ANNUAL REPORT 2007
ALPHA BANK AD SKOPJE
C o n t e n t s
3. ....... Bank's Network
4. ....... Main Correspondents
5. .......
. .......
. .......
. .......
. .......
Administrative Structure
6. ....... Auditor's Report
6
9
10
11
12. .......
14. .......
Financial Statements
Balance sheet
Income statement
Statement of changes in equity
Statement of cash flows
Notes to the financial statement
3
B a n k ' s N e t w o r k
HEAD OFFICE IN SKOPJE
AVTOKOMANDA BRANCH - SKOPJE
BUNJAKOVEC BRANCH - SKOPJE
VLAE BRANCH - SKOPJE
KISELA VODA BRANCH - SKOPJE
LEPTOKARIJA BRANCH - SKOPJE
BITOLA BRANCH
Dame Gruev 1, MK-1000 SkopjeP. O. Box 564Tel.: +389 2 3289 400Fax: +389 2 3135 206; 3116 830Telex: 51758SWIFT: KRSKMK2X
Trifun Hadzijanev, kula 3, MK-1000 SkopjeTel.: +389 2 3175 548Fax: +389 2 3175 537
Partizanski odredi No.25, MK-1000 SkopjeTel.: +389 2 3290 309Fax: +389 2 3290 328
Partizanski odredi No.155 K1-01, MK-1000 SkopjeTel.: +389 2 2050 083Fax: +389 2 2050 084
Ivan Kozarov No.29, MK-1000 SkopjeTel.: +389 2 3239 540Fax: +389 2 3239 435
Partizanska 64A, MK-1000 SkopjeTel.: +389 2 3090 262Fax: +389 2 3090 263
E-mail: [email protected]: www.alphabank.com.mk
Ignat Atanasovski bb, MK-7000 BitolaTel.: +389 47 258 228Fax: +389 47 258 338
KAVADARCI
STRUMICA
TETOVO
GOSTIVAR
GEVGELIJA
SKOPJE
BITOLA
VELES
OHRID
PRILEP
VELES BRANCH
GEVGELIJA BRANCH
GOSTIVAR BRANCH
OHRID BRANCH
PRILEP BRANCH
STRUMICA BRANCH
TETOVO BRANCH
KAVADARCI BRANCH
Marsal Tito no. 33, MK-1400 VelesTel.: +389 43 212 955Fax: +389 43 212 956
Marsal Tito 110, MK-1480 GevgelijaTel.: +389 34 217 801Fax: +389 34 217 882
Major Cede Filipovski bb, MK-1230 GostivarTel.: +389 42 221 601Fax: +389 42 221 607
Makedonski Prosvetiteli bb, MK-6000 OhridTel.: +389 46 230 441Fax: +389 46 230 446
Borka Talevski no. 46, MK-7500 PrilepTel.: +389 48 400 191Fax: +389 48 400 291
Leninova 100, MK-2400 StrumicaTel.: +389 34 330 250Fax: +389 34 344 940
Marsal Tito 120, MK-1200 TetovoTel.: +389 44 334 250Fax: +389 44 338 939
Ploshtad Marsal Tito bb, MK-1430 KavadarciTel.: +389 43 400 388Fax: +389 43 400 386
4
L i s t o f M a i n C o r e s p o n d e n s
A u s t r i a
A u s t r a l i a
D e n m a r k
G e r m a n y
G r e e c e
S w e d e n
S w i t z e r l a n d
U n i t e d K i n g d o m
U n i t e d S t a t e s o f A m e r i c a
Bank Austria, Vienna
Commonwealth Bank of Australia, Sydney
Danske Bank, Copenhagen
Deutsche Bank, Frankfurt
Commerzbank, Frankfurt
LHB Internationale Handelsbank, Frankfurt
Alpha Bank, Athens
Skandinaviska Enskilda Banken, Stockholm
Credit Suisse, Zürich
National Westminster Bank, London
JPMorgan Chase Bank, New York
American Express Bank, New York
Deutsche Bank Trust Co. Americas, New York
EUR
AUD
DKK
EUR
EUR
EUR, USD
EUR, USD
SEK
CHF
GBP
USD
USD
USD
BKAU AT WW
CTBA AU 2S
DABA DK KK
DEUT DE FF
COBA DE FF
LHBI DE FF
CRBA GR AA
ESSE SE SS
CRES CH ZZ 80A
NWBK GB 2L
CHAS US 33
AEIB US 33
BKTRUS 33
5
Christos A. Pozidis
Alpha Bank AD Skopje
Spyros N. Filaretos
Executive General Manager
Alpha Bank AE, Athens
,
-
-
Chairman
President
Members
Risk Management Committee
Auditing Committee
George N. Kontos
Group Financial Reporting Officer
Alpha Bank AE, Athens
Lazaros A. Papagarifallou
Alpha Bank AE Athens
Intrenationational Network Division Manager
Konstantions Derdemezis
AD Titan, Skopje
General Manager
Dushan Tudzarov
AD Replek, Skopje
General Manager
Ioannis G. Papadopoulos, member
Aristotelis Nikolakopoulos, member
Lidija V. Markovska, member
Spiros N. Fialretos
George N. Kontos
Lazaros A. Papagarifallou
Irena Papazova independent member
Branka Stefanovska independent member
Assembly of the Bank
Supervisory Board
A d m i n i s t r a t i v e S t r u c t u r e
Managing board General Managers
Managers of organizational units
Pavlina D. CerepnalkovskaFirst General ManagerAlpha Bank AD Skopje, Skopje
Ioannis G. PapadopoulosSecond General ManagerAlpha Bank AD Skopje, Skopje
Financial DivisionZeljko V. Rakik
International DivisionAleksandar T. Kirovski
Treasury DivisionMilena P. Percinkova
Banking Business DivisionBranko K. Penov
Communication DivisionLidija G. Daceva
Credit DivisionChristos A. Pozidis
Risk Management DivisionLidija V. Markovska
Compliance DivisionVesna T. Trpkovska
Legal and Personnel Matters DivisionDushko V. Krstevski
Sub-Division for Legal and Personnel MattersVanco Z. Andonovski
Sub-Division for EDPPero A. Slavkovski
6
F i n a n c i a l S t a t e m e n t
77
8
2007 2006
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1,026,790
13,373
31,663
4,831,880
870,482
175,934
69,994
9,437
1,885
23,095
1 148 928
4 208 023
9 347
-
24 509
5,390,807
560,160
337,169
82,532
683,865
1,663,726
7,054,533
7,054,533
, ,
, ,
,
,
581,951
559,546
33,542
2,842,497
1,129,928
127,452
29,119
-
-
2,676
5,306,711
680
3,691,592
1,801
7,476
19,847
3,721,396
185,760
337,169
173,151
889,235
1,585,315
5,306,711
These financial statements set out on pages 9 3to 4 were approved by the SupervisoryBoard on 29.05.2008 and were signed on its behalf by:
B a l a n c e S h e e t
As at 31 December
NoteIn thousands of denars
Assets
Cash and cash equivalents
Loans and advances to banks
Assets held for sale
Loans and advances to customers
Investment securities
Property and equipment
Intangible assets
Current tax assets
Deferred tax assets
Other assets
Total assets
Liabilities
Deposits from banks
Deposits from customers
Impairment provisions related to off balance
sheet items
Current tax liabilities
Other liabilities
Total liabilities
Equity
Share capital
Share premium
Retained earnings
Other reserves
Total equity
Total liabilities and equity
Mr. Ioannis Papadopoulos
Second General Manager
Mrs. Pavlina Cerepnalkovska
First General Manager
The notes on pages 9 - 43 are an integral part of these financial statements.
