintaining minimum reserves with the Central Bank that are above the required minimum. These expenses are disclosed under “interest expense”, as explained in note 7.
Fair value changes
Fair value changes on derivatives are presented in net result from derivatives in profit or loss. Fair value changes of financial assets held for trading are presented in the net trading result. Fair value changes of financial assets measured at fair value in other comprehensive income or available-for-sale respectively (until 31/12/2017), are presented in the amendment to other comprehensive income. Fair value changes of financial assets measured at fair value through profit or loss under IFRS 9, are presented in the net result of fair value changes of financial assets measured at fair value through profit or loss.
Fees and commission
The Group recognizes Fee and commission income on services rendered which are not designated as an element of effective interest rate on contracts related to financial instruments in accordance with IFRS 15 – Revenue from contracts with customers.
The services provided usually result in a direct transfer of the rights over an asset to the client, and therefore the fees and commissions received are recognized in profit or loss at the time the service is rendered. Such services include, for example, opening and maintenance of accounts, cash operations, execution of payment orders, bank card transactions, confirmation of documentary letters of credit, availing of bank guarantees.
In cases where a service is provided within a certain period of time, income is recognized proportionally over the period, depending on whether the price is paid in advance or is due at the end of the period, a counterpart financial liability or financial asset, a counterpart financial liability, respectively a financial asset, is recognized. In this way, the Group recognizes the obligation to provide the service for the agreed period, or its receivable from the customer, which corresponds to the provided part of the service over time. Such services are related, for example, to the documentary letters of credit and the guarantees issued by the bank.
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Commissions received for negotiating or participating in the negotiation of financial instruments to third parties – such as managing the acquisition of shares or other securities or the acquisition or sale of distinct activities – are recognized in profit or loss upon closure of the financial operation. Agent commissions on syndicated loans are recognized in profit or loss after the syndication process has ended and the bank has recognized in the statement of financial position the respective contracted part of the syndicated loan. Advisory services commissions relating to portfolio investment or portfolio management are recognized in accordance with the applicable service contracts, usually when the service is deemed to be completed in its entirety. The rights to the asset are deemed to be transferred to the client at the time of termination of the service or the corresponding financial transaction, for all services listed above.
Fees and commission income and expense that are an integral part of the effective interest income of financial assets or liabilities are included in its calculation. Commitment fees on credit lines for which the expectation is to be fully utilized, are deferred and recognized as part of the effective interest income on the loan.
Other fee and commission expenses, which are not part of the effective interest expense, refer to transaction and service commissions that are recognized in profit or loss when the Group receives the relevant service, i.e. the right to dispose of an asset. Compared with previous periods, there were no differences to be disclosed.
Dividends
Dividend income is recognized when the Group's right to receive the dividend is established.
Net trading income
Net trading income represents gains less losses arising from financial assets and liabilities held for trading and includes interest, all realized and unrealized fair value changes, dividends and foreign exchange revaluation differences.
(c) Leasing
Determining whether an agreement contains a lease
Upon origination the agreement, the Group determines whether it is or contains a lease. Upon origination or after reassessment of an agreement that contains a lease, the Group divides payments and other required remuneration under this arrangement into leases and other items, based on their relative fair values.
If the Group concludes it is impossible to separate the payments reliably for a given finance lease, an asset and a liability is recognized in an amount equal to the fair value of the underlying asset; the liability is subsequently reduced upon payments, and an incurred financial cost is recognized using the Group’s differential interest rate.
Reporting a lease when the Group is a lessor
Finance lease
The Group presents a finance lease as a lessor as an amount equal to the net investment in a finance lease that includes the minimum lease payments due under the lease agreement, together with the unguaranteed residual value discounted at the interest rate attributable to the lease.
The lease agreement is classified as finance lease when the lessor transfers to the lessee all significant risks and rewards arising from the ownership of the asset.
The typical indicators considered by the Group when determining whether all material risks and rewards are transferred include: the present value of the minimum lease payments as compared to the fair value of the leased asset at the beginning of the lease; the term of the lease in comparison with the economic life of the leased asset; and whether the lessee will acquire ownership of the leased asset at the end of the lease term. All other leasing contracts that do not transfer substantially all the risks and rewards of ownership of the asset are classified as operating leases.
Minimum lease payments
Minimum lease payments are those payments that the lessee will or may be required to make during the term of the lease. From the Group's point of view, the minimum lease payments also include the residual value of the asset, guaranteed by a third party non-related to the Group in case there is such an agreement.
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Commencement of the lease agreement and commencement of the term of the lease agreement
There is a distinction between the commencement of the lease and the commencement of the lease term. The commencement of the lease is the earlier of the two dates – of the lease agreement or of the engagement of the parties to the main terms of the lease. As of that date:
• the lease agreement is classified as a finance or operating lease;
• in the case of a finance lease, the amounts to be recognized at the commencement of the lease term are determined.
Commencement of the term of the lease agreement is the date when the lessee is entitled to exercise the right to use the leased asset. This is also the date when the Group initially recognizes the lease receivable.
Initial and subsequent measurement
At the date the lease agreement commences, the Group recognizes finance lease receivable at an amount equal to the net investment in the lease. The initial direct costs are included in the calculation of the finance lease receivable. During the term of the lease agreement, the Group accrues financial income (interest income under finance leases) to the net investment. The net investment in finance lease agreements is presented in loans and receivables from customers net, after impairment, under the policy on impairment of financial assets at amortized cost.
Operating lease
Assets rendered under operating lease are classified as vehicles. The lessor retains all significant risks and rewards from the ownership of the leased assets. Therefore, this asset is still included in its tangible fixed assets, and its depreciation for the period is included in the operating expenses of the lessor. The income from the operational lease is recognized in profit or loss for the year on the basis of the straight-line method during the term of the relevant lease. The initial direct costs incurred in negotiating an operating lease are added to the book value of the leased assets and are recognized on a straight-line basis over the lease term.
Reporting a lease when the Group is a lessee
A finance lease is recognized when, under the lease agreement, a significant part of the risks and rewards of ownership of an asset is transferred to the Group. The leased asset is initially recognized at the lower of its fair value and the present value of the minimum lease payments. The asset is subsequently accounted for under the accounting policies applicable to the relevant asset class.
Assets that the Group uses under lease agreements that do not transfer a material part of the risks and rewards of ownership of an asset, are not recognized in the statement of financial position of the Group.
The minimum lease payments under a finance lease agreement are allocated between the interest expense and the remaining liability to the lessor. Interest expense is recognized over the term of the agreement, so as to represent a constant interest rate on the outstanding liability.
When the Group is a lessee under an operating lease, the lease payments are recognized in profit or loss on a straight-line basis over the period of the agreement.
(d) Foreign currency transactions
All foreign currency transactions are translated into BGN at the rate fixed by the Bulgarian National Bank on the day of the respective transaction. At each reporting date, the Group measures foreign currency cash items at the Bulgarian National Bank's closing exchange rate for the day and the revaluation result is recognized in comprehensive income.
(e) Financial instruments
Policy applied from 1 January 2018 in accordance with IFRS 9
The new accounting standard IFRS 9 Financial Instruments enters into force for annual periods beginning on or after 1 January 2018 and replaces IAS 39 Financial Instruments: Recognition and Measurement.
The Group recognizes a financial asset in its statement of financial position when it becomes a party to the contractual terms of that instrument. When an entity first recognizes a financial asset, it must classify it in accordance with IFRS 9 Financial Instruments.
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IFRS 9 Financial Instruments introduces a model of classification of financial assets in two steps/stages:
• Determining the business model within which the instrument is held and managed;
• Analysis of contractual cash flows for debt instruments (only principal and interest payments).
Reported at amortized cost • Business model "Held to collect the contractual cash flows"• Solely the payments of principal and interest (SPPI)
Reported at fair valuethrough othercomprehensive income
• Business model "Held to collect the contractual cash flows and for sale"• Solely the payments of principal and interest (SPPI)
Reported at fair valuethrough profit / loss • All other financial assets
Applicable business models for managing the financial assets of the Group
The business model refers to the way the Group manages its financial in order to generate cash flows, i.e. the business model of the Group determines whether cash flows should be generated by collecting the contractual ones, selling financial assets, or both. This assessment is not carried out on the basis of scenarios which the Group does not expect in principle to arise, such as the so-called "Worst case" or "stress" scenarios.
The business model does not depend on the Group's intentions with respect to a single instrument but is defined for a group of financial assets that are jointly managed to achieve a particular business objective.
The applicable business models for managing the Group's financial assets are as follows:
• Business model, the purpose of which is to hold assets in order to collect the contractual cash flows – the financial assets are managed in order to realize cash flows by collecting contractual payments over the life of the instrument. Although the objective of an enterprise's business model may be to hold the financial assets to collect the contractual cash flows, an entity is not required to hold all of these assets to maturity. Therefore, the enterprise's business model may be to hold the financial assets to collect the contractual cash flows even when there are sales of financial assets or such are expected in the future, for example when there is an increase in credit risk of the assets, when such sales are rare or their value – both individually and collectively, is insignificant.
• Business model, the purpose of which is both the collection of contractual cash flows and the sale of financial assets – for the financial assets managed under this type of business model it is considered that both the collection of contractual cash flows and the sale of financial assets are a major factor in achieving the objective of the business model. There are different objectives that can be compatible with this type of business model. For example, the business model's objective may be to manage daily liquidity needs, to maintain a certain interest rate profile, or to match the duration of financial assets to the liabilities funded by these assets. To achieve such an objective, the entity collects contractual cash flows and sells financial assets at the same time. Compared to the business model, which aims to hold financial assets for contractual cash flows, this business model typically has a higher frequency and a higher value of sales. This is because sales of financial assets are not sporadic, but they are a major factor in achieving the objective of the business model.
• Business model, the purpose of which is financial assets trading – in this business model the Group's objective is to carry out an active buying and selling activity. The financial assets are managed to realize cash flows through the sale of the assets. The Group takes decisions on the basis of the fair values of the assets and manages the assets in order to realize these fair values. Although the entity collects contractual cash flows while holding the financial assets, the objective of this business model is not achieved by collecting contractual cash flows and selling financial assets. This is because the collection of contractual cash flows is not a major factor in achieving the objective of the business model.
Other business models are as follows:
• Long-term equity interests – in this business model the bank acquires less than 20 per cent of the capital of another enterprise and does not have significant influence on the enterprise. These interests are acquired in order to ensure the performance of a particular activity of the Group which would not have been possible in the absence of such participation. The term of holding such investments in equity instruments is indefinite.
• Derivatives held to hedge risk – the Group maintains a portfolio of derivatives to manage foreign exchange and interest rate risk.
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Analysis of contractual cash flows
The financial assets acquired and managed under the business model "Held to collect the contractual cash flows" or "Held to collect the contractual cash flows and for sale" are classified on the basis of the characteristics of the contractual cash flows. For debt assets, it should be analyzed from these two business models whether the contractual cash flows are solely the payments of principal and interest (SPPI), i.e. are in line with the Basic lending agreement.
The following elements are in line with the basic lending agreement:
• Reward for the value of money over time;
• Credit risk and other major risks;
• Profit margin.
Contractual features which expose the creditor to additional risks, or change the time or value of cash flows, do not meet the basic lending agreement and such loans should be measured at fair value.
Contractual cash flows are examined in two directions as follows:
• Element of time value of money;
• Other characteristics of the contractual cash flows that do not meet the SPPI criteria.
BM "Held tocollect the
contractual cashflows"/ "Held to
collect thecontractual cash
flows andfor sale"
Basic lendingagreement (SPPI)
Амортизирана стойност
Other cash flowcharacteristics
Modified elementof time value
of money
Comparativetest (BMT)
Amortized cost/ fair value through
othercomprehensive
income
Справедлива стойност
Other cash flowcharacteristics
(non SPPI)
Fair value throughprofit / loss
Element of time value of money
The element of time value of money is the element of interest that provides remuneration only for the elapsed time (no remuneration for other risks and expenses related to the holding of the financial asset is provided).
When assessing whether the element provides remuneration for the elapsed time only, an entity estimates and recognizes factors such as the currency in which the financial asset is denominated and the period for which the interest rate is determined.
In the case of an “imperfect” element of time value of money, the change has to be measured to determine whether the contractual cash flows represent solely the payments of principal and interest on the amount of the outstanding principal. Such features are:
• Reset Lag – the days from the fixing of the value of the base to its application on the loan (for the Retail segment, 6M EURIBOR, set on the 1st day of the month but applied on the loan depending on the agreed payment date);
• Smoothing Clause – when the base interest rate is calculated as a weighted average over a certain period of time;
• Reset Mismatch – the rate of fixation of the base interest rate does not correspond to its maturity (3M EURIBOR fixed monthly);
• Secondary Market Yield – the interest rate is updated periodically but the base rate is the average value of the secondary money market yield.
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The quantitative estimate of whether the change in the element of time value of money is significant is carried out through the so-called Benchmark test, which consists of comparing the undiscounted contractual cash flows of the loan with the undiscounted cash flows that would arise in the absence of "imperfect" element of interest.
The Group has adopted a threshold of 5 per cent variation in undiscounted cash flows for the entire duration of the contract OR a 10 per cent variation in undiscounted cash flows over a specified reporting period.
Other characteristics of the contractual cash flows that do not meet the SPPI criteria
Other characteristics of the contractual cash flows that do not meet the SPPI criteria are presented as follows:
Contractual terms that change the time or value of the contractual cash flows
If a financial asset contains a contractual term that may change the time or value of the contractual cash flows (for example, if the asset can be prepaid before maturity or its duration – extended), the entity shall determine whether the contractual cash flows that could arise over the entire term of the instrument as a result of this contractual condition, constitute solely payments of principal and interest on the amount of the outstanding principal.
Characteristic of contractual cash flows that expose the exposure to risk or volatility of contractual cash flows
These are cases where cash flows (payments on the loan) depend on a particular index.
Leverage is a characteristic of the contractual cash flows of certain financial assets. The leverage increases the volatility of contractual cash flows with the result that they do not have the economic characteristics of interest.
Regulated interest rates
The application of a regulated interest rate does not meet the SPPI criterion when its use is not imposed by regulatory or other authority requirements.
Contracts without recourse (project finance)
In some cases, a financial asset may have contractual cash flows that are described as principal and interest but these cash flows do not represent SPPIs. For example, when the financial asset is an investment in specific assets (or cash flows), and therefore the contractual cash flows depend on the revenue / profitability of the financed project. This may be the case where a creditor's claim is limited to certain assets of the debtor or cash flows of certain assets (a financial asset "without a right of recourse"). However, the fact that a financial asset is without a right of recourse does not necessarily prevent the financial asset from meeting the SPPI criterion.
In these situations, the creditor is required to measure ("critically review") the specific underlying assets or cash flows in order to determine whether the contractual cash flows of the financial asset are classified as principal and interest payments on the amount of the outstanding principal.
In order to establish such type of contracts, the Group examines the following characteristics:
• Capital characteristics – the loan has a characteristic of an equity instrument if the total amount of the payments under the contract depends on the amount of the capital, the profit of the company or the profit or the value of the funded site.
Examples:
– When a special purpose enterprise (SPE) receives a loan from the bank that funds an investment in assets and the loan is a major source of financing for the SPE (the bank bears the main risks associated with the project).
– Expected payments on credit for real estate financing are mainly related to future changes in the value of the collateral (the loan represents an investment in the real estate market).
• Cash flow generation – when cash flows are generated from the funded site and not from the business of the company (borrower).
• Interest rate – the cost of financing may be an indicator of the risks inherent to the investment and thus contribute to the assessment of the SPPI. In the event that a higher risk premium is included in the financing price, which is higher than the margin on such loan, but with the right to full recourse, then the loan has to be reported at fair value.
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• Coverage of contractual cash flows – should assess whether it is likely that the expected cash flows will cover the contractual ones. For this purpose, the following factors should be taken into account:
– Interest Coverage Ratio (ICR) = EBIT/interest cost <120 per cent;
– Loan to Value Ratio (LTV) = credit amount/market value of the financed asset >70-80 per cent.
The heavily variable fair value of the funded asset is an indicator of fair value measurement of the loan.
Contract-related instruments (Securitization)
For contract-linked instruments, it is necessary to make further assessments by the Group for the purposes of the classification of financial instruments.
Determination of the accounting category of financial assets in accordance with IFRS 9
The Group classifies each of its financial assets in one of the following accounting categories:
• Amortized cost – the cost at which the financial assets are measured at initial recognition minus principal repayments, plus or minus the amortization of the difference between that initial value and the maturity value, calculated using the effective interest method less provisions for impairment losses (IFRS 9 Financial Instruments, Appendix A);
• Fair value through other comprehensive income – profit or loss on a financial asset, is recognized in other comprehensive income (except for impairment losses and gains and losses from foreign exchange revaluation) up to the date of derecognition of the financial asset. When a financial asset is derecognized, the cumulative profit or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Interest calculated using the effective interest method is recognized in profit or loss (IFRS 9 Financial Instruments, item 5.7.10.);
• Fair value in profit / loss – the profit or loss on the financial asset is recognized in profit or loss (IFRS 9 Financial Instruments, item 5.7.1);
• Fair value through other comprehensive income (not recognized in profit or loss) – applies to equity financial instruments for which this method of subsequent evaluation has been selected. In this method of measurement,
Debt instruments Derivatives Equityinstruments
Business model“Held fortrading”
Fair valuethrought OCI
election
Fair value throught PL option applied
Solely payments of principal and ineterest
Business model“Hold-to-collect”
Business model“Hold-to-
collect andsale”
yes
yesyes
yes
yes
no
no
nono
no
no
yes
Amortisedcost
Fair valuethrough Othercomprehensiveincome (OCI)(no recycling
to PL)
Fair valuethrough Othercomprehensiveincome (OCI)
Fair value throughProfit or Loss (PL)
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the profit or loss on the financial asset is recognized in other comprehensive income (except for profit or loss impairment and profit or loss from foreign exchange revaluation) as a revaluation reserve at fair value. In the case of derecognition (for example, sale), the accumulated revaluation recognized in other comprehensive income does not recognize the profit or loss but it is transferred to the equity (IFRS 9 Financial Instruments, item B5.7.1).
Determination of an accounting category of debt instruments Business model „Held to collect the contractual cash flows“
Loans to customers
Loans granted to customers by the Group are determined in the Business Model "Held to collect the contractual cash flows". Loans are reported at amortized cost when the contractual cash flows represent solely payments of principal and interest on outstanding principal.
When the cash flows on the loan are not solely payments of principal and interest on the outstanding principal, the loan is recognized at fair value through profit/loss.
Deposits with banks
Deposits with banks are reported at amortized cost, since they are "plain vanilla" transactions in the money market, the cash flows of which are solely payments of principal and negotiated interest.
Debt Securities
The Group acquires Debt Securities in the Investment Portfolio. Assets in the Business Model "Held to collect the contractual cash flows" are reported at amortized cost when the contractual cash flows are solely principal and interest on principal (SPPI), i.e., are in line with the basic landing agreement. When the cash flow analysis shows flows other than principal and interest on the outstanding principal (SPPI), the assets are stated at fair value and the result is recognized in profit / loss.
Transactions – reverse repo
Transactions in which the Group acquires securities at a certain price and has the obligation to sell them back to the counterparty at a certain future date. Transactions are conducted within the Business Model "Held to collect the contractual cash flows". The contractual terms of these instruments represent solely payments of principal and interest and the receivable that arises for the bank as a result of the transaction is reported at amortized cost.
Determination of an accounting category of debt instruments Business model „Held to collect the contractual cash flows and sale”
The Group acquires Debt Securities in a Liquidity Portfolio in order to manage the fulfillment of liquidity requirements. The assets in this portfolio can also be sold.
Assets under the Business Model "Held to collect the contractual cash flows and sale" are reported at fair value in other comprehensive income when the contractual cash flows are only principal and interest on principal (SPPI), i.e., comply with the basic landing agreement. When the cash flow analysis shows flows other than principal and interest on the outstanding principal (SPPI), the assets are reported at fair value through profit/loss.
Determination of an accounting category of debt instruments and equity instruments Business model „Held for trading” and derivatives
Financial assets acquired and managed by the Group in trading portfolio and derivative financial instruments held for risk hedging are measured at fair value and the result is recognized in profit or loss for the year.
Determination of an accounting category of equity instruments within the scope of IFRS 9
“Strategic equity participations” portfolio – The Group invests in other entities without significant influence. These participations are necessary to carry out a specific activity of the Group (e.g. payment, card, intermediary services). These equity instruments are typically not traded freely but are intended for the participants in the respective system.
As a rule, the equity participations are classified and measured at fair value through profit / loss. At initial recognition, the Group may choose to classify the equity participations as measured at fair value in other comprehensive income. This choice is irrevocable and applies to a particular asset. Typically, the Group chooses to measure investments in the "Strategic equity participations" portfolio at fair value and the revaluation result is recognized in other comprehensive income.
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Other financial liabilities – recognition and measurement
Other non-derivative financial liabilities are initially recognized at fair value less direct transaction costs. Subsequently, these liabilities are measured at amortized cost using the effective interest method.
Deposits received from banks, bond loans and subordinated liabilities are the main sources of financing for the bank and are classified as other financial liabilities at amortized cost.
Fair values of financial assets and financial liabilities
"Fair value" is the price that would be obtained on the valuation date from the sale of a financial asset or would be paid for the transfer of a financial liability between participants in a regular market transaction in a core market or, in the absence of such market, on the most profitable market to which the Group has access on that date. The fair value of a financial liability also reflects the risk of default.
If possible, the Group estimates the fair value of a financial instrument using quoted prices in an active market. The market is considered active when the transactions for an asset or liability are carried out at a sufficient frequency and volume, so that continuous price information is provided.
In the absence of a quoted price in an active market, the Group applies valuation techniques that use maximum observable input data and minimize the use of unobservable ones. The chosen valuation technique includes all the factors that market participants would take into account when assessing a transaction.
The best evidence for the fair value of a financial instrument at its initial recognition is usually the transaction price, i.e. the fair value of the consideration. If the Group determines that the fair value at the initial recognition differs from the transaction price and the fair value cannot be proved either by quoting an active market for a similar financial asset or liability or by using an evaluation technique based solely on observable market data, then the financial instrument is initially recognized at fair value adjusted by the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognized in profit or loss on an appropriate basis over the life of the instrument but no later than the time when the valuation can be supported by observable market data or the transaction can be realized.
When there is "buy" and "sell" price for an asset or liability measured at fair value, then the Group measures these assets and the corresponding long position at "buy" price, and the liabilities and the corresponding short position at "sell" price.
The Group recognizes transfers between fair value hierarchies as of the date of the reporting period in which the transfers were made.
Derecognition
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the rights to receive the contractual cash flows from the financial asset through a transaction in which all the risks and rewards of ownership of the financial asset are transferred to a significant extent. All rights on transferred financial assets that have been incurred or maintained by the bank are recognized as a separate asset or liability.
The Group derecognizes a financial liability when its contractual obligations are terminated, cancelled or expired.
For transactions where assets are transferred but all or part of the risks and rewards are retained, the Group does not derecognize the corresponding assets in the statement of financial position. Transfer of assets for which the Group retains all or part of the risks and rewards, are, for example, repo transactions or securities lending transactions. Upon transfer of a financial asset over which the Group retains control, the asset continues to be recognized in the statement of financial position and the Group assesses to what extent it is exposed to changes in the fair value of the asset.
For some operations, the Group reserves the right to service the transferred asset against an agreed remuneration. The financial asset is derecognized from the statement of financial position if it meets the derecognition criteria, and the Group recognizes a separate asset or liability that corresponds to the right to service. When the consideration received is sufficient to cover service costs, a financial asset is recognized, otherwise a financial liability is recognized.
The Group also derecognizes a financial asset or part of it, where there is no reasonable expectation of recovering the contractual cash flows of the financial asset in whole or in part.
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Policy applied before 1 January 2018, in accordance with IAS 39
In accordance with IAS 39, the Group has classified its financial instruments into the following categories: financial assets at fair value through profit or loss, including trading assets and liabilities held for trading and derivative instruments; loans and receivables; held-to-maturity investments; available-for-sale financial assets and other financial liabilities. The Group determines the category of the financial asset or liability at the time of its initial recognition.
The Group initially recognizes loans and advances, deposits, debt securities, borrowings and subordinated liabilities on the date on which it provides or receives the money on these instruments. All other financial instruments (including regular sales or purchases of financial assets) are recognized at the date of the transaction, i.e. when the Group becomes a party to the contract for the transfer of the financial instrument.
(i) Financial instruments at fair value through profit or loss – recognition and measurement
The Group classifies financial assets and liabilities at fair value through profit or loss when:
• the assets or the liabilities are managed, measured and reported at fair value;
• fair value accounting eliminates or significantly reduces accounting discrepancies that would arise on another valuation basis;
• the financial asset or liability contains an embedded derivative that significantly alters the cash flows under the original transaction.
The financial assets and liabilities at fair value through profit or loss are initially recognized in the statement of financial position of the Group at fair value and are subsequently measured at fair value, with transaction costs being recognized directly in profit or loss.
(ii) Financial assets and liabilities held for trading – recognition and measurement
Financial assets and liabilities held for trading are those instruments that the Group acquires for profit as a result of short-term fluctuations in the price or dealer's margin. The financial assets and liabilities held for trading are initially recognized in the statement of financial position of the Group at fair value and are subsequently measured at fair value, with transaction costs being recognized directly in profit or loss. The realized and unrealized profits and losses arising from transactions and revaluations are recognized in the statement of comprehensive income as a net trading result. The financial assets and liabilities held for trading are not be reclassified after their initial recognition.
(iii) Derivatives – recognition and measurement
When the Group becomes a party to a derivative contract, the respective derivative is initially recognized at fair value and is subsequently revalued in line with the current market prices quoted in active financial markets. In the absence of price information on a derivative instrument, appropriate valuation models, such as discounting future cash flows, are applied. Derivatives with positive fair value are recognized in the statement of financial position of the Group as financial assets and those for which the fair value is negative, respectively, as financial liabilities.
(iv) Loans and receivables – recognition and measurement
Loans and advances are non-derivative financial assets, that are not quoted on an active market, have fixed or determinable payments, and which the Group does not intend to sell immediately or in the near future.
Loans and advances to banks are classified as loans and receivables.
Loans and receivables are initially measured at fair value, including the direct transaction costs. Subsequently, loans and advances are measured at amortized cost using the effective interest method less impairment losses.
(v) Held-to-maturity investments – recognition and measurement
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Group has a positive intent and ability to hold to maturity. These assets are initially recognized at fair value plus any directly attributable transaction costs. After their initial recognition, they are measured at amortized cost using the effective interest method. If the Group sells more than an insignificant portion of held-to-maturity investments, the entire category should be reclassified as investments available-for-sale. Except for the following cases of sale and reclassification, in which the whole category should not be reclassified:
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• The sale or reclassification takes place so close to the maturity of the instrument that changes in market interest rates would not materially affect its fair value;
• The sale or reclassification takes place after the Group has accumulated a substantial part of the principal of the instrument;
• The sale or reclassification is the result of extraordinary events that are beyond the control and expectations of the Group.
(vi) Financial assets available-for-sale – recognition and measurement
Financial assets available-for-sale are those that are not classified as financial assets at fair value through profit or loss or as held-to-maturity investments. Financial assets available-for-sale are held for an indefinite period and could be sold when there is a need for liquidity, changes in interest rates, exchange rates or equity prices.
Financial assets available-for-sale are initially recognized at fair value including all direct acquisition costs. Subsequently, financial assets available-for-sale are measured at fair value, with changes in fair value other than impairment losses and foreign exchange differences on debt instruments being recognized in other comprehensive income and presented as part of the equity (revaluation reserve).
When an available-for-sale asset is derecognized, the accumulated in the equity result of the change in its fair value is recognized in profit or loss.
Interest income on available-for-sale financial assets is recognized in profit or loss using the effective interest method.
(vii) Other financial liabilities – recognition and measurement
Other non-derivative financial liabilities are initially recognized at fair value less direct transaction costs. Subsequently, these liabilities are measured at amortized cost using the effective interest method.
Deposits received from banks, bond loans and subordinated liabilities are the main sources of financing of the Group and are classified as other financial liabilities at amortized cost.
(viii) Fair values of financial assets and financial liabilities
"Fair value" is the price that would be obtained on the valuation date from the sale of a financial asset or would be paid for the transfer of a financial liability between participants in a regular market transaction in a core market or, in the absence of such market, on the most profitable market to which the Group has access on that date. The fair value of a financial liability also reflects the risk of default.