9
6
6
7
7
8
13,15
9
17,18
10
11
393,305
(106,543)
286,762
97,303
(9,658)
87,645
30,224
2,467
32,691
407,098
(95,343)
(98,623)
(10,682)
(21,831)
(89,879)
90,740
(12,329)
78,411
294,807
(53,562)
241,245
90,405
(8,354)
82,051
28,534
29,343
57,877
381,173
(63,003)
(62,980)
(5,757)
(14,808)
(38,059)
196,566
(25,748)
170,818
2007 2006Note
Interest income
Interest expense
Fee and commission income
Fee and commission expense
Net foreign exchange gain
Other operating income
Net impairment loss on financial assets
Personnel expenses
Operating lease expenses
Depreciation and amortisation
Other expenses
Income tax expense
Operating income
In thousands of denars
Net interest income
Net fee and commissions income
Profit before income taxes
Profit for the period
For the year ended 31 December
I n c o m e S t a t e m e n t
The notes on pages are an integral part of these financial statements.9 - 43
10
11
185,760
-
-
-
185,760
185,760
-
-
374,400
-
-
560,160
43,674
-
-
-
43,674
43,674
-
-
-
(43,674)
-
-
108,037
170,818
170,818
(105,704)
173,151
173,151
78,411
78,411
(170,818)
43,674
(41,886)
82,532
337,169
-
-
-
337,169
337,169
-
-
-
-
-
337,169
739,857
-
-
105,704
845,561
845,561
-
-
(203,582)
-
41,886
683,865
1,414,497
170,818
170,818
-
1,585,315
1.585,315
78,411
78,411
-
-
-
1,663,726
Balance at 1 January 2006
Profit for the period
Total recognised income
and expense
Appropriation to statutory
reserve
Balance at 31 December 2006
Balance at 1 January 2007
Profit for the period
Total recognised income
and expense
Increase of share
capital
Appropriation to retained
earnings
Appropriation to statutory
reserve
Balance at 31 December 2007
S t a t e m e n t o f c h a n g e s i n e q u i t y
Share
capital
Share
premium
Statutory
reserve
Revaluation
reserves
Retained
earningsTotal
For the year ended 31 December
In thousands of denars
The notes on pages 9 - 43 are an integral part of these financial statements.
170 818
14 808
(27 250)
(92)
3 343
63 003
630
(241 245)
(70)
25 748
9 693
592 985
(1 328 022)
(4 493)
(1 869)
(5 524)
1 078 501
11 367
352 638
283 537
(51 845)
(16 501)
567 829
,
,
,
,
,
,
,
,
,
, ,
,
,
,
, ,
,
,
,
,
,
,
17,18
13,15
23
78 411
21 831
-
-
105
95 343
7 546
(286 762)
(110)
12 329
(71 307)
545 965
(2 069 701)
1 774
(20 419)
1 142 808
507 837
4 662
41 619
378 052
(92 509)
(31 127)
296 035
,
,
,
,
,
,
,
,
, ,
,
,
, ,
,
,
,
,
,
,
,
Profit for the period
Depreciation and amortisation
Collected previously written-off receivables
Capital gain on sale of property and
equipment
Impairment loss on assets
held sale
Net impairment loss on financial assets
Impairment provision for off-balance sheet items
Net interest income
Dividend income
Income tax expense
Change in loans and advances to banks
Change in loans and advances to
customers
Change in assets for resale
Change in other assets
Change in deposits from banks
Change in deposits from customers
Change in other liabilities
Interest received
Interest paid
Income tax paid
Adjustments for:
2007 2006Note
S t a t e m e n t o f c a s h f l o w s
For the year ended 31 December
In thousands of denars
Cash flows from operating activities
Net cash used in operating activities
The notes on pages 9 - 43 are an integral part of these financial statements.
12
Purchase of property and equipment
Proceeds from the sale of property and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from investment securities
Proceeds from issued share capital
Cash and cash equivalents at 1 January
2007 2006Note
S t a t e m e n t o f c a s h f l o w s
For the year ended 31 December
In thousands of denars
The notes on pages 9 - 43 are an integral part of these financial statements.
17 (63,625) (28,690)
- 92
18 (47,563) (27,343)
- (438,571)
259,992 -
148,804 (494,512)
- -
- -
444,839 73,317
12 581,951 508,634
1,026,790 581,951
Cash flows from investing activities
Net cash used in investing activities
Cash flows from financing activities
Net cash from financing activities
Cash and cash equivalents at 31 December
Net increase in cash and cash equivalents
13
Alpha Bank AD Skopje (“the Bank”) is a jointstock company incorporated and domiciledin the Republic of Macedonia.The address of the Bank's registered officeis as follows:
St. Dame Gruev 11000 SkopjeRepublic of Macedonia
The Bank is licensed to perform all bankingactivities in accordance with the law. Themain activities include commercial lending,receiving of deposits, foreign exchangedeals, and payment operation services inthe country and abroad and retail bankingservices.
The financial statements have beenprepared in accordance with the TradingCompanies Law and the AccountingRegulations (Official Gazette No.94/2004,No.11/2005 and No.116/2005).During the period the Group adoptedInternational Financial Reporting Standard(“IFRS”) 7
, which increased the level ofdisclosure in respect of financialinstruments, but had no impact on thereported profits or financial position of theBank. In accordance with the transitionalrequirements of the standard, the Bank hasprovided full comparative information.
The financial statements have beenprepared on the historical cost basis exceptfor the following:- financial instruments held for trading are
measured at fair value;- available-for-sale financial assets are
measured at fair value;- non-current assets held for sale which
are measured at the lower of its carryingamount or fair value less costs to sell.
Financial Instruments:
Disclosures
2007 2006MKD MKD
1 EUR 61.20 61.171 USD 41.66 46.45
The financial statements are presented inMacedonian denars (“MKD”), which is theBank's functional currency. Except asindicated, financial information presented inMKD has been rounded to the nearestthousand.
The accounting policies set out below havebeen applied consistently to all periodspresented in the financial statements.
Transactions in foreign currencies aretranslated to the respective functionalcurrencies of the Bank at exchange rates atthe dates of the transactions. Monetaryassets and liabilities denominated in foreigncurrencies at the reporting date areretranslated to the functional currency at theexchange rate at that date. The foreigncurrency gain or loss on monetary items isthe difference between amortised cost inthe functional currency at the beginning ofthe period, adjusted for effective interestand payments during the period, and theamortised cost in foreign currencytranslated at the exchange rate at the endof the period. Non-monetary assets andliabilities denominated in foreign currenciesthat are measured at fair value areretranslated to the functional currency at theexchange rate at the date that the fair valuewas determined. Foreign currencydifferences arising on retranslation arerecognised in profit or loss.The foreign currencies the Bank deals withare predominantly Euro (EUR) and UnitedStates Dollars (USD) based. The exchangerates used for translation at 31 December2007 and 2006 were as follows:
N o t e s t o t h e f i n a n c i a l s t a t e m e n t s
1. Reporting entity
b) Basis of measurement
2. Basis of preparation
a) Statement of compliance
3. Significant accounting policies
a) Foreign currency transactions
c) Functional and presentation currency
14
Interest income and expense arerecognised in the income statement usingthe effective interest method. The effectiveinterest rate is the rate that exactlydiscounts the estimated future cashpayments and receipts through theexpected life of the financial asset or liability(or, where appropriate, a shorter period) tothe carrying amount of the financial asset orliability.The calculation of the effective interest rateincludes all fees and points paid orreceived, transaction costs, and discountsor premiums that are an integral part of theeffective interest rate. Transaction costs areincremental costs that are directlyattributable to the acquisition, issue ordisposal of a financial asset or liability.Interest income and expense presented inthe income statement include:- interest on financial assets and liabilities
at amortised cost on an effective interestrate basis;- interest on available-for-sale investment
securities on an effective interest basis;Interest income and expense on all tradingassets and liabilities are considered to beincidental to the Bank's trading operationsand are presented together with all otherchanges in the fair value of trading assetsand liabilities in net trading income.
Fees and commission income andexpenses that are integral to the effectiveinterest rate on a financial asset or liabilityare included in the measurement of theeffective interest rate.Other fees and commission income,including financial services provided by theBank in respect of foreign currencysettlements, guarantees, letters of credit,domestic and foreign payment operationsand other services, are recognised as therelated services are performed. When aloan commitment is not expected to result inthe draw-down of a loan, loan commitment
fees are recognised on a straight-line basisover the commitment period.Other fees and commission expense relatesmainly to transaction and service fees,which are expensed as the services arereceived.
Net trading income comprises gains lesslosses related to trading assets andliabilities, and includes all realised andunrealised fair value changes, interest,dividends and foreign exchangedifferences.
Dividend income is recognised when theright to receive income is established.Dividends are reflected as a component ofnet trading income, or dividend incomebased on the underlying classification ofthe equity instrument.
Payments made under operating leases arerecognised in profit or loss on a straight-linebasis over the term of the lease. Leaseincentives received are recognised as anintegral part of the total lease expense, overthe term of the lease.
Income tax expense comprises current anddeferred tax. Income tax expense isrecognised in the income statement exceptto the extent that it relates to itemsrecognised directly in equity, in which caseit is recognised in equity.Current tax is the expected tax payable onthe taxable income for the year, using taxrates enacted or substantively enacted atthe balance sheet date, and any adjustmentto tax payable in respect of previous years.Deferred tax is provided using the balancesheet method, providing for temporarydifferences between the carrying amounts
b) Interest
f) Lease payments made
g) Income tax expense
e) Dividends
c) Fees and commission
d) Net trading income
15
of assets and liabilities for financialreporting purposes and the amounts usedfor taxation purposes. Deferred tax is notrecognised for the following temporarydifferences: the initial recognition of assetsor liabilities in a transaction that is not abusiness combination and that affectsneither accounting nor taxable profit, anddifferences relating to investments insubsidiaries and jointly controlled entities tothe extent that they probably will not reversein the foreseeable future.Deferred tax is measured at the tax ratesthat are expected to be applied to thetemporary differences when they reverse,based on the laws that have been enactedor substantively enacted by the reportingdate.A deferred tax asset is recognised only tothe extent that it is probable that futuretaxable profits will be available againstwhich the asset can be utilised. Deferredtax assets are reviewed at each reportingdate and are reduced to the extent that it isno longer probable that the related taxbenefit will be realised.
The Bank initially recognises loans andadvances, deposits and borrowings on thedate that they are originated. All otherfinancial assets and liabilities are initiallyrecognised on the trade date at which theBank becomes a party to the contractualprovisions of the instrument.
The Bank derecognises a financial assetwhen the contractual rights to the cashflows from the asset expire, or it transfersthe rights to receive the contractual cashflows on the financial asset in a transactionin which substantially all the risks andrewards of ownership of the financial assetare transferred. Any interest in transferred
financial assets, if any that is created orretained by the Bank is recognised as aseparate asset or liability.The Bank derecognises a financial liabilitywhen its contractual obligations aredischarged or cancelled or expire.
Financial assets and liabilities are set offand the net amount is presented in thebalance sheet when, and only when, theBank has a legal right to set off the amountsand intends either to settle on a net basis orto realise the asset and settle the liabilitysimultaneously.Income and expenses are presented on anet basis only when permitted by theaccounting standards, or for gains andlosses arising from a group of similartransactions such as in the Bank's tradingactivity.
The amortised cost of a financial asset orliability is the amount at which the financialasset or liability is measured at initialrecognition, minus principal repayments,plus or minus the cumulative amortisationusing the effective interest method of anydifference between the initial amountrecognised and the maturity amount, minusany reduction for impairment.
The determination of fair values of financialassets and financial liabilities is based onquoted market prices for financialinstruments traded in active markets. For allother financial instruments fair value isdetermined by using valuation techniques.Valuation techniques include net presentvalue techniques, the discounted cash flowmethod, comparison to similar instrumentsfor which market observable prices exist,and valuation models.
h) Financial assets and liabilities
(I) Recognition
(II) Derecognition
(III) Offsetting
(IV) Amortised cost measurement
(V) Fair value measurement
16
At each balance sheet date the Bankassesses whether there is objectiveevidence that financial assets not carried atfair value through profit or loss are impaired.Financial assets are impaired whenobjective evidence demonstrates that a lossevent has occurred after the initialrecognition of the asset, and that the lossevent has an impact on the future cashflows on the asset that can be estimatedreliably.The Bank considers evidence of impairmentat both a specific asset and collective level.All individually significant financial assetsare assessed for specific impairment. Allsignificant assets found not to bespecifically impaired are then collectivelyassessed for any impairment that has beenincurred but not yet identified. Assets thatare not individually significant are thencollectively assessed for impairment bygrouping together financial assets (carriedat amortised cost) with similar riskcharacteristics.Objective evidence that financial assets(including equity securities) are impairedcan include default or delinquency by aborrower, restructuring of a loan or advanceby the Bank on terms that the Bank wouldnot otherwise consider, indications that aborrower or issuer will enter bankruptcy, thedisappearance of an active market for asecurity, or other observable data relating toa group of assets such as adverse changesin the payment status of borrowers orissuers in the group, or economicconditions that correlate with defaults in thegroup.In assessing collective impairment the Bankuses statistical modelling of historical trendsof the probability of default, timing ofrecoveries and the amount of loss incurred,adjusted for management's judgement as towhether current economic and creditconditions are such that the actual lossesare likely to be greater or less thansuggested by historical modelling. Default
rates, loss rates and the expected timing offuture recoveries are regularlybenchmarked against actual outcomes toensure that they remain appropriate.Impairment losses on assets carried atamortised cost are measured as thedifference between the carrying amount ofthe financial assets and the present value ofestimated cash flows discounted at theassets' original effective interest rate.Losses are recognised in profit or loss andreflected in an allowance account againstloans and advances. Interest on theimpaired asset continues to be recognisedthrough the unwinding of the discount.When a subsequent event causes theamount of impairment loss to decrease, theimpairment loss is reversed through profit orloss.Impairment losses on available-for-saleinvestment securities are recognised bytransferring the difference between theamortised acquisition cost and current fairvalue out of equity to profit or loss. When asubsequent event causes the amount ofimpairment loss on an available-for-saledebt security to decrease, the impairmentloss is reversed through profit or loss.However, any subsequent recovery in thefair value of an impaired available-for-saleequity security is recognised directly inequity. Changes in impairment provisionsattributable to time value are reflected as acomponent of interest income.
Cash and cash equivalents include cashbalance on hand, demand deposits withbanks, cash deposited with the NationalBank of the Republic of Macedonia(“NBRM”) and highly liquid financial assetswith original maturities of less than threemonths, which are subject to insignificantrisk of changes in their fair value, and areused by the Bank in the management of itsshort-term commitments.Cash and cash equivalents are carried atamortised cost in the balance sheet.
i) Cash and cash equivalents
(VI) Identification and measurement of impairment
17
Loans and advances are initially measuredat fair value plus incremental directtransaction costs, and subsequentlymeasured at their amortised cost using theeffective interest method.
Investment securities are initially measuredat fair value plus incremental directtransaction costs and subsequentlyaccounted for depending on theirclassification.
Held-to-maturity investments are assets withfixed or determinable payments and fixedmaturity that the Bank has the positive intentand ability to hold to maturity.Held-to-maturity investments are carried atamortised cost using the effective interestmethod. Any sale or reclassification of asignificant amount of held-to-maturityinvestments not close to their maturitywould result in the reclassification of allheld-to-maturity investments as available-for-sale, and prevent the Bank fromclassifying investment securities as held-to-maturity for the current and the followingtwo financial years.
Available-for-sale investments are financialassets that are not held for trading, ororiginated by the Bank, nor are held-to-maturity. Available-for-sale investmentsinclude treasury bills, government bills andequity securities.Unquoted equity securities whose fair valuecannot be reliably measured are carried atcost, less impairment losses. All otheravailable-for-sale investments are carried atfair value.Interest income is recognised in profit orloss using the effective interest method.Dividend income is recognised in profit or
Non-current assets that are expected to berecovered primarily through sale rather thanthrough continuing use are classified asheld for sale. Immediately beforeclassification as held for sale, the assets arere-measured in accordance with the Bank'saccounting policies. Thereafter generallythe assets are measured at the lower oftheir carrying amount and fair value lesscost to sell. Impairment losses on initialclassification as held for sale andsubsequent gains or losses on re-measurement are recognised in profit orloss. Gains are not recognised in excess ofany cumulative impairment loss.
Trading assets and liabilities are thoseassets and liabilities that the Bank acquiresor incurs principally for the purpose ofselling or repurchasing in the near term, orholds as part of a portfolio that is managedtogether for short-term profit or positiontaking.Trading assets and liabilities are initiallyrecognised and subsequently measured atfair value in the balance sheet withtransaction costs taken directly to profit orloss. All changes in fair value arerecognised as part of net trading income inprofit or loss. Trading assets and liabilitiesare not reclassified subsequent to theirinitial recognition.