If possible, the Group estimates the fair value of a financial instrument using quoted prices in an active market. The market is considered active when the transactions for an asset or liability are carried out at a sufficient frequency and volume, so that continuous price information is provided.
In the absence of a quoted price in an active market, the Group applies valuation techniques that use maximum observable input data and minimize the use of unobservable ones. The chosen valuation technique includes all the factors that market participants would take into account when assessing a transaction.
The best evidence for the fair value of a financial instrument at its initial recognition is usually the transaction price, i.e. the fair value of the consideration. If the Group determines that the fair value at the initial recognition differs from the transaction price and the fair value cannot be proved either by quoting an active market for a similar financial asset or liability or by using an evaluation technique based solely on observable market data, then the financial instrument is initially recognized at fair value adjusted by the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognized in profit or loss on an appropriate basis over the life of the instrument but no later than the time when the valuation can be supported by observable market data or the transaction can be realized.
When there is "buy" and "sell" price for an asset or liability measured at fair value, then the Group measures these assets and the corresponding long position at "buy" price, and the liabilities and the corresponding short position at "sell" price.
The Group recognizes transfers between fair value hierarchies as of the date of the reporting period in which the transfers were made.
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(ix) Derecognition
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the rights to receive the contractual cash flows from the financial asset through a transaction in which all the risks and rewards of ownership of the financial asset are transferred to a significant extent. All rights on transferred financial assets that have been incurred or maintained by the bank are recognized as a separate asset or liability.
The Group derecognizes a financial liability when its contractual obligations are terminated, canceled or expired.
For transactions where assets are transferred but all or part of the risks and rewards are retained, the Group does not derecognize the corresponding assets in the statement of financial position. Transfer of assets for which the Group retains all or part of the risks and rewards, are, for example, repo transactions or securities lending transactions. Upon transfer of a financial asset over which the Group retains control, the asset continues to be recognized in the statement of financial position and the Group assesses to what extent it is exposed to changes in the fair value of the asset.
For some operations, the Group reserves the right to service the transferred asset against an agreed remuneration. The financial asset is derecognized from the statement of financial position if it meets the derecognition criteria, and the Group recognizes a separate asset or liability that corresponds to the right to service. When the consideration received is sufficient to cover service costs, a financial asset is recognized, otherwise a financial liability is recognized.
(f) Cash and cash equivalents
Cash and cash equivalents include cash and current accounts with other banks, unlimited cash balances with the Central Bank and loans and advances to banks with an original maturity of up to 3 months.
Cash and cash equivalents are reported at amortized cost in the statement of financial position.
(g) Securities transactions
Securities borrowing and lending and repurchase agreements
(i) Securities borrowing and lending
Investments lent under securities lending agreements are accounted for in the statement of financial position and are measured in accordance with the accounting policy applied to financial assets at fair value through profit or respectively for assets held for sale or held-to-maturity. Cash received as collateral for securities lending is recorded as liabilities to banks and other customers. Investments hired under securities lease agreements are not recognized as an asset of the Group. Cash lent under securities leases is reported as loans and advances to banks and other customers. Income and expenses arising from securities lending or borrowing transactions are recognized when incurred for the period in which transactions are carried out, as interest income or expense.
(ii) Repurchase agreements
The Group concludes investment contracts under resale/purchase agreements for identical investments at a predetermined future date at a fixed price. Purchased investments subject to re-sale at a certain future date are not recognized.
The amounts paid are recorded as repo transactions. The receivables are recorded as collateralized by the relevant securities. Investments sold under repurchase agreements continue to be reported in the statement of financial position and are measured under the accounting policy, as assets held for trading or as assets at fair value through profit or loss. The amounts received from the sale are recorded as repo transactions.
The differences between the value of the asset sold and the value of the asset received is charged for the period of the transaction and is presented as income or Interest expense.
(h) Financial instruments offsetting
Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position when there is an established right to offset the recognized amounts and the Group intends either to settle in a net amount or to realize the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only if permitted under IFRS, as adopted by the EU, or for profits and losses resulting from similar transactions, such as trading with financial instruments.
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(i) Impairment
Impairment of financial assets
Policy applied from 1 January 2018 under IFRS 9
IFRS 9 introduces significant changes in the models for impairment of financial instruments, which consists in applying a model of expected losses compared to the currently used model of sustained loss (in accordance with IAS 39) as well as the application of a three-tier approach to classifying credit risk in the financial assets.
The three-tier approach for the classification of the financial assets subject to impairment is based on an assessment of the credit risk increase after the initial recognition and existence of a credit impairment:
– Stage 1 – financial assets with no increase in the credit risk after initial recognition;
– Stage 2 – financial assets with a significant increase in credit risk after initial recognition, but without loans classified as loss;
– Stage 3 – financial assets with credit impairment.
• Information on future economic conditions
In estimating the expected loss, the Group uses reasonable and substantiated information available without incurring unnecessary cost or effort at the reporting date, for past events, current conditions and projected future macroeconomic conditions.
• Discounting (time value of money)
The expected credit loss shows the time value of the money. The following discount rates apply:
Instrument Discount rate IFRS 9 reference
Financial assets, Expected credit losses are discounted at theexcluding lease receivables reporting date and not at the expected date ofand POCI (Financial assets default or other date, using the effectiveother than POCI assets and interest rate determined on initial recognition IFRS 9.5.4.1(b), B5.5.44lease receivables) instrument is a floating rate one, the expected credit losses are discounted at the current effective interest rate.
Lease receivables Expected credit losses on lease receivables are discounted at the same discount rate used for the measurement of lease receivables IFRS 9 B5.5.46 in accordance with IFRS 16.
Purchased or originally The credit-Adjusted Effective Interest Ratecreated financial assets with (CAEIR) to the amortized cost of the financial IFRS 9.5.4.1(a), B5.5.45credit impairment (POCI) asset at initial recognition
Undrawn loan commitments Expected credit losses under a loan commitment are discounted to the effective interest rate or its approximate amount which IFRS 9.B5.5.47 will be applied when recognizing the financial asset that arises from the credit commitment.
• Period within which an estimate of expected credit losses is madeImpairment on non-financial assets
Depending on the risk classification of the financial assets by stages, the bank calculates the expected losses for a period of 12 months or for the entire duration of the instrument.
• Date of asset’s origination (recognition)
The Group recognizes a financial asset or financial liability in its statement of financial position only when it becomes a party to the contractual terms of that instrument.
• Defining the period for estimating expected loss for financial instruments that do not have a fixed term or repayment structure
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According to IFRS 9 (B.5.5.40), when determining the period during which an entity expects to be exposed to credit risk but for which expected credit losses will not be impaired by normal credit risk management, the entity should recognize factors such as information on past periods and experience with regard to:
– Тhe period during which the entity was exposed to credit risk for similar financial instruments;
– Тhe duration of related defaults on similar financial instruments after a significant increase in credit risk;
– Тhe credit risk management measures that the entity expects to undertake after the credit risk of the financial instrument has increased, such as reducing or eliminating unused disposable amounts.
Results weighted on a probability of occurrence
Estimates of expected credit losses are not intended to evaluate in the worst case scenario or the most favorable scenario. Instead, an estimate of the expected credit losses should always take into consideration the possibility of a credit loss, as well as the possibility that such a loss will not arise even when no credit loss is likely to occur.
Scope of the impairment under IFRS 9
The scope of the impairment under the IFRS 9 includes all financial assets, measured at amortized cost or at fair value through other comprehensive income.
All liabilities under financial instruments that are not classified as FVPL are also subject to impairment under IFRS 9.
This includes all related to credit risk undrawn but granted exposures as well as guarantees and letters of credit.
The group estimates, on the basis of progressive methodology, the estimated credit losses associated with the assets of debt instruments measured at amortized cost and measured at fair value through other comprehensive income, as well as exposures arising from credit transactions at amortized cost, lease receivables and contracts for financial guarantees. In such cases the Group charges provisions for impairment losses, at each reporting date.
The measurement of the expected credit loss represents an impartial and probability-weighted sum, determined by the calculation of a number of possible outcomes, the value of money over time and significant supporting information on past events at the reporting date, current conditions and forecasts of future economic conditions, and is provided without undue cost or effort.
Policy applied until 1 January 2018 in accordance with IAS 39
At each reporting date, a review for the existence of indications of impairment of the financial assets that are not measured at fair value is made. If such indications are present, the recoverable amount of the asset is determined.
A financial asset is impaired when there is objective evidence of deterioration after the initial recognition of the asset and when that deterioration affects future cash flows and can be reliably measured. Objective evidence that financial assets (including equity investments) are impaired include: default of the debtor, restructuring of the Group’s liability under conditions that the Group would not otherwise consider, indications that a debtor or issuer will go bankrupt, adverse changes in the status of payments to a debtor or issuer, the disappearance of an active market for a security and observable data showing that there is a measurable decrease in the expected cash flows from a group of financial assets. Loans are measured and classified on the basis of the extent of the credit risk, the delay of the required amounts, the assessment of the debtor’s financial position and the sources of repayment of its liabilities. Where the Group has more than one credit exposure to entities that can be considered as carriers of a common risk, these exposures are classified in the group of the highest risk entity.
The Group forms provisions for impairment losses both at a specific and collective level. Exposures over 90 days past due or for which one or all of the default indicators described above are measured for a specific impairment. All individually significant assets for which there is no specific impairment are measured collectively, if there is a loss that has not yet occurred. Assets that are not individually significant are measured collectively by being grouped into groups of financial assets (measured at amortized cost) with similar risk characteristics.
To determine the impairment at a collective level, the Group uses statistical models of historical data for development of the degree of default, period for overdue collection and the resulting loss adjusted with management’s expectations of current economic conditions and credit indebtedness. The extent of overdue amounts and losses, as well as the expected period of arrears, are periodically compared with the actual data to ensure their proper implementation.
Specific impairment losses for specific exposures in the non-retail segment represent the difference between the book value from the previous reporting period of risk exposure and its recoverable value as of the reporting period. The recoverable amount of the risk exposure is defined by reducing the contractual cash with a percentage of risk of loss, depending on
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the debtor’s risk category and the estimated expected cash flows are discounted using the relevant effective interest rate. Typically, short-term receivables are not discounted.
In Retail segment (Private individuals – unsecured portfolios and Micro segment) the specific impairment loss is calculated based on the statistically derived best estimate of the expected loss.
In Retail segment (Private individuals – Mortgage-backed portfolio) the specific impairment loss is calculated based on the expected recoverable amount from the collateral, discounted at an effective interest rate.
Unutilized amounts are also subject of impairment, after alignment to the balance sheet, based on the historical data for utilization of such exposures, as well as whether they are unconditionally revocable.
In case that a receivable (or part of the receivable) is uncollectible, it is written off against the related allowance for impairment. Such receivables are written off after all the necessary procedures have been completed and the amount of the loss has been determined.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively attributable to an event after the impairment loss, then the impairment losses are reintegrated to income or expense.
Loans and receivables are presented net, and the book value is reduced by the accrued impairment costs. The increase in the cost of impairment loss is recognized in income or expense. The Group reintegrates in its income for the year the impairment losses, which are released as a result of the collection of part of the full amount of the classified credit exposure, as well as in case of reclassification in a lower risk classification group.
Allowances for impairment losses on a collective basis are allocated against exposures to cover existing losses, which could not be identified for each individual loan according to the Group’s provisioning policy. The Group’s policy for allocation of portfolio based allowances for impairment losses determines the principles for reducing the book value of a portfolio of loans with similar credit risk characteristics to their recoverable amount as at the reporting date.
In case that there is an indication for impairment is identified for assets available for sale, the cumulative loss recognized in other comprehensive income is reclassified to profit or loss. The cumulative loss represents the difference between the amortized cost and the current fair value of the financial asset, decreased by losses that are already recognized in profit or loss.
(j) Investments in associates
The Group initially recognizes investments in associates at cost. Dividends from associates are recognized in profit or loss when the Group’s right to receive the dividend is established. The Group assesses at the end of each reporting period whether there is any indication that an investment in an associate may be impaired. If any such impairment indication exists, the Group measures the recoverable amount of the investment based on the ability of the entity to continue to generate income and to pay out dividends to the Group.
(k) Property, plant and equipment
Recognition and measurement
Property, plant and equipment are measured at cost less accumulated depreciation. Acquisition cost includes all direct costs attributable to the acquisition of the asset. The purchase of software that is an integral part of the functionality of the asset is capitalized as part of that asset.
Any portion of an asset, plant and equipment with a cost that is significant in relation to the total cost of the asset or which has a different useful life is depreciated separately.
Subsequent costs
Parts of certain property, plant and equipment items that need to be replaced are recognized in the book value of the asset if they meet the recognition criteria and their value can be reliably determined.
Depreciation
Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.
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The annual depreciation rates are as follows:
Assets %
Buildings 4
Equipment 12 – 50
Fixtures and fittings and reconstructions 15
Vehicles 20 – 25
The assets are not depreciated until they are put into operation and transferred from the cost of acquiring of fixed assets to the relevant asset category.
(l) Intangible assets
Recognition and measurement
Intangible assets acquired or internally created by the Group are stated at cost less accumulated amortization and impairment losses.
Subsequent costs
Subsequent costs associated with an intangible asset are recognized in the book value of the asset only if it increases its economic benefit. All other expenses are recognized in profit or loss.
Amortization
Amortization is accrued on a straight-line basis over the useful life of the asset. The following are the annual amortization rates used:
Assets %
Licences 15 – 33
Computer software 20 – 50
(m) Repossessed assets
Repossessed assets are measured at the lower of their book value and the net realizable value. Acquisition cost includes acquisition expenses, state fees for private enforcement agents, etc.
The net realizable value is the estimated selling price reduced by approximately evaluated expenses necessary for the sale.
(n) Impairment of non-financial assets
At each reporting date, the Group reviews the book values of its non-financial assets to determine whether there are indications of impairment. When there are indications of impairment, the Group determines the recoverable amount of the asset.
In order to perform the test for impairment of assets, which cannot be tested individually, they are grouped into the smallest possible group of assets that generate cash proceeds from continuing use, and which are largely independent of cash proceeds from other assets or cash-generating units (CGUs).
The recoverable amount of an asset or CGU is the higher of its value in use and its fair value less costs to sell. Value in use is based on future cash flows discounted to their present value using a discount rate before tax corresponding to the current market assessments of time money and asset-specific or CGU risk.
An impairment loss is recognized if the book value of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognized in profit or loss. They are first allocated to decrease in the book value of the goodwill of CGU and, subsequently, in decrease in the book values of the assets in the CGU, in proportion.
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Impairment loss of goodwill is not recovered. Impairment loss of other non-financial assets is recovered only to the extent that the book value of the asset does not exceed the book value that would have been determined after deducting depreciation, if an impairment loss had not been recognized.
(o) Provisions for liabilities
Provisions are recognized in the statement of financial position when the Group has a legal or contractual obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows by using a pre-tax discounted return factor that reflects the market valuation of the cash value over time, where appropriate, the specific risk for the liability. Short-term provisions are not usually discounted.
(p) Employee benefits
(i) Short-term employee benefits
Short-term employee benefits include salaries, bonuses and benefits in kind and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
(ii) Defined contribution plans
Defined contribution plans are contributions to state-owned institutions or statutory pension funds managed by private management companies, where these contributions are in accordance with legal requirements or personal choice of the employee. Payables incurred in connection with defined contribution plans are recognized as an expense when the related services are provided.
(iii) Defined benefits
The Group’s obligation in respect of defined benefits is calculated separately for each plan and the amount of future benefits that employees have earned in the current and prior periods is estimated and that amount is discounted at an appropriate discount rate.
The calculation is performed annually by a qualified actuary using the projected unit credit method. The Group determines the net interest rate on the net liability under a defined benefit plan by applying the discount rate used at the beginning of the period to discount the liability to a net defined benefit plan.
Changes in the net present value of the defined benefit obligation arising from changes in actuarial assumptions are actuarial profits or losses that are recognized in other comprehensive income. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.
(q) Financial guarantees and loan commitments
With the financial guarantee contract, the Group undertakes to make a payment to compensate the holder for the loss suffered if the debtor fails to pay under the terms of the relevant debt instrument.
Credit commitments represent the Group's commitment to provide credit under pre-agreed terms and conditions.
(r) Taxation
Income tax for the year comprises current tax and changes in deferred tax. The tax is recognized in profit or loss only when it does not relate to business combinations or items recognized directly in equity or in other comprehensive income.
(i) Current tax
Current tax is the amount of tax that the Group has to pay on the expected taxable profit for the financial year based on the tax rate under current law on the date of preparation of the statement of financial position as well as any tax adjustments for past years. The current tax also reflects the effect of the dividends received by the Group.
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(ii) Deferred tax
Deferred tax is recognized in respect of temporary differences between the book values of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
• temporary differences arising on the initial recognition of assets or liabilities as a result of a transaction that is not a business combination and does not affect either the accounting or tax profit or loss;
• temporary differences arising in connection with investments in subsidiaries or jointly controlled entities, in so far as these differences will not be reversed for the foreseeable future;
• taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured using the tax rates that are expected to be effective at the time of their reversal, taking into account the provisions of the current tax legislation.
Deferred tax assets and liabilities are netted when there is a legal right to net current tax receivables and payables and they relate to income taxes collected by the same tax administration.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of estimates about future events. In the event that there is new information that will lead to a change in the assessment of the adequacy of the existing tax liability, that change will affect the tax expense for the period in which the change is established.
(s) Segment reporting
The Group applies IFRS 8 "Operating Segments", which requires the Group to disclose its operating segments on the basis of information regularly available to management.
(s) Transactions with financial instruments
The bank carries out the following transactions with financial instruments for customers:
• Investment services in transactions with financial instruments;
• Transfers from/to an account in the bank to/from an account in another bank and/or depository institution;
• Maintaining and servicing accounts for financial instruments;
• Administering client portfolios of financial instruments;
• Depository services for pension funds, collective investment schemes, investment funds and special investment purpose companies.
The customer's financial instruments are kept on individual clients' accounts for financial instruments and are reported separately from the bank's assets.
Fees and commissions received in respect of transactions with financial instruments are reported in profit or loss when providing the service.
(u) Changes in accounting policy and disclosures
New and amended standards and interpretations in force as of 1 January 2018
TIFRIC 22 Foreign Currency Transactions and Advance Consideration
The Interpretation addresses the issue of determining the date of the transaction for the purposes of determining the spot exchange rate to be used for the translation of assets, income or expense (or part thereof) upon initial recognition that is related to the write-off of a non-monetary asset or a non-monetary liability arising from the payment or receipt of advance
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consideration in a foreign currency arising from a paid or received advance payment in a foreign currency transaction. The Interpretation of the clarifications did not affect the financial performance or results of the Group's operations.
IFRS 2 Share-based Payment Transactions (Amendments): Classification and Measurement of Share based Payment Transactions
The amendments provide requirements: for the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; for share-based payment transactions with the option of settling net of withholding taxes and for changes to the terms and conditions of a share-based payment that alters the classification of the transaction from cash-settled to an equity-settled one. The adoption of the amendments did not have any impact on the financial position or results of the Group's operations.
IFRS 4 Insurance contracts (Amendments): Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
The objective of these amendments is to address issues arising from the different effective dates of IFRS 9 Financial Instruments and the upcoming new insurance contracts standard IFRS 17 Insurance Contract. Entities issuing insurance contracts will still be able to adopt IFRS 9 on 1 January 2018. The amendments introduce two alternative approaches – a deferral approach and an overlay approach. The deferral approach enables eligible entities to defer the implementation date of IFRS 9. The overlay approach allows an entity applying IFRS 9 from 2018 onwards to eliminate the profit or loss effects resulting from some accounting mismatches that may arise from the implementation of IFRS 9 before IFRS 17. The amendments are not applicable to the Group.
IAS 40 Investment property (Amendments): Transfers of Investment Property
The amendments provide guidance on transfers from or to investment property when changing the intentions of the management, only when there is a proven change in use. Only a change in the intentions of the management is not sufficient evidence of a change in use. The adoption of the amendments did not have any impact on the financial position or results of the Group's operations.
Annual Improvements to IFRS Standards 2014–2016 Cycle
Summary of amendments and related standards are provided below:
• IAS 28 Investments in Associates and Joint Ventures – measuring an associate or joint venture at fair value.
The adoption of the amendments did not affect the Group’s financial performance or results.
Published standards that are not yet effective and have not been adopted earlier
A summary of published standards that are not yet effective or have not been adopted earlier by the Group at the date of issue of these financial statements is presented hereinafter. It is disclosed what is the reasonably expected impact on the disclosure, financial position and operating results upon the initial adoption of these standards by the Group. This is expected to happen when they come into effect.
IFRS 16 Leases
IFRS 16 was published in January 2016 and replaces IFRS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases under the same balance sheet model as the accounting for the finance lease under IAS 17. The Standard includes two exemptions from recognition for leasing contracts – leasing of low-value assets (e.g. personal computers) and short-term lease (i.e. leases with a lease term of up to 12 months). At the commencement date of the lease, the lessee recognizes an obligation to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset over the term of the lease (i.e., an asset for the right of use). Lessees will be required to recognize a separate interest expense on the lease obligation and amortization cost of the asset for the right of use.
In addition, lessees will be obliged to revaluate the lease liability when certain events occur (e.g., change in the lease term, change in future lease payments resulting from a change in the index or revaluation used to determine such payments). In principle, the lessee will recognize the amount of the revaluation of the lease liability as a revaluation of the asset for the right of use.
In accordance with IFRS 16, the lessor's accounting is substantially unchanged from that applied to date under IAS 17. Lessors will continue to classify leases under the same classification principle as defined in IAS 17 and distinguish between both types of leasing: operating and finance leases.
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IFRS 16, which enters into force for annual periods beginning on or after 1 January 2019, requires lessees and lessors to make more detailed disclosures than those under IAS 17.
Transition to IFRS 16
The Group plans to adopt IFRS 16 under the modified retrospective approach. The Group will not benefit from the practical expedient measure and will apply the IFRS 16 definition whether the contracts are or have a lease for all contracts.
The Group will benefit from the exemptions offered by the standard for lease contracts for which the lease term ends within 12 months of the date of initial application, and the lease contracts for which the underlying asset is of low value.
As of the date of approval for the issuance of these financial statements for the year 2018, the Group is still in the process of finalizing the analysis of the effects of initial application of IFRS 16. The assessment of the potential effect that the application of IFRS 16 will have on the financial statements in the period of the initial application is presented below at the aggregate level. The quantitative information disclosed below may be subject to further changes in 2019 as a result of the completion of the analysis for the initial application of the IFRS.
in BGN Thousand
Assets 35,335
Liabilities 35,335
Net effect on equity –
Profit or loss –
3. Effects of the Initial Application of IFRS 9The table below shows the effect on the opening balance of financial instruments and the equity of the Group following the transition from IAS 39 to IFRS 9.
In BGN Thousand
Assets Balance Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Revaluation Amend- Balance as of fication fication to fication to fication to fication to fication to fication to ments as of 31.12. to Other financial financial financial financial financial provisions from the 01.01. 2017 demand assets assets assets assets at iabilities at for introduction 2018 under deposits held for mandatorily fair value amortized amortized liabilities of the under IAS 39 trading fair value through cost cost IFRS 9 IFRS 9 through other model for profit/loss comprehen- expected sive income credit losses
Cashandbalances 1,298,864 – – – – – – – – – 1,298,864with theCentralbankOtherdemand 98,910 – – – – – – – – 98,910depositsandFinancialassets 50,285 – 7,177 – – – – – – – 57,462held fortradingDeriva-tives 7,177 – (7,177) – – – – – – – – Loansand 346,974 (98,910) – – – (248,064) – – – – (0)advancesto banks Loansandadvances 4,420,081 – – (25,212) – (4,394,869) – – – – – tocustomers Investmentsecurities 966,805 – – – (404,341) (562,464) – – – – (0)
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In BGN Thousand
Assets Balance Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Revaluation Amend- Balance as of fication fication to fication to fication to fication to fication to fication to ments as of 31.12. to Other financial financial financial financial financial provisions from the 01.01. 2017 demand assets assets assets assets at iabilities at for introduction 2018 under deposits held for mandatorily fair value amortized amortized liabilities of the under IAS 39 trading fair value through cost cost IFRS 9 IFRS 9 through other model for profit/loss comprehen- expected sive income credit losses
Financialassetsmandato-rily fair – – – 25,212 – – – – 2,119 784 28,115valuethroughprofit /lossFinancialassets atfair valuethrough – – – – 404,341 – – – – – 404,341othercompre-hensiveincomeFinancialassets atamortized – – – – – 5,223,333 – – (5,165) (7,708) 5,210,460cost Invest-ments insubsidia- 1,662 – – – – – – – – – 1,662ries andassociatesProperty, plant and 37,365 – – – – – – – – – 37,365equipmentIntangibleassets 31,192 – – – – – – – – – 31,192Currenttax assets – – – – – – – – – – 334Deferredtax assets 156 – – – – – – – – – 156Otherassets 38,596 – – – – (17,935) – – – – 20,661
Totalassets 7,199,157 – – – – – – – (3,047) (6,924) 7,189,521
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In BGN Thousand
Liabilities Balance Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Reclassi- Revaluation Amend- Balance as of fication fication to fication to fication to fication to fication to fication to ments as of 31.12. to Other financial financial financial financial financial provisions from the 01.01. 2017 deposits assets assets assets assets at iabilities at for introduction 2018 under on demand held for mandatorily mandatorily amortized amortized liabilities of the under IAS 39 deposits trading fair value at fair value cost cost IFRS 9 IFRS 9 through in other model for profit/loss comprehen- expected sive income credit losses
Financialliabilities 7,254 – – – – – – – – – 7,254held fortradingDepositsfrom 59,907 – – – – – (59,907) – – – – banksDepositsfrom 5,376,840 – – – – – (5,376,840) – – – – customersBorro-wings 339,786 – – – – – (339,786) – – – – frombanksSubordi-nated 365,275 – – – – – (365,275) – – – – liabilities Financial iabilities – – – – – 6,193,654 – – – 6,193,654at amor-tized costProvisionsfor – – – – – – – 28,838 – 2,171 31,009liabilitiesCurrenttax 901 – – – – – – – (320) (914) – liabilitiesOtherliabilities 118,296 – – – – – (51,846) (28,838) – – 37,612
Totalliabilities 6,268,259 – – – – – 0 – (320) 1,257 6,269,530
Equity – – – – – – – – – – – 0Sharecapital 603,448 – – – – – – – – – 603,448Retainedearnings 230,517 – – – – – – – 1,837 (8,201) 224,153Revalua-tion 10,490 – – – – – – – (4,558) 15 5,947reserve Statutoryreserve 86,443 – – – – – – – – – 86,443fund
TotalEquity 930,898 – – – – – – – (2,721) (8,186) 919,991
Totalliabilities 7,199,157 – – – – – – – (3,042) (6,929) 7,189,521andEquity
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The measurement categories presented in the statement of financial position include the following instruments as of 31 December 2018 and the detailed notes below in the financial statements refer to those instruments:
IFRS 9 classification categories by type of instrument - Assets Loans and Loans and Debt Equity Derivatives Other Total advances advances to securities securities receivables financial to banks customers assets
Financial assetsheld for trading – – 45,157 – 14,264 – 59,422
Financial assetsmandatorily fair – 28,383 – – – – 28,383value throughprofit or loss
Financial assets -fair value through – – 553,924 7,790 – – 561,714other comprehensiveincome
Financial assets atamortized cost 221,752 5,046,282 512,728 – – 32,879 5,813,641
Total financial assets 221,752 5,074,665 1,111,810 7,790 14,264 32,879
Financial instruments according to the IFRS 9 classification category - Assets
Financial Financial Financial Financial Total assets held assets assets at assets at financial for trading mandatorily fair value amortized assets fair value through other cost through profit comprehensive or loss income
Loans and advances to banks – – – 221,752 221,752
Loans and advances to customers – 28,383 – 5,046,282 5,074,665
Debt securities 45,157 – 553,924 512,728 1,111,810
Equity securities – – 7,790 – 7,790
Derivatives 14,264 – – – 14,264
Other receivables – – – 19,427 19,427
Total financial assets 59,422 28,383 561,714 5,800,189
IFRS 9 classification categories by instrument types - Liabilities
Financial liabilities Financial liabilities held for trading at amortized cost
Derivatives 11,926 –
Deposits from banks – 96,140
Deposits from customers – 6,203,581
Borrowings from banks – 289,467
Subordinated liabilities – 365,284
Other financial liabilities – 52,487
11,926 7,006,959
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4. Risk ManagementIntroduction and overview
The Group is exposed to the following risks as a result of the use of financial instruments:
A. Credit risk
B. Liquidity risk
C. Market risk
D. Capital management
Risk management framework
The Management Board is responsible for establishing and exercising ongoing oversight of the risk management framework.
Risk management is supervised by the Supervisory Board Risk Committee established in accordance with the requirements of art. 6 of the Bulgarian national bank’s Ordinance 7 on organization and risk management of banks. The functions of the Risk Committee to the Supervisory Board are to advise the Management and Supervisory Board on the bank's present and future risk appetite and strategy, as well as to assist them in monitoring the implementation of the strategy by the management.
The Management Board has established Asset and Liability Committee (ALCO), Credit Committee, Problem Loans Committee, Operational Risk Management Committee and Risk Committee of Raiffeisenbank (Bulgaria) EAD, which are responsible for developing and monitoring Group risk management policies in their specified areas. The members of the committees include representatives of the Management Board, as well as of other managerial levels within the bank.
The main objectives of the risk management policies are to identify and analyze the various risks to which the Group is exposed, to set limits and to monitor compliance through ongoing monitoring of exposures. Risk management policies and systems are reviewed regularly in order to reflect changes in the market conditions, as well as changes in the products and services offered. Through established internal standards and training and management procedures, the Group strives to create the conditions for disciplined and constructive control in which all employees consciously fulfill their roles and responsibilities.
By its very nature, the activity of the Group is related to the use of different types of financial instruments. The Group accepts deposits from customers with various agreed maturities on which it pays floating or fixed interest rates, seeking to invest the funds into high-quality assets.
A. Credit risk
The group is constantly exposed to credit risk, mainly arising from the probability that counterparties might default on their contractual obligation under loans and advances and debt securities when due or in full. Also, the Group is exposed to off-balance sheet credit risk through commitments under unutilized extended credit lines and issued guarantees. Credit risk is the key risk in the Group's operations, which is why management of exposures to credit risk is a priority for the management of the Group. The Group has a set of policies and procedures in relation to credit approval and credit exposures management.
Credit risk concentrations (whether on or off-balance sheet) may arise from exposure to risk to a single debtor or to a group of debtors having similar characteristics such as those where changes in economic or other circumstances have a similar effect on meeting their contractual obligations.
The Group is also exposed to credit risk in result of its trading and investment activities, as well as in result of its activities as an investment intermediary for its customers or for third parties. The credit risk arising from trading and investment activities of the Group is managed through market risk management.
The risk that counterparts to financial instruments might default on their obligations is monitored on an ongoing basis by the Group. In monitoring credit risk exposures related to the trading portfolio, consideration is given to instruments with a positive fair value are relevant, depending on market conditions.
Credit risk management
The Supervisory Board of the bank has delegated responsibility has delegated the responsibility for the credit risk management of the Management Board. The Management Board determines the credit policy of the Group on the basis of market conditions analysis, as well as on an assessment of the risks associated with the credit activity. The scope of the credit
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policy is to outline the directions in which the credit portfolio of the Group should develop in the coming years. The approval and adoption of the credit policy by the bank's Supervisory Board confirms that the actions proposed by the Group in respect of target industries and products, as well as the consequent impact of these actions on the Group's loan portfolio, are in line with projections the Supervisory Board and the main strategy of the Raiffeisen Group.
The credit risk management is carried out by the structural units subordinated to the executive director in charge of Risk Management and Finance. The main tasks of these structural units are:
• Recommend and manage portfolio concentration limits based on approved limits for proactive steering of the concentrations on GCC (Group of Connected Customers) level;
• Provide independent review of credit applications and credit risk assessment based on internal models for credit risk assessment;
• Perform proactive risk management risk management, both on individual transaction level and on the level of the entire Credit portfolio;
• Ensure that the standards, policies and practices of Raiffeisen Group for risk management are adhered to by all business units involved in the lending process are by all business units;
• Assist business units to create business-specific risk management practices that meet the standards introduced by the Raiffeisen Group and are used to assess, measure, report, monitor, limit and analyze credit risk for corporate customers;
• Assist in the identification, classification and management of problem exposures, including exposures with forbearance;
• Ensure correct reporting by business units of early warning signals and timely appropriate actions, such as customer rating reduction, a comprehensive overview of high risk exposures and the preparation of an action plan for potential problem exposures;
• Assist business units in creating a credit policy, reviewing and proposing changes as needed, as well as monitoring and compliance with approved policy.
Limits monitoring and credit risk mitigation policies
The Group manages, sets limits and controls the credit risk concentration for all receivables that can be identified – in particular for individual counterparties and groups, as well as for individual industries and countries.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and to geographical and industry segments. Such risks are monitored on an ongoing basis and are subject to regular reviews.
Exposure to credit risk is managed with ongoing changes to credit limits based on regular analyzes of the ability of existing and potential borrowers to meet interest and principal payments.
Credit risk measurement
The credit risk assessment for loans and receivables from customers and banks comprises four components:
(i) The probability of default under the loan agreement by the debtor;
(ii) Current exposure to the debtor and estimates of exposure at default;
(iii) The expected rate of recovery of non – performing exposure (loss given default);
(iv) A loss identification period that represents the time horizon of the probability of default.
These credit risk components, which reflect the expected losses, are in line with the regulatory requirements of the BNB and the European Capital Adequacy Directive and are embedded in the day-to-day operations of the Group. However, as of 1 January 2018 the provisions of IFRS 9 are applied to determine the amount of expected credit losses to adjust the book value of loans and receivables.
The Group assesses the probability of default of individual counterparties using internal rating models tailored to the various categories of exposures and counterparties. These models are developed on the basis of statistical analyzes and assessments, are compared with the available external information for the counterparty. Borrowers and their exposures are segmented
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into separate rating classes that reflect the limits of the probability of default for the class. This means that exposures can be shifted from one rating to another, since the probability of default is changing over time. Assessment methods are monitored regularly and improved if necessary. The Group regularly verifies the reliability of internal rating models for forecasting events of default. The Group uses estimates of recognized external rating agencies, when available, to compare the credit risk assessment performed using internal rating models.
As of 1 November 2014, Raiffeisenbank Bulgaria has been formally authorized to use internal ratings based approach in the management and measurement of credit risk, as required by the most up-to-date bank regulations, namely Regulation 575/2013 of the European Parliament and the Council.
Exposure at default is the expected credit amount payable in case of default. For example, the exposure at default on a loan is the residual principal and the interest due at the time of default. For credit commitments, exposure to defaults is determined as the sum of the portion utilized and the probable future utilization at the time of the default.
Loss given default is defined as the amount of loss that the Group would incur in the event of a default on a receivable. Loss of default is directly related to the type of counterparty, the rank of the receivable, the availability of collateral or other credit protection.
To assess the credit risk of bonds and other securities, the Group uses both external ratings and internal rating models for those securities that have not been assigned a credit rating by recognized External credit rating agencies. The Group invests in securities of good credit quality that are a sufficiently secure source of liquidity, helping to meet mandatory regulatory requirements and ratios.
Collateral
The Group uses a number of policies and practices to reduce credit risk. The most traditional way for credit protection is to accept collateral. The Group has adopted rules for the establishment of eligible classes of collateral or credit protection. The main types of collateral recognized by the Group are:
– Real estate mortgage;
– Cash deposits;
– Pledge on commercial assets, such as machinery and equipment, inventory and receivables;
– Bank guarantees;
– Portfolio guarantees issued by top international or national institutions;
– Pledge of financial instruments such as debt or equity securities.
Long-term financing and loans to corporate clients are usually secured, while consumer loans to private individuals are unsecured. Also, in order to minimize the loss on loans, the Group may require additional collateral from the borrower upon the occurrence of an indication of the deterioration of the receivable.
Derivatives
The Group exercises strict control over adherence to the size and maturity limits of open positions in derivative instruments by reviewing the structure of transactions in terms of currency, term and nominal. They can be divided into two categories, as follows:
• Settlement Limit: limits maximum outgoing payments within one day;
• Currency limit for derivatives: limits the cost of replacing all derivatives in a non-regulated market if the counterparty becomes insolvent.
At any one time, the exposure to credit risk is limited to the present fair value of the instruments that are in favor of the Group (I.e., financial instruments for which the fair value is positive), which for derivative instruments is only a small portion of the agreed nominal value commonly used to report the volume of the opened derivatives at the reporting date. Exposure to credit risk is managed as part of total credit limits to customers, taking into account potential fluctuations in market conditions. Typical exposure to credit risk on these financial instruments does not require collateral or other type of credit protection.
Settlement risk arises in cases where upon transactions related to the supply of foreign currency, debt or equity financial instruments, a counterpart claim arises for the Group on currency, debt or equity instruments. Day settlement limits for individual counterparties are set for risk management purposes to minimize the overall risk that arises in day-to-day trading.
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Credit-related commitments
The purpose of these tools is to provide, at the request of the client, the availability of funds for a given commitment. All loans and other receivables, guarantees and letters of credit bear the same credit risk. Documentary Letters of Credit – the Group's commitment to the client to settle its obligations to third parties up to a certain amount and subject to certain conditions – are usually collateralized by the subject matter of the delivery to which they relate and therefore the related credit risk is lower compared to the credit granted.
A commitment to provide a credit is the non-exercised right on the part of the client to utilize the agreed amount of credit, guarantee or letter of credit. The credit risk associated with the Group's commitments to provide a loan is expressed in the potential loss that the Group would incur on the extent of the unused portion of the commitment. However, taking into account standard customer creditworthiness, the probable amount of loss is less than the sum of all unutilized commitments. The Group monitors the maturity of its credit commitments, as long-term commitments carry a higher risk than those with a shorter term. However, credit commitments that are unconditionally revocable on the part of the Group, or are irrevocable on the basis of deterioration in the creditworthiness of the client, not considered to be carriers of credit risk.
Policy on risk exposures assessment and allocation of provisions for expected credit losses under IFRS 9, effective from 1 January 2018
The group estimates, on the basis of progressive methodology, the expected credit losses associated with the assets of debt instruments measured at amortized cost and measured at fair value through other comprehensive income, as well as exposures arising from credit transactions, leasing receivables and financial guarantee contracts. The Group charges provisions in such cases at each reporting date.
The application of IFRS 9 requires a higher degree of judgment or complexity based on many sources of uncertainty of the measurement, that have a significant risk of substantial adjustment in the next financial year. Quantitative information for each of these estimates and judgments is included in the relevant notes, together with information on the basis of the calculation of each item agreed in the consolidated financial statements.
Measurement of expected credit losses
The measurement of the expected credit loss is a probability-weighted amount determined by calculating a number of possible outcomes, the value of the money over time and significant supporting information for past events at the reporting date, current conditions and projections of future economic conditions, and is provided without undue cost or effort.
The measurement of the expected credit loss on financial assets, measured at amortized cost and fair value through other comprehensive income, is an area that requires the use of sophisticated models and significant assumptions about future economic conditions and the credit behavior. The application of the accounting requirements for measuring the expected credit losses requires significant judgments, namely:
• Defining criteria for significant credit risk growth;
• Selection of appropriate models and assumptions to measure the expected credit losses;
• Determining the number and relative weight of scenarios for the future for each type of product / market and the associated credit losses;
• Create groups of similar financial assets in order to measure the expected credit losses.
The credit risk of the Group arises from the risk of financial loss in the event that customers or market counterparties fail to meet their contractual obligations. Credit risk arises mainly from interbank, commercial and consumer loans and advances, and from credit commitments arising from credit activities, but may arise from credit facilities such as financial guarantees, letters of credit and acceptances.
The Group is also exposed to other credit risks arising from investments in debt securities and other exposures arising from its trading operations ("trade exposures"), including assets and derivatives in trading portfolio, as well as settlement balances with market counterparties and repurchase agreements.
The credit exposure assessment for risk management purposes is complex and requires the use of models as exposures vary depending on changes in market conditions, expected cash flows and time. The credit risk assessment of an asset portfolio requires additional calculations of the probability of default, related losses and counterparty default relationships. The group measures credit risk using probability of default (PD), exposure at default (EAD) and loss given default (LGD), under the general approach set out in IFRS 9.
The Group applies three-stage model for impairment based on changes in the credit quality of the initial occurrence. This model requires a financial instrument that is not credit impaired during the initial recognition, to be classified in stage 1 and
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its credit risk to be monitored continuously. If a significant increase in the credit risk is identified after the initial recognition, the financial instrument goes into stage 2 but is still not considered credit impaired. If the financial instrument is in default (credit impaired), it should be moved to stage 3.
For the financial instruments in stage 1, the Group determines expected credit losses as a result of possible events of default that could occur within the next 12 months of the life of the instrument. For the financial instruments in stage 2, the expected credit losses are determined over the remaining life of the instrument, irrespective of when the default occurred. For the financial instruments in stage 3, credit losses are determined and calculated for losses incurred on the asset for its entire remaining life. According to IFRS 9, when estimating the expected credit losses, it is necessary to consider forecast information. Purchased or initially generated financial assets with credit impairment (POCI) are those that are impaired at their initial origination. Their expected loss is always measured on a full-term basis (stage 3).
Significant increase in credit risk
The Group considers that a financial instrument has suffered a significant increase in credit risk when one or more of the following quantitative, qualitative or "backstop" criteria are met:
Quantification Criterion
The Group uses a quantitative criterion as the main indicator of the significant increase in credit risk in all material portfolios, as well as an additional criterion such as a past due period of 30 days or forbearance measures for specific exposures such as “backstop”. For quantification of the stages, RBBG compares the PD curve for the entire life of the loan at the reporting date to the value of the same indicator at the date of initial recognition of the loan. Given the different nature of credit products in Corporate Banking (Non-Retail) and Retail Banking (Retail) segments, the Group uses different methods to calculate the potential significant increase in credit risk.
In order to compare the two PD curves in the Corporate Banking and Small and Medium-Sized Entities segment, their values are reduced to the probability of default on an annual basis. There is a significant increase in credit risk, if the PD has increased by more than 250 per cent. For longer-term loans, the 250 per cent threshold is reduced to take into account the effect of long-term maturity.
In the Retail Banking segment, the threshold for a significant Increase in credit risk for portfolios with developed models is calculated based on historical data.
The Group has decided to apply the above-mentioned thresholds over which the financial instrument is transferred to stage 2, based on the current market practices. There is an option for the implementation of other practices that would result in a lower or higher threshold for certain segments.
Qualitative Criterion
The Group uses a qualitative criterion as a secondary indicator for a significant increase in credit risk for all material portfolios. Re-classification in stage 2 takes place when the following criteria are met:
For government, bank, corporate exposures and project finance, if the borrower meets one or more of the following criteria:
• Negative changes in external market indicators;
• Changes in the terms of the contract that lead to forbearance measures;
• Lack of rating as of the current period.
The calculation of the significant increase in credit risk includes forecast information and is performed on a quarterly basis at transaction level for all the Group's corporate portfolios.
For exposures in the Retail Banking segment, it is taken into account whether the borrower fulfills one or more of the following criteria:
• Existence of forbearance measures which the creditor granted to the borrower due to economic or contractual reasons when he is experiencing economic difficulties but which would otherwise not be permitted;
• Lack of rating as of the current period;
• Expert judgment on the potential deterioration in the creditworthiness of a group of clients due to indications of deterioration in the economic sector, region, employer and other force majeure circumstances.
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The calculation of the significant increase in credit risk includes forecast information and is performed monthly at the level of a separate transaction for all retail portfolios held by the Group.
Overdue days 30 days (backstop)
A backstop applies to the financial instrument that is considered to have a significant Increase in credit risk, if the borrower is in more than 30 days past due.
Exception for low credit risk
The Group uses the low credit risk exception for the purposes of determining the classification upon initial application of IFRS 9 for all debt securities that have a rating that is not lower than an investment grade, at least S&P BBB-, Moody's Baa3 or Fitch BBB-, according to the Group policy. The Group did not use the exception for low credit risk in the initial classification of standardized loans (lending business).
Definition of default and credit impairment of the assets
The group defines a financial instrument in the "default" category when it fully meets the definition of a credit impaired asset and meets one or more of the following criteria:
Quantification Criterion
The borrower is in more than 90 days past due for a substantial portion of its contractual payments. There is no attempt to disprove the presumption that financial assets with more than 90 days past due should not be classified in stage 3.
Qualitative Criterion
The borrower meets the criteria of a high probability of not fully repaying his obligations, which indicates that the borrower is in significant financial difficulties. Indicators for low probability of repayment are:
• The credit receivable is in the process of being sold with a material loss;
• The credit receivable is subject to restructuring (distressed restructuring);
• The borrower is insolvent;
• The borrower has committed credit fraud;
• The borrower has died;
• The execution of the contract is terminated early on the part of the Group, due to non-performance of contractual obligations on the part of the borrower.
The criteria above are applied to all financial instruments, which are held by the Group, and are in accordance with the definition of default used for the purposes of credit risk management. The definition of default is applied sequentially to model the probability of default (PD), exposure at default (EAD) and the loss given default (LGD) in the calculation of the expected loss of RBBG.
The Group considers that an instrument in the corporate segment and in the small and medium-sized enterprise segment is no longer defaulted (i.e. "recovered") when it does not meet any of the default criteria for a consecutive period of at least 3 months or longer, for restructured exposures in difficulty. The period of three months was determined based on an analysis that takes into account the likelihood of a financial instrument to return to the default after recovery using different possible definitions of recovery. In retail banking segment, exposures that exceeded 180 days past due cannot be reclassified to a lower than stage 3 group.
Basic parameters, assumptions and calculation techniques
The expected credit loss for the instrument is measured on a 12-month basis on a full-term basis depending on whether there has been a significant increase in the credit risk after the initial origination or whether an asset is considered as credit impaired. Economic forecast information is also included in the PD, EAD and LGD on a 12-month basis for the entire loan term. These assumptions vary by product type. Expected credit losses are the discounted result of the probability of default (PD), loss given default (LGD), the exposure at default (EAD) and the discount factor (D).
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Probability of default
Probability of default is the probability that a borrower will not meet its financial obligation over the next 12 months or during the remaining maturity of the liability. Generally, the probability of default over the entire term is calculated using the 12-month probability of default used for regulatory purposes, whereby the margins of conservatism were dropped as a reference. In addition, different statistical methods are used to determine how the default profile will develop from the time of the initial origination and for the entire duration of the loan or portfolio. The profile is based on historically monitored data and parametric functions.
The Group uses different models for calculating the default profile of unpaid credit amounts and they can be grouped into the following categories:
• Sovereign, local and regional governments, insurance companies and collective investment enterprises – the default profile is generated using a migration matrix approach. Estimated information is included in probability of default using the single-factor model of Vasicek;
• Corporate clients, project financing and financial institutions – the default profile is generated using the parametric regression of survival. Estimated information is included in the probability of default using the single-factor model of Vasicek;
• Mortgage loans and other retail loans – the default profile is generated using parametric regression of survival in competitive risk environments. Estimated information is included in the probability of default by using additional models.
In limited circumstances, where part of the initial information is not available, the grouping, averaging, and benchmarking of the input data is used for the calculation.
Loss given default (LGD)
„Loss given default“ (LGD) means the ratio of the exposure loss due to counterparty default to the default exposure amount. Loss given default varies according to the type of counterparty and product. Loss given default is presented as the loss percentage per unit of exposure at the time of default. Loss given default is calculated on a 12-month basis based on the entire loan term. Loss given default on a 12-month basis is the expected loss rate if the exposure default occurs in the next 12 months and the loss given default on a full-term of the loan is the percentage of expected loss if the default occurs during the remaining expected period of the loan.
Various models are used to determine the loss given default on loans and they can be grouped into the following categories:
• Loss given default at Sovereign model is estimated using market information;
• Corporate clients, project financing, financial institutions, local and regional governments, insurance companies – loss given default is generated by discounting the expected cash flows identified in the problem loan management process. Estimated macroeconomic information is included in the loss given default using the Vasicek model.
• Mortgage and other retail loans – loss given default is generated on the basis of the default loss models developed in accordance with Regulation 575/2013 by eliminating indirect costs and conservatism margins. Estimated information is included in the loss given default, using various additional models.
• For a small portion of the portfolio where a standardized approach is used for regulatory purposes under Regulation 575/2013, parameters and models defined at Group level are used to determine its risk value.
Exposures at default
The exposures at default are based on the amounts due to the Group at the time of default over the next 12 months or over the remaining life of the loan. The 12-month exposures at default and those based on the entire period of the loan are determined on the basis of the expected payment profile, which varies according to the type of product. For amortization products and loans with a single repayment of the principal at maturity, this is based on the contractual payments due by the borrower for a period of 12 months or for the entire period. The assumptions for early repayment/refinancing are also taken into account in the calculations.
For revolving products, the exposure at default is projected by taking the current balance and adding the expected utilization of the limits remaining at the time of default after applying a credit conversion factor. The credit conversion factor is applied after subtracting the prudential regulatory margins. For a small part of the portfolio where a standardized approach is used for regulatory purposes under Regulation 575/2013, parameters and models defined at Group level are used to determine its risk value.
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Discount factor
The original effective interest rate or estimate is used for determining the discount factor, except in the case of leases or acquired or initially incurred credit impairment exposures using the effective interest rate adjusted for the credit risk calculated on initial recognition.
Calculations
The expected credit loss is the result of PD, LGD, EAD and the probability of non-default before the time period considered. The latter is expressed by a survival function. Thus, future estimates of expected credit losses that are then discounted to the present value at the reporting date are calculated effectively and are summed up.
The calculated values of the estimated credit losses are subject to subsequent weighing through three projections scenarios: baseline (50 per cent), optimistic (25 per cent), pessimistic (25 per cent).
Different models for calculating the provisions for stage 3 exposures are used, and can be grouped into the following categories:
• Sovereign, corporate clients, project financing, financial institutions, local and regional governments, insurance companies and collective investment undertakings – stage 3 provisions are calculated by problem loan managers based on expected cash flows discounted at effective interest rates percent;
• Mortgage retail loans – stage 3 provisions are calculated on the basis of discounting the realizable value of the collateral;
• Other retail loans – stage 3 provisions are obtained by calculating the statistically best estimate of the expected loss. Indirect costs are not involved in determining the loss given default.
Standard features of the credit risk
The Group has used a collective approach in determining the provisions for expected credit losses, except for part of the stage 3 exposures in corporate business, where the bulk is calculated on an individual basis. In determining the provision for the estimated credit losses, calculated on a collective basis, the Group carries out the grouping of exposures on the basis of common credit risk characteristics, so that they are similar in each group. The characteristics of retail exposures are grouped at country level, counterparty classification (Private Individuals and Microenterprises), product (e.g., mortgage, consumer loans, overdrafts, credit cards), rating level and LTV (loan-to-value) groups. For each combination of the above criteria, a separate model has been developed. The characteristics of exposures to corporate business are grouped at country and product level.
Forecast information
Determining the moment of significant credit risk growth and the amount of expected credit losses require the inclusion of forecast information. The Group made a historical analysis and identified the main economic variables that affect the credit risk and the expected credit losses for each portfolio.
These economic variables and their respective impacts on probability of default, loss given default and exposures at default vary according to the macroeconomic model for the PD / LGD / product. Expert assessment is also used in this process. Estimates of defined economic variables (“underlying economic scenario”) are provided by Raiffeisen Research on a quarterly basis and provide specific expectations for economic growth over the next three years. After the third year, in order to predict economic variables, the average reversed approach was used for longer-life instruments, meaning that the economic variables tended to either a long-term average, or a long-term average growth rate to maturity. The impact of these economic variables on probability of default, loss given default and default exposures is determined by statistical regression based on historical data.
In addition to the baseline economic scenario, Raiffeisen Research provides the best and worst case scenario, along with the corresponding weights, to ensure that nonlinearities are detected. The group assumes that three or less scenarios adequately detect non-linearity. Weights of scenarios are determined by a combination of statistical analysis and expert credit assessment, taking into account the range of possible outcomes where each selected scenario is a representative. Probability weighted expected credit losses are determined by performing each scenario using the appropriate credit loss model and multiplied by the respective weight.
As with all economic forecasts, estimates and probabilities of occurrence are subject to a high degree of uncertainty, and therefore the actual values may be significantly different from those predicted. The Group believes that these estimates represent the best estimate of possible outcomes and cover all potential nonlinearities and asymmetries in the various portfolios of the Group.
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The most significant assumptions used to estimate the expected credit loss at the end of each quarter are shown in the table below:
The weights applied to each scenario at the end of each quarter are as follows: 25 per cent for the optimistic scenario, 50 per cent for the baseline, and 25 per cent for the pessimistic scenario.
Sensitivity analysis of Non-retail portfolio in stages 1 and 2
Assumptions affecting significantly the sensitivity of expected credit losses are as follows:
• Gross domestic product (for all portfolios);
• Unemployment rate (for all portfolios);
• Long-term rate of government bonds (especially for Non-Retail portfolios).
The table below provides a comparison between the reported total amount of provisions for expected credit losses at the following weights – 25 per cent for optimistic, 50 per cent for baseline and 25 per cent for pessimistic scenario for Non-Retail portfolio (corporate loans, securities, receivables from financial institutions, classified at amortized cost, as well as securities classified in other comprehensive income) in Phases 1 and 2, relative to 100 per cent of the weight of each scenario:
Real GDP Scenario 2018 2019 2020
Bulgaria
Optimistic 3.9% 4.6% 4.0%
Baseline 3.5% 3.2% 2.5%
Pessimistic 3.1% 1.8% 1.0%
Unemployment Scenario 2018 2019 2020
Bulgaria
Optimistic 5.2% 3.6% 3.7%
Baseline 5.7% 5.5% 5.8%
Pessimistic 6.5% 8.4% 9.0%
Consumer Price Index Scenario 2018 2019 2020
Bulgaria
Optimistic 3.0% 4.5% 5.0%
Baseline 2.6% 3.1% 3.4%
Pessimistic 2.4% 2.2% 2.4%
Expected credit losses in million BGN Reported Pessimistic Baseline Optimistic
Non-Retail portfolio stage 1 and 2 5.61 7.72 5.32 4.08
The optimistic and pessimistic scenarios do not reflect the extreme cases but only the average scenarios that are distributed in these cases.
Partial write-off
Loans and securities are subject to write-off (in whole or in part) when there is no reasonable expectation of repayment of credit obligations. The Group applies the rule when there is objective evidence that the borrower can no longer report revenue from its operating activities and the value of the collateral on the loan cannot generate cash flows that are sufficient pay off the amount subject to write-off. For corporate exposures in the case of a non-operating undertaking, loans are written off to the value of the collateral, if the company no longer generates income from its operating activities. For retail exposures, qualitative criteria are considered, and in cases where there is no payment for one year, the credit is written off. If the retail exposure is collateralized and the expected repayment installments of the collateral are not sufficient to cover the entire debt and there is no reasonable expectation of repayment from other sources for the residual debt after the collateral, partial write-off can be made. For retail exposures, qualitative criteria are considered, and in cases where there is no payment for one year, the credit is written off. If the retail exposure is collateralized and the expected repayment installments of the collateral enforcement are not sufficient to cover the entire debt and there is no reasonable expectation of repayment from other sources
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for the residual debt after the collateral enforcement, partial write-off can be made. The amount of the partial write-off is equal to the difference between the residual exposure and the estimate of the potential repayment from the collateral enforcement.
Written-off loans can be subject to collection (enforcement activity).
The contractual obligations, which are written off during the reporting period and are still subject to collection, amount to BGN 35,286 thousand.
Credit risk categories
The credit risk categories as of 31.12.2018 are determined against the rating and the corresponding limits of the estimated probability of default as follows:
Risk categories Lower limit of Upper limit of probability of default probability of default
Excellent debt service potential >0.0000% ≤0.0300%
Very good debt service potential >0.0300% ≤0.1878%
Good debt service potential >0.1878% ≤1.1735%
Acceptable debt service potential >1.1735% ≤7.3344%
Poor debt service potential / under normal >7.3344% <100%
Default 100% n.a.
The tables below present the gross value and a provision for credit losses of financial instruments as of 31 December 2018, divided in phases and credit quality.