Loans and advances originated by theBank are loans and receivables created bythe Bank providing money to a debtor otherthan those created with the intention ofshort-term profit taking. Loans andadvances originated by the Bank areconsisted of loans and advances to banksand other customers
l) Loans and advances originated by the Bank
(I) Held-to-maturity
m) Investment securities
(II) Available-for-sale
k) Trading assets and liabilities
j) Non-current assets held for sale
18
loss when the Bank becomes entitled to thedividend. Foreign exchange gains or losseson available-for-sale debt securityinvestments are recognised in profit or loss.Other fair value changes are recogniseddirectly in equity until the investment is soldor impaired and the balance in equity isrecognised in profit or loss.
Items of property and equipment aremeasured at cost less accumulateddepreciation and impairment losses.Cost includes expenditures that are directlyattributable to the acquisition of the asset.Purchased software that is integral to thefunctionality of the related equipment iscapitalised as part of that equipment.
The cost of replacing part of an item ofproperty or equipment is recognised in thecarrying amount of the item if it is probablethat the future economic benefits embodiedwithin the part will flow to the Bank and itscost can be measured reliably. The costs ofthe day-to-day servicing of property andequipment are recognised in profit or lossas incurred.
Depreciation is recognised in profit or losson a straight-line basis over the estimateduseful lives of each part of an item ofproperty and equipment.Depreciation rates, based on the estimateduseful lives for the current and comparativeperiods are as follows:
Software and licenses acquired by the Bankis stated at cost less accumulatedamortisation and accumulated impairmentlosses.
Subsequent expenditure on intangibleassets is capitalised only when it increasesthe future economic benefits embodied inthe specific asset to which it relates. Allother expenditure is expensed as incurred.
Amortisation is recognised in profit or losson a straight-line basis over the estimateduseful life of the software, from the date thatit is available for use.The amortisation rates based on theestimated useful lives for the current andcomparative periods are as follows:
Leases in terms of which the Bank assumessubstantially all the risks and rewards ofownership are classified as finance leases.Upon initial recognition the leased asset ismeasured at an amount equal to the lowerof its fair value and the present value of theminimum lease payments. Subsequent toinitial recognition, the asset is accounted forin accordance with the accounting policyapplicable to that asset.Other leases are operating leases and theleased assets are not recognised on theBank's balance sheet.
n) Property and equipment
(I) Recognition and measurement
o)Intangible assets
(I)Recognition and measurement
(II) Subsequent expenditure
(II) Subsequent costs
(III) Depreciation
Buildings
Leasehold improvementFurniture and equipment
%
2.520
10-25
%
Software 25
Licences 20
(III) Amortisation
p) Leased assets lessee
19
The carrying amounts of the Bank's non-financial assets are reviewed at eachreporting date to determine whether there isany indication of impairment. If any suchindication exists then the asset'srecoverable amount is estimated.An impairment loss is recognised if thecarrying amount of an asset or its cash-generating unit exceeds its recoverableamount. If it is not possible to estimate therecoverable amount of the individual asset,an entity shall determine the recoverableamount of the cash-generating unit to whichthe asset belongs (the asset's cash-generating unit).A cash-generating unit is the smallestidentifiable asset group that generates cashflows that largely are independent fromother assets and groups. Impairment lossesare recognised in profit or loss.The recoverable amount of an asset orcash-generating unit is the greater of itsvalue in use and its fair value less costs tosell. In assessing value in use, theestimated future cash flows are discountedto their present value using a pre-taxdiscount rate that reflects current marketassessments of the time value of moneyand the risks specific to the asset.Impairment losses recognised in priorperiods are assessed at each reportingdate for any indications that the loss hasdecreased or no longer exists. Animpairment loss is reversed if there hasbeen a change in the estimates used todetermine the recoverable amount. Animpairment loss is reversed only to theextent that the asset's carrying amountdoes not exceed the carrying amount thatwould have been determined, net ofdepreciation or amortisation, if noimpairment loss had been recognised.
Deposits, debt securities issued and
subordinated liabilities are the Bank'ssources of debt funding.The Bank classifies capital instruments asfinancial liabilities or equity instruments inaccordance with the substance of thecontractual terms of the instrument.Deposits, debt securities issued andsubordinated liabilities are initially measuredat fair value plus transaction costs, andsubsequently measured at their amortisedcost using the effective interest method,except where the Bank chooses to carry theliabilities at fair value through profit or loss.
A provision is recognised if, as a result of apast event, the Bank has a present legal orconstructive obligation that can beestimated reliably, and it is probable that anoutflow of economic benefits will be requiredto settle the obligation. Provisions aredetermined by discounting the expectedfuture cash flows at a pre-tax rate thatreflects current market assessments of thetime value of money and, where appropriate,the risks specific to the liability.A provision for onerous contracts isrecognised when the expected benefits tobe derived by the Bank from a contract arelower than the unavoidable cost of meetingits obligations under the contract. Theprovision is measured at the present value ofthe lower of the expected cost of terminatingthe contract and the expected net cost ofcontinuing with the contract. Before aprovision is established, the Bankrecognises any impairment loss on theassets associated with that contract.
The Bank contributes to its employees' postretirement plans as prescribed by thenational legislation. Contributions, based onsalaries, are made to the nationalorganisations responsible for the payment ofpensions.
q) Impairment of non-financial assets
r) Deposits, debt securities issued and
subordinated liabilities
t) Employee benefits
(I) Defined contribution plans
s) Provisions
20
There is no additional liability in respect ofthese plans. Obligations for contributions todefined contribution pension plans arerecognised as an expense in profit or losswhen they are due.
Short-term employee benefit obligations aremeasured on an undiscounted basis andare expensed as the related service isprovided.A provision is recognised for the amountexpected to be paid under short-term cashbonus or profit-sharing plans if the Bank hasa present legal or constructive obligation topay this amount as a result of past serviceprovided by the employee and theobligation can be estimated reliably.
Ordinary shares are classified as equity.Incremental costs directly attributable to theissue of ordinary shares and share optionsare recognised as a deduction from equity.
When share capital recognised as equity isrepurchased, the amount of theconsideration paid, which includes directlyattributable costs and is recognised as adeduction from equity. Repurchased sharesare classified as treasury shares and arepresented as a deduction from total equity.When treasury shares are sold or reissuedsubsequently the amount received isrecognised as an increase on equity, andthe resulting surplus or deficit of thetransaction is transferred to/from sharepremium.
Dividends are recognised as a liability in theperiod in which they are declared.
For more appropriate presentation oftransactions, classification of certain items ina current year financial statements differfrom a prior year. Consequently presentationof prior year financial statement has beenchanged where necessary.
The Bank has exposure to the following risksfrom its use of financial instruments:- credit risk- liquidity risk- market risks
This note presents information about theBank's exposure to each of the above risks,the Bank's objectives, policies andprocesses for measuring and managing risk,and the Bank's management of capital.
The Supervisory Board (“the Board”) hasoverall responsibility for the establishmentand oversight of the Bank's riskmanagement framework. The Board hasestablished the Asset and LiabilityCommittee (“ALCO”), Credit Committee andRisk Management Committee, which areresponsible for developing and monitoringBank's risk management policies in theirspecified areas.The Bank's risk management policies areestablished to identify and analyse the risksfaced by the Bank, to set appropriate risklimits and controls, and to monitor risks andadherence to limits. Risk managementpolicies and systems are reviewed regularlyto reflect changes in market conditions,products and services offered. The Bank,through its training and procedures andpolicies for management, aims to develop aconstructive control environment, in which allemployees understand their roles andobligations.
(II) Short-term benefits
u) Share capital and reserves
(I) Ordinary shares
(II) Repurchase of share capital
(III) Dividends
4. Financial risk management
a) Introduction and overview
(IV) Comparative information
Risk management framework
21
The Bank's Audit Committee is responsiblefor monitoring compliance with the Bank'srisk management policies and procedures,and for reviewing the adequacy of the riskmanagement framework in relation to therisks faced by the Bank. The Bank's AuditCommittee is assisted in these functions byInternal Audit. Internal Audit undertakesboth regular and ad-hoc reviews of riskmanagement controls and procedures, theresults of which are reported to the AuditCommittee.