Gross value of financial instruments as at December 31, 2018
Loans and advances to customers
Credit quality Stage 1 Stage 2 Stage 3 Mandatorily Total fair value hrough profit/loss
Excellent 1,536 – – – 1,536
Very good 600,215 8,820 – – 609,035
Good 2,620,897 135,044 – – 2,755,940
Acceptable 1,244,054 122,683 – 23,987 1,390,724
Poor 54,704 135,394 – – 190,099
Default 0 0 134,745 4,396 139,141
Without measurement 127,623 16,034 – – 143,657
Of which with forbearancemeasures 383 37,433 67,548 25,427 105,365
4,649,029 417,974 134,745 28,383 5,230,130
Loans and advances to banks
Credit quality Stage 1 Stage 2 Stage 3 Mandatorily Total fair value hrough profit/loss
Very good 221,711 – – 221,711
221,711 – – 221,711
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Debt securities at amortized cost
Credit quality Stage 1 Stage 2 Stage 3 Total
Excellent 40,892 – – 40,892
Very good 458,155 – – 458,155
Good 13,737 – – 13,737
512,784 – – 512,784
Debt securities at fair value through other comprehensive income
Credit quality Stage 1 Stage 2 Stage 3 Total
Excellent 128,038 36,409 – 164,447
Very good 377,101 12,376 – 389,477
505,139 48,785 – 553,924
Commitments on issued guarantees and letters of credit
Credit quality Stage 1 Stage 2 Stage 3 Total
Very good 52,828 6,249 – 59,076
Good 145,726 8,891 – 154,616
Acceptable 75,367 9,983 – 85,351
Poor 889 2,510 – 3,399
Default – - 4,673 4,673
Without measurement 7,119 964 – 8,082
281,928 28,596 4,673 315,198
Undrawn credit lines
Credit quality Stage 1 Stage 2 Stage 3 Total
Excellent 29,960 – – 29,960
Very good 228,561 5,871 – 234,432
Good 988,814 65,610 – 1,054,424
Acceptable 273,862 9,135 – 282,997
Poor 3,056 10,149 – 13,205
Default – 1 4,676 4,678
Without measurement 38,951 3,591 – 42,542
Of which with forbearancemeasures – 10 755 764
1,563,204 94,357 4,676 1,662,238
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Provisions for credit losses as at December 31, 2018
Loans and advances to customers
Debt securities at amortized cost
Credit quality Stage 1 Stage 2 Stage 3 Mandatory Total fair value hrough profit or loss
Excellent – - – – –
Very good 424 144 – – 568
Good 4,118 3,656 – – 7,774
Acceptable 4,353 4,391 – – 8,745
Poor 1,715 21,908 – – 23,624
Default – - 109,962 – 109,962
Without measurement 3,196 1,596 – – 4,792
Of which with forbearancemeasures 11 3,636 58,500 – 62,147
13,806 31,696 109,962 – 155,465
Credit quality Stage 1 Stage 2 Stage 3 Total
Excellent – – – –
Very good 44 – – 44
Good 8 – – 8
53 – – 53
Debt securities at fair value through other comprehensive income
Credit quality Stage 1 Stage 2 Stage 3 Total
Excellent 3 13 – 16
Very good 32 16 – 48
35 30 – 64
Commitments on issued guarantees and letters of credit
Credit quality Stage 1 Stage 2 Stage 3 Total
Very good 2 1 – 3
Good 14 1 – 15
Acceptable 21 8 – 29
Poor – 214 – 215
Default – - 2,973 2,973
Without measurement 87 24 – 111
124 248 2,973 3,345
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Undrawn credit lines
Credit quality Stage 1 Stage 2 Stage 3 Total
Excellent 2 – – 2
Very good 66 27 – 93
Good 751 3,144 – 3,895
Acceptable 469 77 – 546
Poor 37 550 – 587
Default – 1 3,353 3,355
Without measurement 476 242 – 718
Of which with forbearancemeasures 1 – 335 336
1,801 4,041 3,353 9,195
For the purpose of comparison, the table below shows the customer loans granted and the allocated provisions for impairment losses under IAS 39 as of 31 December 2017 grouped by the credit quality applicable as of 1 January 2018.
Gross value of financial instruments as at December 31, 2017
Credit quality Loans and Commitments Undrawn advances to on issued credit lines customers guarantees and letters of credit
Excellent – – 94
Very good 545,473 20,832 50,757
Good 2,392,563 220,582 894,088
Acceptable 1,020,841 58,639 273,343
Poor 172,826 4,155 25,855
Default 191,499 5,639 4,573
Without measurement 35,992 6,161 37,814
Of which with forbearance measures 183,504 17 804
4,359,194 316,008 1,286,526
Provisions for impairment losses under IAS 39
Credit quality Loans and Commitments Undrawn advances to on issued credit lines customers guarantees and letters of credit
Excellent – – –
Very good 440 1 12
Good 5,713 54 223
Acceptable 6,573 53 56
Poor 11,857 127 472
Default 148,017 3,324 3,323
Without measurement 1,068 12 390
Of which with forbearance measures 83,966 17 330
173,668 3,573 4,476
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Forborne exposures
Forborne exposures are regulated under the "Technical Standards for Reporting on Forborne exposures and Non-performing Exposures – Article 99 (4) of EU Regulation No 575/2013".
Forborne exposure is an exposure for which discounts have been made by modifying credit parameters and / or refinancing to a client who is in financial difficulty or would be in difficulty if discounts are not applied.
Policy for the assessment of risk exposures and the allocation of provisions for impairment against credit risk under IAS 39, in force until 31 December 2017
The internal and external rating systems are aimed at determining the credit quality at the very beginning of the credit and investment activity. In turn, impairment provisions are recognized for the purpose of the financial statements only for losses that have occurred at the reporting date and when for the relevant exposures there is objective evidence of impairment.
The Group uses different approaches to determining the impairment and credit loss, depending on the risk category of the client and the credit product used.
Individual exposures are impaired with the following available indicators:
• The exposure is overdue for more than 90 days;
• The exposure is identified as irrecoverable on the basis of the existence of default indicators.
A provision for impairment loss for loans to private individuals and micro enterprises is set at 100 per cent of the exposure after deducting the value of the mortgage type collateral of a residential property. In unsecured products for private individuals, the impairment is based on the period in default and is determined by the historical observed collection rates for the maximum length of the collection period.
Exposures in the retail banking segment, for which no individual impairment can be determined, are aggregated on the basis of the internal models for credit risk assessment and the adjacent internal rating. Collective impairment for each group is estimated based on historical default rates and measured loss given default. The default rate is the number of defaulted exposures during the period as a percentage of the exposures that were in effect at the beginning of the period. The observation period is 12 months and an average indicator is calculated for consecutive months. Collective impairment is calculated by multiplying the exposure to the default level corresponding to the class and rating as well as by the loss given default (LGD). LGD values are based on a historical period of at least 5 years, and the sample used is the same as for calculating the IRB parameters. The LGD is calculated by subtracting the average return level from 100 per cent.
For individual small-volume products at retail for which there is no approved internal model, individual impairments are calculated for exposures over 180 days past due or with other indicators of impairment. Receivables that are impaired on an individual basis and for which there is objective evidence of impairment are excluded from collective impairment but they are the basis for compiling a historical loss pattern to determine the collective impairment.
Since December 2015, the bank has applied inter-rating models in calculating a provision for impairment losses on loans to private individuals and micro-businesses. Estimates of specific provisioning parameters (Historic Default rate, Loss Given Default and Credit Conversion Factor) are subject to annual recalculation following the established processes of the internal rating system of the Group. With this change, the default as an event was the main criterion for the calculation of impairment allowances on a portfolio and individual basis.
Exposures to corporate clients are measured and classified on the basis of the degree of credit risk, the delay of debt payments, the assessment of the borrower's financial condition and the sources of cash flows to repay the debt.
The Group applies a policy for provisioning for impairment losses on corporate exposures, measured on a collective basis. According to the policy adopted, exposures to large corporate clients and exposures to small and medium-sized enterprises, as well as to financial institutions for which no individual impairment has been identified, are grouped into separate pools on the basis of their issued rating on the internal-banking rating models. A measure of the degree of impairment of each pool of exposures is the so-called historical default rate for the relevant rating class. The parameter is calculated as the average ratio between the number of counterparties that have fallen into default and the total number of counterparties of the respective rating class at the end of the observation period. The observation period is 12 months, averaging over 5 consecutive 12-month periods, and includes only customers who have exposures at the beginning and end of the periods.
Collective impairment amount is a product of the net credit exposure after deduction of liquidity collateral, the default rate corresponding to the rating class of the exposure counterparty and the extent of collectability of the unsecured portion of the exposure. Due to the lack of sufficient own historical data related to recoveries on defaulted exposures, the Group applies regulatory assessments of collectability of unsecured exposures according to the respective rating models.
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With the exception of the financial assets held for trading and derivatives (discussed below), the bank's maximum exposure, net of impairment to credit risk, is presented in the table below. Balances with the Central Bank do not bear credit risk:
Credit risk exposures
As at 31 December 2017
in BGN Thousand
Individually impaired:
Minimal risk – – –
Very good debt service potential – – –
Good debt service potential – – –
Stable debt service potential – – –
Acceptable debt service potential – – –
The client’s debt servicing capabilitiesare at the critical minimum – – –
Poor debt service potential / under normal – – –
Very bad debt service potential / doubtful – – –
Default 108,862 5,639 1,229
Unrated – – –
Retail banking 90,020 – 3,342
Gross value 198,882 5,639 4,571
Provisions for impairment (150,363) (3,324) (3,323)
Net value 48,519 2,315 1,249
Forborne exposures 106,928 17 584
Collectively impaired (IBNR):
Minimal risk – – –
Excellent debt service potential – 478 –
Very good debt service potential 1,763 3,284 –
Good debt service potential 238,673 106,114 –
Stable debt service potential 850,087 74,464 392
Acceptable debt service potential 632,534 38,799 90
The client’s debt servicing capabilitiesare at the critical minimum 109,587 6,270 53
Poor debt service potential / under normal 56,504 1,358 –
Very bad debt service potential / doubtful 6,405 2,519 –
Default 18 – –
Unrated 1,231 – –
Retail banking 2,175,657 6,136 203,696
Gross value 4,072,461 239,422 204,231
Provisions for impairment (26,690) (248) (1,154)
Net value 4,045,772 239,174 203,078
Forborne exposures 70,788 – –
Overdue, but not impaired:
Good debt service potential 36 – –
Stable debt service potential 446 – –
Acceptable debt service potential – – 191
Balance Off-balance Undrawnsheet sheet creditexposures commitments limits
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As at 31 December 2017
in BGN Thousand
The client’s debt servicing capabilitiesare at the critical minimum 562 – 159
Poor debt service potential / under normal 90 – –
Very bad debt service potential / doubtful 261 – 1
Default – – –
Retail banking 548 – 131
Gross value 1,944 – 483
Forborne exposures 503 – –
Classification days past due:
1-30 days 1,695 – –
31-60 days 121 – –
61-90 days 63 – –
91-180 days 64 – –
180 days + - – –
Gross value 1,944 – –
Forborne exposures 503 – –
Neither past due, nor impaired:
Minimal risk – – 94
Excellent debt service potential 823 67 8,959
Very good debt service potential 10,690 16,785 29,317
Good debt service potential 72,241 17,782 325,681
Stable debt service potential 118,013 22,099 447,040
Acceptable debt service potential 72,113 11,113 227,485
The client’s debt servicing capabilitiesare at the critical minimum 25,818 2,462 26,244
Poor debt service potential / under normal 10,053 99 6,665
Very bad debt service potential / doubtful 2,545 150 14
Default – – 2
Unrated 180 – 1,584
Retail banking 11,370 172 15,546
Gross value 323,847 70,728 1,088,630
Forborne exposures 6,540 – 220
Total loans 4,597,134 315,790 1,297,915
Provisions for impairment (177,053) (3,573) (4,477)
Net value 4,420,081 312,217 1,293,439
Forborne exposures 184,759 17 804
Loans and Contingent Unutilizedadvances liabilities loanto customers commitments
Individually impaired
Individually impaired are the exposures with an individual impairment criterion as described above in the „Policy for the assessment of risk exposures and the allocation of provisions against credit risk".
Collectively impaired
Collectively impaired are exposures without indications of the need for individual impairment.
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Overdue, but not impaired
Overdue, but not impaired are past due exposures that are subject to collective impairment but the calculated impairment is 0.
Neither past due nor impaired
Neither past due nor impaired are non-past due exposures that are subject to a collective impairment model but the estimated impairment is 0.
Risk categories
The risk categories are determined against the rating and the corresponding limits of the assessed probability of default in a corporate segment, as follows:
Min. limit of Max. limit ofRisk categories probability probability of default of default
Minimal risk >0.0000% ≤0.0300%
Excellent debt service potential >0.0300% ≤0.0751%
Very good debt service potential >0.0751% ≤0.1878%
Good debt service potential >0.1878% ≤0.4694%
Stable debt service potential >0.4694% ≤1.1735%
Acceptable debt service potential >1.1735% ≤2.9338%
The client’s debt servicing capabilities are at the critical minimum >2.9338% ≤7.3344%
Poor debt service potential / under normal >7.3344% ≤18.3360%
Very bad debt service potential / doubtful >18.3360% <100%
Default 100% n.a.
Forborne exposures
Forborne exposures are regulated under the "Technical Standards for Reporting on Forborne exposures and Non-performing Exposures – Article 99 (4) of EU Regulation No 575/2013".
Forborne exposure is an exposure for which discounts have been made by modifying credit parameters and / or refinancing to a client who is in financial difficulty or would be in difficulty if discounts are not applied.
The table below presents the gross values and values after the impairment of individually impaired loans presented by risk profile:
in BGN Thousand Gross value Net value
As at 31 December 2017
Minimal risk
Very good debt service potential – –
Good debt service potential – –
Stable debt service potential – –
Acceptable debt service potential – –
The client’s debt servicing capabilities are at the critical minimum – –
Poor debt service potential / under normal – –
Very bad debt service potential / doubtful – –
Default 108,862 31,061
Unrated – –
Retail banking 90,020 17,457
Total 198,882 48,519
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Loan-to-Value
Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding assets. In subsequent periods, the fair value is updated by reference to market price or indexes of similar assets where the update frequency depends on the asset type and the market conditions.
The table below shows credit exposures from mortgage loans and advances to retail customers by ranges of loan-to-value (LTV) ratio. LTV is calculated as the ratio of the gross value of the loan to the value of the collateral. Gross value does not include accrued impairment. The valuation of the collateral does not include future costs for the acquisition and realization of the collateral. The value of mortgage collateral is based on the value of collateral at the time of the loan origination, updated on the basis of changes in house price indices.
The table below presents the loan-to-value ratio for housing loans only and mortgage-backed consumer loans:
in BGN Thousand 2018 2017
Loan to value (LTV) ratio:
Less than 50% 67,981 37,998
51% to 70% 403,826 460,763
71% to 90% 454,873 271,607
91% to 100% 15,086 23,713
More than 100% 13,808 28,745
Total 955,574 822,826
The table below indicates the finance lease exposure in mortgages classified by Loan-to-value (LTV) ratio. LTV is calculated as the ratio of the gross value of the finance lease to the market value of the collateral. Gross value does not include the impairment of exposures. The valuation of the collateral does not include future acquisition and realization costs. As of 31 December 2018, the net investment in property is BGN 30,947 thousand and the weighted value of collateral under these leases is BGN 26,383 thousand. The Company recognizes impairment of BGN 460 thousand. As of 31 December 2017, the net investment in property is BGN 34,666 thousand and the weighted value of collateral under these leases is BGN 27,406 thousand. The Company recognizes impairment of BGN 96 thousand.
in BGN Thousand 2018 2017
Loan to value (LTV) ratio:
Less than 50% – 363
51% to 70% 1,842 2,433
71% to 90% 5,117 6,384
91% to 100% 17,855 18,637
More than 100% 6,593 6,945
Total 31,407 34,762
The following table shows the loan-to-value ratio for the entire Credit portfolio of the Group.
in BGN Thousand 2018 2017
Loan to value (LTV) ratio:
Less than 50% 2,195,622 1,937,660
51% to 70% 1,089,105 1,088,670
71% to 90% 860,386 661,726
91% to 100% 162,119 149,433
More than 100% 922,899 759,644
Total 5,230,131 4,597,134
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Credit risk concentration by industry for loans and advances to customers
The table below shows the breakdown by industry of gross balance-sheet credit exposures accounted for amortized cost (excluding banks and debt securities) and fair value.
Credit concentration by clients
As of 31 December 2018, the total amount of the ten largest credit exposures to customers amounted to BGN 580,144 thousand, respectively BGN 680,978 thousand as of 31 December 2017.
Exposures to banks
The bank places free liquidity on the money market and as short-term credit facilities only to banks with a very good credit rating. In general, the free funds are placed with the parent bank or with other banks within the Raiffeisen Group.
The bank has established correspondent relationships with credit institutions around the world and maintains accounts in various currencies with first-class international banks.
Risk of residual value of the leased assets
Due to its leasing business, the Group is exposed to risk of the residual value of the leased assets. In the case of non-payment and seizure of assets under finance leases or expiry of an operating lease term, the residual values of the assets may not be covered by direct sale or re-leasing.
The Group manages the risk of residual value deficiency by requiring down payments from customers under finance leases, which are determined depending on the type of assets and whether it is new or second hand. For assets leased to an operating lease, the Group analyzes the expected residual value to determine the lease payments and the duration of the contract.
in BGN Thousand 2018 % 2017 %
Industry 1,147,812 24% 1,091,651 24%
Construction and real estate 325,710 5% 239,674 5%
Transport 193,428 4% 161,620 4%
Trade 1,023,757 20% 919,969 19%
Others 357,179 7% 328,379 9%
Private individuals 2,182,246 40% 1,855,841 39%
Including mortgage loans 955,574 18% 822,826 19%
Total loans 5,230,131 4,597,134
Including loans mandatorily at fair valuethrough profit or loss:
Construction and real estate 28,383
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The table below shows an analysis of the concentration of financial lease receivables by type of asset:
31 December 2017 Net investmentin BGN Thousand in finance leases %
Type of asset
Passenger cars and commercial vehicles 131,125 41%
Real estate 34,762 11%
Heavy trucks 71,575 22%
Agricultural machinery 40,346 12%
Machinery, plant and equipment 30,396 9%
Construction machines 8,820 3%
Others 5,345 2%
Gross value 322,369 100%
Provisions for impairment (2,834)
Net value 319,535
31 December 2018 Net investmentin BGN Thousand in finance leases %
Type of asset
Passenger cars and commercial vehicles 161,054 43%
Real estate 74,093 20%
Heavy trucks 46,592 12%
Agricultural machinery 45,471 12%
Machinery, plant and equipment 31,408 8%
Construction machines 10,285 3%
Others 8,030 2%
Gross value 376,933 100%
Provisions for impairment (4,794)
Net value 372,139
Credit risk from exposures in debt and equity instruments
The tables below show the quality of debt and equity instruments classified in portfolios according to their characteristics and the management business model of the bank, by the maximum credit exposure based on credit ratings issued by rating agencies where those ratings are applicable.
in BGN Thousand 2018 2017
Debt instruments held for trading
Bulgarian government securities
BBB-/Baa3 39,840 47,010
Foreign government securities
AAA/Aaa – 3,275
AA+/Aa1 3,400 –
AA/Aa2 1,917 –
Total debt instruments held for trading 45,157 50,285
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Raiffeisen Bank International
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Business models of the bank as of 1 January 2018 under IFRS 9
Securities portfolio reported at fair value through other comprehensive income/Business model „Held to collect the contractual cash flows and sale“
in BGN Thousand 2018
Securities portfolio reported at fair value through other comprehensive income/Business model „Held to collect the contractual cash flows and sale“
Bulgarian government securities
BBB-/Baa3 231,005
Foreign government securities
AA+/Aa1 107,884
Foreign corporate bonds
A+/A1 126,457
A/Aa2 12,376
A-/Aa3 76,201
Foreign corporate shares
A+/A1 4,942
Total 558,865
in BGN Thousand 2018
Securities portfolio reported at amortized cost/Business model „Held to collect the contractual cash flows“
Bulgarian government securities
BBB-/Baa3 394,554
Bulgarian corporate bonds
BB/Ba2 59,727
Bulgarian municipal bonds
BB+/Ba1 13,737
Foreign government securities
AA+/Aa1 40,892
Foreign Bonds (Financial Institutions)
AA+/Aa1 3,870
Total 512,780
in BGN Thousand 2018
Equity securities portfolio reported at fair value throughother comprehensive income/Business model equity instrumentsheld as a strategic investment
Bulgarian corporate shares
Unrated 2,848
Total 2,848
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Portfolios of the bank until 1 January 2018 under IAS 39
in BGN Thousand 2017
Debt and equity instruments at fair value through profit or loss
Bulgarian corporate shares
Unrated 2,322
in BGN Thousand 2017
Debt and equity instruments available for sale
Bulgarian government securities
BB+/Ba1 273,757
Foreign government securities
AA+/Aa1 37,524
AAA/Aaa 92,335
Foreign corporate bonds
A+/A1 126,805
Foreign corporate shares
A+/A1 4,020
in BGN Thousand 2017
Debt instruments held to maturity
Bulgarian government securities
BB+/Ba1 368,338
Bulgarian municipal bonds
BB+/Ba1 18,305
Foreign government securities
AA+/Aa1 43,400
Total investment securities 966,805
Information on the reclassification of the securities portfolios and the effects resulting from the application of IFRS 9 is presented in Note No 3.
B. Liquidity risk
Liquidity risk can be defined as the potential inability of the Group to finance the increase of its assets or to meet its liabilities when they fall due without incurring unacceptable losses.
For the purpose of its effective management, the Group distinguishes two dimensions of the liquidity risk – short-term liquidity risk and funding liquidity risk.
Organizational structure for liquidity risk management
Under the Group-level liquidity risk management framework, the Assets and liabilities committee (ALCO) monitors the liquidity position of the Group against the risk limits set and approves the financing plans (annual plan to provide the necessary resources as well strategy for the next three years). In addition, the Committee seeks to ensure compliance with both the standards and policies on liquidity risk, and the legal and regulatory requirements in this field.
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Liquidity management process and strategy
The liquidity position of the Group is monitored on a daily basis and the current status is reported regularly to ALCO.
The liquidity management strategy of the Group is subject to the aim of timely obtaining liquidity resources in the optimal volume, quality and structure to meet the liabilities when due, both in normal and extraordinary circumstances, while avoiding unacceptable losses and jeopardizing the reputation of the Group.
The Group does not maintain liquid assets to the extent necessary to meet all possible outflows, since the historical experience shows that there is a minimum level of renewal of maturing deposits that can be predicted with sufficient accuracy.
For this purpose, incoming and outgoing cash flows are analyzed for both the "going concern" scenario and the stress scenario, taking into account not only contractual relationships but also behavioral factors. Liquidity imbalances are tracked at time intervals also on a currency composition level.
In case of unacceptable liquidity imbalances, escalation procedures are triggered and actions are taken depending on the gap significance and the time bucket.
The key elements of the Group's liquidity strategy are as follows:
– Maintaining a diversified funding base with an adequate proportion of customer deposits (both retail and corporate) and wholesale funding;
– Maintaining a portfolio of liquid assets with appropriate currency and maturity structure;
– Applying an adequate system of tools for measuring and monitoring the liquidity situation depending on the imposed internal restrictions and regulatory requirements; monitoring of liquidity ratios, maturity mismatches, behavioral characteristics of the Group’s financial assets and liabilities;
– Dynamic process for conducting stress tests of the liquidity position, introduced at a group level. Stress tests are subject to continuous improvements in line with the regulatory requirements of both local regulators and the EU ones. They are complemented by a system of early warning indicators that are designed to timely identify the liquidity needs and an action plan to be activated in crisis situations;
– Adequate reporting framework allowing a continuous process of control over the liquidity profile of the Group as well as the application of relevant remedial measures, if necessary;
– Avoidance of concentrations to a group of related parties and the treatment of these funds as a potential immediate cash outflow.
Liquid stress tests
The Group conducts stress tests to measure the ability to overcome crisis situations in three types of scenario: market, reputation, and combined crisis. The results are reviewed and analyzed on a daily basis and reported to the management of the Group to take preventive actions, if necessary.
The preparation of the stress tests and the subsequent analysis of the results include the observance of a system of limits imposed on the liquidity position. They predict a survival period of at least one month, which is a requirement for positive discrepancies in the first 30 days. The limits are observed both at the total level and at the level of a significant currency (BGN, EUR, USD and combined BGN/EUR). The results of the stress test in USD must be positive; the result in BGN may be negative, down to – EUR 300 million, but only under the condition that the combined BGN/EUR result is positive. Following a recommendation of the European Central Bank to RBI Vienna, the 30-day limit is extended to a 90-day horizon at the level of all currencies. The latter will also trigger measures that complement the liquidity buffer. Some of these are described in the Recovery Plan of the Group.
Liquidity buffer
The Group maintains a liquidity buffer in the form of cash and other liquid assets designed to provide a maximum survival period. This is the reason why the Group strives to continuously optimize the ratio of the total amount of high-quality liquid assets to the total amount of the liabilities.
Liquid assets of the Group include cash and cash balances with the Central Bank, current account funds in other banks and interbank deposits up to 7 days, tradable debt securities issued by central governments or central banks, treasury bills and government bonds of the Republic Bulgaria, tradable debt securities issued by top credit rating institutions, tradable debt securities issued by international development banks and international organizations. Liquid assets do not include assets
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provided as collateral. Pledged securities at the end of 2018 are at a total amount of BGN 124 million. The amount of those pledged as at 31 December 2017 is BGN 180 million.
Monitoring and control of liquidity risk is performed by compiling a forecast of incoming and outgoing cash flows for the next day, week, month, since these are the key periods for liquidity risk management. These estimates are based on an analysis of the agreed maturity of the financial liabilities and the expected maturity of the financial assets.
Unsecured mid-term assets, the extent and type of undrawn credit commitments, the use of overdraft lines and the impact of off-balance sheet commitments such as guarantees and letters of credit are also monitored and analyzed.
Pledged assets
The amount of the blocked securities is monitored on a daily basis, changes are made – when necessary (may be daily). The amount of the blocked securities is excluded from the value of the liquidity buffer for the purposes of the liquidity model and the calculation of the stress test result, as well as the amount of the available highly liquid securities for the purposes of the liquidity coverage ratio.
The securities blocking process is an integral part of the overall liquidity risk management framework in the Group. In this sense, the currency structure of the blocked securities always takes into account the current and expected results of the Stress test for each significant currency.
The general principles, responsibilities and responsibilities to be respected in the risk management associated with the pledge on assets are described in internal regulatory documents. Pledge on assets is carried out in the following cases:
• Provision of financing schemes with International Financial Institutions and banks outside the RBI Group;
• Provision of borrowed funds – includes the provision of the borrowed funds by the Group and the provision of external lines by the Group through local government securities and Eurobonds/Global government securities;
• Secured funding transactions – repo transactions, securities lending and leasing transactions, transactions related to securities repurchase agreements;
• Agreements for providing collateral for derivative transactions (Margin account);
• Securitization of customer loans portfolios.
In addition, and in order to prevent inconsistencies, the Group has developed a special instruction detailing the roles and responsibilities of the employees involved in meeting the requirements of the Bulgarian National Bank and the Ministry of Finance applicable to credit institutions, in accordance with the Law on the State budget, regarding the servicing of budget funds, as well as the requirements of the International Financial Institutions, according to signed funding contracts (these are the two main sources of pledges for the Group).
Sources of cash flows
"Treasury” (Asset Management and liabilities) Department regularly reviews sources of liquidity in order to maintain wide diversification by currency, geographical origin, counterparty, product type and term.
Diversification of wholesale funding is regulated by a special concept at a Group level – "Funding risk arising from concentration". The latter impacts on the results of the liquid stress test and de-stimulate significant funding from a group of related parties.
Early warning system
The Group periodically reviews and monitors certain liquidity ratios deemed to be representative of early recognition of possible liquidity problems. The ratios tracked cover the following areas – quality of receivables, liabilities dependability, liquid assets tradability, market environment and other qualitative and quantitative ratios.
Cash flows from non-derivative liabilities
The following tables show the cash flows payable by the Financial liabilities Group, allocated according to the remaining contractual term at the date of preparation of the statement of financial position. The values in the table are the contracted undiscounted cash flows, including interest due according to the interest payment date. The Group manages inherent liquidity risk on the basis of expected undiscounted cash inflows.
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Cash flows from derivative liabilities
Derivative financial instruments in the portfolio of the Group will be settled on a gross basis and include:
– FX derivatives – FX forwards and FX swaps;
– Interest rate derivatives – interest rate swaps in one currency and interest rate swaps in cross-currencies..