Credit risk is the risk of financial loss to theBank if a customer or counterparty to afinancial instrument fails to meet itscontractual obligations, and arisesprincipally from the Bank's loans andadvances to customers and other banksand investment securities. For riskmanagement reporting purposes, the Bankconsiders and consolidates all elements ofcredit risk exposure (such as individualobligor default risk, country and sector risk).
The Supervisory Board has delegatedresponsibility for the management of creditrisk to its Credit Committee that approves allcredit exposures less 10% of the Bank'sown funds. All credit exposures grater than10% of the Bank's own funds must beapproved by the Risk ManagementCommittee. Separate Bank's Creditdepartments (Department for CorporateLending and Department for Retail Lending)are responsible for oversight of the Bank'scredit risk, including:
, coveringcollateral requirements, credit assessment,- Formulating credit policies
risk grading and reporting, documentaryand legal procedures, and compliance withregulatory and statutory requirements.
Credit departments assess all creditexposures in excess of designated limits,prior to facilities being committed tocustomers.
togeographies and industries (for loans andadvances), and by issuer, credit ratingband, market liquidity and country (forinvestment securities).
in order tocategorise exposures according to thedegree of risk of financial loss faced and tofocus management on the risks. The riskgrading system is used in determiningwhere impairment losses may be required.The current risk grading framework consistsof six grades reflecting varying degrees ofrisk of default and the availability ofcollateral.
with agreedexposure limits, including those forindustries, country risk and product types.Regular reports for the credit exposure, riskgrading and allowance for impairment areprovided to the Risk ManagementCommittee, and appropriate correctiveaction is taken.Credit departments are required toimplement credit policies and proceduresand are responsible for the quality andperformance of its credit portfolio and formonitoring and controlling all credit risks inits portfolios.Regular audits of Credit departments'processes are undertaken by Internal Audit.
- Reviewing and assessing credit risk.
- Limiting concentrations of exposure
- Banks's credit risk gradings
- Reviewing compliance
b) Credit risk
Management of credit risk
22
Exposure to credit risk
Carrying amount
Individually impaired
Grade A
Grade B
Grade C
Grade D
Grade E
Gross amount
Allowance for impairment
Carrying amount
Neither past due nor impaired
Grade A
Carrying amount
Total carrying amount
13,373
1,700
-
-
-
-
1,700
(17)
1,683
11,690
11,690
13,373
13,15,16 559,546
-
-
-
-
-
-
-
-
559,546
559,546
559,546
4,831,880
4,097,988
597,893
97,358
132,695
60,974
4,986,908
(261,488)
4,725,420
106,460
106,460
4,831,880
2,842,497
318,648
456,774
74,647
58,372
66,334
974,775
(166,233)
808,542
2,033,955
2,033,955
2,842,497
870,482
-
-
-
-
-
-
-
-
870,482
870,482
870,482
1,129,928
-
-
-
-
-
-
-
-
1,129,928
1,129,928
1,129,928
Impaired loans and securities are loans andsecurities for which the Bank determinesthat it is probable that it will be unable tocollect all principal and interest dueaccording to the contractual terms of theloan / securities agreement(s). These loansare graded A to E in the Bank's internalcredit risk grading system.
Loans and securities where contractualinterest or principal payments are past duebut the Bank believes that impairment is not
appropriate on the basis of the level ofsecurity / collateral available and / or thestage of collection of amounts owed to theBank.
Loans with renegotiated terms are loansthat have been restructured due todeterioration in the borrower's financialposition and where the Bank has madeconcessions that it would not otherwiseconsider. Once the loan is restructured itremains in this category independent ofsatisfactory performance after restructuring.
Impaired loans and securities
Past due but not impaired loans
Loans with renegotiated terms
In thousands of denars Note
Loans and advancesto banks
2007 2006
Loans and advancesto customers
2007 2006
Investmentsecurities
2007 2006
23
The Bank establishes an allowance forimpairment losses that represents itsestimate of incurred losses in its loanportfolio. The main components of thisallowance are a specific loss componentthat relates to individually significantexposures, and a collective loan lossallowance established for groups ofhomogeneous assets in respect of lossesthat have been incurred but have not beenidentified on loans subject to individualassessment for impairment.
The Bank writes off a loan / security balance(and any related allowances for impairment)
when the Supervisory Board determinesthat the loans / securities are uncollectible.This determination is reached afterconsidering information such as theoccurrence of significant changes in theborrower / issuer's financial position suchthat the borrower / issuer can no longer paythe obligation, or that proceeds fromcollateral will not be sufficient to pay backthe entire exposure. The Bank can also writeoff a loan / security balance (and anyrelated allowances for impairment) on thebase of a court decision when all othermeans for collection had expired.Set out below is an analysis of the grossand net (of allowances for impairment)amounts of individually impaired assets byrisk grade.
31 December 2007
1,700 1,683 4,097,988 4,047,951
- - 597,893 538,103
- - 97,358 73,018
- - 132,695 66,348
- - 60,974 -
1,700 1,683 4,986,908 4,725,420
31 December 2006
- - 318,648 312,275
- - 456,774 411,096
- - 74,647 55,985
- - 58,372 29,186
- - 66,334 -
- - 974,775 808,542
Allowances for impairment
Write-off policy
Grade A
Grade B
Grade C
Grade D
Grade E
Total
Grade A
Grade B
Grade C
Grade D
Grade E
Total
In thousands of denars
Loans and advances to banks
Gross Net
Loans and advances to customers
Gross Net
24
The Bank holds collateral against loans andadvances to customers in the form ofmortgage interests over property, otherregistered securities over assets, andguarantees. Estimates of fair value arebased on the value of collateral assessed atthe time of borrowing. Collateral generally isnot held over loans and advances to banks.Collateral usually is not held against
Concentration by location for loans andadvances is measured based on thelocation of the borrower. Concentration bylocation for investment securities ismeasured based on the location of theissuer of the security.
Liquidity risk is the risk that the Group willencounter difficulty in meeting obligationsfrom its financial liabilities.
The Bank's approach to managing liquidity
investment securities, and no suchcollateral was held at 31 December 2007 or2006.
The Bank monitors concentrations of creditrisk by sector and by geographic location.An analysis of concentrations of credit riskat the reporting date is shown below:
is to ensure, as far as possible, that it willalways have sufficient liquidity to meet itsliabilities when due, under both normal andstressed conditions, without incurringunacceptable losses or risking damage tothe Bank's reputation.
Treasury Division and International Divisionreceive information from other departmentsregarding the liquidity profile of theirfinancial assets and liabilities and details ofother projected cash flows arising fromprojected future business. Treasury Divisionand International Division then maintain aportfolio of short-term liquid assets, largelymade up of short-term liquid investment
13,373 559,546 4,831,880 2,842,497 870,482 1,129,928
- - 2,148,741 1,516,518 - -
- - - - 269,261 404,192
13,373 559,546 - - 601,221 725,736
- - 2,683,139 1,325,979 - -
13,373 559,546 4,831,880 2,842,497 870,482 1,129,928
13,373 559,546 - 24,618 - -
- - 4,831,880 2,817,879 870,482 1,129,928
- - - - - -
13,373 559,546 4,831,880 2,842,497 870,482 1,129,928
13,15,16Carrying amount
Concentration by sector
Corporate
GovernmentBank and other financial
institutions
Retail
Concentration by location
EU countries
Republic of Macedonia
Other
In thousands of denars Note
Loans and advancesto banks
2007 2006
Loans and advancesto customers
2007 2006
Investmentsecurities
2007 2006
c) Liquidity risk
Management of liquidity risk
25
securities, loans and advances to banksand other inter-bank facilities, to ensure thatsufficient liquidity is maintained within theBank.The daily liquidity position and marketconditions are regularly monitored. Allliquidity policies and procedures aresubject to review and approval by ALCO.Daily reports cover the liquidity position ofthe Bank. Liquidity reports are submittedmonthly to the NBRM.