The tables below illustrate the remaining maturity of the agreed maturity of the financial liabilities used by the bank.
up to 1month
1 to 3months
3 monthsto 1 year
Totalincoming/
outgoing
1 to 5years
over5 years
Bookvalue
As at 31 December 2018
in BGN Thousand
Non-derivative liabilities
Financial liabilities atamortized cost (237,230) (5,437,852) (750,525) (346,844) (295,054) (7,067,505) 7,006,959
- Deposits from banks (36,376) (40,241) (19,578) – – (96,195) 96,140
- Deposits from customers (173,717) (5,362,808) (638,463) (29,058) – (6,204,046) 6,203,581
- Borrowings from banks (1,696) (31,905) (60,888) (196,757) (289) (291,536) 289,467
- Subordinated liabilities – (2,866) (8,506) (117,104) (294,765) (423,241) 365,284
- Other financial liabilities (25,440) (32) (23,090) (3,924) – (52,487) 52,487
Other liabilities (2,667) (2,031) (3,196) (1,060) – (8,954) 8,954
Provisions for liabilities – – (5,070) (26,775) (1,837) (33,682) 33,682
Total undrawn credit lines – (1,655,083) – – – (1,655,083)
Total non-derivativeliabilities (239,896) (7,094,966) (758,791) (374,678) (296,891) (8,765,224) 7,049,595
Derivative liabilities
- FX instruments 10,528
- Outflow (38,375) (53,373) (157,755) – – (249,503)
- Inflow 37,220 50,862 148,108 – – 236,190
- Interest rate instruments 1,398
- Outflow (77) (8) (2,357) (10,305) (4,734) (17,481)
- Inflow 55 6 1,783 7,785 3,550 13,179
Total derivative liabilities (1,177) (2,513) (10,221) (2,520) (1,184) (17,615) 11,926
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Bookvalue
Non-derivative liabilities
Deposits from banks (39,905) – (20,002) – – (59,907) 59,907
Deposits from customers (4,579,796) (257,658) (556,115) (12,731) – (5,406,300) 5,376,840
Other liabilities (60,900) (3,049) (23,443) (28,976) (1,927) (118,296) 118,296
Borrowings from banks (3,320) (42,315) (86,838) (209,725) (1,380) (343,577) 339,786
Subordinated liabilities (2,025) (830) (8,473) (45,344) (375,397) (432,069) 365,275
Total undrawn credit lines – (1,345,388) – – – (1,345,388) –
Total non-derivativeliabilities (4,685,946) (1,649,240) (694,871) (296,776) (378,704) (7,705,537) 6,260,104
Derivative liabilities
- FX instruments 7,141
- Outflow (160,889) (24,655) (79,357) (156) – (265,057)
- Inflow 159,535 22,576 76,751 157 – 259,019
- Interest rate instruments 113
- Outflow (24) (49) (219) (533) – (825)
- Inflow 18 37 165 402 – 623
Total derivative liabilities (1,360) (2,091) (2,660) (130) – (6,240) 7,254
up to 1month
1 to 3months
3 monthsto 1 year
Totalincoming/
outgoing
1 to 5years
over5 years
As at 31 December 2017
in BGN Thousand
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The following table shows the book values of assets and liabilities, allocated by expected conversion to and over 12 months.
in BGN Thousand 2018
up to 12 over 12 months months
Assets
Cash and balances with the Central bank 1,288,461 –
Other demand deposits 122,187 –
Financial assets held for trading 18,290 41,132
Financial assets mandatorily at fair valuethrough profit/loss – 28,383
Loans to customers – 28,383
Financial assets at fair value through othercomprehensive income 157,932 403,782
Debt securities 157,932 395,992
Equity securities 0 7,790
Financial assets at amortized cost 2,148,060 3,665,580
Loans and advances to banks 221,752 –
Loans and advances to customers 1,795,239 3,251,043
Debt securities 98,190 414,538
Other receivables 32,879 –
Assets held for sale 1,900 –
Other assets 12,562 8,989
Investments in subsidiaries and associates – 425
Property, plant and equipment – 40,512
Intangible assets – 36,456
Total assets 3,749,393 4,225,260
Liabilities
Financial liabilities held for trading 10,529 1,397
Financial liabilities at amortized cost 6,420,265 586,693
Deposits from banks 96,140 –
Deposits from customers 6,184,613 18,968
Borrowings from banks 90,951 198,516
Subordinated liabilities – 365,284
Other financial liabilities 48,562 3,925
Current tax liabilities 234 –
Other liabilities 7,894 1,060
Provisions for liabilities 5,070 28,612
Deferred tax liabilities – 75
Total liabilities 6,443,993 617,837
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The table below shows an analysis of the financial assets forming the liquidity reserve available to the bank. Amounts form the composition of the liquidity buffer within the meaning of Title II, Chapter 1, Art. 6 of Commission Delegated Regulation (EU) 2015/61 of 10.10.2014. The liquid assets are measured in accordance with the requirements of Art. 418, para. 1 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26.06.2013:
in BGN Thousand 2017
up to 12 over 12 months months
Assets
Cash and balances with the Central bank 1,298,864 –
Financial assets held for trading 50,285 –
Derivatives 7,053 124
Loans and advances to banks 346,974 –
Loans and advances to customers 1,719,994 2,700,087
Investment securities 277,035 689,770
Tax refund for the period – –
Investments in associates – 1,662
Property, plant and equipment – 37,365
Intangible assets – 31,192
Other assets 28,488 10,108
Deferred tax assets – 156
Total assets 3,728,693 3,470,464
Liabilities
Derivatives 7,141 113
Deposits from banks 59,907 –
Deposits from customers 5,365,649 11,191
Borrowings from banks 128,462 211,324
Subordinated liabilities – 365,275
Current tax liabilities 901 –
Other liabilities 87,393 30,903
Total liabilities 5,649,453 618,806
in BGN Thousand 2018 2017
Liquid assets
Coins and banknotes 227,079 182,899
Reserves at the Central Bank 1,067,996 1,120,239
Assets in central government 655,168 439,207
Total liquid assets 1,950,243 1,742,345
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C. Market risk
In general, market risk is the risk of loss due to sudden changes in market factors (interest rates, exchange rates, prices, etc.) that adversely affect the value of an asset or a portfolio. All instruments measured at market price are subject to market risk, namely the risk that future changes in market conditions will lead to a decrease in the value of the financial instrument or asset in the portfolio of the Group. Market risk arises for open positions in interest rate, FX and equity instruments. These instruments are exposed to general and specific market risk, and in addition they are all affected by unexpected or unfavorable movements and changes in the degree of volatility of market factors (interest rates, credit spreads, exchange rates, etc.) as well as changes in indexes and prices of equity instruments. The Group monitors market risks for both its Trading and the banking portfolio.
All instruments that are measured at market prices are reported in the statement of financial position of the Group at fair value based on quoted market prices and the effect of changes in market conditions is recognized in profit or loss. Depending on the classification and reporting method, the market risk may affect the net trading result, interest income or directly on the capital of the Group.
The Group manages its trading portfolios in accordance with the amendments in market conditions. The market risk is also managed through limits set by the management for the relevant instruments.
Market risk management
Exposure of the Group to Market Risk is managed in accordance with the limits set by the management for the purchase and sale of financial instruments.
The overall responsibility for market risk is borne by ALCO. The departments responsible for Market Risk Management in the Group and at a Group level, develop detailed risk management policies (subject to review and approval by ALCO and the Market Risk Committee on a group level) and for their day-to-day compliance.
The table below shows the assets and liabilities exposed to market risk distributed in a trading and bank portfolio.
As at 31 December 2018
in BGN Thousand Book value Trading portfolio Bank portfolio
Assets exposed to market risk
Cash and balances with the Central bank 1,288,461 – 1,288,461
Other demand deposits 122,187 – 122,187
Debt instruments 1,111,809 45,157 1,066,651
Equity instruments 7,790 – 7,790
Derivatives 14,264 14,264 –
Loans and advances to banks 221,752 – 221,752
Loans and advances to customers 5,074,665 – 5,074,665
Other receivables 32,879 – 32,879
Liabilities exposed to market risk
Derivatives 11,926 11,926 –
Deposits from banks 96,140 – 96,140
Deposits from customers 6,203,581 – 6,203,581
Borrowings from banks 289,467 – 289,467
Subordinated liabilities 365,284 – 365,284
Other financial liabilities 52,487 – 52,487
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Techniques for market risk assessment
Market risk is the risk of a loss or a negative effect on the Group's income or the value of financial instruments it owns as a result of unfavorable or unexpected changes in market factors: interest rates, securities prices, exchange rates and credit spreads (not related to changes in the debtor/issuer's financial condition).
The objective of market risk management is that the respective exposures of the Group are managed and controlled within acceptable parameters and in line with the risk appetite and the overall strategy of the Group.
Value at risk (VaR)
The Group applies value at risk (VaR) models to measure market risk for the Trading and Banking Portfolio, in order to assess the potential loss through an appropriate analytical method supported by empirical circumstances and a documented analysis. This method is applied sequentially and with a higher degree of conservatism when the available data is limited.
The Group uses the Value at Risk (VaR) limits for the entire market risk as well as divided by individual factors, namely: exchange (FX), interest rate (IR), a base (Bs) and spread risk (SP). The overall value-at-risk (VaR) structure of the limits is subject to review and approval by the ALCO. Value at Risk (VaR) limits are designed for both the trading and banking portfolio, but also on the overall portfolio level for the Group.
Value at Risk is an estimate based on statistical methods of measuring the potential loss that the Group would incur in adverse market conditions. This value represents the maximum loss, but only to a certain degree of confidence (99 per cent). This means that there is still a statistical probability (1 per cent) that the realized loss could exceed the expected amount. The Value-at-Risk Model assumes a certain retention period until closing the risk positions (1 day).
It is also assuming that the changes in the market conditions during the retention period will follow to some extent the changes that have been registered in past periods.
Since the beginning of 2010, the Group has used a hybrid approach to the VaR calculation. The model is based on a historical simulation, which is combined with the parametric model for calculating VaR taking into account events resulting from extreme levels of risk factors. Volatility in the market factors is weighted according to the reporting period (the volatility for the last 20 working days is weighted by 80 per cent for the VaR calculation, while the last two years' volatility gets 20 per cent of the weight in the model), giving significant importance to the current market conditions.
The actual results of the applied model are analyzed in order to determine the validity of the assumptions and factors used in the calculations.
Applying this approach could not prevent losses beyond the set limits, but the use of the VaR hybrid approach to a certain extent takes into account extreme movements in market factors and conditions above expectations.
As at 31 December 2017
in BGN Thousand Book value Trading portfolio Bank portfolio
Assets exposed to market risk
Cash and balances with the Central bank 1,298,864 – 1,298,864
Financial assets held for trading 50,285 50,285 –
Derivatives 7,177 7,177 –
Loans and advances to banks 346,974 – 346,974
Loans and advances to customers 4,420,081 – 4,420,081
Investment securities 966,805 – 966,805
Liabilities exposed to market risk
Derivatives 7,254 7,254 –
Deposits from banks 59,907 – 59,907
Deposits from customers 5,376,840 – 5,376,840
Borrowings from banks 339,786 – 339,786
Subordinated liabilities 365,275 – 365,275
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The quality and validity of models for calculating the value at risk are tested on ongoing basis by projecting the results on the trading portfolio of the Group. In case the tests show extraordinary profits/losses, a detailed analysis is performed and the results are reported to the Management Board of the Group.
Value at risk (VaR)
in BGN Thousand (1d, 99 %) As at 31 December 2018 As at 31 December 2017
Value at risk in the trading portfolio
Diversified 56 142
including interest rate risk 50 119
including spread risk 24 87
including FX risk 19 26
Value at risk in the bank portfolio
Diversified 1,339 2,058
including interest rate risk 773 732
including spread risk 1,070 1,792
Total value at risk
Diversified 1,370 2,098
including interest rate risk 761 828
including spread risk 1,086 1,839
including FX risk 19 26
Dynamics of development of VaR value by risk category in 2018
in BGN Thousand (1d, 99 %) Average Maximum Minimum value value value
Value at risk in the trading portfolio
Diversified 100 169 45
including interest rate risk 73 138 34
including spread risk 39 110 18
including FX risk 49 120 14
Value at risk in the bank portfolio
Diversified 1,421 2,412 737
including interest rate risk 832 2,126 405
including spread risk 1,119 2,188 718
Total value at risk Diversified 1,436 2,442 793
including interest rate risk 834 2,083 405
including spread risk 1,137 2,265 734
including FX risk 49 120 14
Recognizing the limitations of the value at risk (VaR) methodology, the Group complements its risk assessment and limiting toolkit by using position and sensitivity limits.
In addition, the Group uses a wide range of stress tests to model the financial impact of the variety of market scenarios on its Trading and Banking Portfolio. The baseline data from the respective simulations and their impact at Group level are reported regularly to ALCO.
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Stress tests
By using stress tests, the Group assesses the potential loss that it would incur in extraordinary circumstances. Stress tests include:
• Stress testing of risk factors, with potentially the most extreme adverse developments for the Group for each risk category;
• Stress testing in emerging markets, where the subject of testing are the portfolios acquired in these markets;
• Special stress tests that cover stress testing of specific items or regions.
The results of the stress tests are presented to ALCO and are being monitored on ongoing basis by the management of the Group. All stress tests are modeled according to the activity of the Group and are usually in the form of a scenario analysis.
Interest rate risk
Interest rate risk refers to the possible adverse effect of changes in market interest rates on profit in the portion of net interest income that forms a major portion of the financial result of the Group.
Compared to other types of risks, the interest rate risk can be minimized through the interrelated management of the assets and liabilities.
The policy of the Group is to minimize interest rate risk by lending floating interest rate loans against floating interest rate funding. This risk is also managed by the Group, both with a balanced use of different sources of financial resources (borrowings from other Bulgarian banks, foreign correspondent credit lines, borrowed deposits, etc.), as well as with a targeted credit policy providing a rising return.
In the current low and negative interest market environment, the Group continues its policy of optimization and minimization of its interest rate risk, including the provision of strategies restricting the lending of fixed interest rates over the medium term due to expectations of rising interest rates.
It is essential for management to manage the sensitivity of the assets and liabilities interest rates. Due to the nature of banking activities, it is not possible to fully cover the maturity gaps or the periods of change in the agreed interest rates on financial assets and liabilities.
The interest rate exposures of the Group are managed using interest rate sensitivity reports on assets and liabilities. The bulk of interest-bearing assets and liabilities of the Group are structured to cover short-term assets with short-term liabilities or long-term assets with liabilities with the option of interest rate changes within one year or long-term assets with corresponding liabilities as interest rates are changed at the same time.
For a significant part of the interest-earning assets and liabilities there is an option to change interest rates with a relatively short notice period, as a result of which the differences in the interest structure of the assets and the liabilities are considered insignificant.
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The table below shows the periods of change in the agreed interest rates of financial assets and liabilities in the bank portfolio as at 31 December 2018 by type of instrument.
The table below shows the periods of change in the agreed interest rates of financial assets and liabilities in the bank portfolio as at 31 December 2017 by type of instrument.
Up to 3 months From 3 From 1 More than Totalin BGN Thousand months to year to 5 yearsAs at 31 December 2018 1 year 5 years
Assets
Other demand deposits 122,187 – – – 122,187
Loans and advances to banks 198,289 23,463 – – 221,752
Loans and advances to customers 3,474,911 1,001,503 485,946 112,305 5,074,665
Debt securities 178,013 98,159 594,922 240,715 1,111,809
Total assets 3,973,400 1,123,125 1,080,868 353,020 6,530,413
Liabilities
Deposits from banks 76,589 19,551 – – 96,140
Deposits from customers 5,498,998 668,586 29,265 6,732 6,203,581
Borrowings from banks 274,353 8,382 – 6,732 289,467
Subordinated liabilities 365,284 – – – 365,284
Total liabilities 6,215,224 696,519 29,265 13,464 6,954,472
Net position (2,241,824) 426,606 1,051,603 339,556 (424,059)
Up to 3 months From 3 From 1 More than Totalin BGN Thousand months to year to 5 yearsAs at 31 December 2017 1 year 5 years
Assets
Loans and advances to banks 345,268 – – – 345,268
Loans and advances to customers 2,989,269 664,851 624,306 141,656 4,420,081
Investment securities 198,498 78,537 511,125 172,303 960,463
Total assets 3,533,035 743,388 1,135,431 313,959 5,725,812
Liabilities
Deposits from banks 39,905 20,002 – – 59,907
Deposits from customers 4,816,082 549,568 11,190 – 5,376,840
Borrowings from banks 311,594 28,192 – – 339,786
Subordinated liabilities 365,275 – – – 365,275
Total liabilities 5,532,856 597,762 11,190 – 6,141,808
Net position (1,999,821) 145,626 1,124,241 313,959 (415,995)
Interest rate risk management is complemented by an analysis of the sensitivity of net interest income and revaluation of securities to various standard and non-standard interest scenarios. The table below shows an analysis involving simulations with a simultaneous increase or decrease by 200 basis points of all yield curves. Following the implementation of software specifically developed for the purpose of such simulations, the group accepts the above amendment as the main type of simulation.
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Sensitivity of the expected net interest income (Bank portfolio)
The values presented reflect the change in net interest income and the revaluation of securities for the relevant stress scenario against a baseline scenario (without change in interest rates) for a future period of one calendar year.
Warning/Activating limits:
Threshold limits have been introduced in order to support the operational risk-based limit tracking process. Reaching this threshold (typically 70 per cent) triggers certain strategy to address the situation, where exceeded does not lead directly to a restriction of business, but rather the process for risk insurance and reporting to the management of the Group about the situation and review of possible solutions to prevent or mitigate the negative effect and reaching the stop loss limit. This kind of limits are of extreme importance in the operational management of the limits in the Group and serve as a warning signal for the level of risk reached in a business segment or operations, and when they are reached a more intense tracking and more stringent monitoring of the respective exposures takes place. Typical of these limits is that they are not considered as separate or individual limits but rather contribute to more flexible operational management of the established limits.
Stop/loss limits
Risk (including interest rate risk) can be effectively limited through the so-called Stop Loss Limits which results in a decrease in exposure, if the loss from the portfolio exceeds a predetermined amount/limit. Defining the Stop/Loss Limit and triggering the Stop/Loss process limits the loss to the predetermined Stop/Loss level (where, of course, transaction costs in closing position should be added to the amount). Stop/Loss limits are most commonly used for transactions in the trading portfolio of the Group but may also be used in the bank portfolio, if there is a relatively liquid market for this type of assets or there are instruments for hedging them.
Potential loss cannot be fully realized as it is limited by limiting loss limits (i.e. Stop/Loss Limits).
A High Watermark S/L Limit with immediate effect is introduced to capture the negative effect of revaluation and trading at a certain amount of the highest trading result in the year for the trading portfolio.
FX risk
The Group is exposed to FX risk through its foreign currency operations. The group operates in the major world currencies: US dollars, Euros, British pounds, Swiss francs and others. The euro and the Bulgarian lev are pegged, respectively each FX risk assumed by the Group follows predominantly from changes in the exchange rate euro / dollar or other currency pairs. The Group considers that it is not exposed to significant FX risk as at any time the ratio between the amount and the maturity of the dollar assets and liabilities within the established limits is monitored and maintained according to the investment guidelines.
Profits and losses arising from transactions in foreign currency are recognized in the profit and loss account. Foreign currency exposures are those assets and liabilities of the Group that are not denominated in Bulgarian lev.
200 b.p. (200 b.p.)As at 31 December 2018 simultaneous simultaneousin BGN Thousand increase decrease
Simulated change in net interest income 52,276 (32,782)
Simulated change in the revaluation of securities (18,397) 28,523
Total simulated change 33,879 (4,258)
200 b.p. (200 b.p.)As at 31 December 2017 simultaneous simultaneousin BGN Thousand increase decrease
Simulated change in net interest income 30,621 (30,655)
Simulated change in the revaluation of securities (27,051) 29,317
Total simulated change 3,570 (1,338)
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Currency Structure as at 31 December 2018
Bulgarian Euro Other Totalin BGN Thousand Levs currencies
Financial assets
Cash and balances with the Central bank 1,121,217 155,256 11,987 1,288,461
Other demand deposits 6,639 46,559 68,988 122,187
Financial assets held for trading 10,605 31,620 17,197 59,422
Financial assets mandatorily reportedat fair value through profit or loss – 28,383 – 28,383
Financial assets at fair value through othercomprehensive income 45,447 442,170 74,098 561,714
Debt instruments 42,598 442,170 69,156 553,924
Equity instruments 2,849 - 4,942 7,790
Financial assets at amortized cost 3,414,073 2,232,824 166,743 5,813,641
Loans and advances to banks 40 97,742 123,970 221,752
Loans and advances to customers 3,151,952 1,851,568 42,761 5,046,282
Debt instruments 230,634 282,094 – 512,727
Other receivables 31,447 1,420 12 32,879
Other assets 21,551 – – 21,551
Total financial assets 4,619,532 2,936,812 339,013 7,895,358
Financial liabilities
Financial liabilities held for trading – 1,467 10,459 11,926
Financial liabilities at amortized cost 3,804,310 2,718,871 483,777 7,006,958
Deposits from banks 45,693 19,570 30,876 96,140
Deposits from customers 3,732,531 2,026,349 444,701 6,203,581
Borrowings from banks – 289,467 – 289,467
Subordinated liabilities – 365,284 – 365,284
Other financial liabilities 26,086 18,201 8,200 52,487
Other liabilities 5,813 2,887 254 8,954
Total financial liabilities 3,817,892 2,521,697 494,490 6,834,079
Net currency position 775,097 98,747 (279,446) 594,397
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Currency Structure as at 31 December 2017
Bulgarian Euro Other Totalin BGN Thousand Levs currencies
Financial assets
Cash and balances with the Central bank 1,038,488 251,311 9,065 1,298,864
Financial assets held for trading 20,669 26,341 3,275 50,285
Derivatives – 7,161 16 7,177
Loans and advances to banks 4,279 167,594 175,101 346,974
Loans and advances to customers 2,542,627 1,841,745 35,709 4,420,081
Investment securities 358,195 512,255 96,355 966,805
Other assets 36,646 1,744 206 38,596
Total financial assets 4,000,904 2,808,151 319,727 7,128,782
Financial liabilities
Derivatives – 7,254 – 7,254
Deposits from banks 59,076 764 67 59,907
Deposits from customers 3,118,084 1,852,668 406,088 5,376,840
Other liabilities 55,381 54,644 8,271 118,296
Borrowings from banks – 339,786 – 339,786
Subordinated liabilities – 365,275 – 365,275
Total financial liabilities 3,232,541 2,620,391 414,426 6,267,358
Net currency position 768,363 187,760 (94,699) 861,424
D. Capital management
The elements of the capital base are not limited to the capital represented in the respective section of the statement of financial position of the Group, and its management is directed to:
– Compliance with the requirements of the local bank regulator for capital adequacy;
– Ensuring the ability of the Group to continue as a going concern to provide returns to shareholders;
– Maintaining a stable capital base in support of the activities of the Group.
The Bulgarian National Bank is the competent authority in the Republic of Bulgaria for the supervision of banks under Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment intermediaries (Basel III), in force since 01 January 2014.
In connection with the introduction of capital buffers under the Directive 2013/36/EC (CRD IV), at its meeting, the Governing Council of the BNB adopted a decision on the maintenance of a capital buffer of all banks, as well as a requirement to determine a capital buffer for systemic risk of the risk-weighted exposures in the country, formed by the banks, stemming from Ordinance No.8 of 24 April 2014 of the BNB on capital buffers of banks. According to Ordinance 8 of 1 January 2016, the Bulgarian National Bank assesses and determines, on a quarterly basis, the level of the counter-cyclical buffer for the banks in the country.
Capital conservation buffer
• Aim of the buffer – the establishment of a capital conservation buffer is aimed at avoiding future situations where, in the event of difficulties for banks, state aids are used, i.e. taxpayers’ money. This buffer shall provide additional funds in case of recovery and resolution of credit institutions in crisis conditions;
• Level of the buffer – the banks shall maintain a capital conservation buffer from their common equity Tier I capital at the amount of 2.5 per cent of their total risk exposure;
• Entry into force – the capital conservation buffer takes effect from the entry into force of Ordinance No 8 of 24 April 2014 of the BNB on the capital buffers of banks.
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Systemic risk capital buffer
• Aim of the buffer – preservation of the year to date accumulated capital reserves in the Bulgarian banking system, as well as to prevent and mitigate the effect of long-term non-cyclical systemic or macro prudential risks, which could cause disruption in the financial system;
• Level of the buffer – the buffer is at the amount of 3 per cent of risk weighted exposures in the Republic of Bulgaria and, at the discretion of the BNB, also applies to exposures in third countries;
• Entry into force – the Systemic Risk Buffer is effective from 31 December 2014 and applies to all banks in the country.
Countercyclical capital buffer
• Aim of the buffer – the countercyclical capital buffer is a macro prudential instrument provided for in BNB Ordinance No.8 on the capital buffers of banks, in accordance with the requirements of Directive 2013/36/EU. The main purpose of the buffer is to safeguard the banking system against potential losses, stemming from build-up of cyclical systemic risk during periods of excessive credit growth;
• Level of the buffer – as of 31.12.2018, the countercyclical capital buffer is 0 per cent, and the BNB uses the methodology of the Basel Committee on Banking Supervision, which is also contained in parts I and II of the Annex to the ESRB Recommendation of 18 June 2014 on Guidelines for Determining Levels of Countercyclical Buffer (ESRB/2014/1);
• Entry into force – the countercyclical capital buffer enters into force on 1 January 2016 and its level is determined by the BNB on a quarterly basis.
Pursuant to Art.9, para.1 and in accordance with the criteria under Art.9, para.7 of Ordinance No.8 of the BNB on capital buffers of banks and the pan-European methodology set out in the Guidelines of the European Banking Authority, on 10 November 2016, the Governing Council (GC) in the BNB identified as other systemically significant institutions (OSSI) ten banks, including Raiffeisenbank (Bulgaria) EAD. The Group's buffer level as defined by the BNB Governing Council is as follows:
• 2017 – 0 per cent
• 2018 – 0.25 per cent
• 2019 – 0.50 per cent
• 2020 – 0.75 per centt
Basel III introduces the requirement of total capital ratio, core equity tier I capital ratio and tier I capital ratio, as well as the capital requirements for credit, market and operational risks. It defines the minimum required amount, the elements and the structure of own funds of credit institutions and the minimum capital requirements for the risks they undertake.
The capital ratios as percentage of the total risk exposures of credit institutions are defined as follows:
• Core equity tier I ratio – 4.5 per cent;
• Tier I ratio – 6 per cent;
• Total capital ratio – 8 per cent.
The capital adequacy and the adherence to the regulatory capital requirements are monitored by the bank’s management.
The Group’s regulatory capital consists of:
– Core tier I capital – ordinary share capital and retained earnings (incl. statutory reserve fund);
– Tier II capital – qualified subordinated debt.
Regulatory capital is reduced by the following elements:
– Accumulated other comprehensive income;
– Intangible assets;
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– Insufficient adjustments of credit risk against expected losses in the IRB Approach. IRB shortfall of credit risk adjustments to expected losses.
The capital base of the Group includes:
In compliance with Basel III requirements the Group is calculating its total risk exposure as a sum of:
– The risk-weighted exposure amounts for credit risk, counterparty credit risk and dilution risk for its total exposure excluding the risk weighted exposures from its trading portfolios;
– The capital requirement for position, foreign exchange and commodities risk, multiplied by 12.5;
– The capital requirement for operational risk, multiplied by 12.5;
– The amount of capital requirement in respect of the risk associated with credit valuation adjustment for OTC derivative instruments other than credit derivatives recognized to reduce risk-weighted exposure amounts for credit risk, multiplied by 12.5.
As of November 1, 2014, Raiffeisenbank Bulgaria has been officially approved to use an IRB Approach in credit risk management and measurement, according to the most up-to-date banking regulations, namely Regulation 575/2013 of the European Parliament and of the Council. Exposures under the IRB Approach as of 31.12.2018 represent 81.4 per cent of the bank's total portfolio on an individual basis prior to conversion. Exposures for which the bank applies a standardized approach (18.6 per cent of the total portfolio) for determining risk-weighted assets for credit risk are to a limited number of counterparties for which it is excessively burdensome to introduce a rating system, exposures to non-core business units or exposures, which are insignificant in size or perceived risk profile.
The Group applies the Standardized Approach (TSA) for calculating Operational Risk regulatory capital requirements.
During the financial year, the Group complied with all regulatory capital and capital buffers requirements and maintained its its capital ratios above the required regulatory minimum.
in BGN Thousand
Common equity Tier I items: 2018 2017
- Paid in capital instruments 603,448 603,448
- Retained earnings 75,146 93,683
- Other reserves 86,443 86,443
- Accumulated other comprehensive income 5,521 10,020
- Total deductions from Tier I (36,480) (34,539)
Tier II capital, including
- Subordinated debt eligible for Tier II capital 360,611 363,002
- Total deductions from Tier II capital 19,184 33,292
TOTAL OWN FUNDS 1,113,873 1,155,349
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The table below illustrates the bank’s total risk exposures and capital ratios as of December 31, 2018 and December 31, 2017.
in BGN Thousand 2018 2017
TOTAL RISK EXPOSURE AMOUNT 4,175,372 3,661,349
RISK WEIGHTED EXPOSURE AMOUNTS FOR CREDIT,COUNTERPARTY CREDIT AND DILUTION RISKS AND FREE DELIVERIES 3,631,659 3,161,810
Standardized Approach 434,388 367,825
Exposure classes in the Standardized Approachexcluding securitization positions 434,388 367,825
Regional governments or local authorities 12,557 6,609
Public sector entities 589
Institutions 341
Corporates 239,811 207,724
Retail 78,917 63,898
Secured by mortgages on immovable property 9,741 9,462
Exposures in default 4,673 6,198
Other items 88,233 73,004
Internal ratings based Approach (IRB) 3,197,271 2,793,985
Internal rating approaches when neither own estimatesof Loss given default nor Conversion Factors are used 2,053,339 1,900,647
Central government and central banks 28,065 -
Institutions 130,560 159,077
Corporates - SME 807,311 601,918
Corporates - Specialized Lending 76,354 48,840
Corporates - Other 1,011,049 1,090,812
Internal rating approaches when own estimatesof Loss given default and/or Conversion Factors are used 1,136,453 887,216
Retail - Secured by real estate SME 222,609 122,466
Retail - Secured by real estate non-SME 316,425 288,631
Retail - Qualifying revolving 29,776 30,735
Retail - Other SME 70,582 51,272
Retail - Other non-SME 497,061 394,112
Equity instruments under the IRB Approach 7,479 6,122
TOTAL RISK EXPOSURE AMOUNT FOR POSITION,FOREIGN EXCHANGE AND COMMODITIES RISKS 31,875 17,288
Risk exposure amount for position, foreign exchange andcommodities risks under standardized approaches 31,875 17,288
Traded debt instruments 31,875 17,288
TOTAL RISK EXPOSURE AMOUNT FOR OPERATIONAL RISK 511,213 482,188
OpR Standardized (STA) /Alternative Standardized Approach (ASA) to Operational Risk 511,213 482,188
TOTAL RISK EXPOSURE AMOUNT FOR CREDITVALUATION ADJUSTMENT 625 63
Standardized approach 625 63
CET1 Capital ratio 17.58% 20.73%
Surplus(+)/Deficit(-) of CET1 capital 546,186 594,294
T1 Capital ratio 17.58% 20.73%
Surplus (+)/Deficit (-) of T1 Capital 483,556 539,374
Total capital ratio 26.68% 31.56%
Surplus (+)/Deficit (-) in total capital 779,843 862,441
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5. Use of Estimates and JudgementsThe preparation of the financial statements requires the management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported value of assets, liabilities, income and expenses. Actual results may differ from these estimates and judgements.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.
Impairment of financial assets
The Group makes estimates, on the basis of progressive methodology, with regard to the expected credit losses associated with the assets of debt instruments, measured at amortized cost and reported at fair value through other comprehensive income, as well as exposures arising from credit transactions, leasing receivables and financial guarantee contracts. The Group charges provisions in such cases at each reporting date.
Determination of credit losses involves a higher degree of judgment or complexity as well as many sources of uncertainty of the valuation that have a significant risk of substantial adjustment in the next financial year. Quantitative information for each of these estimates and judgments is included in the relevant notes, together with information on the basis for calculating each item of interest in the consolidated financial statements.
Measurement of expected credit losses
The measurement of the expected credit loss is a probability-weighted amount determined by calculating a number of possible outcomes, the value of the money over time and significant supporting information for past events at the reporting date, current conditions and projections of future economic conditions, and is provided without undue cost or effort.
The measurement of the expected credit loss on financial assets, measured at amortized cost and fair value through other comprehensive income, is an area that requires the use of sophisticated models and significant assumptions about future economic conditions and the credit behavior. The application of the accounting requirements for measuring the expected credit losses requires significant judgments, namely:
• Defining criteria for significant credit risk growth;
• Selection of appropriate models and assumptions to measure the expected credit losses;
• Determining the number and relative weight of scenarios for the future for each type of product / market and the associated credit losses.
Creating groups of similar financial assets in order to measure the expected credit losses.
Determining fair values
Valuation of financial instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group discloses information on the fair value of those financial assets and liabilities for which market information is available and the fair value of which significantly differs from their carrying amount.
If there is no active market for a certain financial instrument, then the Group determines fair values by using valuation techniques. The valuation techniques consider recent direct deals between knowledgeable, willing market participants (if such exist), information about current fair values of similar financial instruments, analysis of discounted cash flows, as well as models with option prices.. The selected valuation technique uses the maximum market data, relies as little as possible on Group-specific estimates, includes all the factors that market participants would take into account when setting the price, and is consistent with the accepted financial methodologies used for pricing financial instruments. The data on valuation techniques reasonably represent market expectations and measures for the risk and return factors inherent to the financial instrument. The Group verifies the valuation techniques and tests their validity by using prices from observable current market transactions with the same financial instrument or based on other observable market data.
Assets and long positions are measured at a bid price and liabilities and short positions at an ask price. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or
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model uncertainties to the extent that the Group believes that a third party market participant would take them into account in pricing a transaction.
The Group measures fair values of the financial instruments using the following hierarchy of methods that reflects the significance of the inputs used to determine fair value:
• Level 1: Quoted (unquoted) prices on active markets of identical financial instruments are used;
• Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Instruments valued using:
– quoted market prices in active markets for similar instruments;
– quoted prices for identical or similar instruments in markets that are considered less than active;
– other valuation techniques in which all significant inputs are directly or indirectly observable from market data.
• Level 3: inputs are unobservable input data for an asset or liability. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
The Group uses recognized fair value measurement instruments such as options, interest rate and FX swaps. For those financial instruments market conditions allow for the use of valuation models.
For more complex financial instruments, the Group uses internally developed models that are based on valuation models recognized in practice. Some of the estimates could not be predictable under existing market conditions and are based on market prices or percentages, or are estimated on the basis of assumptions. When a transaction is concluded, the financial instrument is initially recognized at cost, which is the best fair value indicator, although it may differ from the value determined by the application of the valuation models. This initial difference resulting from the application of valuation models is recognized in profit or loss according to the circumstances and conditions of the relevant transaction but not later than the time when foreseeable data are available on the financial markets.
The fair values obtained through evaluation models are adjusted to reflect a number of factors and circumstances that are relevant to the transaction and which cannot always be accounted for in the valuation model. These adjustments account for credit risk, dealer margins, liquidity risk, etc. The management believes that these adjustments are necessary and relevant for the appropriate presentation of fair values in the statement of financial position of the Group, so as to bring it as close as possible to a market price which would be determined on a market basis in a transaction between unrelated parties.
The determination of the fair values is controlled by the Risk Controlling Division as a unit, independent of the others in the Group, who are directly involved in the commercial and investment activity. The specific control functions include confirmation of applied market prices, revision of valuation models, review and confirmation of new valuation models.
The tables below analyses financial instruments measured at fair value by the level in the fair value hierarchy into which the fair value measurement is categorized:
31 December 2018in BGN Thousand Level 1 Level 2 Level 3 Total
Assets
Trading assets 45,157 14,264 – 59,422
Financial assets mandatorily at fair valuethrough profit or loss – – 28,383 28,383
Financial assets at fair value through other comprehensive income 554,032 4,942 2,741 561,714
Liabilities
Derivatives – 11,926 – 11,926
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The derivative financial instruments are classified within level 2, because they are OTC and their fair value is calculated using observable inputs for similar financial instruments traded on active markets.
The following tables analyze the fair values of financial instruments that are not measured at fair value by the level into which they are categorized:
31 December 2017in BGN Thousand Level 1 Level 2 Level 3 Total
Assets
Trading assets 50,285 – – 50,285
Derivatives – 7,177 – 7,177
Investment securities 530,527 4,020 2,215 536,762
Liabilities
Derivatives – 7,254 – 7,254
31 December 2018 Level 1 Level 2 Level 3 Total Bookin BGN Thousand fair value value
Assets
Cash and balances withthe Central bank 1,288,461 – – 1,288,461 1,288,461
Other demand deposits – – 122,187 122,187 122,187
Financial assets at amortized cost 507,166 13,737 5,427,887 5,915,911 5,842,024
Loans and advances to banks – – 221,752 221,752 221,752
Loans and advances to customers – – 5,173,256 5,173,256 5,074,665
Debt securities 507,166 13,737 – 520,903 512,728
Other receivables – – 32,879 – 32,879
Liabilities
Financial liabilities at amortized cost – – 6,801,686 6,801,686 7,006,959
Deposits from banks – – 96,151 96,151 96,140
Deposits from customers – – 5,999,972 5,999,972 6,203,581
Borrowings from banks – – 290,619 290,619 289,467
Subordinated liabilities – – 362,457 362,457 365,284
Other financial liabilities – – 52,487 52,487 52,487
31 December 2017 Level 1 Level 2 Level 3 Total Book in BGN Thousand fair value value
Assets
Cash and balances withcentral banks 1,298,864 – – 1,298,864 1,298,864
Loans and advances to banks – – 346,974 346,974 346,974
Loans and advances to customers – – 4,536,793 4,536,793 4,420,081
Investment securities 415,939 18,305 – 434,244 430,043
Liabilities
Deposits from banks – – 59,907 59,907 59,907
Deposits from customers – – 5,390,860 5,390,860 5,376,840
Borrowings from banks – – 340,378 340,378 339,786
Subordinated liabilities – – 365,266 365,266 365,275
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The fair value of the receivables from banks is determined by the nature of the receivable. In case of short-term liquid funds placed on the money market, it is assumed that fair value is the book value. For these instruments, an active market and observable inbound data are not available to determine their fair value.
Loans and advances to customers are classified within level 3 as for them there are no observable inputs. The valuation model for determining the fair value of loans and advances to customers that are not in default, is based on the discounted contracted cash flows, taking into account the effective interest rate. The discount rate for loans to the retail banking segment is based on the current profitability of newly-generated portfolios in the last quarter. It is believed that new deals best reflect current market conditions.
The discount rate for corporate segment loans is based on a risk-free investment, adjusted for the current credit spread for the respective industry and the rating of the customer, as well as a liquidity premium for the loan term, which is based on the CDS of Bulgaria.
For non-performing exposures in the retail banking segment, the fair value is assumed to be their book value.
The fair value of non-performing exposures in the corporate segment is calculated by discounting the expected cash flows. The discount factor is a risk-adjusted return adjusted with a 5 per cent spread when the expected cash flows are based on collateral and a 10 per cent spread when the flows are expected to be repaid by the debtor's current business.
For other short-term financial assets, it is assumed that their fair value corresponds to their book value.
For liabilities reported at amortized cost, observable inputs are also lacking as there is no active market for such instruments. Their fair value is determined by applying valuation techniques based on discounted contractual cash flows. The discount factor for the liabilities is the return on the risk-free investment, increased by the liquidity premium for the relevant maturity. The liquidity premium is based on the CDS of Bulgaria for the respective maturity.
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6. Classification of Financial Assets and LiabilitiesThe following tables illustrate the categories of financial assets and liabilities recognized in the statement of financial position of the Group.
As at 31 December 2018according to theIFRS 9 categories
in BGN Thousand
Heldfor
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Fair valuethrough
othercomprehensive
income
Amortizedcost
Totalbookvalue
Mandatorilyat fair
value throughprofit or loss
Assets
Cash and balances withthe Central bank – – – 1,288,461 1,288,461
Other demand deposits – – – 122,187 122,187
Debt instruments held for trading 45,157 – – – 45,157
Derivatives 14,264 – – – 14,264
Loans and advances to banks – – – 221,752 221,752
Loans and advances to customers – 28,383 – 5,046,282 5,074,665
Debt instruments – – 553,924 512,728 1,066,651
Equity instruments – – 7,790 – 7,790
Other receivables – – – 32,879 32,879
Total financial assets 59,422 28,383 561,714 7,224,289 7,873,808
Liabilities
Derivatives 11,926 – – – 11,926
Deposits from banks – – – 96,140 96,140
Deposits from customers – – – 6,203,581 6,203,581
Borrowings from banks – – – 289,467 289,467
Subordinated liabilities – – – 365,284 365,284
Other financial liabilities – – – 52,487 52,487
Total financial liabilities 11,926 – – 7,006,959 7,018,885
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7. Segment AnalysisThe Group operates in the following main segments:
– Private individuals – private banking services, private individuals current accounts, savings, deposits, credit and debit cards, consumer loans and mortgages;
– Large corporate clients – current accounts, time deposits, overdrafts and credit lines, real estate financing, foreign exchange and derivative products;
– SME – current accounts, term deposits, overdrafts and credit lines, loans for small and medium-sized businesses, foreign exchange and derivative products;
– Non-Client business – financial transactions that the Group enters in its own name and on its own expense and risk, in order to manage market risk exposures such as FX trading, securities and derivatives trading, money market trading, liquidity management and financing, strategic investments, interest rate risk management;
– Segment “Other” includes cash, capital and reserves, other assets and other liabilities and related results in profit or loss by segments that cannot be allocated to other segments.
Segment results are based on internal transfer pricing.
As at 31 December 2017according to theIAS 39 categories
in BGN Thousand
Heldfor
trading
Availablefor sale
Held tomaturity
Loansand
advances
Otherfinancialliabilities
Totalcarryingamount
Fair valuethrough
profit or loss
Assets
Cash and balances withthe Central bank – – – – 1,298,864 – 1,298,864
Trading assets 50,285 – – – – – 50,285
Derivatives 7,177 – – – – – 7,177
Loans and advances to banks – – – – 346,974 – 346,974
Loans and advancesto customers – – – – 4,420,081 – 4,420,081
Investment securities:
At fair value throughprofit or loss – 2,322 – – – – 2,322
At fair value through OCI – – 534,440 – – – 534,440
At amortized cost – – – 430,043 – – 430,043
Total Assets 57,462 2,322 534,440 430,043 6,065,919 – 7,090,186
Liabilities
Derivatives 7,254 – – – – – 7,254
Deposits from banks – – – – – 59,907 59,907
Deposits from customers – – – – – 5,376,840 5,376,840
Borrowings from banks – – – – – 339,786 339,786
Subordinated liabilities – – – – – 365,275 365,275
Total Liabilities 7,254 – – – – 6,141,808 6,149,062
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8. Net Interest Income
As at 31 December 2018in BGN Thousand
SME Non-Clientbusiness
Other TotalLàrgecorporate
clients andbudget
enterprises
Privateindividuals
Operating income 138,743 80,501 96,587 2,021 2,586 320,439
Hereof net interest income 97,499 53,945 58,760 (6,095) (387) 203,722
Hereof net income fromfees and commissions 34,511 19,685 29,739 (84) (297) 83,554
Assets 1,725,386 2,243,042 1,105,949 2,531,511 368,874 7,974,762
Liabilities 3,517,175 1,566,462 1,119,944 382,795 475,453 7,061,830
Impairment charge (8,823) 7,009 2,082 (117) – 151
Administrative and otheroperating expenses (85,445) (35,615) (50,881) (3,184) (3,962) (179,087)
Profit / (loss) before tax 44,475 51,895 47,789 (1,280) (1,376) 141,503
As at 31 December 2017in BGN Thousand
Operating income 146,954 75,610 87,217 1,987 2,687 314,455
Hereof net interest income 104,604 52,015 54,704 (3,675) (1,869) 205,779
Hereof net fee andcommission income 39,605 19,142 27,863 (372) (823) 85,416
Total net assets 1,625,878 1,841,380 942,671 2,517,656 271,572 7,199,157
Total liabilities 3,014,844 1,388,007 1,013,436 557,661 294,310 6,268,259
Cost of impairment 913 10,314 (784) – – 10,443
Administrative expenses andother operating expenses (80,970) (34,348) (51,040) (3,946) (2,023) (172,327)
Profit/(loss) before tax 66,897 51,577 35,392 (1,959) 663 152,571
SME Non-Clientbusiness
Other TotalLàrgecorporate
clients andbudget
enterprises
Privateindividuals
in BGN Thousand 2018 2017
Interest income
Loans and advances to banks 3,853 4,368
Loans and advances to customers 207,620 211,640
Investment securities 7,294 7,312
Negative interest from financial liabilities 1,247 476
Total Interest income 220,015 223,796
Interest expense
Deposits from banks (333) (120)
Deposits from customers (1,605) (1,632)
Loans from banks (1,857) (2,877)
Subordinated liabilities (11,349) (11,348)
Negative interest from financial assets (1,148) (2,040)
Total Interest expense (16,292) (18,017)
Net interest income 203,722 205,779
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10. Net Trading Result
Interest income on impaired loans is only recognized on the net exposure amount net of impairment.
The interest income on impaired assets for 2018 amount to BGN 10,808 thousand and in 2017 to BGN 12,440 thousand.
9. Net Income from Fees and Commissions
in BGN Thousand 2018 2017
Fee and commission income
Payment transactions 26,692 25,518
Card transactions 39,568 35,084
Cash transactions 8,335 8,063
Opening and maintenance of accounts 16,406 15,309
Other loan fees 5,995 4,940
Documentary transactions 3,337 3,236
Securities business 1,062 856
Asset management 1,485 1,139
Others 5,121 2,163
Total Fee and commission income 108,001 96,308
Fee and commission expense
Payment transactions (2,719) (2,393)
Card operations (domestic and foreign card operators) (18,832) (15,632)
Guarantees and loans (1,864) (1,591)
Securities business (161) (154)
Others (872) –
Total fee and commission expense (24,447) (19,771)
Net fee and commission income 83,554 76,537
in BGN Thousand 2018 2017
Debt securities 482 1,201
Foreign exchange 19,349 17,419
Foreign exchange derivatives 841 306
Interest rate derivative 577 17
Net trading income 21,249 18,943
The net result of trading in debt instruments includes a realized and unrealized dealer margin from the change in market prices of government securities and corporate bonds.
The net result of Foreign exchange includes the net result of the foreign currency purchase and sale, and the revaluation result in BGN for assets and liabilities denominated in foreign currency.
Foreign exchange derivatives include FX forwards and cross-currency swaps. Interest Derivatives are mainly interest rate swaps.
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11. Profit/Loss from Financial Assets Reported Mandatorily at Fair Value Through Profit or LossWith the introduction of IFRS 9, the bank classifies certain assets as being mandatorily measured at fair value through profit or loss. The amount of BGN 838 thousand represents the change in their fair value in 2018.
12. Net Result from Investments
in BGN Thousand 2018 2017
Net valuation result 366 –
Net gains / (losses) on realization of investments – 98
Net result from investments 366 98
in BGN Thousand 2018 2017
Personnel expenses (78,365) (77,486)
Expenses for materials and external services (64,722) (63,207)
Depreciation and amortization charge (15,169) (14,094)
Annual contribution to the Bulgarian Resolution Fund (7,719) (7,240)
Annual contribution in Bulgarian Deposit Insurance Fund (9,652) (8,506)
Total administrative expenses (175,627) (170,534)
13. Administrative Expenses
Personnel expenses include salaries, social and health security contributions under the requirements of the local legislation.
Expenses for materials and external services includes the cost of renting offices and premises for 2018, amounting to BGN 12,397 thousand (2017: BGN 12,052 thousand).
In 2018, the costs of independent financial audit were reported at the amount of BGN 260 thousand (2017: 325 thousand), BGN 34 thousand (2017: 5 thousand) were reported for other expenses not related to the independent financial audit, as well as for audit services and review of historical financial information requested by the auditors of the Parent Company in the amount of BGN 104 thousand (2017: BGN 48 thousand).
Costs for independent financial audit are all accruals in 2018 relating to the statutory financial audit of individual and consolidated accounts.
Costs not related to independent financial audit are the amounts charged for the report on the reliability of internal controls under Regulation 14 of BNB, as well as tax consultations.
Services related to auditing and review of historical financial information, requested by the auditors of the Parent Company – accrued service charges on the group bundle as well as a review of the initial application of IFRS 9.
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14. Other Operating Expenses
15. Net Profit from Impairment of Financial AssetsDisclosure as at 31 December 2018 in accordance with IFRS 9
Loans and advances to customers
in BGN Thousand 2018 2017
Impairment of assets acquired from collateral (899) (681)
Others (2,636) (1,112)
Total (3,535) (1,793)
Change in expected credit losses
in BGN Thousand Stage 1 Stage 2 Stage 3 Total
Expected credit lossesas at 01 January 2018 9,917 22,579 146,448 178,944
New assets created or purchased 6,294 3,918 274 10,486
Assets repaid (2,925) (5,135) (11,073) (19,132)
Assets transferred to Stage 1 34,462 (33,623) (725) 114
Assets transferred to Stage 2 (5,727) 14,306 (8,522) 57
Assets transferred to Stage 3 (106) (9,088) 9,162 (32)
Changes in expected credit losses due to a change in credit risk (30,250) 37,923 7,871 15,544
Expected credit losses on written off assets – – (35,528) (35,528)
Expected credit lossesas at 31 December 2018 13,841 31,660 109,965 155,466
Changes in the gross amounts of financial assets reported at amortized cost between the different stages
Loans to customers Stage 1 Stage 2 Stage 3
4,649,028 417,974 134,745
Transferred from Stage 1 134,798 13,292
Transferred from Stage 2 47,931 5,518
Transferred from Stage 3 11,013 4,738
Commitments on issued guarantees and letters of credit, and undrawn credit lines
in BGN Thousand Stage 1 Stage 2 Stage 3 Total
Expected credit lossesas at 1 January 2018 1,686 2,492 6,042 10,220
New assets created or purchased 1,508 2,442 95 4,045
Assets repaid (918) (3,288) (1,456) (5,662)
Assets transferred to Stage 1 7,214 (7,046) (168) –
Assets transferred to Stage 2 (445) 535 (90) –
Assets transferred to Stage 3 (1) (51) 52 –
Changes in expected credit lossesdue to a change in credit risk (7,060) 9,158 1,851 3,949
Expected credit lossesas at 31 December 2018 1,984 4,242 6,326 12,552
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Debt instruments at fair value through other comprehensive income
Changes in gross amounts of commitments on issued guarantees and letters of creditand undrawn credit lines between the different stages
Off-balance sheet commitments Stage 1 Stage 2 Stage 3
1,866,999 122,240 9,349
Transferred from Stage 1 31,780 1,680
Transferred from Stage 2 12,101 166
Transferred from Stage 3 33 12
Changes in expected credit losses
in BGN Thousand Stage 1 Stage 2 Stage 3 Total
Expected credit lossesas at 01 January 2018 17 – – 17
New assets created or purchased 27 – – 27
Assets repaid (5) – – (5)
Assets transferred to Stage 1 – – – –
Assets transferred to Stage 2 (17) 17 – –
Assets transferred to Stage 3 – – – –
Changes in expected credit lossesdue to a change in credit risk 12 13 – 25
Expected credit lossesas of 31 December 2018 34 30 – 64
Changes in expected credit losses
in BGN Thousand Stage 1 Stage 2 Stage 3 Total
Expected credit lossesas at 01 January 2018 23 – – 23
New assets created or purchased 34 – – 34
Assets repaid – 3 – 3
Assets transferred to Stage 1 – – – –
Assets transferred to Stage 2 – – – –
Assets transferred to Stage 3 – – – –
Changes in expected credit lossesdue to a change in credit risk – 1 – 1
Expected credit lossesas at 31 December 2018 53 – – 53
Changes in gross amounts between the different stages
in BGN Thousand Stage 1 Stage 2 Stage 3 Total
Book value as at 01 January 2018 530,420 – – 530,420
New assets created or purchased 307,310 – – 307,310
Assets repaid (276,278) – – (276,278)
Assets transferred to Stage 1 – – – –
Assets transferred to Stage 2 (48,785) 48,785 – –
Assets transferred to Stage 3 – – –
Other changes (7,528) – – (7,528)
Book value as at 31 December 2018 505,139 48,785 – 553,924
Debt instruments at amortized cost
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Changes in gross amounts between the different stages
in BGN Thousand Stage 1 Stage 2 Stage 3 Total
Book value as of 01 January 2018 430,043 – – 430,043
New assets created or purchased 242,475 – – 242,475
Assets repaid (170,717) – – (170,717)
Assets transferred to Stage 1 – – – –
Assets transferred to Stage 2 – – – –
Assets transferred to Stage 3 – – – –
Other changes 10,980 – – 10,980
Book value as of 31 December 2018 512,781 – – 512,781
Reconciliation of net income from impairment
Financial Financial Undrawn Total assets at assets at credit lines and in BGN Thousand amortized fair value commitments cost other on issued comprehensive guarantees income and letters of credit
Cost of impairment (8,223) (47) (2,331) (10,601)
Income from written-offimpaired financial assets 10,827 – – 10,827
Net profit/(loss) 2,604 (47) (2,331) 226
Disclosure as at 31 December 2017 in accordance with IAS 39
in BGN Thousand 2017
Impairment Allowance
Balance as at January 1 247,101
Change in consolidation group –
Additional allowances for impairment losses 58,394
Reversals (57,392)
Foreign currency effect (258)
Written-off receivables (71,309)
Balance as at December 31 177,053
in BGN Thousand 2017
Impairment Allowance
Additional allowances for impairment losses (62,642)
Reversals 57,942
Recoveries from non performing loans previously written off 15,142
Net impairment loss on loans and advances 10,443
The net impairment loss on loans and advances includes also the impairment losses for credit risk stemming from the Group’s irrevocable commitments on contingent liabilities. Impairment loss for commitments and contingent liabilities amount to BGN 3,181 thousand for 2017.
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in BGN Thousand 2017
Collective allowences for impairment
Balance as at 1 January 31,393
Change in consolidation group –
Charge for the period 14,600
Reversals (19,530)
Balance as at December 31 26,463
Total 177,053
in BGN Thousand 2017
Individual allowences for impairment
Balance as at 1 January 215,708
Change in consolidation group –
Charge for the period 44,079
Reversals (37,888)
Write offs (71,309)
Balance as at December 31 150,590
The following tables illustrate the breakdown of impairment losses into individual and collective allowances for impairment.
16. Tax
in BGN Thousand 2018 2017
Accounting profit 141,076 152,571
Tax at the applicable tax rate (10% for 2018, 10% for 2017) (14,108) (15,257)
Tax effect on permanent differences (30) (10)
Total tax expense (14,137) (15,267)
Effective tax rate 10.02% 10.01%
In BGN Thousand 2018 2017
Current tax (expense) (14,015) (14,280)
Deferred tax (expense) related to originationand reversal of temporary differences (122) (987)
Total tax (expense)/income (14,137) (15,267)
in BGN Thousand 2018 2017
Other comprehensive income (295) 11,553
Tax at the applicable tax rate (10% for 2018, 10% for 2017) 30 (1,155)
Tax expense in other comprehensive income 30 (1,155)
Current income tax expense represents the amount of corporate tax due under Bulgarian law. Deferred tax expense or income, is the result of a change in the carrying amount of deferred tax assets and deferred tax liabilities.
The relationship between tax expenses and accounting profit is as follows:
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The deferred income tax expense is attributable to the following items of the statement of financial position as at December 31, 2018 and 2017 and are presented separately for the bank and the subsidiaries due to inadmissibility deferred tax assets with deferred tax liabilities to be netted within the Group:
The bank
Assets Liabilities Net (Assets)/Liabilities
in BGN Thousand 2018 2017 2018 2017 2018 2017
Fixed assets – – 2,071 1,955 2,071 1,955
Unused leave of personnel (465) (450) – – (465) (450)
Provisions for employee remuneration (1,070) (1,153) – – (1,070) (1,153)
Other provisions (449) (340) (449) (340)
Investments – – 162 162 162 162
Impairment of assets acquiredfrom collateral (114) (63) – – (114) (63)
Impairment of investmentsin subsidiaries (60) (120) – – (60) (120)
Net (assets)/liabilities (2,158) (2,126) 2,233 2,117 75 (9)
Assets Liabilities Net (Assets)/Liabilities
in BGN Thousand 2018 2017 2018 2017 2018 2017
Fixed assets – – 32 32 32 32
Unused leave of personnel (51) (19) – – (51) (19)
Provisions for employee remuneration – (22) – – – (22)
Other provisions (53) (69) – – (53) (69)
Investments – – – – – –
Impairment of assets acquiredfrom collateral (3) – – – (3) –
Tax loss (35) (69) – – (35) (69)
Net tax (assets)/liabilities (142) (179) 32 32 (110) (147)
Subsidiaries
Deferred taxes are calculated on all temporary differences using a principal tax rate of 10 per cent.