The Bank has access to a diverse fundingbase. Funds are raised using a broad range
of instruments including deposits,borrowings and share capital. Thisenhances funding flexibility, limitsdependence on any one source of fundsand generally lowers the cost of funds. TheBank strives to maintain a balance betweencontinuity of funding and flexibility throughthe use of liabilities with a range ofmaturities. The Bank continually assessesliquidity risk by identifying and monitoringchanges in funding required to meetbusiness goals and targets set in terms ofthe overall Bank strategy.In addition the Bank holds a portfolio ofliquid assets as part of its liquidity riskmanagement strategy.
Exposure to liquidity risk
Residual contractual maturities of financial
liabilities
21 1,148,928 ( )1,148,928 (536,912) - (612,016) - -
22 4,208,023 ( )4,208,023 (3,103,198) (363,650) (673,173) (68,002) -24 24,509 ( )24,509 (24,509) - - - -
5,381,460 ( )5,381,460 (3,664,619) (363,650) (1,285,189) (68,002) -
277,287 (277,287) (277,287) - - - -
5,658,747 (5,658,747) (3,941,906) (363,650) (1,285,189) (68,002) -
21 680 (680) (680) - - - -
22 3,691,592 (3,691,592) (3,461,064) (140,170) (90,358) - -
24 19,847 (19,847) (19,847) - - - -
3,712,119 (3,712,119) (3,481,591) (140,170) (90,358) - -
- - - - - -
-3,712,119 (3,712,119) (3,481,591) (140,170) (90,358) -
In thousands of denars Note
31 December 2007
31 December 2006
Non-derivativeliabilities
Non-derivativeliabilities
Deposits from banksDeposits fromcustomersOther liabilities
Credit cards commitments
Deposits from banksDeposits fromcustomersOther liabilities
Credit cards commitments
Carryingamount
Morethan
5 yearsLess than
1 month1-3
months
Grossnominalinflow /
(outflow)3 monthsto 1 year
1-5years
26
The previous table shows the undiscountedcash flows on the Bank's financial liabilitiesand unrecognised loan commitments on thebasis of their earliest possible contractualmaturity. The Bank's expected cash flowson these instruments vary significantly fromthis analysis. For example, demanddeposits from customers are expected tomaintain a stable or increasing balance.The Gross nominal inflow / (outflow)disclosed in the previous table is thecontractual, undiscounted cash flow on thefinancial liability or commitment.
Market risk is the risk that changes inmarket prices, such as interest rate, equityprices, foreign exchange rates and creditspreads (not relating to changes in theobligor's / issuer's credit standing) will affectthe Bank's income or the value of itsholdings of financial instruments. Theobjective of market risk management is tomanage and control market risk exposureswithin acceptable parameters, whileoptimising the return on risk.
The Bank's operations are subject to the
risk of interest rate fluctuations to the extentthat interest-earning assets and interest-bearing liabilities mature or reprice atdifferent times or in differing amounts. In thecase of floating rate assets and liabilities,the Bank is also exposed to basis risk,which is the difference in reprisingcharacteristics of the various floating rateindices, such as the savings rate, LIBORand different types of interest.Risk management activities are aimed atoptimising net interest income, given marketinterest rate levels consistent with theBank's business strategies.Asset-liability risk management activities areconducted in the context of the Bank'ssensitivity to interest rate changes. Ingeneral, the Bank is asset sensitivebecause of the majority of the interest-earning assets and liabilities, the Bank hasthe right simultaneously to change theinterest rates. In decreasing interest rateenvironments, margins earned will narrowas liabilities interest rates will decrease witha lower percentage compared to assetsinterest rates. However the actual effect willdepend on various factors, includingstability of the economy, environment andlevel of the inflation.A summary of the Bank's interest rate gapposition on non-trading portfolios is asfollows:
d) Market risks
Management of market risksExposure to interest rate risk non-tradingportfolios
27
12 1,026,790 1,026,790 - - - -
13 13,373 13,373 - - - -
15 4,831,880 278,335 287,967 1,442,971 2,170,712 651,895
16 870,482 629,691 168,689 54,295 14,907 2,900
20 23,095 23,095 - - - -
6,765,620 1,971,284 456,656 1,497,266 2,185,619 654,795
21 (1,148,928) (536,912) - (612,016) - -22 (4,208,023) (3,103,198) (363,650) (673,173) (68,002) -24 (24,509) (24,509) - - - -
(5,381,460) (3,664,619) (363,650) (1,285,189) (68,002) -
1,384,160 (1,693,335) 93,006 212,077 2,117,617 654,795
12 581,951 581,951 - - - -
13 559,546 552,337 - 2,142 5,067 -
15 2,842,497 117,649 246,993 889,662 1,201,364 386,829
16 1,129,928 797,780 257,030 47,482 24,846 2,790
20 2,676 2,676 - - - -
5,116,598 2,052,393 504,023 939,286 1,231,277 389,619
21 (680) (680) - - - -
22 (3,691,592) (3,461,064) (140,170). (90,358) - -
24 (19,847) (19,847) - - - -
(3,712,119) (3,481,591) (140,170) (90,358) - -
1,404,479 (1,429,198) 363,853 848,928 1,231,277 389,619
The management of interest rate risk againstinterest rate gap limits is supplemented bymonitoring the sensitivity of the Bank'sfinancial assets and liabilities to various
standard and non-standard interest ratescenarios. Standard scenarios include a 1%parallel fall or rise in all yield curves.
In thousands of denars NoteCarryingamount
Morethan
5 yearsLess than
1 month1-3
months3-12
months1-5
years
31 December 2007
Cash and cashequivalents
Cash and cashequivalents
Loans and advancesto banks
Loans and advancesto banks
Loans and advances
Loans and advances
to customers
to customers
Investment securities
Investment securities
Other assets
Other assets
Deposits from banks
Deposits from banks
Deposits from customers
Deposits from customers
Other liabilities
Other liabilities
31 December 2006
28
An analysis of the Bank's sensitivity to anincrease or decrease in market interestrates (assuming no asymmetrical movement
The Bank is exposed to currency riskthrough transactions in foreign currencies.The Bank ensures that the net exposure iskept to an acceptable level by buying orselling foreign currency at spot when
in yield curves and a constant balancesheet position) is as follows:
necessary to address short-termimbalances. The Denar is pegged to theEuro and the monetary projections envisagestability of the exchange rate of the Denaragainst Euro.
47,469
(47,469)
(25,947)
25,947
44,095
(44,095)
(27,880)
27,880
2007
2006
Effect in thousands of denars
(Loss) / profit forthe period
Interest income (1% increase)
Interest income (1% decrease)Interest expense (1% increase)
Interest expense (1% decrease)
Interest income (1% increase)
Interest income (1% decrease)
Interest expense (1% increase)
Interest expense (1% decrease)
Exposure to currency risk non-tradingportfolios
29
MKD
MKD
EUR
EUR
USD
USD
Other
Other
Total
Total
530,914 359,018 95,781 41,077 1,026,790
181,720 338,709 19,849 41,673 581,951
- 2,142 11,231 - 13,373
- 147,951 232,319 179,276 559,546
2,255,292 2,576,588 - 4,831,880
812,055 2,030,442 - - 2,842,497
870,482 - - - 870,482
1,129,928 - - - 1,129,928
18,719 4,376 - - 23,095
2,552 119 5 - 2,676
3,675,407 2,942,124 107,012 41,077 6,765,620
2,126,255 2,517,221 252,173 220,949 5,116,598
2 1,148,886 33 7 1,148,928
- 47 633 - 680
2,529,273 1,554,535 107,449 16,766 4,208,023
1,314,665 2,129,103 226,407 21,417 3,691,592
9,209 15,300 - - 24,509
4,087 15,760 - - 19,847
2,538,484 2,718,721 107,482 16,773 5,381,460
1,318,752 2,144,910 227,040 21,417 3,712,119
1,136,923 223,403 (470) 24,304 1,384,160
807,503 372,311 25,133 199,532 1,404,479
(753,084) (151,360) (1,491) - (905,935)
(242,234) (402,731) (3,196) - (648,161)
383,839 72,043 (1,961) 24,304 478,225
565,269 (30,420) 21,937 199,532 756,318
2006
2007
Loans and advances to banks
Loans and advances to banks
Loans and advances to customers
Loans and advances to customers
Deposits from banks and other
Deposits from banks and other
Commitments and contingencies
Commitments and contingencies
Monetary assets
Monetary assets
Cash and cash equivalents
Cash and cash equivalents
Investment securities
Investment securities
Other assets
Other assets
Monetary liabilities
Monetary liabilities
financial institutions
financial institutions
Deposits from customers
Deposits from customers
O
O
ther liabilities
ther liabilities
Net position
Net position
Net FX position
Net FX position
30
The table below sets out the Group'sclassification of each class of financial
assets and liabilities, and their fair values(excluding accrued interest).