Movements in temporary differences during the year are recognized in statement of comprehensive income on the following items:
Movements during the year for all companies in the Group
Net tax (assets) / liabilities 2018 Changes 2017in BGN Thousand comprehensive income-profit/(loss)
Fixed assets, net 2,103 (116) 1,987
Unused leave of personnel (516) 48 (469)
Provisions for employee remuneration (1,070) (105) (1,175)
Other provisions (502) 92 (409)
Investments 162 – 162
Impairment of assets acquired from collateral (117) 54 (63)
Impairment of investments (60) (60) (120)
Tax loss (35) (34) (69)
(122)
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in BGN Thousand 2018 2017
Cash on hand 164,576 124,810
ATM cash 62,506 58,091
Balances with the Central Bank 1,061,379 1,115,963
Total 1,288,461 1,298,864
in BGN Thousand 2018 2017
Items that will never be reclassified to profit or loss
Remeasurements of defined benefit plans 309 (179)
Items that will be reclassified to profit or loss
Changes in the fair value of financial assets available for sale (295) 11,695
Tax effect on other comprehensive income 30 (1,170)
Reclassified to profit or loss - 48
Tax effect on other comprehensive income -
Other comprehensive income 44 10,389
17. Other Comprehensive Income
18. Cash and Balances with Central Banks
Balances with the Central Bank include the current account with the Bulgarian national bank, used for direct participation in the money and treasury bills markets and for settlement purposes, as well as the accounts for holding the obligatory minimum reserves. The current account balances are also eligible to cover the required by the Bulgarian national bank minimum reserves. Eligible reserve assets are also 50 per cent of the cash in hand, including ATM balances, and other special purpose accounts held with the Central bank.
19. Other Demand DepositsOther demand deposits as at 31 December 2018 at the amount of BGN 122,174 thousand are nostro accounts with banks, as well as overnight deposits in the money market. As at 31 December 2017, the deposits on demand are presented as part of "Loans and advances to banks" and amount to BGN 97,198 thousand.
20. Trading Assets
in BGN Thousand 2018 2017
Bulgarian government securities 39,840 47,010
Bulgarian corporate bonds 5,318
Foreign government securities 14,264 3,275
Total 59,422 50,285
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21. DerivativesThe Group uses the following derivative instruments for both hedging and non-hedging purposes:
• Currency forwards represent commitments to purchase-sale of foreign domestic currency, including undelivered spot transactions;
• Currency and interest rate swaps are commitments to exchange one set of cash flows for another.
Swaps result in an economic exchange of currencies or interest rates (for example fixed interest for floating rate) or a combination of all these (i.e. cross currency interest rate swaps). Usually for such deals no exchange of principal takes place. The Group’s credit risk represents the potential cost to replace the swap contracts if counterparties fail to fulfil their obligations. The risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market.
To control credit risk in derivative instruments, the Group assesses its counterparties with the techniques and methods applied to the credit process.
The following table indicates all derivative instruments held by the Group.
in BGN Thousand Nominal value Fair value
Assets Liabilities
As at 31 December 2018
Currency forwards 460,309 10,684 10,504
Currency swaps 164,265 3,191 23
Interest rate swaps 108,478 389 1,398
733,378 14,264 11,926
As at 31 December 2017
Currency forwards 241,487 6,529 6,416
Currency swaps 195,789 524 725
Interest rate swaps 18,635 124 113
456,522 7,177 7,254
22. Financial Assets Mandatorily Measured at Fair Value Through Profit or Loss
in BGN Thousand 2018 2017
Loans and advances to customers 28,383 –
Large corporate customers 28,383 –
Total 28,383 –
Loans to customers classified under IFRS 9 in category „Financial assets mandatorily measured at fair value through profit or loss“ are loans where the contractual cash flows are not only payments of principal and interest on the outstanding principal.
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23. Financial Assets at Fair Value Through Other Comprehensive Income
in BGN Thousand 2018 2017
Bulgarian government bonds 231,005 273,757
Foreign government bonds 107,885 129,859
Foreign corporate bonds 215,034 126,805
Foreign corporate shares 4,942 4,020
Bulgarian corporate shares 2,848 –
Total 561,714 534,441
Comparative data for 2017 include investment securities classified as available-for-sale under IAS 39.
24. Financial Assets at Amortized CostА. Loans and advances to banks
in BGN Thousand 2018 2017
Money market deposits
Local banks - 32,620
Foreign banks 221,752 112,510
221,752 145,130
Loans to banks
Local banks 1,706
Foreign banks – 137,041
– 138,747
Nostro accounts
Local banks – 4,277
Foreign banks – 58,820
– 63,097
Other receivables 19,427 –
Total 241,179 346,974
As at 31 December 2018, other receivables include balances on the settlement of card transactions. As at 31 December 2017, these estimates are shown under "Other assets".
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B. Loans and advances to customers
in BGN Thousand 2018 2017
Private individuals (retail customers)
- Overdrafts 3,261 3,581
- Credit cards 52,166 52,113
- Consumer loans 893,445 771,499
- Mortgage loans 955,574 822,826
- Financial leasing 45,443 33,353
1,949,889 1,683,372
Corporate entities
- Large corporate clients 2,136,024 1,937,884
hereof finance lease 233,696 201,590
- SME 1,144,217 975,878
hereof finance lease 97,796 87,426
3,280,241 2,913,762
Gross loans and advances 5,230,131 4,597,134
Less: Allowences for impairment (155,465) (177,053)
Net 5,074,665 4,420,081
C. Debt securities
in BGN Thousand 2018 2017
Remaining maturity less than 1 year 126,360 114,112
Remaining maturity 1 to 5 years 255,777 210,134
Remaining maturity more than 5 years 22,071 24,566
Gross investment in finance lease 404,209 348,812
Unrealized finance income (27,241) (26,443)
Minimum lease payments 376,968 322,369
Impairment (4,794) (2,834)
Net investment in finance lease 372,174 319,535
in BGN Thousand 2018 2017
Bulgarian government bonds 394,555 368,338
Bulgarian corporate bonds 59,727 –
Bulgarian municipal bonds 13,737 18,305
Foreign government securities 40,892 43,400
Foreign Bonds (Financial Institutions) 3,870 –
Gross debt securities 512,780 430,043
Less: Allowences for impairment (53) –
Net 512,728 430,043
Comparative data for 2017 include investment securities classified as held to maturity in accordance with IAS 39.
Net investment in finance lease
The net investment in finance lease represents the gross investment in finance lease less the unrealized finance income and less accumulated impairment.
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25. Property, Plant and Equipment
in BGN Thousand Total Premises Computers Office Motor Office Assets Equipment Furniture Vehicles recon- under structions construction
Cost
January 1, 2018 136,104 6,495 40,994 49,161 4,646 30,842 3,965
Additions 12,979 – 4,002 4,190 2,192 1,778 817
Write offs (16,472) – (2,981) (9,741) (736) (3,014) –
Transferred to fixed assets (1,376) (1,376)
December 31, 2018 131,235 6,495 42,015 43,610 6,102 29,606 3,406
Accumulated Depreciation
January 1, 2018 98,739 2,682 32,044 36,884 1,463 25,666 –
Charge for the period 8,151 243 3,146 2,588 879 1,295 –
Depreciation of write offs (16,167) – (2,980) (9,648) (525) (3,014) –
December 31, 2018 90,723 2,925 32,210 29,824 1,817 23,947 –
Net Book value December 31, 2018 40,512 3,570 9,805 13,786 4,285 5,659 3,406
Cost
January 1, 2017 135,213 6,343 44,306 48,515 3,220 32,827 –
Additions 15,429 – 2,720 5,452 2,151 1,141 3,965
Corrections of devaluation 152 152 – – – – –
Write offs (14,690) – (6,031) (4,806) (726) (3,127) –
December 31, 2017 136,104 6,495 40,994 49,161 4,646 30,842 3,965
Accumulated Depreciation
January 1, 2017 105,460 2,440 34,988 39,097 1,311 27,624 105,460
Charge for the period 7,727 242 3,080 2,560 681 1,164 7,727
Depreciation of write offs (14,448) – (6,024) (4,773) (529) (3,122) (14,448)
December 31, 2017 98,739 2,682 32,044 36,884 1,463 25,666 –
Net Book value 31 December 2017 37,365 3,813 8,951 12,277 3,182 5,177 3,965
Net Book value January 1, 2017 29,753 3,903 9,318 9,418 1,910 5,204 –
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26. Intangible Assets
Total Software Licences AssetsIn BGN Thousand under construction
Cost
January 1, 2018 89,255 81,554 367 7,334
Additions 17,218 7,702 – 9,516
Write offs (272) (269) (3) –
Transferred to fixed assets (4,775) – – (4,775)
December 31, 2018 101,426 88,987 364 12,075
Accumulated Depreciation
January 1, 2018 58,064 57,708 355 58,064
Charge for the period 7,020 7,017 3 -
Depreciation of write offs (123) (120) (3) –
December 31, 2018 64,961 64,605 355 –
Net Book value December 31, 2018 36,465 24,382 9 12,075
Cost
January 1, 2017 73,055 72,700 355
Additions 16,200 8,854 12 7,334
Write offs – – –
December 31, 2017 89,255 81,554 367 7,334
Accumulated Depreciation
January 1, 2017 51,697 51,342 355 –
Charge for the period 6,367 6,367 –
Depreciation of write offs – – – –
December 31, 2017 58,064 57,708 355 –
Net Book value December 31, 2017 31,192 23,847 12 7,334
Net Book value 1 January 2017 21,359 21,359 – –
27. Other Assets
in BGN Thousand 2018 2017
Prepayments and other deferrals 3,564 6,152
Repossesses collateral 1,307 1,252
Others 16,680 31,192
Total 21,551 38,596
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The table below shows the movement of assets acquired from collateral / acquired leased assets.
in BGN Thousand 2018 2017
Balance as at 1 January 1,252 5,858
Acquisitions 1,547 1,697
Disposals (593) (5,622)
Write-downs (899) (681)
Changes in consolidation group – 3,232
Balance as at 31 December 1,307 1,252
28. Financial Liabilities at Amortized CostА. Deposits from banks
in BGN Thousand 2018 2017
Loro accounts
Local banks 2,871 2,249
Foreign banks 37,370 37,656
Total 40,241 39,905
in BGN Thousand 2018 2017
Money market deposits
Local banks 50,399 20,002
Foreign banks 5,500 –
Total 55,898 20,002
Total deposits from banks 96,140 59,907
in BGN Thousand 2018 2017
Large corporate customers and budget entities
- Current accounts 1,408,514 1,266,101
- Term Deposits 157,949 82,456
1,566,463 1,348,557
SMEs
- Current accounts 1,052,139 969,730
- Term Deposits 67,805 43,706
1,119,944 1,013,436
Private individuals (retail customers)
- Current accounts 2,093,126 1,690,987
- Term Deposits and savings products 1,424,048 1,323,860
3,517,174 3,014,847
Total 6,203,581 5,376,840
B. Deposits from customers
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in BGN Thousand 2018 2017
Credit lines from international financial institutions 242,195 223,279
Loans from foreign banks 24,261 84,292
Borrowings from local banks 23,010 32,215
Total 289,467 339,786
C. Borrowings from banks
Loans from banks received include long-term loans from international financial institutions to finance small and medium-sized enterprises in the fields of environmental protection, energy, services, industry and tourism, as well as municipalities and private individuals.
The bank also attracts syndicated and other loans from foreign credit institutions to finance its lending business.
D. Subordinated liabilities
As at 31 December 2018, subordinated liabilities consist of:
• Debt-capital hybrid instrument with principal amounting to BGN 177,981 thousand (book value BGN 178,370 thousand) received by the bank in 2001. Payment of the debt-equity hybrid instrument is not time-bound. The management believes that the use of this tool will be over 5 years;
• Subordinated debt in the amount of BGN 185,022 thousand (carrying amount BGN 186,909 thousand), attracted by the bank in 2013 and 2014 with an original maturity of 10 years.
The bank has been authorized by the Bulgarian National Bank to include these subordinated liabilities in its supplementary capital reserves and to increase its own capital for the purposes of capital adequacy.
The bank regularly serves the agreed payments on subordinated liabilities.
E. Other liabilities
in BGN Thousand 2018 2017
Transfers in process 18,078 48,278
Liabilities under factoring transactions 23,375 21,794
Other payables 11,034 4,882
Total 52,487 74,954
Transfers in process represent customers’ money transfer orders with value date after 31 December 2018. For better comparability and more accurate presentation of the financial information under "Other liabilities", the Group has carried out a reclassification from "Transfers in process" to "other payables" at the amount of BGN 1,865 thousand compared to 2017 information.
29. Other PayablesAs of 31 December 2018, the item "Other payables" include earnings for future periods, deferred income, liabilities to suppliers, VAT accrued for payment, as well as income tax accrued for payment and social security contributions related to staff remuneration paid at the year-end.
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30. Provisions
in BGN Thousand 2018 2017
Provisions for employees’ remuneration 9,163 10,286
Provisions for unused paid leave 4,853 4,728
Provisions for defined contribution plans 1,837 2,000
Impairment losses on credit commitments 12,552 8,050
Other provisions 5,276 3,956
Total 33,682 29,020
The Group recognizes a provision for unused paid leave, which is the undiscounted amount of the expected short-term income of its employees for the work performed during the current period.
Provision is recognized also for other liabilities to its employees, such as accrued but not paid remuneration related to performance, according to Management’s assessment for the achieved results and goals during the financial year.
Obligations under defined benefit plans
The accrued provision for retirement compensation as at 31 December 2018 amounts to BGN 1,837 thousand. The estimated amount of the liability is based on an actuarial report, which was prepared based on the following actuarial assumptions:
• Discount rate: 1.0 per cent;
• Retirement date: in accordance with regulations on length of service and age.
Changes in the present value of the liabilities under the defined benefit plans
in BGN Thousand 2018 2017
Defined benefit obligations at 1 January 2,000 1,597
Benefits paid by the plan (168) (61)
Current service cost 282 239
Interest expense 31 45
Actuarial (gains) / losses for the period (307) 179
Defined benefit obligation at 31 December 1,838 2,000
The current service costs and interest expense are recognized in personnel expenses in profit or loss. Actuarial (gains)/losses for the period are recognized in other comprehensive income.
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31. Changes in the Liabilities Arising from Financing ActivitiesThe following table summarizes changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes by providing a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities for the year ended 31 December 2018.
1 January Cash Cash Effective Other non- Interest 31 December 2018 inflows outflows interest rate monetary paid 2018in BGN Thousand accruals changes
Non-currentinterest-bearingloans and 339,786 78,233 (128,601) 361 – (312) 289,467borrowings
Dividendspayable – – (134,465) – 134,465 – –
Total liabilitiesfrom financing 339,786 – (263,066) 361 134,465 (312) 339,786activities
32. EquityShare capital
As of December 31, 2018, the registered and fully paid-in capital of the Group comprised of 603,447,952 registered shares with a par value of BGN 1 each.
Statutory reserve
Statutory reserves comprise amounts appropriated for purposes defined by the local legislation. Under the Bulgarian Commercial code, the Group is required to set aside one tenth of its profit in a statutory reserve until it reaches at least 10 per cent of its equity.
Retained earnings
All other general reserves after allocation of the statutory reserve are accounted for in this position, which can be used to allocate a dividend and cover future losses.
Fair value reserve
The fair value reserve comprises the cumulative net changes in the fair value of available for sale financial assets until the financial assets are derecognized or impaired.
33. Commitments and Contingent LiabilitiesThe Group provides financial guarantees and letters of credit to guarantee the performance of customers to third parties (credit commitments). They represent off-balance financial instruments, being by nature credit substitutes, which engage the Group and expose it to credit risk.
The contractual amounts of commitments and contingent liabilities are set out in the following table by category. The figures presented for guarantees and letters of credit represent the maximum accounting loss that the Group would recognize at the reporting date in the statement of financial position, if the counterparties do not fulfill their contractual obligations.
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The Group allocates provisions to cover its credit risk from commitments and contingent liabilities, where its engagement is irrevocable. The provisions for credit risk from commitments and contingent liabilities represent the valuation of the potential loss, which the Group would realize, considering the probability that the customer utilizes the commitment. In order to determine this loss, the Group converts the net off-balance sheet exposure (after deducting liquid collaterals) into a balance sheet exposure, by applying respective credit conversion factors.
For the converted off-balance sheet commitments the same calculation methods for impairment are applied as for the balance sheet exposures.
34. Investments in Associates
in BGN Thousand� 2018 2017
Letters of guarantees and letters of credit issued 315,438 322,123
hereof to banks 6,926 6,116
Unused credit lines 1,683,149 1,345,388
thereof to banks 87,319 43,539
Total 1,998,587 1,667,511
Entity Carrying amount of the investment in BGN Thousand
2018 2017
Cash Service Company AD – 1,662
An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence, but not the control, and that is neither a subsidiary nor an interest in a joint venture. The investments in associates are consolidated in the Group’s financial statements by using the equity method.
As at December 31, 2018, the bank owns a 20 per cent share in the Cash Service Company AD.
The bank intends to terminate its participation in the Company, and in 2018 an agreement was reached for the sale of shareholding. As a result, part of the impairment amounting to BGN 600 thousand was reintegrated, and as at 31 December 2018, the investment was reclassified to "Investments held for sale" in accordance with IFRS 5.
35. Cash and Cash EquivalentsFor the purposes of the cash flow statement, the cash and cash equivalents comprise the following balances with less than 3 months original maturity:
in BGN Thousand 2018 2017
Cash on hand 227,042 182,901
Current accounts with other banks 83,915 63,097
Current account with the Central Bank 1,061,379 1,115,963
Placements with banks with original maturity of less than 3 months 214,759 108,289
Total 1,587,094 1,470,250
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36. Group MembersSubsidiaries
Subsidiaries are these entities, which are controlled by the bank. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
In order that the consolidated financial statements present financial information about the Group as that of a single economic entity, income and expenses of a subsidiary are included in the consolidated statements from the date of acquisition until the Group ceases to exercise control over the entity.
Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full.
The subsidiaries controlled by the bank as at December 31, 2018 are:
Raiffeisen Leasing Bulgaria EOOD – 100 per cent participating interest
Raiffeisen Leasing Bulgaria OOD was founded in 2004, with Raiffeisenbank (Bulgaria) EAD (24.5 per cent) and Raiffeisen Leasing International GmbH (75.5 per cent) as partners. In 2016, the bank acquired full ownership of Raiffeisen Leasing OOD by buying all shares of Raiffeisen Leasing International GmbH. After the share purchase, the legal status of the company changed to Raiffeisen Leasing Bulgaria EOOD.
The company’s registered capital amounts to BGN 35,200 thousand. As of 31 December 2018, the total assets of Raiffeisen Leasing Bulgaria EOOD reached BGN 399 mln.
Raiffeisen Service EOOD – 100 per cent participating interest
Raiffeisen Service EOOD is registered in the Bulgarian Trade registry with a capital of BGN 4,220 thousand. Its scope of activity includes property management, financial and accounting consultancy, legal consultancy, accounting services, evaluation of movable and immovable property, financial assets and companies, electronic data handling and analysis, information services, rental of safe boxes, leasing. As of 31 December 2018, the company’s net assets amount to BGN 5,320 thousand.
Raiffeisen Asset Management (Bulgaria) EAD – 100 per cent participating interest
Raiffeisen Asset Management (Bulgaria) EAD was licensed in 2005 by the Financial Supervision Commission to conduct activities under Article 202, paragraph 1, items 1, 2 and 3 of the Public Offering of Securities Act (POSA), namely management of the activities of collective investment schemes (CIS) and of closed-end investment companies, as well as activities under Article 202, paragraph 2 of POSА – management of individual portfolios at own discretion, without special client orders and providing investment advice on securities. As of 31 December 2018, the assets under management in the six funds exceed BGN 196 million, which represents 13.7 per cent market share. The registered capital of the company amounts to BGN 250 thousand and its net assets as of 31 December 2018 amount to BGN 1,523 thousand.
Raiffeisen Insurance Broker EOOD – 100 per cent participating interest
Raiffeisen Insurance Broker EOOD has been established in 2006 with 100 per cent ownership of Raiffeisenbank (Bulgaria) EAD. The company has been entered in the register of the insurance brokers on 30 March 2006 with decision №250-ЗB of the Financial Supervision Commission.
The activity of the company is related to mediation in the conclusion of insurance contracts between broker's clients and insurance companies.
As of 31 December 2018, the registered capital of the company amounts to BGN 5 thousand, and its net assets are BGN 5,533 thousand.
Associates
An associate is an entity in which the bank exercises significant influence but does not control its financial and operating policies. Investments in associates are accounted for in the consolidated financial statements of the bank using the equity method. Under the equity method, the investment is initially recorded at its cost and the book value is increased or decreased to recognize the bank's share in the profits or losses of the enterprise after the acquisition date. The bank's share of the associate's profit or loss is recognized in the profit or loss of the Group. Income received through distribution from the
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associate reduces the book value of the investment. A recalculation of the book value may also be necessary as a result of a change in the bank's percentage share in the associate due to changes in the capital of the enterprise that have not been reflected in its profits or losses. Such changes may arise as a result of the revaluation of property, plant and equipment, exchange rate differences from foreign exchange transactions. The share of the Group in these changes is reflected directly in its capital.
Cash Service Company AD – 20 per cent participating interest
In 2009, the bank acquired a shareholding of BGN 2,500 thousand in the Cash Services Company, which represents 20 per cent of the Company's registered capital. In 2016, indications of impairment of the investment were identified and the bank recognized a loss of BGN 1,200 thousand.
The bank intends to terminate its participation in the company, with an agreement to sell the shareholding in 2018. As a result, part of the impairment amounting to BGN 600 thousand was reintegrated, and as of 31 December 2018, the investment was reclassified to "Investments held for sale" in accordance with IFRS 5.
Disclosure under art. 70, para. 6 of the Credit institutions act
The data provided are as at 31 December 2018 and do not reflect consolidation eliminations:
Activitydescription
Finance lease, granting of loans with funds that are not attracted through public deposit taking, all activities that are supplementing leasing permitted under the Credit institutions act
Activities under art. 202, (1), p.1, 2 è 3 and art. 202 (2) of the Public offering of securities act
Insurance interme-diation between customers and insur-ance companies
Management of real estate, financial and accounting con-sultancy, legal con-sultancy, appraisal of movable and immovable property, financial assets and companies, electronic data administration and analysis, informa-tion services, rental of safe deposit boxes, leasing
Name
Bulgaria:
Raiffeisen Leasing(Bulgaria) EOOD
Raiffeisen Assetmanagement EAD
RaiffeisenInsuranceBroker EOOD
RaiffeisenService EOOD
Seat Turnover Number Profit Tax Return State amount * of before charged on subsidiaries employees tax assets received
Sofia 10,249 95 4,741 (472) 1% –
Sofia 1,500 10 388 (39) 20% –
Sofia 7,034 17 6,029 (603) 83% –
Sofia 849 2 464 (46) 7% –
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The consolidation methods applied are as follows:
� Participation Participation Consolidation Consolidation as of as of method method 31 December 31 December 2018 2017 2018 2017
Raiffeisen Service EAD 100% 100% Full Full consolidation consolidation
Raiffeisen Asset Management (Bulgaria) EAD 100% 100% Full Full consolidation consolidation
Raiffeisen Insurance broker EOOD 100% 100% Full Full consolidation consolidation
Raiffeisen Leasing Bulgaria OOD 100% 100% Full Full consolidation consolidation
37. Related PartiesIt is considered that there is a connection between parties when one of them can control or exert significant influence on the financial and operational decisions of the other person, or the parties are under common control with the bank.
In its normal course of business, the bank enters into various relationships with related parties, such as lending, accepting deposits or other transactions. Related party transactions are under agreed terms.
Parent and ultimate controlling party
The direct owner of the bank's capital is Raiffeisen SEE Region Holding GmbH, which is 100 per cent owned by Raiffeisen Bank International AG, Austria, a parent company. Therefore, the Group considers that, in accordance with the requirements of IAS 24, for the purposes of disclosure of transactions with related parties, the following persons are related:
– Shareholders and parties related to shareholders;
– Key management personnel and parties related to key management personnel.
Shareholders and parties related to shareholders.
Related party Type of transaction Value of the Balance transactions for as of 31 Decemberin BGN Thousand the year ended
2018 2017 2018 2017
Parent company Loans and advances of banks 64,405 27,469
Parent company Positive fair value of derivatives 6,533 2,313
Parent company Tangible and intangible fixed asset 3,816 2,340
Parent company Other assets 5,898 5,897
Parent company Deposits from banks 2,830 4,339
Parent company Negative fair value of derivatives 8,879 4,894
Parent company Subordinated liabilities 365,284 365,276
Parent company Other liabilities 89 236
Parent company Interest income 1,350 1,465
Parent company Interest expense (12,808) (12,304)
Parent company Fee and commission income 96 62
Parent company Fee and commission expense (177) (274)
Parent company Profit or loss from financial assets and liabilities held for trading (2,666) –
Parent company Administrative expenses (9,483) (8,190)
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Related party Type of transaction Value of the Balance transactions for as of 31 Decemberin BGN Thousand the year ended
2018 2017 2018 2017
Parent company Off-balance sheet commitments and undrawn credit lines 1,582 7,449
Companies related to theparent company Loans and advances to banks 98,033 149,276
Companies related to theparent company Investment securities 126,457 126,805
Companies related to the Tangible and intangibleparent company fixed assets 940 1,604
Companies related to theparent company Deposits from banks 32 94
Companies related to theparent company Deposits from customers 1,520 3,714
Companies related to theparent company Interest income 1,470 2,050
Companies related to theparent company Fee and commission income 22 20
Companies related to theparent company Fee and commission expense (3,709) (2,444)
Companies related to theparent company Administrative expenses (4,605) (4,426)
Companies related to the Off-balance sheet commitmentsparent company and undrawn credit lines 367 448
Key management personnel and parties related to key management personnel
Key management personnel include Supervisory Board members, Management Board members and other key management personnel who have the power and responsibility to plan, manage and control the activities of the Group, directly or indirectly, including any director (executive or other) within the Group. Individuals related to key management personnel are members of their families and companies or activities controlled by key management personnel and members of their families. During the financial year the members of the Supervisory Board of the Group were 6 and the Management Board – 5. At the reporting date, apart from the members of the Supervisory Board and the Management Board, the Group does not consider other persons as key management personnel.
The table below shows the key management personnel compensation:
Compensation for key management personnel
in BGN Thousand 2018 2017
Short-term employee benefits 3,187 3,235
Total 3,187 3,235
The related party transactions are as follows:
Banking services
The Group provides related parties with services related to current accounts and accepts term deposits on which it pays interest, as well as grants loans for which it receives interest accordingly. The Group also collects fees and commissions on services rendered to related parties.
Other transactions
Other related party transactions include rental income from and to related parties for the use of real estate as well as other services rendered.
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Transactions with key management personnel
Type of transaction Value of the transactions Book valuein BGN Thousand for the year ended as of 31 December
2018 2017 2018 2017
Current accounts and deposits – – 1,692 2,081
Fee and commission income 3 3 – –
Remuneration 3,187 3,235 – –
Loans and credit commitments – – 8 11
38. Subsequent EventsThere are no events after the date of the statement of financial position that would require either adjustments or additional disclosures in these consolidated financial statements.
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Addresses 166
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Vision and mission Head Office
1407 Sofia55, N.Vaptsarov Blvd.Business Centre EXPO 2000Tel.: (+359 2) 91 985 101Fax: (+359 2) 9 434 528Raiffeisenbank (Bulgaria) EAD
Raiffeisenbank (Bulgaria) EAD Offices in Sofia:Sofia Main Branch1504 Sofia18-20, Gogol Str.Tel.: (+359 2) 91 985 702/ 121Fax: (+359 2) 91 985 139
Sofia 21000 Sofia135, G.S. Rakovski Str.Tel.: (+359 2) 8 155 712Fax: (+359 2) 9 803 042
Sofia 31750 SofiaMladost 1 Compl, bl.30, entr. VTel.:(+359 2) 9 760 960/967/968Fax: (+359 2) 9 753 158
Sofia 41303 Sofia132, Todor Alexandrov Blvd.Tel: (+359 2) 9 159 921/922Fax: (+359 2) 9 811 921
Sofia 51606 Sofia5, Gen. Totleben Blvd.Tel: (+359 2) 9 157 913/14/15Fax: (+359 2) 9 532 880
Sofia 61421 Sofia49, Bulgaria Blvd.Business Center VitoshaTel.: (+359 2) 8 181 914/915Fax: (+359 2) 9 589 961
Sofia 71324 SofiaLyulin 6 Compl.29, Dzhavaharlal Neru Blvd.Tel.: (+359 2) 9 216 913/914Fax: (+359 2) 9 252 371
Sofia 81715 SofiaBusiness Park Sofia, bl. 11ATel.: (+359 2) 9 705 712Fax: (+359 2) 9 742 019
Sofia 91330 SofiaKrasna Polyana Compl.N. Mushanov Blvd., bl. 31Tel.: (+359 2) 8 126 053Fax: (+359 2) 9 201 134
Sofia 101220 SofiaNadezhda Compl.Lomsko Shose Blvd., bl. 171Tel.: (+359 2) 8 134 013Fax: (+359 2) 9 361 193
Sofia 111463 Sofia3, Hristo Stambolski Str.Tel.: (+359 2) 9 178 113/114Fax: (+359 2) 9 549 386
Sofia 121202 Sofia65, Maria Luiza Blvd.Tel.: (+359 2) 9 264 043Fax: (+359 2) 9 800 781
Sofia 141111 Sofia43, Shipchenski Prohod Blvd.Tel.: (+359 2) 8 171 863/864Fax: (+359 2) 9 712 008
Sofia 151407 Sofia55, N. Vaptsarov Blvd.Business Centre EXPO 2000Tel.: (+359 2) 8 190 061/062Fax: (+359 2) 8 682 080
Sofia 161303 Sofia79, Hristo Botev Blvd.Tel.: (+359 2) 8 138 061/062Fax: (+359 2) 9 311 038
Sofia 171700 Sofia9, Acd. Boris Stefanov Str.Tel.: (+359 2) 8 190 432Fax: (+359 2) 9 625 042
Sofia 181517 SofiaBotevgradsko Shose Blvd., bl. 4, entr. G-ETel.: (+359 2) 8 190 3 61/362Fax: (+359 2) 9 454 422
Sofia 191000 Sofia93A, Vasil Levski Blvd.Tel.: (+359 2) 9 396 011/12Fax: (+359 2) 9 802 377
Sofia 201612 Sofia7, Tsar Boris III Blvd., entr. A-BTel.: (+359 2) 8 051 612/613Fax: (+359 2) 9 523 878
Sofia 221750 SofiaMladost 1 Compl., Saharov MarketTel.: (+359 2) 9 764 911/912Fax. (+359 2) 9 745 030
Sofia 231712 SofiaMladost 3 Compl., bl. 304Tel.: (+359 2) 8 175 011/12Fax: (+359 2) 9 744 479
Sofia 241504 Sofia10, Yanko Sakazov Blvd.Tel.: (+359 2) 8 192 711/712/713Fax: (+359 2) 9 434 074
Sofia 261612 Sofia124A, Tsar Boris III Blvd.Tel.: (+359 2) 8 081 752Fax: (+359 2) 9 559 632
Sofia 291574 Sofia3, Temenuga Str.Tel.: (+359 2) 8 924 013Fax: (+359 2) 8 701 086
Sofia 301000 Sofia111, G.S. Rakovski Blvd.Tel.: (+359 2) 9 234 411/412Fax: (+359 2) 9 802 372
Sofia 311421 Sofia32A, Cherni Vrah Blvd.Tel.: (+359 2) 8 065 822Fax: (+359 2) 9 631 328
Addresses and Contacts Branch Network in Bulgaria
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Sofia 321336 Sofia,Lyulin 3 Compl.Tsaritsa Yoana Blvd., bl.387Tel.: (+359 2) 8 144 312Fax: (+359 2) 8 263 534
Sofia 331000 Sofia5, Sveta Nedelya SquareTel.: (+359 2) 9 156 212Fax: (+359 2) 9 883 521
Sofia 341040 Sofia126, Vasil Levski Blvd.Tel.: (+359 2) 8 062 712Fax: (+359 2) 9 433 474
Sofia 351680 Sofia76, Gotse Delchev Blvd.Tel.: (+359 2) 8 157 552Fax: (+359 2) 8 586 589
Sofia 361618 Sofia13, Al. Pushkin Str.Tel.: (+359 2) 8 082 742Fax: (+359 2) 9 554 476
Sofia 371113 Sofia12, Tsarigradsko Shose Blvd.Tel.: (+359 2) 8 074 311Fax: (+359 2) 8 705 584
Sofia 381584 SofiaDruzhba 2 Compl.,120, Tsvetan Lazarov Blvd.Tel.: (+359 2) 8 079 512Fax: (+359 2) 9 790 627
Sofia 421113 Sofia18А, F. J. Curie Str.Tel.: (+359 2) 8 077 972Fax: (+359 2) 9 711 308
Sofia 431142 Sofia41А, Graf Ignatiev Str.Tel.: (+359 2) 810 22 12
Sofia 441606 Sofia8, Praga Blvd.Tel.: (+359 2) 8 953 912Fax: (+359 2) 9 523 441
Sofia 451606 Sofia53, Hristo Botev Blvd.Tel.: (+359 2) 8 951 712Fax: (+359 2) 9 549 481
Sofia 461404 Sofia2, Deyan Belishki Str.Tel.: (+359 2) 8 085 912Fax: (+359 2) 9 583 068
Sofia 471324 Sofia15, Tsaritsa Yoanna Blvd.Mega mallTel.: (+359 2) 9 231 852Fax: (+359 2) 9 310 804
Sofia 481407 Sofia51B, Cherni Vrah Blvd.Tel.: (+359 2) 8 054 915
Sofia 501528 Sofia7 Iskarsko shosse Blvd.Commercial center EvropaTel.: (+359 2) 9 040 8821619 Sofia
Sofia Cantek81, Nikola Petkov Blvd.Tel.: (+359 2) 8 081 911/912Fax: (+359 2) 9 571 204
Sofia 511000 Sofia81 Aleksandar Stamboliyski Blvd.Tel.: (+359 2) 9 040 041/ 042
Sofia 521618 Sofia18 Todor Kableshkov Blvd.Tel.: (+358 2) 9 077 381
Sofia 531510 Sofia 51, Makgahan Str..Tel.: (+359 2) 9 040 092
Raiffeisenbank (Bulgaria)EAD
Offices in BulgariaAytos8500 Aytos17, Tsar Osvoboditel Str.Tel.: (+359 558) 29 120Fax: (+359 558) 23 530
Asenovgrad4230 AsenovgradIzlozhenie Str.Tel.: (+359 331) 60 060/062Fax: (+359 331) 64 902
Blagoevgrad2700 Blagoevgrad47, Todor Aleksandrov Str.Tel.: (+359 73) 829 161Fax: (+359 73) 831 582
Blagoevgrad 22700 Blagoevgrad3, Arseniy Kostentsev Str.Tel.: (+359 73) 882 091Fax: (+359 73) 882 092
Botevgrad2140 Botevgrad2, Akad. Stoyan Romanski Str.Tel.: (+359 723) 68 711Fax: (+359 723) 66 322
Burgas 18000 Burgas1, Adam Mitskevich Str.Tel.: (+359 56) 897 845Fax: (+359 56) 820 046
Burgas 28000 Burgas115, Aleksandrovska Str.Tel.: (+359 56) 875 922Fax: (+359 56) 830 173
Burgas 38000 BurgasBratya Miladinovi Compl., bl.117Tel.: (+359 56) 859 487Fax: (+359 56) 831 825
Burgas 48000 Burgas5, Ferdinandova Str.Tel.: (+359 56) 851 422Fax: (+359 56) 842 640
Burgas 58000 BurgasMeden Rudnik Compl., bl.187Tel.: (+359 56) 857 911Fax: (+359 56) 850 096
Burgas 68000 BurgasSlaveykov Compl., bl. 126Tel.: (+359 56) 895 811Fax: (+359 56) 586 057
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Byala7100 Byala1, Ekzarh Yosif Parvi SquareTel.: (+359 817) 713 12/13Fax: (+359 817) 720 56
Dimitrovgrad6400 Dimitrovgrad9, Dimitar Blagoev Str.Tel.: (+359 391) 65 113Fax: (+359 391) 67 684
Dobrich9300 Dobrich25, 25-ti Septemvri Str.Tel.: (+359 58) 653 002/003Fax: (+359 58) 601 783
Dobrich 29300 Dobrich20, Otets Paisiy Str.Tel.: (+359 58) 655 032Fax: (+359 58) 622 034
Dulovo7650 Dulovo11, Vasil Levski Str.Tel.: (+359 855) 21 112Fax: (+359 855) 22 799
Dupnitsa2600 Dupnitsa2, Solun Str.Tel.: (+359 701) 59 813Fax: (+359 701) 51 113
Elin Pelin2100 Elin PelinVitosha Blvd., bl.4, entr.BTel.: (+359 725) 68 012Fax: (+359 725) 66 966
Gabrovo5300 Gabrovo30, Skobelevska Str.Tel.: (+359 66) 810 062Fax: (+359 66) 801 345
Gorna Oryahovitsa5100 Gorna Oryahovitsa1, Mano Todorov Str.Tel.: (+359 618) 61 712Fax: (+359 618) 64 491
Gotse Delchev2900 Gotse Delchev1, Byalo More Str.Tel.: (+359 751) 61 322Fax: (+359 751) 60 024
Harmanli6450 Harmanli1, Bulgaria Blvd.Tel./Fax: (+359 373) 34 91
Haskovo 16300 Haskovo7, Sqare SvobodaTel.: (+359 38) 604 722/ 711Fax: (+359 38) 604 721
Haskovo 36300 Haskovo146, Bulgaria Blvd.Tel.: (+359 38) 650 312Fax: (+359 38) 661 114
Isperih7400 Isperih6, Stefan Karadzha Str.Tel.: (+359 8431) 46 75Fax: (+359 8431) 28 22
Kazanlak6100 Kazanlak2, Knyaz Mirski Str.Tel.: (+359 431) 68 912Fax: (+359 431) 70 066
Kardzhali6600 Kardzhali23B, Ekzarh Yosif Str.Tel.: (+359 361) 60 653Fax: (+359 361) 61 366
Karlovo4300 Karlovo1, Evstati Geshev Str.Tel.: (+359 335) 90 433Fax: (+359 335) 92 295
Karnobat8400 Karnobat1, Karnobatska Komuna Str.Tel.: (+359 550) 28 843Fax: (+359 550) 22 908
Kostinbrod2230 Kostinbrod11, Ohrid Str.Tel.: (+359 721) 68 861/862Fax: (+359 721) 60 440
Kyustendil2500 KyustendilDemokratsiya SquareTel.: (+359 78) 556 312Fax: (+359 78) 554 152
Lovech5500 Lovech3, Bulgaria Blvd.Tel.: (+359 68) 689 019Fax: (+359 68) 689 020
Montana3400 Montana4, Zheravitsa Sq.Tel.: (+359 96) 391 939Fax: (+359 96) 303 036
Nesebar8230 Nesebar3, Priboyna Str.Tel.: (+359 554) 46 660Fax: (+359 554) 43 516
Nova Zagora8900 Nova Zagora49, Vasil Levski Str.Tel.: (+359 457) 61 112Fax: (+359 457) 62 870
Panagyurishte4500 Panaguyrishte3, G.Benkovski Str.Tel.: (+359 357) 88 00Fax: (+359 357) 60 37
Pazardzhik 14400 Pazardzhik7, Tsar Shishman Str.Tel.: (+359 34) 403 023/024Fax: (+359 34) 403 020
Pazardzhik 24400 Pazardzhik13, Han Krum Str.Tel.: (+359 34) 406 712Fax: (+359 34) 431 019
Pernik2300 Pernik15, Krakra Str.Tel.: (+359 76) 688 111Fax: (+359 76) 609 062
Peshtera4550 Peshtera19, Doyranska Epopeya Str.Tel.: (+359 350) 63 71Fax: (+359 350) 41 51
Petrich2850 Petrich51/53, Rokfeler Str.Tel.: (+359 745) 69 611Fax: (+359 745) 61 461
Pirdop2070 Pirdop59, Tsar Osvoboditel Blvd.Tel.: (+359 728) 68 061Fax: (+359 7181) 86 63
Pleven 15800 Pleven1, Vardar Str.Tel.: (+359 64) 894 423Fax: (+359 64) 804 394
Pleven 25800 Pleven2, Tsar Boris III Str.Tel.: (+359 64) 890 512Fax: (+359 64) 803 470
Pleven 35800 Pleven74, Hristo Botev Blvd.Tel.: (+359 64) 891 062Fax: (+359 64) 800 363
Plovdiv 14000 Plovdiv20, Vasil Aprilov Str.Tel.: (+359 32) 261 912Fax: (+359 32) 629 966
Plovdiv 24000 Plovdiv125, Shesti Septemvri Blvd.Tel.: (+359 32) 648 841Fax: (+359 32) 649 531
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Plovdiv 34000 Plovdiv1, Maria Luiza Blvd.Tel.: (+359 32) 646 562Fax: (+359 32) 662 900
Plovdiv 44000 Plovdiv106, Bulgaria Blvd.Tel.: (+359 32) 907 912/913Fax: (+359 32) 940 076
Plovdiv 54000 Plovdiv5, Avksentiy Veleshki Str.Tel.: (+359 32) 601 287/270Fax: (+359 32) 629 911
Plovdiv 74023 PlovdivSaedinenie Blvd.,Arimag Shopping CenterTel.: (+359 32) 271 412Fax: (+359 32) 682 053
Plovdiv 94004 Plovdiv63, Makedonia Blvd.,Tel.: (+359 32) 202 254
Pomorie8200 Pomorie40, Prof. Stoyanov Str.Tel.: (+359 596) 28 912Fax: (+359 596) 28 096
Radnevo6260 Radnevo6, Georgi Dimitrov Str.Tel.: (+359 417) 81 122Fax: (+359 417) 82 456
Razgrad7200 Razgrad2, Stefan Karadzha Str.Tel.: (+359 84) 611 463Fax: (+359 84) 660 289
Razlog2760 Razlog1, Stefan Stambolov Str.Tel.: (+359 747) 89 011Fax: (+359 747) 80 647
Ruse 17000 Ruse22, Slavyanska Str.Tel.: (+359 82) 817 963Fax: (+359 82) 821 597
Ruse 27000 Ruse54, Lipnik Blvd.Tel.: (+359 82) 814 352/354Fax: (+359 82) 841 682
Ruse 37000 Ruse4, Borisova Str.Tel.: (+359 82) 880 411/412Fax: (+359 82) 820 177
Samokov2000 Samokov33, Makedonia BlvdTel.: (+359 722) 68 011Fax: (+359 722) 60 186
Sandanski2800 Sandanski1, Hristo Smirnenski Str.Tel.: (+359 746) 34 631Fax: (+359 746) 32 703
Sevlievo5400 Sevlievo1, Svoboda SquareTel.: (+359 675) 31 213Fax: (+359 675) 33 091
Shumen9700 Shumen97, Tsar Osvoboditel Str.Tel: (+359 54) 850 953Fax: (+359 54) 830 757
Silistra7500 Silistra20, Tsar Shishman Str.Tel.: (+359 86) 818 213Fax: (+359 86) 822 877
Sliven 18800 Sliven11, Tsar Simeon Str.Tel.: (+359 44) 610 431/33Fax: (+359 44) 662 123
Sliven 28800 Sliven4, Dimitar Dobrovich Str.Tel.: (+359 44) 610 412Fax: (+359 44) 630 555
Smolyan4700 Smolian73, Bulgaria Blvd.Tel.: (+359 301) 62 095Fax: (+359 301) 92 096
Stara Zagora 16000 Stara Zagora79, Knyaz Boris Str.Tel.: (+359 42) 617 512Fax: (+359 42) 604 498
Stara Zagora 26000 Stara Zagora67, Tsar Simeon Veliki Str.Tel.: (+359 42) 602 043Fax: (+359 42) 601 924
Stara Zagora 36000 Stara Zagora2, Mitropolit Metodi Kusev Blvd.Tel.: (+359 42) 693 512Fax: (+359 42) 230 045
Sunny Beach8240 Sunny BeachHotel DiamondTel: (+359 554) 24 565Fax: (+359 554) 23 621
Svilengrad6500 Svilengrad73, Bulgaria Blvd.Tel.: (+359 379) 706 52/53Fax: (+359 379) 71 552
Svishtov5250 Svishtov100, Tsar Osvoboditel Str.Tel.: (+359 631) 61 311Fax: (+359 631) 60 385
Targovishte7700 Targovishte2, Preslav Str.Tel: (+359 601) 69 553Fax: (+359 601) 69 303
Troyan5600 Troyan1, Rakovski SquareTel.: (+359 670) 66 612/613Fax: (+359 670) 60 977
Varna 19000 Varna32, Tsar Simeon Parvi Str.Tel.: (+359 52) 688 023Fax: (+359 52) 633 007
Varna 39000 Varna80-82, Osmi Primorski Polk Blvd.Tel.: (+359 52) 685 713Fax: (+359 52) 603 744
Varna 49000 Varna91, Slivnitsa Blvd.Tel.: (+359 52) 952 711/712Fax: (+359 52) 654 627
Varna 59000 Varna68, Vladislav Varnenchik Blvd.Tel.: (+359 52) 662 412Fax: (+359 52) 695 454
Varna 79000 Varna3-5, Vladislav Varnenchik Blvd.Tel.: (+359 52) 679 942Fax: (+359 52) 623 447
Varna Piccadilly9000 Varna482, Primorski Park II Blvd.Saltanat AreaTel.: (+359 52) 385 312Fax: (+359 52) 308 033
Varna Mall9000 Varna186, Vladislav Varnenchik Blvd.Tel.: (+359 52) 575 832Fax: (+359 52) 731 069
Veliko Tarnovo 15000 Veliko Tarnovo23, Vasil Levski Blvd.Tel.: (+359 62) 616 411Fax: (+359 62) 601 204
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Veliko Tarnovo 25000 Veliko Tarnovo37, B Nikola Gabrovski Str.Tel.: (+359 62) 610 512Fax: (+359 62) 671 114
Velingrad4600 VelingradАl. Stambolyiski Str., bl.1Tel.: (+359 359) 56 921Fax: (+359 359) 51 026
Vidin3700 Vidin1, Tsar Ivan Asen II Str.Tel.: (+359 94) 609 112Fax: (+359 94) 607 143
Vratsa3000 VratsaHristo Botev SquareTel.: (+359 92) 668 833Fax: (+359 92) 666 698
Yambol8600 Yambol20, Zhorzh Papazov Str.Tel.: (+359 46) 683 462/464Fax: (+359 46) 664 175
Others:Raiffeisen Leasing Bulgaria 1407 SofiaLozenets32 A, Cherni vrah Blvd., 6th floor Tel.: (+359 2) 491 91 91Fax: (+359 2) 974 20 57
Raiffeisen Asset Management1407 Sofia55, N. Vaptsarov Blvd.Business Centre EXPO 2000Tel.: (+359 2) 919 85 452Fax: (+359 2) 943 33 65
Raiffeisen Direct – Call Centre1407 Sofia55, N. Vaptsarov Blvd.Business Centre EXPO 2000, Building DTel.: 0 700 10 000Fax: (+359 2) 862 38 81
Raiffeisen Insurance Broker 1407 Sofia55, N. Vaptsarov Blvd.Business Centre EXPO 2000Tel.: (+359 2) 817 42 60, 817 43 39Fax: (+359 2) 973 30 94
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Contacts of Selected Members of Raiffeisen Bank International AGRaiffeisen Bank International AG
AustriaRaiffeisen Bank International AG
AustriaAm Stadtpark 91030 ViennaPhone: +43-1-71 707-0Fax: +43-1-71 707-1715www.rbinternational.comir@[email protected]
CEE banking networkAlbaniaRaiffeisen Bank Sh.A. “European Trade Center”Bulevardi “Bajram Curri”TiranaPhone: +355-4-23 8 100Fax: +355-4-22 755 99SWIFT/BIC: SGSBALTX www.raiffeisen.al
BelarusPriorbank JSCV. Khoruzhey str. 31-A220002 MinskPhone: +375-17-28 9-9090Fax: +375-17-28 9-9191SWIFT/BIC: PJCBBY2Xwww.priorbank.by
Bosnia and Herzegovina Raiffeisen Bank d.d. Bosna i Hercegovina Zmaja od Bosne bb71000 Sarajevo Phone: +387-33-287 100 Fax: +387-33-21 385 1 SWIFT/BIC: RZBABA2S www.raiffeisenbank.ba
BulgariaRaiffeisenbank (Bulgaria) EAD Nikola I. Vaptzarov Blvd.Business Center EXPO 200 PHAZE III, 1407 SofiaPhone: +359-2-91 985 101 Fax: +359-2-94 345 28 SWIFT/BIC: RZBBBGSF www.rbb.bg
CroatiaRaiffeisenbank Austria d.d. Magazinska cesta 6910000 Zagreb Phone: +385-1-45 664 66 Fax: +385-1-48 116 24 SWIFT/BIC: RZBHHR2X www.rba.hr
Czech RepublicRaiffeisenbank a.s. Hvezdova 1716/2b14078 Prague 4Phone: + 420-412 446 400Fax: +420-234-402-111SWIFT/BIC: RZBCCZPP www.rb.cz
HungaryRaiffeisen Bank Zrt.Akadémia utca 61054 BudapestPhone: +36-1-48 444-00Fax: +36-1-48 444-44SWIFT/BIC: UBRTHUHBwww.raiffeisen.hu
Kosovo Raiffeisen Bank Kosovo J.S.C.Rruga UCK, No. 5110000 Pristina Phone: +381-38-22 222 2 Fax: +381-38-20 301 130 SWIFT/BIC: RBKOXKPR www.raiffeisen-kosovo.com
RomaniaRaiffeisen Bank S.A. Calea Floreasca 246C 014476 BucharestPhone: +40-21-30 610 00Fax: +40-21-23 007 00SWIFT/BIC: RZBRROBUwww.raiffeisen.ro
RussiaAO Raiffeisenbank St. Troitskaya 17/1129090 MoscowPhone: +7-495-72 1-9900 Fax: +7-495-72 1-9901 SWIFT/BIC: RZBMRUMM www.raiffeisen.ru
SerbiaRaiffeisen banka a.d. Djordja Stanojevica 1611070 Novi Beograd Phone: +381-11-32 021 00 Fax: +381-11-22 070 80 SWIFT/BIC: RZBSRSBGwww.raiffeisenbank.rs
SlovakiaTatra banka, a.s. Hodzovo námestie 3 81106 Bratislava 1Phone: +421-2-59 19-1000 SWIFT/BIC: TATRSKBX www.tatrabanka.sk
UkraineRaiffeisen Bank Aval JSCVul Leskova 901011 KievPhone: +38-044-49 088 88Fax: +38-044-295-32 31SWIFT/BIC: AVALUAUK www.aval.ua
Leasing companiesAustriaRaiffeisen-Leasing G.m.b.H.Mooslackengasse 121190 ViennaPhone: +43-1-71 601-0Fax: +43-1-71 601 8029www.raiffeisen-leasing.at
AlbaniaRaiffeisen Leasing Sh.a.“European Trade Center”Bulevardi “Bajram Curri”TiranaPhone: +355-4-22 749 20Fax: +355-4-22 325 24www.raiffeisen-leasing.al
Belarus“Raiffeisen-Leasing” JLLCV. Khoruzhey 31-A220002 MinskPhone: +375-17-28 9-9394Fax: +375-17-28 9-9974www.rl.by
Bosnia and HerzegovinaRaiffeisen Leasing d.o.o. SarajevoZmaja od Bosne bb.71000 SarajevoPhone: +387-33-254 340 Fax: +387-33-212 273 www.rlbh.ba
BulgariaRaiffeisen Leasing Bulgaria OOD32A Cherni Vrah Blvd. Fl.61407 SofiaPhone: +359-2-49 191 91Fax: +359-2-97 420 57www.rlbg.bg
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CroatiaRaiffeisen Leasing d.o.o.Radnicka cesta 4310000 ZagrebPhone: +385-1-65 9-5000Fax: +385-1-65 9-5050www.rl-hr.hr
Czech RepublicRaiffeisen-Leasing s.r.o.Hvìzdova 1716/2b14078 Prague 4Phone: +420-2-215 116 11 Fax: +420-2-215 116 66 www.rl.cz
HungaryRaiffeisen Corporate Lizing Zrt. Akadémia ut. 6Phone: +36-1-477 8709Fax: +36-1-477 8702www.raiffeisenlizing.hu
KosovoRaiffeisen Leasing Kosovo LLCRr. UCK p.n. 22210000 PristinaPhone: +38-1-222-222-340www.raiffeisenleasing-kosovo.com
MoldovaI.C.S. Raiffeisen Leasing S.R.L. Alexandru cel Bun 512012 ChisinauPhone: +373-22-27 931 3 Fax: +373-22-22 838 1 www.raiffeisen-leasing.md
RomaniaRaiffeisen Leasing IFN S.A.Calea Floreasca 246 D014476 BucharestPhone: +40-21-36 532 96Fax: +40-37-28 799 88www.raiffeisen-leasing.ro
RussiaOOO Raiffeisen-LeasingSmolenskaya-Sennaya 28119121 MoscowPhone: +7-495-72 1-9980Fax: +7-495-72 1-9901www.raiffeisen-leasing.ru
SerbiaRaiffeisen Leasing d.o.o. Djordja Stanojevica 1611070 Novi BeogradPhone: +381-11-220 7400 Fax: +381-11-228 9007 www.raiffeisen-leasing.rs
SlovakiaTatra-Leasing s.r.o.Èernyševského 5085101 BratislavaPhone: +421-2-59 19-3168Fax: +421-2-59 19-3048www.tatraleasing.sk
SloveniaRaiffeisen Leasing d.o.o.Letališka cesta 29aSI-1000 Ljubljana Phone: +386-1-241-6250Fax: +386-1-241-6268www.rl-sl.si
UkraineLLC Raiffeisen Leasing AvalStepan Bandera av. 9Build. 6 Office 6-20104073 Kiev Phone: +380-44-590 24 90 Fax: +380-44-200 04 08 www.rla.com.ua
Branches and representative offices – EuropeFranceRBI Representative Office Paris9-11 Avenue Franklin D. Roosevelt75008 ParisPhone: +33-1-45 612 700Fax: +33-1-45 611 606
GermanyRBI Frankfurt BranchWiesenhuttenplatz 26 60 329 FrankfurtPhone: +49-69-29 921 924Fax: +49-69-29 921 9-22
PolandRBI Poland BranchUl. Grzybowska 7800-844 Warsaw Phone: +48-22-578 56 00Fax: +48-22-578 56 01SWIFT/BIC: RCBWPLPW www.raiffeisen.pl
SwedenRBI Representative OfficeNordic CountriesDrottninggatan 89, Plan 14/14th Floor11360 Stockholm Phone: +46-8-440 5086
UKRBI London BranchTower 42, Leaf C, 9th Floor25 Old Broad Street London EC2N 1HQPhone: +44-20-79 33-8000Fax: +44-20-79 33-8099
Branches and representative offices – AsiaChinaRBI Beijing BranchBeijing International Club Suite 2002nd floorJianguomenwai Dajie 21100020 BeijingPhone: +86-10-65 32-3388Fax: +86-10-65 32-5926
RBI Representative Office ZhuhaiRoom 2404, Yue Cai BuildingNo. 188, Jingshan Road, Jida,Zhuhai, Guangdong Province519015, P.R. ChinaPhone: +86-756-32 3-3500Fax: +86-756-32 3-3321
IndiaRBI Representative Office Mumbai501, Kamla Hub, Gulmohar Road, Juhu Mumbai – 400049Phone: +91-22-26 230 657Fax: +91-22-26 244 529
KoreaRBI Representative Office Korea#1809 Le Meilleur Jongno Town24 Jongno 1gaSeoul 110-888Phone: +82-2-72 5-7951Fax: +82-2-72 5-7988
SingaporeRBI Singapore Branch50 Raffles Place #31-03 Singapore Land TowerSingapore 048623Phone: +65-63 05-6000Fax: +65-63 05-6001
VietnamRBI Representative Office Ho-Chi-Minh-City35 Nguyen Hue Str., Harbour View TowerRoom 601A, 6th Floor, Dist 1Ho-Chi-Minh-CityPhone: +84-8-38 214 718, +84-8-38 214 719Fax: +84-8-38 215 256
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