5. Financial assets and liabilities
Accounting classifications and fair values
1,026,790 - - 1,026,790 1,026,790
13,373 - - 13,373 13,373
4,831,880 - - 4,831,880 4,831,880
- 870,482 - 870,482 870,482
23,095 - - 23,095 23,095
5,895,138 870,482 - 6,765,620 6,765,620
- - 1,148,928 1,148,928 1,148,928
- - 4,208,023 4,208,023 4,208,023
12
12
13
13
15
15
16
16
20
20
21
21
22
22
24
24
- - 24,509 24,509 24,509
- - 5,381,460 5,381,460 5,381,460
581,951 - - 581,951 581,951
559,546 - - 559,546 559,546
2,842,497 - - 2,842,497 2,842,497
- 1,129,928 - 1,129,928 1,129,928
2,676 - - 2,676 2,676
3,986,670 1,129,928 - 5,116,598 5,116,598
- - 680 680 680
- - 3,691,592 3,691,592 3,691,592
- - 19,847 19,847 19,847
- - 3,712,119 3,712,119 3,712,119
In thousands of denars Note
31 December 2007
31 December 2006
Loans and
receivablesAvailable-
-for-sale
Other
amortisedcost
Totalcarryingamount Fair value
Cash and cash equivalents
Cash and cash equivalents
Loans and advancesto banks
Loans and advancesto banks
Loans and advancesto customers
Loans and advancesto customers
Investment securities
Investment securities
Other assets
Other assets
Deposits from banks
Deposits from banks
Deposits from customers
Deposits from customers
Other liabilities
Other liabilities
31
6. Net interest income
2006
2006
12 2,639 1,768
13 20,346 27,355
15 319,191 224,748
16 51,129 40,936
393,305 294,807
21 17,959 1,877
22 88,584 51,685
106,543 53,562
286,762 241,245
24,217 24,329
43,523 37,220
23,289 23,068
6,274 5,788
97,303 90,405
6,492 6,426
3,166 1,928
9,658 8,354
87,645 82,051
2007
2007
NoteIn thousands of denars
In thousands of denars
Interest income
Cash and cash equivalents
Loans and advances to banks
Loans and advancesto customers
Investment securities
Total interest income
Interest expense
Deposits from banks
Deposits from customers
Total interest expense
Net interest income
7. Net fee and commission income
Fee and commission income
Payment operations in the country
Payment operations abroad
Letters of credit and guarantees
Other
Total fee and commission income
Fee and commission expense
Payment operations within the country
Payment operations abroad
Total fee and commission expense
Net fee and commission income
32
- 27,250
421 419
17 - 92
16 110 70
1,936 1,512
2,467 29,343
57,547 37,011
26,630 16,551
5,676 2,333
8,770 7,085
98,623 62,980
24,738 14,949
24,362 2,198
15,617 6,984
7,546 630
4,932 3,264
2,451 890
2,020 1,839
105 3,343
8,108 3,962
89,879 38,059
Other staff costs comprise of allowances for food, transportation of employees etc.
Income from collected previously written-off
receivables
Income from renting safes
Capital gain on sale of propertyand equipment
Dividends on available-for-saleequity securities
Other
Wages and salariesCompulsory contributions
Compensation benefits
Other staff costs
Service expenses
Marketing expenses
Material expenses
Impairment provisions related to off balance sheet items
Insurance premiums for deposits
Representation and donationsComputer maintenance
Impairment of assets held for sale
Other
2006
2006
2006
2007
2007
2007
NoteIn thousands of denars
In thousands of denars
In thousands of denars
8. Other operating income
9. Personnel expenses
10. Other expenses
33
2006
2006
20062006
2007
2007
20072007
14,214 25,748
14,214 25,748
19 (1,885) -
12,329 25,748
% 90,740 % 196,566
12.00 10,889 15.00 29,485
1.63 1,478 1.79 3,512
(0.04) (38) (3.69) (7,249)
13.59 12,329 13.10 25,748
At 31 December 2007 cash and cashequivalents included MKD 164,660thousand (2006: MKD 118,746 thousand) asobligatory reserve requirement in MKD andMKD 267,832 thousand (2006: MKD 228,238
thousand) as obligatory reserve in foreigncurrency requirement. Funds fromobligatory reserve in foreign currency arenot available for the Bank's daily business.
11. Income tax expenses
Recognised in the income statement
12. Cash and cash equivalents
Reconciliation of effective tax rate
NoteIn thousands of denars
In thousands of denars
In thousands of denars
Current tax expense
Current year
Deferred tax income
Origination and reversal of temporary differences
Total income tax expense inthe income statement
Profit before income tax
Income tax using the domestic corporation
tax rate
Non-deductible expenses
Tax exempt income
Total income tax expense in income
statement
Cash on hand
Balances with the National Bank of Republic of Macedonia
Current accounts with foreign banks
Current accounts with local banks
Other short term highly liquid investments
178,681
726,639
117,476
499
3,495
1,026,790
118,109
383,099
77,409
212
3,122
581,951
34
13,390 559,546
(17) -
13,373 559,546
- -
17 -
17 -
30,158 31,931
1,505 1,611
31,663 33,542
Assets held for sale represent assetsacquired through collection of the pledgedcollateral on extended loans. For theseassets the Bank prepares a plan of sellingthe asset including the selling price, alloweddeviation from the selling price, method ofselling and period of implementing the saleand the activities for finding a buyer.During June 2007 the Bank sold buildings
realizing capital loss in the amount of MKD110 thousand (2006:none) (see note 10).An impairment loss of MKD 105 thousand(2006: MKD 3,343 thousand) on theremeasurement of the assets to the lower ofits carrying amount and its fair value lesscosts to sell has been recognised in otherexpenses (see note 10).
2006
2006
2006
2007
2007
2007
4,831,880 2,842,497
4,831,880 2,842,497
Loans and advances to customersat amortised cost
In thousands of denars
In thousands of denars
In thousands of denars
Loans and advances to banks
Less specific allowances for impairment
Specific allowances for impairment
Balance at 1 January
Impairment loss for the year:
Charge for the year
Balance at 31 December
Buildings
Equipment
13. Loans and advances to banks
14. Assets held for sale
15. Loans and advances to customers
35
16. Investment securities
Loans and advances to customers at amortised cost
Allowances for impairment
Available-for-sale investment securities
980,016 616,627
1,101,807 183,637
128,178 48
555,577 535,859
2,327,790 1,672,559
5,093,368 3,008,730
(261,488) (166,233)
4,831,880 2,842,497
166,233 104,306
95,326 63,003
(71) (1,076)
261,488 166,233
870,482 1,129,928
870,482 1,129,928
598,321 722,946
228,040 378,952
41,221 25,240
2,900 2,790
870,482 1,129,928
2006
2006
2006
2006
2007
2007
2007
2007
Retail customers:
Mortgage lending
Consumer loans
Credit cards
Other
Corporate customers:
Mortgage lending
Less specific allowances for impairment
Specific allowances for impairment
Balance at 1 January
Impairment loss for the year:
Charge for the year
Write -offs
Balance at 31 December
Available-for-sale investment securities
Treasury Bills
Government Bills
Government Bonds
Unquoted equity securitiesat cost
In thousands of denars
In thousands of denars
In thousands of denars
In thousands of denars
36
109,851 20,634 92,355 17,604 240,444
- - - 63,625 63,625
- 25,972 41,880 (67,852) -
- - (562) - (562)
109,851 46,606 133,673 13,377 303,507
15,302 18,277 79,413 - 112,9922,745 2,947 9,451 - 15,143
- - (562) - (562)
18,047 21,224 88,302 - 127,573
94,549 2,357 12,942 17,604 127,452
91,804 25,382 45,371 13,377 175,934
12,917 5,032
36,853 17,496
- 241
49,770 22,769
As at 31 December 2007 the Bank does not have any property pledged as collateral (2006:none).
Non-cancellable operating lease rentals are payable as follows:
The Bank leases a number of branch andoffice premises under operating leases. The
leases are non-cancellable and typically runfor a period of up to 5 years.
20062007
Total
Cost
Balance at 1 January 2007Acquisitions
TransfersDisposals
Balance at 31 December 2007
Depreciation
Balance at 1 January 2007Depreciation for the periodDisposals
Balance at 31 December 2007
Carrying amounts
Balance at 31 December 2006
Balance at 31 De 2007cember
Less than one year
Between one and five years
More than five years
17. Property and equipment
Operating leases
In thousands of denars
In thousands of denars
BuildingsLeasehold
improvementFurniture &equipment
Assets underconstruction
37
21,247 26,306 - 47,553
- - 47,563 47,563
1,300 - (1,300) -
22,547 26,306 46,263 9 5,116
18,434 - - 18,434
1,426 5,262 - 6,688
19,860 5,262 - 25,122
2,813 26,306 - 29,119
2,687 21,044 46,263 69,994
1,885 - 1,885 - - -
1,885 - 1,885 - - -
2007
- 1,885 - 1,885
- 1,885 - 1,885
Deferred tax assets and liabilities are attributable to the following:
Software Licences
Assets under
development Total
Cost
Balance at 1 January 2007
Acquisitions
Transfer
Balance at 31 December 2007
Amortisation
Balance at 1 January 2007
Amortisation for the period
Balance at 31 December 2007
Carrying amounts
Balance at 31 December 2006
Balance at 31 December 2007
Assets Liabilities Net Assets Liabilities Net2007 2006
Loans and advances to
customers
Net tax assets (liabilities)
Opening
balance
Recognised in
profit or loss
Recognised
in equity
Closing
balance
Loans andadvances to
customers
In thousands of denars
In thousands of denars
In thousands of denars
18. Intangible assets
19. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Movements in temporary differences duringthe year
38
Note
11,983 764
9,546 -
827 1,283
739 629
23,095 2,676
1,466 680
1,147,462 -
1,148,928 680
Receivables from other banks represent withdrawn funds from the Bank's ATMs, by credit cardholders with other banks.
1,801 1,171
10 7,546 630
26 9,347 1,801
2006
2006
2006
2007
2007
2007
In thousands of denars
other banks
g the year
20. Other assets
21. Deposits from banks
22. Deposits from customers
23. Impairment provisions related to off balance sheet items
Petty inventory
Receivables fromPrepaid expenses
Other
Domestic banks
Current deposits
Foreign banks
Current deposits
468,000 265,436
523,208 313,717
1,700,858 2,028,503
1,515,957 1,083,936
4,208,023 3,691,592
20062007
In thousands of denars
In thousands of denars
In thousands of denars
Retail customers:
Term deposits
Current deposits
Corporate customers:
Term deposits
Current deposits
Balance at 1 January
Provisions made durin
Balance at 31 December
39
17,516 18,920
- 62
1,163 680
5,830 185
24,509 19,847
Ordinary shares
1,548 1,548
3,120 -
4,668 1,548
In number of shares
2006
2006
2007
2007
At 31 December 2007 the authorised sharecapital comprised 4,668 ordinary shares(2006: 1,548). Ordinary shares have a parvalue of MKD 120,000 (2006: MKD120,000). All issued shares are fully paid.The holders of ordinary shares are entitledto receive dividends as declared from timeto time and are entitled to one vote pershare at meetings of the Bank. All sharesrank equally with regard to the Bank'sresidual assets.The Bank is fully owned by Alpha Bank A.E.Athens.
The revaluation reserve relates to intangibleassets and property, and equipment andcomprises the cumulative increasedcarrying value based on the increase of theproducers' price index on the date of the
revaluation. In 2007 the revaluation reservewas transferred to retained earnings.
Under local statutory legislation, the Bank isrequired to set aside 15 percent of its netprofit for the year in a statutory reserve untilthe level of the reserve reaches 1/5 of thecourt registered capital. Until achieving theminimum required level the statutory reservecould only be used for loss recovery. Whenthe minimum level is reached the statutoryreserve can also be used for distribution ofdividends, based on a decision of theshareholders' meeting, but only if theamount of the dividends for the currentbusiness year has not reached the minimumfor distribution as prescribed in the TradeCompany Law or by the Bank's Statute.
Suppliers payable
Fee and commission
Advances received
Other
On issue at 1 January
Issued by transfer from statutory reserves
and retained earnings
On issue at 31 December
24. Other liabilities
25. Capital and reserves
Share capital
In thousands of denars
Revaluation reserve
Statutory reserve
40
475,797 242,234
109,531 94,173
43,320 311,754
277,287 -
23 (9,347) (1,801)
896,588 646,360
The Bank provides financial guarantees andletters of credit to guarantee theperformance of customers to third parties.These agreements have fixed limits and
generally extend for a period of up to oneyear. Expirations are not concentrated inany period.The contractual amounts of commitmentsand contingent liabilities are set out in thefollowing table by category.
Note 20062007
These commitments and contingentliabilities have off balance-sheet credit riskbecause only organisation fees andaccruals for probable losses are recognisedin the balance sheet until the commitmentsare fulfilled or expire. Many of thecontingent liabilities and commitments willexpire without being advanced in whole orin part. Therefore, the amounts do notrepresent expected future cash flows.
According to the Bank's Articles of
Association, the supreme body is theassembly of the Bank, constituted of all theholders of the Bank's registered shares.The overall control of the Bank is with thenon-executive Supervisory Board who isappointed by shareholders.The Bank is fully owned by Alpha BankA.E. Athens which is the ultimate parentcompany of the Alpha Group.
The volumes of related-party transactions,outstanding balances at the year-end, andrelating expense and income for the yearare as follows:
26. Contingencies
27. Related parties
Payment guarantees
in MKD
in foreign currency
Letters of credit
in foreign currency
Credit cardcommitmentsProvisions
In thousands of denars
41
74,631
9.581,505
(9,644,887)
11,247
2,766
116,287
8,729,282
(8,770,937)
74,631
4,964
4,960
6,178
(2,570)
8,568
101
79
576
2,009
4,382
(1,431)
4,960
21
21
202
2006
2006
2007
2007
The Bank's policy is to require suitablecollateral to be provided by the customersprior to the disbursement of approved loansand advances. Collateral for loans and
advances is usually obtained in the form ofcash, immovable property, inventory orother property.
(I) Loans and advances to related banks
(II) Loans and advances to related parties
Parent
Deposits outstanding at 1 January
Deposit issued during the year
Deposit repayments during the year
Deposit outstanding at 31 December
Interest income earned
Key management personnel of theBank and with them related parties
Loans outstanding at 1 January
Loans issued during the year
Loan repayments during the year
Loans outstanding at 31 December
Specific allowance for impairment losses
Net impairment losses
Interest income earned
In thousands of denars
In thousands of denars
42
Parent and with it related parties
Parent and with it related parties
1,156 8,978
16 124
38,557 50,775
37 8
23 10
21,079 15,263
21,079 15,263
2006
2006
2006
2007
2007
2007
According to the amendments of theIncome Tax Law and Personnel Income TaxLaw published in the Official Gazette
Number 139, the tax rate as of 1 January2008 is 10% (2007:12%).
(III) Deposits from related parties
(V) Key management personnel
compensation
28. Subsequent events
(IV) Other transactions with related parties
In thousands of denars
In thousands of denars
In thousands of denars
Deposits at 1 January
Deposits received during the year
Deposits repaid during the year
Deposits at 31 December
Interest expense on deposits
Cash and cash equivalents
Other assets
Off-balance sheet credit exposure
Fee end commission income
Fee end commission expense
Short-term employee benefits
-
69,730,462
(68,581,060)
1,149,401
17,733
-
2,175,162
(2,175,162)
-
1,858
43
Dame Gruev 1, MK - 1000 Skopje
P.O. Box 564
Tel.: 389 2 3289 400
Fax: 389 2 3135 206, 3116 830
Telex: 51758
SWIFT: KRSKM2X
Internet: www.alphabank.com.mk
e-mail: [email protected]